'One Or More Has To Die'.. MicroStrategy Under Major Pressure! Could This Affect The Crypto Market??

[00:00:00]Happy Friday, ladies and gentlemen.

[00:00:02]Ruper here and welcome back everyone for another jam-packed daily market update.

[00:00:07]Thankfully, we've got some really crypto news worthy stuff to cover to kick this daily market update off. And I believe MicroStrategy is such a big player that if there was any kind of a event to take place with them, it would have broader ramifications for the crypto space as a whole, which is still somewhat tethered to Bitcoin. We're seeing certain alts break out, and I think this is the early innings of what the future looks like against Bitcoin because they are fundamentally um used. They're generative in terms of revenue, and that revenue is coming back to the token. Um and we're going to see these tokens stand out, I think, moving forward. And we're very early on that journey. But we are still largely tethered to Bitcoin. Bitcoin uh and the the the Bitcoin that MicroStrategy have, if there was any kind of a need to start to liquidate that, we saw the fears around them selling 32 Bitcoin, I believe, just to prove that they could and it was viable collateral uh collateral um going against what the S&P had said about them.

[00:01:13]But if we saw any kind of an unwinding there, maybe because they have to cover um some of the yield generated by their STRC product, which is having issues right now, or whether it's um you know, whether they need to do whatever it is they need to, it's going to make for an interesting story that we're still yet to face. And I interviewed Jeff Dormann yesterday, who's the chief investment officer at Arca, which is a crypto investment firm.

[00:01:39]He's got a great take on this that I want to share with you in this daily market update. But let's just kick things off with what's unraveling. We'll look a little bit about macro. I've still said, "Look, crypto's in a downtrend. Don't bet against that."

[00:01:49]Yesterday was further validation.

[00:01:51]Um I still don't think this situation is all being cautioned should be applied.

[00:01:55]But the MicroStrategy STR C story, so this is MicroStrategy's kind of fixed income product.

[00:02:03]This is supposed to be pegged to uh $100.

[00:02:08]Okay, and this has had various wobbles.

[00:02:11]But, this wobble seems to be getting somewhat out of hand. And the problem is it becomes like a self-fulfilling prophecy when people start to question the viability of this. For those of you that are unfamiliar from their website, the STR C short duration high yield credit is strategies perpetual preferred stock that currently pays 11.5% annual dividend. That is a high dividend for a non-cash generative company, by the way. Anyway, payable semi-monthly in cash, STR C's dividend rate is adjusted monthly to encourage trading around STR C's $100 par value and to help strip away price volatility.

[00:02:59]Listed on the NASDAQ, STR C is available on most major brokerage platforms.

[00:03:04]So, of course, it's not on par with $100 today.

[00:03:07]What the hell is going on? Well, obviously, I think you've probably got hedge funds shorting this. You've probably got people dumping it, and it's causing this volatility. I will say something positive here. It's had a a very good track record of recovering from these volatile periods, you know, going as low as 90 previously. At one point, it went all the way down to 82.

[00:03:28]And the question is is there broader issues with MicroStrategy, which is the largest holder of Bitcoin or one of in the world?

[00:03:37]If there was to be issues, what would that mean? I think there's a lot of unanswered questions. Um but, what I want to do is refer to my interview that I conducted yesterday that will be out over the weekend with Jeff Dormant to have his kind of take on this, what the story is. Effectively, MicroStrategy is paying and and and has a billion plus in obligations to um maintain. They didn't have the cash for that. They decided to get rid of that cash effectively. Now there's a lot of questions. So, I'm going to refer to what me and Jeff Dorman spoke about in our recent interview. It's very relevant. He summarizes the situation brilliantly and then we'll come back in and continue the rest of the daily market update.

[00:04:14]What's the story from your point of view as far as it relates to uh MicroStrategy and what's the potential risk here?

[00:04:21]>> Sure. And and I'll I'll caveat this but well for anyone who follows me on Twitter, I've been writing a lot about this. I've also been writing it on our blog on our website. That's our two satoshis. But um you know, up until about October of last year I I was never a MicroStrategy bull. But there was no there was nothing bad going on with the story, right? I I actually thought people for the most part were misinterpreting the story because they kept trying to make MSTR into something more exciting than it really was, which is just okay, they own a pile of Bitcoin. They're never going to be a force seller. They may never be a relevant buyer again because, you know, they they aren't able to, you know, sell MSTR stock forever to buy Bitcoin. But it was, you know, fine. They owned a lot of Bitcoin. If Bitcoin skyrocketed, MSTR would benefit as well. No big deal. It is what it is. But then they started issuing these preferreds.

[00:05:01]And these preferreds changed the story completely because now all of a sudden you had a sort of a boring story with a clean capital structure and now you have 15 billion of preferreds that carry anywhere from 11 to 13% dividend rates, which means that you're paying 1.7 billion dollars cash every year just to satisfy uh the dividends.

[00:05:20]And that's a huge number. It's not a huge number relative to the pile of Bitcoin, right? He's got 55 billion of Bitcoin even at these low levels. Um but it's a huge number from a cash flow standpoint because Bitcoin is the least productive asset on the planet. There's nothing he can do to generate cash other than sell stock or Bitcoin.

