MicroStrategy Copycats Are Buying Bitcoin as Price Nears $100,000

Cboe to launch new cash-settled bitcoin options

MarketWatch

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What the big 'key reversal' pattern in MicroStrategy's stock chart could mean

MarketWatch

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Booming, Risky MicroStrategy ETFs Testing Wall Street’s Limits

Bloomberg

MicroStrategy

+6.19%

American Strategic Investment Co.

-0.34%

(Bloomberg) -- Amid a red-hot run in the shares of MicroStrategy Inc. last month, Matt Tuttle got some bad news from the prime brokers for his booming leveraged ETF linked to the shares of the crypto-centric company.

The prime brokers — units within banks that work with their clients on activities like securities lending — had reached their limits on how much swap exposure they were willing to offer for his roughly month-old fund, the T-Rex 2X Long MSTR Daily Target ETF (ticker MSTU), which by some measures was the most volatile exchange-traded fund to ever hit Wall Street at the time of its launch.

The ETF, which offers double the return on the highly turbulent shares of MicroStrategy, was surging in mid-October, luring hundreds of millions of dollars. To achieve the juiced-up returns he was promising, Tuttle had been buying swaps via his prime brokers — a typical tactic. But only three firms had agreed to work with him given the gyrations in MicroStrategy — the largest publicly traded corporate holder of Bitcoin — and all three started to reach capacity constraints.

At one point, he needed $100 million worth of exposure and the firms were only offering a total of $20 million. So, to fulfill his fund’s mandate, he turned to buying call options.

“If this was a fund on Procter & Gamble, I could get as much swap exposure as I wanted,” said Tuttle. “But MicroStrategy is a different beast.”

The message is that the unprecedented boom in such a highly leveraged ETF is testing the risk appetite among some key Wall Street players — the prime brokers. And while buying options to fulfill a fund’s goals isn’t controversial, it shows the hurdles that had to be overcome to meet the surging demand for the product.

It was a similar picture at Tuttle’s rival, the Defiance Daily Target 2X Long MSTR ETF (MSTX), which debuted in August. Sylvia Jablonski, the chief executive officer of Defiance ETFs, said she started using options to help meet the ETF’s stated leverage soon after its launch. The fund began by offering 1.75 times leverage, before boosting it to two times after Tuttle introduced his ETF.

The episodes can also be chalked up to the extremely turbulent nature of MicroStrategy itself. The shares slumped as much as 22% on Thursday after Citron Research said it’s betting against the company.

“It should be making us question: Has the ETF jumped the shark?” said Dave Mazza, chief executive officer at ETF issuer Roundhill Investments. “We’re at a point where we’re pressing the boundaries of what the marketplace will allow.”

High Octane

The two 2x MicroStrategy funds now have assets of roughly $4 billion combined as of Thursday’s close. MSTU is up more than 600% from its launch through Thursday, and MSTX has gained 480%. Maintaining these high-octane ETFs has become even harder since Donald Trump’s election victory, as investors have seized on his pro-crypto stance to push Bitcoin to a record high. MicroStrategy this month announced its largest-ever Bitcoin purchase and its share price has added more than 70% since Nov. 5, as of Thursday’s close.

“When something goes parabolic, that’s when things get all out of whack,” said Tuttle. The days of needing $100 million of exposure now seem quaint to him. These days, there have been times he’s needed five times that amount.

A market-maker associated with the MicroStrategy swap business for these two leveraged ETFs and who spoke on the condition of anonymity says the funds are testing the risk limits of prime-broker desks, especially as the products keep growing. The ETFs’ volatility also requires large margin down-payments, the person said. Tuttle says the volatility of the underlying stock explains why swap counterparties are raising margin requirements.

Cantor Fitzgerald, Marex and Clear Street were the prime brokers listed for MSTU and MSTX as of Thursday, data compiled by Bloomberg show. Cantor and Marex declined to comment. Clear Street didn’t respond to a request for comment.

From MSTX’s inception in mid-August through Wednesday, the stock soared almost four times as quickly as the digital currency, suggesting that the levered wagers may have amped up the share rally. In the year through July, MicroStrategy’s advance was only twice as fast.

Retail Draw

Leveraged single-stock ETFs became available to US investors in 2022, amid warnings from regulators about their riskiness, and they tend to attract individual investors who are sometimes chasing quick profits. There are now more than 90 leveraged or inverse ETFs based on a single stock, data compiled by Bloomberg Intelligence’s Athanasios Psarofagis show.

For the ETF issuers, using options can introduce complexities, including having to track the theoretical rate of change of the derivative’s price as the underlying shares fluctuate. Tuttle now devotes part of his afternoon to assessing his option needs, working with his traders and market-makers, and the amount depends on the ETF flows and movement in MicroStrategy shares.

When banks are evaluating their limits for financial products like this, they have to take into account broad exposure to a particular stock across multiple desks, or constraints related to risk and balance sheets, said Jablonski at Defiance.

“This risk-assessment process tends to become even more stringent when dealing with more volatile assets, such as MicroStrategy, cryptocurrencies or high-growth stocks,” she said. “With an improved understanding of how to manage and hedge these products effectively, new players may increasingly be willing to collaborate in trading activities.”

