Martin Shkreli: «I Would Short It & Buy Bitcoin»

Summary

The transcript discusses MicroStrategy's financial strategy of using convertible debt to fund Bitcoin purchases. The company has raised billions through debt, leveraging Bitcoin's potential for future value growth. However, this strategy creates significant risks if Bitcoin's price falls, as MicroStrategy's stock is highly correlated with Bitcoin’s performance. The analysis explores the implications of issuing debt at high premiums, the challenges of overleveraging Bitcoin, and the potential for investor losses if the cryptocurrency market experiences downturns. It ultimately questions whether the company’s speculative strategy will succeed or face severe setbacks.

Takeaways

• 😀 MicroStrategy is valued at $81 billion, with $36 billion in Bitcoin holdings, though the real value is closer to $32 billion after factoring in debt.
• 💰 The stock price of MicroStrategy is highly inflated, trading at $390 per share for Bitcoin worth $156, raising concerns about the company's valuation.
• 🚀 In the hypothetical 'Sailor World,' MicroStrategy could issue $50 billion in debt at a 100% premium, purchasing Bitcoin to increase its holdings, but the enterprise value remains relatively unchanged.
• 📈 If the debt converts to equity, shares would increase by 64 million, raising the market cap but not significantly improving the company's enterprise value.
• 🤔 Even with a 100% premium on the conversion of debt to equity, MicroStrategy would still be overvalued, suggesting the stock price doesn't make sense at the current level.
• 📉 The strategy depends on MicroStrategy’s ability to sell large volumes of convertibles at high premiums, but there are concerns about diminishing demand for these instruments.
• 💳 MicroStrategy could potentially sell $100 billion of convertible bonds, significantly increasing its Bitcoin holdings, but it may strain the convertible debt market.
• 🔄 Bitcoin’s price movements are crucial to the success of MicroStrategy's strategy. If Bitcoin's value rises, the company’s position improves; if it falls, the risks grow.
• 💸 At current prices, MicroStrategy would need to sell $100 billion of converts to achieve a break-even stock price, assuming Bitcoin’s price stays stable.
• ⚖️ A potential future for Bitcoin at $200,000 per coin could justify MicroStrategy’s current strategy, but Bitcoin’s unpredictable nature makes this outcome uncertain.
• 🤯 The use of convertible debt gives MicroStrategy a cost-of-capital advantage over regular companies, but its overreliance on Bitcoin’s performance raises significant financial risk.
• 📉 There’s a risk that the market's appetite for Bitcoin-related convertibles will diminish, creating an overhang on MicroStrategy's stock and increasing the potential for a sharp decline in value.

Q & A

What is MicroStrategy's current financial position with Bitcoin?

MicroStrategy holds approximately $36 billion in Bitcoin, though the actual value is closer to $32 billion after accounting for its debt. This positions the company heavily in Bitcoin, making its financial health closely tied to Bitcoin’s price fluctuations.

What is the speaker's view on the valuation of MicroStrategy’s stock?

The speaker believes that MicroStrategy’s stock is overvalued. Even at a price of $390 per share, the value of Bitcoin held by the company is only worth $156 per share, suggesting that investors are paying a significant premium for the stock.

How does the speaker describe the potential impact of issuing convertible debt on MicroStrategy?

The speaker argues that issuing convertible debt at a 100% premium (which is a higher premium than currently available) could still lead to an overvalued company. While the company could raise more capital and convert debt to equity, the share price would likely remain inflated and might not align with the actual value of its Bitcoin holdings.

What is the concept of 'sailor world' in the context of this transcript?

'Sailor world' is a hypothetical scenario proposed by the speaker where MicroStrategy’s CEO, Michael Saylor, is able to issue debt at a 100% premium with no interest. This scenario is used to explore how much Bitcoin Saylor could purchase and how it would affect the company's stock and debt structure.

How much Bitcoin could MicroStrategy theoretically buy using $50 billion in convertible debt at a 100% premium?

In 'sailor world,' MicroStrategy could theoretically raise $50 billion by issuing convertible debt at a 100% premium and use that money to buy 500,000 Bitcoin. This is a hypothetical example to illustrate the impact of large-scale Bitcoin purchases on the company’s stock and debt.

What happens if the convertible debt converts to equity?

If the $50 billion in debt converts to equity at a 100% premium, it would result in the issuance of 64 million additional shares, significantly increasing the shares outstanding. This would raise the market capitalization but not substantially affect the company’s enterprise value, since the Bitcoin holdings and debt remain largely unchanged.

Why does the speaker suggest that the convertible bond market could face challenges?

The speaker suggests that the convertible bond market may struggle to absorb such large amounts of debt, particularly in the case of MicroStrategy. As more convertible bonds are issued, the demand for them could decrease, making it harder for the company to continue financing its Bitcoin purchases through this mechanism.

How does the price of Bitcoin affect MicroStrategy’s stock value?

MicroStrategy’s stock value is highly sensitive to Bitcoin’s price. If Bitcoin’s price rises, the value of MicroStrategy's Bitcoin holdings increases, potentially supporting the stock price. However, if Bitcoin’s price declines, the stock price could be negatively impacted, as the company is heavily reliant on its Bitcoin assets.

What is the suggested hedging strategy for MicroStrategy investors?

One potential hedging strategy is for investors to short MicroStrategy stock while going long on Bitcoin. This strategy aims to offset the risk that MicroStrategy’s stock could decline while Bitcoin’s price remains volatile or falls.

What is the speaker’s outlook on the future of Bitcoin’s price?

The speaker is somewhat skeptical about Bitcoin's future price movements. While they acknowledge the potential for Bitcoin to rise significantly, they also point out the unpredictability of its price and caution that it could decline, particularly if MicroStrategy's strategy of buying Bitcoin with convertible debt loses momentum.