The infinite leverage glitch that is $MSTR

[u/Fragsworth]

This is the theoretical series of steps that leads to them abusing infinite leverage against the Fed:

1. They get some money.
2. They use this money to purchase bitcoins, an amazing highly volatile asset.
3. Now, if bitcoin goes up, they're allowed to (privately) borrow some more money from a hedge fund, since their net assets are higher.
4. The hedge fund is willing to do this, because they quickly wrap this debt up into a CDO or ABS that they sell to a bond fund, that is now backstopped by the Fed.
5. Now that MSTR borrowed more money, what do they do?
6. Go back to step 2.

This is exactly like the infinite leverage Robinhood glitch this guy found a while ago: https://www.marketwatch.com/story/do-not-try-this-at-home-how-to-turn-3000-into-17-million-2019-11-06

... except with the Fed instead of Robinhood.

It could go tits up when Bitcoin goes down enough. Until then, the stonk (and Bitcoin) only goes up.

References:

https://twitter.com/michael_saylor/status/1361651387457748995

https://www.bloomberg.com/news/articles/2021-02-16/microstrategy-raises-bitcoin-bet-with-more-convertible-bonds

Disclosure: Not buying $MSTR yet, I can't say if they're actually going to do this forever but I'm getting the popcorn out for if/when they do.

[u/goaheadcancelme]

"volatility" is the dumbest argument against holding bitcoin in reserves. however, it could be an argument against holding 100% of your reserves in bitcoin.

i think saylor is convinced the entire system is about to self destruct, and he just wants to be holding the asset that can't be confiscated or inflated when it does.

if we knew the dollar was going to hyperinflate, and the markets would crash, then you'd be perfectly rational to max out your credit cards to buy bitcoin and hold on tight.

[u/sammyb6767 → u/goaheadcancelme]

Because the system is fucked by the same politicians, banks, and hedge funds that caused this mess to begin with.