Random Musings wrote: Wed Sep 03, 2025 9:40 pm
So, going long ETF’s and short MSTR should be the answer.
Here’s Matt Levine’s take from his money stuff column in Nov 2024 (mirror link):
MicroStrategy is essentially a pot of Bitcoins: Currently it owns 331,200 Bitcoins, and Bitcoin is trading at around $91,000, making MicroStrategy’s pot worth about $30 billion. It also runs an enterprise software business but that hardly seems relevant. MicroStrategy’s market capitalization is about $84 billion, meaning that it trades at well over a 150% premium to the value of its Bitcoins.So it can sell $1 worth of stock, buy $1 worth of Bitcoin, and add $2.50 of market capitalization. It can create value out of nowhere.
The natural response to discovering this magical phenomenon is to ask “well, okay, but how much of this can we do?” That was MicroStrategy’s response — it would absolutely be mine! — and it hasn’t found the limit yet. It did $4.6 billion of stock sales, and $4.6 billion of Bitcoin buying, last week. Its stock was up, Bitcoin was up, and its premium to Bitcoin also went up modestly.
My usual assumption with stuff like this is “arbitrages close.” Like, if MicroStrategy is a pot of Bitcoin trading at a premium to the value of its Bitcoin, then the natural arbitrage is to (1) sell MicroStrategy stock and (2) buy Bitcoin. This is a bet that eventually the gap will close, and also it should help cause the gap to close, because selling MicroStrategy tends to push down its price and buying Bitcoin tends to push up its price. I am not recommending that you do that — that’s super risky! nothing here is investment advice! — I am just saying that MicroStrategy can do that, and should, and does.
Levine argues here that — instead of RM’s suggestion upthread of going long ETFs and shorting MSTR to exploit MSTR being overpriced — the way to arbitrage MSTR being overpriced is to go long Bitcoin (MSTR’s main asset) and then short MSTR. Then Levine emphasises that this is exactly what MicroStrategy is doing — arbitraging the overvaluation of their own share price by buying more and more bitcoin and selling more and more of their own stock.
There’s another financial times article about MicroStrategy from Nov 2024 (mirror link) that recalls what happened to MicroStrategy stock in the dot com bubble:
A quarter of a century ago, MicroStrategy was an embodiment of the dotcom bubble, with Super Bowl ads, a stratospheric stock price, and a co-founder, Michael Saylor, who made claims like: “Our software is going to become so ubiquitous, so essential, that if it stops working, there will be riots.” Then in March 2000, reality hit. MicroStrategy restated its earnings, the stock price nosedived from $333 to $0.42 eventually, and the Securities and Exchange Commission came knocking. Saylor and two colleagues later settled a case from the SEC involving hefty fines and disgorgements. The men did not admit the allegations.
that FT article cites this CNN Money article from march 20, 2000 “microstrategy plummets –
Shares fall more than 60 percent on earnings, revenue restatement” https://archive.is/MYVVv
In my opinion, MicroStrategy has a much better (better for their executives, i mean) business model this time — per Levine they’re arbitraging the 2x multiple that investors are placing on their stock vs the book value of the bitcoin it holds. This is legal for them to do, there’s no need for executives to put themselves at risk of accounting fraud / securities fraud charges by overstating earnings, unlike dot-com era bubble investors who expected companies to make money, apparently investors in 2024-2025 dont care that this business doesnt actually have any earnings at all.
