With Bitcoin recent big draw down of course lots of people talking about Michael Saylor and his Bitcoin treasury company Strategy. They have rebranded slightly from Microstrategy, now called just Strategy. I have been trying to sort the signal from the noise, which isn't all that obvious.
Saylor posted a chart in the past few days on Twitter that is kind of interesting. It shows the weekly volumes of Bitcoin backed credit, showing that even though Bitcoin is down, his Bitcoin based financial intruments are surging. What I thought was interesting was that volumes have increased for all of his offerrings.
What seems to be happening, and of course I totally could have this wrong, I am definitely not an expert, is it's the access to Bitcoin he is providing that people are interested in. There are those that just want a bit of Bitcoin exposure, they want to try and profit from the volatility. Those folks buy the common stock, which is still very volatile. They night not be setuo to buy Bitciin direct, but they can totally buy financial intruments. It's just stocks and shares, and that normal for institutions. Then there are those that buy the preferred stock, which has some volatility protection, but it's at a cost. Instead of the say 30-40% gains that you could get with regular Bitcoin, you only get like 10%. Saylor pockets the difference. And of course he then uses profits to buy more Bitcoin.
But what's super interesting is what the folks buying the preferred stocks are doing with them. These are toughted as rock solid, very over-collateralised securities. Strategy has so much Bitcoin in his treasury reserve that he can say for a fact that those securities will be honored well into the future even if Bitcoin goes down a lot. If something goes wrong, those shares get made whole first. So I think what's happening is folks are using these high quality securities as collateral to get dollar loans, to of course buy Bitcoin.
And they can get those loans from regular tradfi institutions because though they aren't necessarily setup to invest in Bitcoin, they love financial instruments, especially high quality ones. So it's like he is levering up, and they are levering up, and well that's what's happening. And it's the common stock folks that end up taking the risk I guess, and if you zoom out further well it's basically small retail investors that will likely foot the bill, because well the institutions levering up must be very good at timing the markets. I mean they have all sorts of futuristic algorythmic tools for predicting the tops and ways to exit the market gradually so as to not cause big disturbances, and basically by the time retail realise it's a market top, well those levered players are long gone.
And of course the big banks making the loans must know this, why else are they making the loans, they must have pretty good confidence they will get their money back. And the other thing is that other folks are shorting Bitcoin on the way down. They bet it will go down, and make tons when it does. You got to wonder where they are putting their winnings. What else are they going to buy aside from Gold? Well might as well buy some Strategy, and make some more as it goes back up.
I likely don't fully understand all the dynamics, but that seems to be the gist of it. Saylor has build a platform on the surface of the Sun, and for a fee you can setup shop on his Sun platform, and do what he's doing too.
It does seem totally bonkers. I wonder though isn't this just what regular financial markets have been doing all along? All be it in a less obvious way.
Probably worth being aware at some level what the dynamics are vaguely. #
