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The MSTR convertible note thing is a little inscrutable…who gets to decide about conversion? What is the conversion rate? Is the note denominated in dollars?

Suppose MSTR share price fell precipitously (let’s say essentially to zero). If note is denominated in dollars and conversion rate is the market rate of MSTR, then it’s bankruptcy and all the bitcoin will get sold to repay note holders and anything left over is for shareholders.

For those thinking in Stock to flow model terms, the senate of these notes is like new Bitcoin being added to the slow (that is, it’s part of the flow).

For those thinking in power law model terms, this will happen in May/june 2029, a bit early for a post halving pump deviating from power law model.

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Discussion

Thekid.999 1y ago

I bought 40k btc yesterday

Dr. Bitcoin, MD 1y ago

Nice. I’ll by 80k tomorrow.

Phil 1y ago

Pretty sure it’s convertible at the option of the holder, and it basically allows them to choose between the par value / 1.0x liquidation preference and the as-converted stock value. It’s just downside risk protection.

Dr. Bitcoin, MD 1y ago

Maybe this will make sense to you: https://www.microstrategy.com/press/microstrategy-announces-pricing-of-convertible-senior-notes-11-20-2024

Phil 1y ago

Yeah, weird to me that Microstrategy would hold the option to convert them to equity. I think the missing piece here is what would drive forced paybacks or the “special interest” referenced. Because 0% notes at par would only make sense if the equity is worth less than the 55% premium, but MSTR holding the conversion option is very company friendly. I don’t see the return for investors in this case, so leads me to conclusion that the “special interest” triggering events and pricing must be sufficient return. Otherwise it’s “tails I win, heads you lose” for MSTR

Dr. Bitcoin, MD 1y ago

Ok, I’m not crazy. I think maybe the upside is the fact that they won’t be able to repay in dollars and conversion rate is high? They might be able to finance some conventional loan to repay some debt, but maybe note holders are betting against that.

Phil 1y ago

That has to be it. But not what I would have expected. Public market degeneracy

Dr. Bitcoin, MD 1y ago

55% over 5 years, well collateralized…that’s like what, 9%? Better than treasuries.

Phil 1y ago

That’s probably the right way to think about it. But MSTR would only convert at that price if the market price was above it. Otherwise, they would just keep as debt and pay the par value. Which probably involves liquidating some bitcoin…if they can’t otherwise refinance the debt.

BottleTeams 1y ago

The bond holders decide on conversion after a certain pre determined date and predetermined stock amount. The problem lies in a FI

Manager now holding a ton of MSTR stock; which they cannot do. So the majority of bond holders are forced sellers of stock upon conversion.

Outright stock buyers are the exit liquidity; the only respectable way to make this trade is to buy the bonds. Everyone else end up the bag holders.

Not saying the stock might not go up or it's not a good trade. But it's not a buy and hold forever.

Dr. Bitcoin, MD 1y ago

I couldn’t tell exactly who gets to decide on conversion and when. https://www.microstrategy.com/press/microstrategy-announces-pricing-of-convertible-senior-notes-11-20-2024

It only makes sense if it’s note holder, right?