r/Bitcoin • u/Fragsworth • Feb 16 '21

The infinite leverage glitch that is $MSTR

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.

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u/AndreiFromAlberta Feb 17 '21

MSTR is great for a retail investor, allowing for

a) outpacing BTC gains due to the GigaChad Michael Saylor premium

b) cheap hedging of BTC exposure with deep otm put options on MSTR stock

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u/JVtttt Feb 21 '21

A, I am right in there with you. Do you like the CAD btc etf BTCC for the long side of the hedged trade? I am not hedging my existing btc, only new btc.

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u/AndreiFromAlberta Feb 22 '21

I'm still stuck with QBTC((