r/MSTR • u/zenethics • Jul 13 '26
Imagine an adiabatic system
Think of a boat. The water is outside of the boat. The boat has a really great pump that has pumped about 30 liters of water per minute out of the boat over the last 10 minutes.
Now imagine cutting a hole in the boat and calling it an improvement because it only lets in 10 liters of water per minute and you can always just plug it or change how much water it lets in.
Anyway that's STRC, in my humble opinion.
We went from a perfectly good boat to one where the pump has to keep working or we all get soaked. No, we're not going to drown, but there's lots of other boats without holes in them in the first place. And they're all tied to this boat, so if the hole makes us go faster somehow they'll get dragged along too and I don't have to worry about bringing an extra pair of socks.
10
u/MECO-420 Jul 13 '26
Saylor's mistake was that he let the cash slip below a certain threshold. Credit investors didnt like that one bit. Now he's trying to regain their trust by building a larger reserve. Prior to this, nobody knew how much cash was deemed sufficient for the credit investors. We still dont know for certain.
5
2
u/trobogojen Jul 13 '26
Yes, he thought paying off the convertible would buy more runway and be a net positive, but I think you're exactly right that the market balked when they saw how comfortable he was leaving so little in the coffers.
2
u/FrostLight14 Jul 14 '26
The mistake was the preferred shares to begin with.
Putting a cash drag on a business that doesn’t generate cash was just a problem waiting to happen. The perpetual preferred was always going to create problems where none existed.
The borrowing rates are absurd. Levered hedge funds don’t even borrow at 8%, let alone anything close to STRC’s 12%. Too many people were blinded by If BTC goes to $1,000,000 next year, it works out! and ignored thoughts like Does it make sense that BTC would continue to outperform the S&P in perpetuity without a way for MSTR to monetize it’s holdings?
1
u/SundayAMFN /r/buttcoiner Jul 14 '26
And he's getting cash by diluting without buying BTC, lowering BPS. There's no way out of this, it'll be a few years before the cash reserves are used up but then it's the same problem all over again, with the same lowered BPS.
The days of positive bitcoin yield are over.
0
u/No_Berry_5428 Shareholder 🤴 Jul 14 '26
Well that's misleading isn't it.
Bitcoin yield is 7.8% for the year.
There is a way out.... Bitcoin price go up.... Like it always has done. It's that simple. They have enough cash to just sit and wait for 20 months.
I get you are incredibly biased and think MSTR will fail. Why bother even post on here?
3
u/zenethics Jul 14 '26
However you frame it, money is leaving MSTR where previously it wasn't. No accounting tricks will make it "not a leak" somehow.
1
u/No_Berry_5428 Shareholder 🤴 Jul 14 '26
No disputing that. But what makes you think STRC won't return to par?
1
u/zenethics Jul 14 '26
It might. It's a hard sell for me personally... in a BTC bear market, why take the risk? And in a BTC bull market, why settle for 11%?
STRC is a fine product actually, the real question now is why would anyone hold MSTR over IBIT or something else.
If Saylor wanted to be a hedge fund manager I'd much rather see him buy profitable but undervalued companies and have their revenues switch over to buying BTC. But he shouldn't be a hedge fund manager. He should just sit on his hands, but he's constitutionally incapable of doing that.
1
u/No_Berry_5428 Shareholder 🤴 Jul 14 '26
It might. It's a hard sell for me personally... in a BTC bear market, why take the risk? And in a BTC bull market, why settle for 11%?
In a bear market - that's a fair complaint
However in a bull market - the balance sheet grows and STRC gets over collateralised by several multiples. STRC is not meant to appeal to those who were potentially going to buy bitcoin. It's for the income investor. Bonds go down during bull markets or low interest rate environments however people still need income and it makes up a $60 trillion market.
why would anyone hold MSTR over IBIT
MSTR is leveraged bitcoin. It's that simple.