[00:05:34]And that doesn't work very well when Bitcoin starts falling and the market starts panicking about your ability to service the dividends. So, again about four months ago, five months ago he was fine because he said, okay, well we're just going to raise two or two and a half billion dollars more cash than we need and at least we'll, you know, be able to sit on uh this cash and be able to pay dividends for years without having to spook the market and everything was fine.

[00:05:58]But then for some reason in the beginning of May, they decided to take a billion and a half of their cash to buy back debt that wasn't maturing for three more years.

[00:06:05]And that was when the spiral started because now you're like, wait a minute.

[00:06:08]You had this cash sitting here specifically just to be able to pay the dividends so the market didn't freak out while Bitcoin was lower. But then you for some ill-advised reason decided to buy back debt you didn't have to buy back early depleting your cash and now you have a real problem here, which is that you basically have four stakeholders in the MSTR cap structure and one or more of those stakeholders has to die in order for the other three to live. So you've got your Bitcoin obviously in terms of, you know, what they own, that's the asset. You have your debt holders, you have your preferred holders, and you have your equity holders. And there's just no scenario where all four can win right now. So you look at what's happening right now and it it's basically they are essentially out of cash. They have six months of cash on their balance sheet. So STRC and all the preferreds are starting to trade down because people are worried about their ability to satisfy the the preferreds, right?

[00:06:58]The the the the the STRC for example, the one that he's been marketing forever as like a stable money market that always trades at par is now trading at 84 cents on the dollar. So that's a problem because the market has lost faith that they're going to have the cash to pay those.

[00:07:11]But how can he pay those? Well, he has to issue he has to sell more Bitcoin or he has to sell more MSTR. The problem is if you still sell Bitcoin, now you're scaring all the Bitcoin holders because you own 4% of the supply. The problem is if you sell MSTR, you continue to sell it below accretive MNAV levels where it's actually terrible for MSTR holders to sell MSTR down here and buy more Bitcoin. Um they basically painted themselves in a corner for no reason. It's completely just self-inflicted moves where they have to kill one part of their cap structure to save the other.

[00:07:43]>> If you're not ready to subscribe to this channel, we really are trying to bring you guys front and center in regards to the crypto space with information from people like Jeff that have been here for years, and I thought that was a brilliant take. So, there's obviously concerns about STRC.

[00:08:02]Um also, that's going to weigh on MicroStrategy, which we've previously looked at as potentially setting up a head and shoulders. I I was in a leveraged uh short ETF on MicroStrategy.

[00:08:11]It did quite well for us, 30 40% I think most of us got out on. Some of us are still riding that.

[00:08:17]But look, if this head and shoulders plays out, you're looking at a 21 22 um dollar MSTR.

[00:08:24]I think that has broader ramifications.

[00:08:25]Again, you guys know the story. We've been cautious on Bitcoin. I want to get long and strong the crypto markets, but I'm saying the opportunity is not now.

[00:08:32]It will be.

[00:08:34]And in that interview, please go and watch that when it comes out with Jeff.

[00:08:37]He's a great guy, in my opinion, one of the few people I actually listen to in the crypto space. 99% of people that talk about crypto, in my opinion, aren't worth listening to. He's one that is. Hopefully, we are in your eyes. Um I I There's just not the It's It's not the appetite right now crypto, and I I still think Bitcoin's coming down. And I think with catalysts like MicroStrategy, I looked at USDT dominance, it made our short-term target of 89. We're saying there's risk of this potentially breaking to the upside.

[00:09:11]Um and that would equal more downside.

[00:09:13]MicroStrategy could be a catalyst there.

[00:09:15]Certainly, when you talk about dominance, the majority of dominance is going to come from Bitcoin.

[00:09:20]And just to come back to the macro, and and actually in that interview, Jeff has a very different take to me. I think the macro could be an issue. He says it's nothing to really to worry about, and and and talk about the markets more broadly, and we always take on um different opinions, certainly when they come from people like Jeff. Um But but but there is still a macro situation that's lurking. It spoke yesterday a little bit, didn't really emphasize it, about how the dollar index has broken out. Strong dollar is typically a headwind for markets, just like USDT dominance going up is a headwind for markets. It's broken out for the first time since Is there volume on this? I hope so. No.

[00:09:53]Um 2025 May.

[00:09:58]I just get risk-offy vibes, and of course your yields are not performing or acting in the sort of oil-like manner. Um and there is reports, you know, here we go again. Israel has launched new overnight ground advance into southern Lebanon.

[00:10:14]And here we have, we are at your command. The task assigned to us by the supreme leader is to pursue the realization of the conditions and clauses of the agreement. So, you know, Iran very much wanting this agreement also, or at least pursuing it. You've had Switzerland talks canceled.

[00:10:33]There's a lot going on. So, just be safe out there. So, the main focus of this daily market update was just to re-emphasize our technical assessment that crypto is is not finished in terms of this down leg, in my opinion. I don't see merit for it.

[00:10:44]I'd love to.

[00:10:45]Um and also to get across really the story with STRC, MicroStrategy and that whole thing, which I think Jeff summarized perfectly.

[00:10:52]And watch out for that interview coming out this weekend. That's it for me, troops. I'm going to love and leave you.

[00:10:55]Have a fantastic Friday, and I'll see you all in tomorrow's daily market update. Thanks for watching, guys. See you soon.