Hey guys, welcome to another edition of the Magnelibra Markets. Today’s episode #60 is entitled “Market Update and MicroStrategy Analysis”
Quick Disclaimer: The following podcast is for educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and may not be appropriate for all listeners.
Before we get into the MicroStrategy Analysis lets first look at yesterday’s US Bond market move. We saw decent long buying across the curve and saw the new 2Y auction receive solid demand. Its interesting to note that the 2s/10s is back to a slight inversion:
When we look at the US Govt 2Y its obvious that the FOMC has pegged this for now and will look to this months FOMC decision to see if we get a continuation of the rate cut cycle or if we are going to pause, for now the 2Y seems to have stalled out and looking to move back down. The consensus is still slightly favored for another 25bp cut:
Here is the US Yield Curve it gives you a good picture of the flattening in the 2Y sector due to the FOMC rate cuts. Since the highs, the 2Y is now down 94.7bp, 5Y is down 75.5bp, 10Y is down 63.9bp and the 30Y is down 54.7bp :
Overall you this next chart shows the collapse of all the different yield spreads led by the 2s30s:
As far as where we are at trading wise today TradingView shows the bonds are down slightly giving back some of yesterday’s gains:
Gold was pounded yesterday down $93 bucks and well below our resistance line now:
Silver was also hammered yesterday losing $1.10 seems like a roll back down to $25 is in order:
Nasdaq futures hugging the 21k level for now:
The SP500 futures above the 6000 marker so far this week also keeping the bull theme intact:
Ok let’s talk about MicroStrategy, we know they bought 55,500 more Bitcoin yesterday. This purchase moved their total Bitcoin holdings to 386,700. This graphic below shows how many Bitcoin per Total MSTR shares Outstanding:
We believe this is a very important metric. We know that Michael Saylor keeps pushing this Bitcoin yield increase and yes, going from 0.11 to 0.179 is indeed an increase but here we will discuss our issues.
Since MicroStrategy is now the poster child of Wall Street and CNBC just a few years after Main Stream Media made it clear Bitcoin was a "novelty" a tool for Cartel's and Launderers, look how far they have come...its amazing what the quest for blood money does to people...Anyway MicroStrategy isn't creating any value, it is converting or swapping equity for Bitcoin. It is doing so at a 2.33x and greater premium to core BTC purchases, not something that makes sense to me but I digress. If some quants out there can tell me why this makes sense other than the fact that its a Gamblers paradise, evident in all the apps and adverts and NFL football for that matter, I will listen to any statistical presentation of value.
Here is my back of the napkin attack against this perverse euphoric MSTR strategy:
Lets stick with BTC 1 Full Unit
Start 2024 $MSTR
Total shares outstanding (TSO) = 168,680,000
Total BTC Owned by $MSTR = 189,150
BTC/TSO = .00112
AS of 11/25/2024
TSO = 216,240,000
BTC = 386,700
BTC/TSO = .00178
Stock dilution increase of 28.2%
BTC asset increase 104.4%
(Looks great doesn't it?) However as price increases $MSTR will gain less and less BTC per USD swap. Does this metric even matter?
However by buying $MSTR you are receiving .00178 of a Bitcoin.
Why not spend $167.32 and receive that equivalent Bitcoin and cold store it yourself instead of paying $390 for equity of $MSTR?
Paying 2.33x isn't value. Even if they issue $42Bn in convertibles at $100k per BTC that doubles their holding and likely TSO will double as well.
Now we know that investors maybe thinking that MSTR can double or triple from here even if Bitcoin only moves up by say 50%. Yes we get it, that is plausible, but if that is the only reason, well then maybe there are other less volatile options one can take, other roads that lead to a similar outcome, with a lot less vol perhaps?
So don’t get us wrong we get why the gamblers are doing it, we get while Michael Saylor is now the poster child for Bitcoin, however that is today…
What happens if Bitcoin drops 60 or 70% from here? Then what? The new dollar cost average price of MSTR Bitcoin holdings is $57,000 roughly. So if we drop from $99k to $57k that is a 42.4% decline, nothing in regards to the historical precedent that Bitcoin has already presented us with. Saylor is a genius in the regard that he is able to swap equity at a 0% cost for accumulating real assets, for us, yes that makes him quite a magician!
Ok that is our rant for today on that subject, let’s look at the MEGA8s, we opted for removing this weeks hedge and rather lets look at next weeks 12/6 option expiration and the QQQ 514 Calls for $3.00, this seems like a good location to set some hedges and that would be our preferred strike and level. As far as the MEGA8s they continue to lose a little bit of ground overall with Tesla and Nvidia the big losers yesterday:
Ok onto the settlements where we have rolled the US fixed income markets from December contracts to the March 2025 contracts and the SOFR to Sept. 2026, its good to see the ultra bond as the days big winner, with Gold the obvious big contract loser:
Bitcoin still the 30day contract winner with Nat Gas the 5day winner thus far:
Alright guys that is it, thank you for taking a few minutes of time out of your day to join us, we know MicroStrategy and Bitcoin will be the talk of the town this Thanksgiving once again. In fact its a good way to avoid talking about politics! Nothing ruins Turkey day more than politics so avoid it all costs!! Talk about Bitcoin, see the hype but make sure you show them the reality of the data and how Magnelibra has taught you to view it, to value it and to recognize the risks involve. Thank you to our supporters, we are just a few away from 500 and we hope you guys can share our work to get us there! Till next time, cheers.
Link to Rebellion Research article we were featured in Rebellion Research - Is MicroStrategy Overvalued?
DISCLAIMER: For educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and is not for everyone. Such investments may not be appropriate for the recipient. The valuation of futures and options may fluctuate, and, as a result, clients may lose more than their original investment. Nothing contained in this message may be construed as an express or an implied promise, guarantee or implication by, of or from Magnelibra Capital Advisors. Magnelibra the Commodity Trading Advisory and its proprietary long/short commodities, futures and options managed accounts may hold long and or short positions in the various futures and markets that Magnelibra covers. We will never claim that you will profit or that losses can or will be limited in any manner whatsoever. Past performance is not necessarily indicative of future results. Although care has been taken to assure the accuracy, completeness and reliability of the information contained herein, we make no warranty, express or implied, or assume any legal liability or responsibility for the accuracy, completeness, reliability or usefulness of any information, product, service or process disclosed. If you are interested in opening an individual managed futures and options account to compliment your overall investment portfolio you can visit our website at https://magnelibra.com for more information. We are implementing a new trading program launching at the start of the new year, which will include access to Bitcoin futures and options. Please contact or make inquires directly to our introducing broker Capital Trading Group, please contact Nell Sloane at nsloane@capitaltradinggroup.com
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