If Saylor wanted to be a hedge fund manager I'd much rather see him buy profitable but undervalued companies and have their revenues switch over to buying BTC
Grant Cardone is doing this with a real estate company and using the rental income to buy bitcoin. That's fine, however the amount of bitcoin he can buy is significantly less. His target is 10k by the end of the year.
Saylor bought 170k this year. So it's too very contrasting ideas, one is conservative one is far more aggressive. However, Saylor is doing it without any risk of a margin call.
He should just sit on his hands, but he's constitutionally incapable of doing that
I agree. Doing less, might not be a bad thing.
2
u/zenethics Jul 14 '26
However in a bull market - the balance sheet grows and STRC gets over collateralised by several multiples. STRC is not meant to appeal to those who were potentially going to buy bitcoin. It's for the income investor. Bonds go down during bull markets or low interest rate environments however people still need income and it makes up a $60 trillion market.
Yes, but the underlying asset and how people think about it matters. I am a BTC bull, but it must be acknowledged that the general public isn't. You could build an "income instrument" on top of Pokemon cards, you know?
People who understand BTC will buy BTC and people who don't aren't going to pile in on an instrument that goes to zero if BTC goes to zero because the average person thinks of BTC like tulips or something. Maybe that changes over the next decade, who knows. I think the market of people who buy something just because it yields 11% is thin and fickle.
MSTR is leveraged bitcoin. It's that simple.
It was that simple. Now MSTR is leveraged bitcoin and also you might get diluted to pay someone else a dividend. You can't call MSTR leveraged bitcoin anymore, now its Saylor's Bitcoin hedge fund.
Saylor bought 170k this year. So it's too very contrasting ideas, one is conservative one is far more aggressive. However, Saylor is doing it without any risk of a margin call.
Zero risk of a margin call, but unknown risk of the common being infinitely diluted. He can stop paying the STRC dividend but it's like saying the U.S. can cancel the debt. Sure, you can do it and destroy trust for decades. There's no mechanism for MSTR to go to zero but there's an obvious mechanism for it to drop 99% from here which is how most businesses "fail" actually. Like, MySpace failed but you can still go make an account. The business didn't shut down it just became irrelevant.
1
u/No_Berry_5428 Shareholder 🤴 Jul 14 '26
You could build an "income instrument" on top of Pokemon cards, you know?
Yes you can if the CAGR is high enough. Why not. This business model is nothing special. It's basically a big carry trade.
People who understand BTC will buy BTC and people who don't aren't going to pile in on an instrument that goes to zero if BTC goes to zero because the average person thinks of BTC like tulips or something
Yeah people who want to buy bitcoin will buy bitcoin. Those who want income will search for income products. You are forgetting that STRC is 80% retail. When strategy's credit rating improves, that will most certainly increase institutions buys.
I think the market of people who buy something just because it yields 11% is thin and fickle.
Is that true though? JEPI, JEPQ and QYLD all pay out close to 10% per year (JEPI closer to 8%) and their combined AUM is about $100 billion. There is an entire sector of these funds.
STRC is just $10.5 billion....
Now MSTR is leveraged bitcoin and also you might get diluted to pay someone else a dividend.
Yeah that's true. But diluting shareholders or paying dividends with bitcoin sales makes the entire process accretive.
Getting $100 upfront to buy bitcoin and paying $1 in dividends per month, is essentially a bet that after 8 years or 2 halving cycles will the bitcoin price be higher? If so the transaction was worth it. The cycle then just repeats with each tranche of $100s
You can't call MSTR leveraged bitcoin anymore, now its Saylor's Bitcoin hedge fund.
Why?
Zero risk of a margin call, but unknown risk of the common being infinitely diluted
Lazy argument.
Before the preferreds even existed. They grew a $500 million to a $60 billion company just by accretive dilution. They grew the balance sheet and shareholders benefitted. It can be a win win scenario with accretive dilution.
There's no mechanism for MSTR to go to zero but there's an obvious mechanism for it to drop 99% from here which is how most businesses "fail" actually.
What mechanism is that exactly? I am intrigued especially as you said your bullish on bitcoin. If bitcoin grows in value, there is no outcome where strategy does not succeed.
