WBD IS BACK - $100K BITCOIN, MICROSTRATEGY AND THE BULL MARKET w/ Checkmate

Summary

In this insightful conversation, Michael Saylor discusses his pioneering strategy of transforming MicroStrategy into a Bitcoin-centric company. He outlines how leveraging Bitcoin's volatility has attracted funding through stock and bond markets, positioning MicroStrategy as a unique Bitcoin play. However, the risks of this approach in a potential bear market are also explored, particularly regarding financing and stock volatility. The episode emphasizes the importance of balancing analytical and emotional perspectives when navigating the crypto market, while offering tools and insights for Bitcoin investors to refine their strategies.

Takeaways

• 😀 Bitcoin's price movements are influenced by a cycle where the retail investors, who enter late, panic sell during downturns, while smart money waits for an opportune moment to buy.
• 😀 During bull markets, smart money typically backs off as it recognizes the potential for a correction, making them more patient and strategic in their investments.
• 😀 MicroStrategy's strategy of accumulating Bitcoin has created a unique market dynamic where their stock, driven by Bitcoin's volatility, attracts investors seeking exposure to both Bitcoin and the volatility premium.
• 😀 Michael Saylor's role at MicroStrategy is to ensure the company’s stock doesn't decline. This has resulted in the stock moving sideways in Bitcoin terms and now going up, reflecting the value of Bitcoin itself.
• 😀 MicroStrategy’s stock (MSTR) has become more volatile than Bitcoin itself, which creates a 'volatility premium' that is attractive to institutional investors, even though they can’t directly invest in Bitcoin.
• 😀 The strategy of creating volatility through MSTR's price fluctuations allows Saylor to sell instruments like stocks and bonds to finance more Bitcoin purchases, particularly in bull markets.
• 😀 In a bull market, the demand for MSTR's volatility premium grows, but in a bear market, it becomes challenging to maintain demand for the stock as its volatility decreases and institutional interest wanes.
• 😀 Saylor’s approach to using volatility and issuing convertible notes to finance Bitcoin purchases could be at risk in a bear market, as interest rates may rise and the stock may lose its appeal to bond traders.
• 😀 MicroStrategy’s Bitcoin accumulation strategy faces challenges when the Bitcoin price rises, as it requires more capital to buy less Bitcoin, slowing the growth of its Bitcoin holdings.
• 😀 A potential risk for MicroStrategy in the next bear market is the inability to finance further Bitcoin purchases due to decreased demand for its volatility premium, making it harder for them to continue their Bitcoin strategy.
• 😀 The core idea behind MicroStrategy's Bitcoin strategy is to maintain a 'Saylor premium' that reflects the future value of Bitcoin, but as market conditions change, this premium may not be sustainable in a prolonged bear market.

Q & A

What is the key idea behind the 'Bitcoin Standard' adopted by MicroStrategy?

The 'Bitcoin Standard' adopted by MicroStrategy refers to the company making Bitcoin the cornerstone of its corporate treasury strategy. By holding significant amounts of Bitcoin, MicroStrategy aims to protect its balance sheet against inflation and currency devaluation while positioning itself as a key player in the Bitcoin ecosystem.

How has MicroStrategy’s stock performance changed since adopting Bitcoin as its standard?

Since adopting Bitcoin as its standard in 2020, MicroStrategy's stock performance stopped falling and began to stabilize, trading sideways when priced in Bitcoin terms. Only this year did the stock start rising in BTC terms, signaling that the Bitcoin strategy has helped prevent further depreciation of the stock.

What is the 'sailor premium' in the context of MicroStrategy’s Bitcoin strategy?

The 'sailor premium' refers to the additional volatility and premium that MicroStrategy's stock commands due to its Bitcoin holdings. This premium is driven by speculation about Bitcoin's future price, the company's unique ability to issue debt and raise funds, and the broader demand for exposure to Bitcoin's volatility.

Why is volatility important for an asset like Bitcoin, according to the discussion?

Volatility is crucial because it indicates an asset is 'moving somewhere.' Non-volatile assets like the dollar tend to stagnate, while volatile assets like Bitcoin have the potential for growth. Investors value volatility as it implies future movement and returns.

How does MicroStrategy generate value from Bitcoin's volatility?

MicroStrategy generates value by increasing the volatility of its stock relative to Bitcoin. This allows the company to sell financial instruments like stocks, bonds, and convertible notes, giving institutional investors access to Bitcoin's volatility. This strategy enables the company to raise capital, which it uses to buy more Bitcoin.

What risks does MicroStrategy face in a bear market?

In a bear market, MicroStrategy faces the risk of reduced demand for its stock and bonds. Since the company's value is tied to Bitcoin's performance, a downturn in Bitcoin could lead to a loss of investor interest, making it harder for MicroStrategy to raise capital to buy more Bitcoin. This could lead to a decrease in its stock price and a potential 'sailor premium' compression.

What would happen if Michael Saylor sold a single Satoshi of Bitcoin from MicroStrategy’s treasury?

If Michael Saylor sold even a single Satoshi, it could potentially trigger a collapse of the 'sailor premium,' causing MicroStrategy's stock to trade like an ETF. The market would then reprice the company based solely on the value of its Bitcoin holdings, undermining the speculative premium generated by its Bitcoin strategy.

What role do bond traders and institutional investors play in MicroStrategy's Bitcoin accumulation strategy?

Bond traders and institutional investors provide MicroStrategy with capital by purchasing its bonds and other financial instruments. In exchange, they gain exposure to Bitcoin's volatility and potential upside. This funding is crucial for MicroStrategy's strategy of using the capital raised to buy more Bitcoin, creating a cycle of capital inflows.

What are the two main challenges that could disrupt MicroStrategy’s Bitcoin strategy long term?

The first challenge is the potential slowdown in Bitcoin’s growth as prices increase, making it more difficult for MicroStrategy to add significant amounts to its Bitcoin holdings. The second challenge is the possibility of a bear market, where the demand for MicroStrategy's stock and bonds may decrease, limiting its ability to finance additional Bitcoin purchases.

Why is the '2121 plan' significant for MicroStrategy's strategy, and what risks does it entail?

The '2121 plan' involves MicroStrategy raising $21 billion in equity and debt to fund its Bitcoin purchases. This plan is designed to give the company flexibility in managing its capital and acquiring more Bitcoin over time. However, in a bear market, the risk is that the demand for bonds may decrease, making it harder for the company to raise capital at favorable terms, which could disrupt its Bitcoin acquisition strategy.