"Broken Bitcoin Math" is a wonderful phrase"Broken Bitcoin Math" is a wonderful phrase
Strategy's math was always broken. I know that. You know that. They fucking know that. And here's Jonathan Weil spelling it out:
Strategy MSTR 7.90%increase; up pointing triangle, the bitcoin-hoarding company led by Chairman Michael Saylor, is caught in a math trap of its own making.
I left that editing in on purpose because it's KIND OF IRONIC... tradfi journo says "trapped" and "broken" and the very mention of it ($MSTR) indicate that markets disagree with him, LOL. +7.9% in a day is pretty good.
(Then again, don't look at the 1-y/6m performance for the bagholders... #1513175, #1514431)
Saylor has trained investors to believe Strategy’s model for acquiring bitcoins would work so long as the market valued the company at a premium to the value of its bitcoin holdings. Effectively, the company’s overvalued stock became a currency to buy bitcoin.
Well, there's no training involved here; it's just objectively true. Free money, arbitrage etc.
You can calc it a couple of different ways, obvs (adjust for debt etc), which is what the vocal Saylorbois have been chanting online.
The problem that came to a head recently is the metric began showing the market was valuing Strategy at a discount to the value of its bitcoins. The roll-up strategy was starting to come undone, and roll-ups typically don’t work well in reverse.
Very correct. When flywheel-no-fly bad things happen. #1513531
The stakes are high. Strategy’s holdings represent 4% of the total bitcoins that will ever exist. Selling some could drag bitcoin’s already battered price down further, along with Strategy’s stock. A small sale by Strategy in May had that effect, even though it sold just 32 bitcoins for $2.5 million.
Funny, then, that the exact opposite happened. Oops. Market 2, Journo 1.
Now I gotta bring out my accounting101 textbooks because this is getting confusing:
But Strategy’s predicament is worse than it appears. The mNAV metric has a flaw that has grown acute as the prices of Strategy’s bonds and preferred shares have tanked along with its stock.
To calculate enterprise value, Strategy adds the market value of its common stock to the principal amount of its debt and the par value of its preferred stock, then subtracts cash. Normally, that formula works fine, if the debt and preferred shares are trading at or near par....
Yeah that just sounds like EV....
The problem now is that mNAV overstates Strategy’s enterprise value—the ratio’s numerator—by using the face value of its debt and preferred stock rather than their market value. That makes the metric artificially high. It also defeats the purpose of showing the extent to which the market is valuing Strategy at a premium or discount.
mNAV is here to figure out whether market is trading their equity at a premium or discount to the underlying bitcoin value (siphoned via/adjust for debts), basically whether sales of MSTR is accretive or dilutive.
but prefs+debt lower should mean lower lower real EV... (sorry, I'm working this out as I go...)... aah, meaning the number they contrast with the value of their bitcoin stack ("EV") is lower, which makes their mNAV lower...?
Ah, so when debt securities drop below par, the mNAV looks higher than it actually is (=should be lower).Ah, so when debt securities drop below par, the mNAV looks higher than it actually is (=should be lower).
So when Saylorbois and other idiots (our wonderful friend and benefactor Mr. Blok?!) say purchases are accretive, it's because they can't do accounting properly. I think?
For enterprise value, Strategy included $6.75 billion of debt and $15.46 billion of preferred stock. Those were par values, not market values. At the time, Strategy’s debt was trading at a 7% discount, and its various series of preferred shares, combined, were trading for a 28% discount.
Since then, mNAV has rebounded along with Strategy’s share price. As of 4 p.m. Thursday, Strategy’s website showed mNAV as 1.09. But it would have been 1.04 using market values for its debt and preferred stock, only a slight premium.
Journo points.
well, sure the finish was strong but overstated. I guess journo ran out of steam/editor's patience.
The company estimates its $2.55 billion cash buffer buys it about a 17-month cushion to pay interest and preferred dividends without selling its crypto. But if the market starts valuing Strategy at a discount again, and it sticks, Strategy faces the prospect of running out of cash and having no choice but to tap its bitcoin stash.
Lots of things can happen in 17 months. Most VCs and people's freakin households run on waaay shorter runway than that. Whatevs.
Do they think HODL means "Hold On for Dear Life"??
yes
uncultured yokels
I find that I quite like mstr selling Bitcoin. Let's see of we can't shake loose a but more of the orange coins from them.
Here's Grok helping Den's little purple-monkey brain think: at discount, economic claim on company asset is less (bc discount fr par)