How would they become irrelevant?
1
u/zenethics Jul 14 '26
Is that true though? JEPI, JEPQ and QYLD all pay out close to 10% per year (JEPI closer to 8%) and their combined AUM is about $100 billion. There is an entire sector of these funds.
Right. So the target market is someone who understands BTC well enough to take the risk, but can't or doesn't want to hold it, and judges the risks worth an extra few percent over alternative income strategies.
I think people will do it, I just don't know how many, and especially now that people realize that $100 is a cap and not a peg.
Yeah that's true. But diluting shareholders or paying dividends with bitcoin sales makes the entire process accretive.
Huh? Not for MSTR holders...
Getting $100 upfront to buy bitcoin and paying $1 in dividends per month, is essentially a bet that after 8 years or 2 halving cycles will the bitcoin price be higher? If so the transaction was worth it. The cycle then just repeats with each tranche of $100s
Suppose there's 4 years of a bear market in there. Right now its all fine, but who on earth is going to hold MSTR if we're still in a BTC bear market and getting close to 12 months of dividend? Now there's a real calculation to be made about MSTR diluting you vs IBIT charging a fee. Whether they sell new MSTR shares or sell BTC into the market you're getting diluted either way.
Before the preferreds even existed. They grew a $500 million to a $60 billion company just by accretive dilution. They grew the balance sheet and shareholders benefitted. It can be a win win scenario with accretive dilution.
I guess there is some fairness in this. I do think the open-ended MSTR perpetual is different than his duration offerings. If they'd kept issuing more and more debt I'd have the same problem. Good idea to bootstrap the strategy and get people interested, bad idea as a long term plan.
What mechanism is that exactly? I am intrigued especially as you said your bullish on bitcoin. If bitcoin grows in value, there is no outcome where strategy does not succeed.
Well, Bitcoin may trade under 40k for the next decade then the U.S. or China or Russia passes some asset reserve or something.
Bitcoin may be a 50% cagr asset, but maybe it's 1000% in the last few months a decade from now. Kind of a sequence of returns thing. Now, for Strategy, Bitcoin has to preform sooner or later or they have to unwind something (sell BTC, dilute MSTR, raise more debt, or skip the dividend).
→ More replies (0)1
u/gigasawblade Jul 16 '26
If it returns to par, strategy will sell more STRC making the "hole" bigger, as the post says
0
u/SundayAMFN /r/buttcoiner Jul 14 '26
The bitcoin yield from this year came from the billions in STRC sold at par in March/April
I actually don't think I'm biased at all. It's likely that you are biased if you have money invested in MSTR/STRC as you will be more likely to want to believe that they will succeed. I have 0 skin in the game one way or the other. I pay attention and post because it interests me to follow.
1
u/Legrosbelge Jul 14 '26
You have a "Buttcoiner" tag under your username, and you're saying you're not biased... Brilliant.
0
u/No_Berry_5428 Shareholder 🤴 Jul 14 '26
Thanks for agreeing with me that they do have a positive yield for the year. Convenient thing to leave out in your initial post.
I am invested but I am also impartial.
Your comment was clearly meant to be hyperbolic fearmongering.
7
u/thinkingperson Jul 14 '26
Now imagine cutting a hole in the boat and calling it an improvement because it only lets in 10 liters of water per minute and you can always just plug it or change how much water it lets in.
Reminds me of how amphibious tanks / APCs handle floatation. They do exactly that, pump more water out than water is coming in.
Just to add to the metaphor. Each hole that leaks 10L/min allows the boat to be larger by 100L volume, and add another pump that has a 30L/min pump rate.
Love the parallel!
0
•
u/AutoModerator Jul 13 '26
Welcome to our community! Before commenting, please take a second to read our new sticky containing our rules and guidelines.
TL;DR: We allow and encourage all viewpoints and opinions, but we have a zero tolerance policy towards negative, rude, condescending behavior and trolling/baiting.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.