This might turn out to be the most important post I’ll ever write. The ideas that … MicroStrategy is executing a speculative attack on fiat money by borrowing dollars and issuing shares to buy bitcoin. The company is destined for S&P 500 inclusion, and that this is the trojan horse by which every “investor” (really: saver) starts to save in bitcoin, maybe without even knowing it.
MSTR's holdings currently amount to 279,420 BTC obtained at an average price of $42,692, totaling an aggregate cost base of $11.9 billion. As of close today, November 11th, MSTR's market cap is just shy of $70 billion. Genius play by Saylor. The short sellers are going to be hurting.
Just read it. I have lots of respect for Kerrisdale, I'm subscribed to all of their reports and read most of them. Look, I get it - it's reasonable (and, apparently, intellectually enticing) to expect the premium to collapse. I just think you're playing with fire being short MSTR for any period of time without a tight stop-loss and a clear, defined catalyst for the premium collapsing and there are probably easier and less-risky ways to make money.
My first question back to Kerrisdale would be: you say a 2.6x premium to BTC NAV is unreasonable. Well, that's what it is currently. Why? How did it get to such "unreasonable" levels? If it got to 2.6x, why is it unreasonable to think it could go to 3.6x? 4.6x?
To me, arguing that something is not tethered to reality and then betting on it becoming tethered to reality is not a good strategy.
They show in their report that the premium got to 3.9x during the 2021 bull market. What happens to their trade if it gets to 3.9x again this cycle? Where is their stop loss?
They concede some equity value premium to spot can be argued, but not 160%. Okay then, how much? Why?
By my calculations, they have grown BTC/fully diluted share at an 18.9% CAGR since Q4 2020 (from 0.0057 to 0.0099). Analogize this to a bank growing tangible book value at a 18.9% CAGR. What Price/Tangible Book multiple does that bank trade at? JPM has grown their tangible book value at 5% CAGR over the past 10 years. They currently trade at 2.4x tangible book and have averaged 1.8x over that period.
Not that much cheaper than MSTR trading at 2.6x tangible book, but growing about 1/4th as fast.
Finally, the counterparty that is going to send this trade south on them isn't looking at the premium to BTC NAV. They are going to be programs that are only trading price momentum, pod shops trading index rebalance strategies that are going to try and pump the stock into the S&P 500 and then dump it on indexers a la what they just did with SMCI, and Wall St. Bets Reddit retail traders that are going to see the short interest, post Michael Saylor memes all day and try and put some hedge fund out of business a la Melvin Capital. Honestly the high nominal stock price is going to be a hurdle here because options are too expensive for retail punters. I'd expect a stock split at some point and I would consider that bullish as it would open up retail options flow.
MSTR's holdings currently amount to 279,420 BTC obtained at an average price of $42,692, totaling an aggregate cost base of $11.9 billion. As of close today, November 11th, MSTR's market cap is just shy of $70 billion. Genius play by Saylor. The short sellers are going to be hurting.
Any thoughts Zack on Kerrisdale Capital's report yesterday on MSTR (https://www.kerrisdalecap.com/wp-content/uploads/2024/03/MicroStrategy-MSTR.pdf)?
Just read it. I have lots of respect for Kerrisdale, I'm subscribed to all of their reports and read most of them. Look, I get it - it's reasonable (and, apparently, intellectually enticing) to expect the premium to collapse. I just think you're playing with fire being short MSTR for any period of time without a tight stop-loss and a clear, defined catalyst for the premium collapsing and there are probably easier and less-risky ways to make money.
My first question back to Kerrisdale would be: you say a 2.6x premium to BTC NAV is unreasonable. Well, that's what it is currently. Why? How did it get to such "unreasonable" levels? If it got to 2.6x, why is it unreasonable to think it could go to 3.6x? 4.6x?
To me, arguing that something is not tethered to reality and then betting on it becoming tethered to reality is not a good strategy.
They show in their report that the premium got to 3.9x during the 2021 bull market. What happens to their trade if it gets to 3.9x again this cycle? Where is their stop loss?
They concede some equity value premium to spot can be argued, but not 160%. Okay then, how much? Why?
They argue than BTC per diluted share has actually not increased much since 2021 and has actually fallen in recent years. I disagree with the # of shares they're using. It appears to me the # of shares they use in their calc is actually closer to basic shares outstanding rather than fully diluted. I use 'adj. diluted' from page 29 of the Q423 earnings presentation: https://assets.contentstack.io/v3/assets/bltb564490bc5201f31/blt9fe0e76f0b8b3ab0/65c29cdcd6cf0435f215211d/microstrategy-q4-2023-earnings-presentation.pdf
By my calculations, they have grown BTC/fully diluted share at an 18.9% CAGR since Q4 2020 (from 0.0057 to 0.0099). Analogize this to a bank growing tangible book value at a 18.9% CAGR. What Price/Tangible Book multiple does that bank trade at? JPM has grown their tangible book value at 5% CAGR over the past 10 years. They currently trade at 2.4x tangible book and have averaged 1.8x over that period.
Not that much cheaper than MSTR trading at 2.6x tangible book, but growing about 1/4th as fast.
Finally, the counterparty that is going to send this trade south on them isn't looking at the premium to BTC NAV. They are going to be programs that are only trading price momentum, pod shops trading index rebalance strategies that are going to try and pump the stock into the S&P 500 and then dump it on indexers a la what they just did with SMCI, and Wall St. Bets Reddit retail traders that are going to see the short interest, post Michael Saylor memes all day and try and put some hedge fund out of business a la Melvin Capital. Honestly the high nominal stock price is going to be a hurdle here because options are too expensive for retail punters. I'd expect a stock split at some point and I would consider that bullish as it would open up retail options flow.