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Why MicroStrategy Stock's Big Swings Could Be Another Sign That a Market Crash Is Coming — Barrons.com

Barron's

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MicroStrategy Trading At 'Insane' 256% Premium To Bitcoin Holdings, Research Shows

Benzinga

MicroStrategy

+6.19%

MicroStrategy Incorporated is trading at an astonishing 256% premium to the net asset value (NAV) of its Bitcoin holdings, according to research conducted by BitMEX.

The analysis highlights the extreme valuation disparity between MicroStrategy's current market capitalization, driven by its aggressive Bitcoin acquisition strategy, and the actual value of the Bitcoin it holds.

"MicroStrategy's premium is insane, perhaps in part driven by some financial regulators banning people from buying Bitcoin ETFs. These people are so desperate for Bitcoin exposure, they buy MSTR instead, despite the premium," BitMEX Research stated.

Also Read: Strategic Bitcoin Reserve Wouldn’t Require New Taxpayer Dollars, Says Sen. Cynthia Lummis

Breaking Down the Numbers

MicroStrategy currently holds 331,200 bitcoin, valued at approximately $32.3 billion, assuming a Bitcoin price of $97,600.

However, with a fully diluted market cap of $115 billion and a share price of $474, the company's valuation significantly exceeds its Bitcoin holdings.

This disparity reflects an implicit bet by investors on the company's ability to leverage its premium for further Bitcoin acquisitions.

BitMEX Research explored scenarios where MicroStrategy could theoretically align its Bitcoin per share value with its current trading price of $474, assuming the Bitcoin price remains constant at $97,600 and the premium persists.

Under these conditions, MicroStrategy would need to:

Issue 157 million additional shares, raising $157 billion.
Accumulate 1.9 million Bitcoin in total holdings.
Reach a market capitalization of $674 billion, with a share price climbing to $1,685.

This iterative calculation assumes the company continues issuing new equity at a premium to acquire more Bitcoin, a strategy MicroStrategy has employed since 2020.

"If the premium persists, the company can keep issuing new shares until the value of the Bitcoin per share equals the current share price," BitMEX Research added.

Premium Justified By Strategy?

While some argue that the premium reflects investor enthusiasm for indirect Bitcoin exposure, others view it as a speculative bubble.

BitMEX Research emphasized that the premium may only remain sustainable if investors continue to believe in MicroStrategy's yield strategy.

"At that point, with a $1,685 share price, people may need to think the premium will still remain for another round of this," the analysis stated.

The company's holdings position it as a major Bitcoin proxy, the 256% premium suggests that investors are paying a significant markup for exposure, far exceeding the actual value of its Bitcoin.

Read Next:

Gary Gensler To Step Down As SEC Chair On Trump’s Inauguration Day

Image: Shutterstock

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Jim Cramer Says This Stock Is A Bitcoin Play And He Prefers To Own Bitcoin

Benzinga

On CNBC's “Mad Money Lightning Round,” Jim Cramer said MicroStrategy Incorporated is a Bitcoin play and he prefers to actually own Bitcoin .

MicroStrategy announced it completed its previously announced offering of its 0% convertible senior notes due 2029. MicroStrategy said the aggregate principal amount of the notes sold in the offering was $3 billion, which includes $400 million aggregate principal amount of notes issued pursuant to an option to purchase.

When asked about Oscar Health, Inc. , he said, “Until I saw that Mark Bertolini is the CEO, I didn't really have much in store for this. But Bertolini's a winner and a hitter.”

On Nov. 7, Oscar Health reported a quarterly loss of 22 cents per share which missed the analyst consensus estimate of a loss of 19 cents per share. The company reported quarterly sales of $2.42 billion which beat the analyst consensus estimate of $2.34 billion.

CNH Industrial N.V. is a “second-rater,” Cramer said. “I want to go with best of breed, and best of breed is John Deere .”

On Nov. 7, CNH Industrial reported worse-than-expected third-quarter EPS results and also lowered FY24 adjusted EPS outlook.

“The former, BGS, is a total loser and has been a loser for many, many years,” Cramer said when asked about B&G Foods, Inc. .

On Nov. 5, B&G Foods reported worse-than-expected third-quarter financial results and issued FY24 net sales guidance below estimates.

When asked about Rocket Lab USA, Inc. , he said, “It's moth to flame, but I don't know how close the moth is to the flame.”

On Nov. 19, Goldman Sachs analyst Noah Poponak maintained Rocket Lab with a Neutral and raised the price target from $5 to $12.

Price Action:

Oscar Health shares fell 4.1% to settle at $16.31 on Thursday.
CNH Industrial shares gained 4.6% to close at $11.92.
Rocket Lab shares gained 11.1% to close at $22.41.
MicroStrategy shares fell 16.2% to settle at $397.28 during the session.

Read Next:

Wall Street’s Most Accurate Analysts Weigh In On 3 Defensive Stocks With Over 5% Dividend Yields

Image: Shutterstock

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MicroStrategy Copycats Are Buying Bitcoin as Price Nears $100,000 — Barrons.com

Cboe to launch new cash-settled bitcoin options

What the big 'key reversal' pattern in MicroStrategy's stock chart could mean

Booming, Risky MicroStrategy ETFs Testing Wall Street’s Limits

Why MicroStrategy Stock's Big Swings Could Be Another Sign That a Market Crash Is Coming — Barrons.com

MicroStrategy Trading At 'Insane' 256% Premium To Bitcoin Holdings, Research Shows

Jim Cramer Says This Stock Is A Bitcoin Play And He Prefers To Own Bitcoin

Risk Disclosure