Original author: Willy Woo
Original translation: Shaofaye 123, Foresight News
About MicroStrategy MSTR Convertible Bond Risks
Currently, the only liquidation risk I can see is the convertible bonds it issued:
If the convertible bond buyers do not convert into shares before maturity, MSTR will have to sell BTC to repay the debt holders.
This will happen if MSTR does not increase by more than 40% in 5-7 years (varies for each bond, see chart below). Basically, either the MSTR-BTC correlation fails, or BTC fails.
There are other risks of varying degrees:
The risk of competition, where other companies copy and replicate MSTR, reducing its premium relative to net asset value;
The risk that the U.S. Securities and Exchange Commission (SEC) would intervene in future purchases, reducing MSTRs premium to NAV;
Fidelity and Coinbase’s custody risks;
Risk of US nationalization (seizure of BTC);
Saylor Key Person Risk;
MSTR operational risks;
As a final note, please note the Convertible Notes table, while it gives some idea, it is not exact as I am using Grok AI.
Other questions about MSTR
Question 1: Why doesn’t MSTR have self-hosting rights?
Willy Woo: As it stands, the exact escrow arrangement has not been disclosed. From what we know, MSTR may have co-signing rights in a multi-signature arrangement. This is a sensible way to proceed.
Question 2: Will MSTU and MSTX be liquidated and harm MSTR?
(Translators note: MSTU: Invest in T-Rex 2 X Long MSTR Daily Target ETF; MSTX: Invest in Defiance Daily Target 2 X Long. The two MSTR ETFs have accumulated over $600 million and $400 million in assets respectively.)
Willy Woo: MSTU/MSTX = Higher risk. 2x is achieved through paper betting on MSTR, with liquidation levels close to instant (plus, no claim on real BTC).
Note: Derivatives positions will devalue BTC.
In addition, due to the impact of volatility, long-term holding will not reach 2 times (losses are more expensive than gains).
Question 3: What if a large number of stock holders sell their stocks at the same time due to external events (stock market downturn)?
Willy Woo: This is only a short-term impact, and in the long run, the market always means increased returns, so it is not a real risk. Debt holders can convert it up to 5-7 years after purchasing the notes. As long as Bitcoin is 40% higher than the initial price within 1-2 macro cycles, there will be no problem.
Question 4: Are there leveraged ETFs that gain exposure through options rather than swaps?
Willy Woo: The volatility arbitrage trading desk at TradFi hedge fund does this day in and day out. $70 million is a very small amount, but it is enough to support the size of any given day based on volatility mispricing in the options market.
