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GM. This is Milk Road — *sitting backwards on a chair, cool youth pastor-style* — we need to talk about MicroStrategy…

Here’s what we got for you today:

HOW MICROSTRATEGY COULD COLLAPSE (P1) 💣

There’s an elephant in the room…and it’s time we talk about it.

Folks are beginning to question the long term safety of MicroStrategy’s ($MSTR) Bitcoin accumulation.

(The fear being that $MSTR could become FTX 2.0).

Now, that’s a weighty fear – so let’s break this sucker into three pieces:

1/ Where are we right now? 👇

Currently, $MSTR sells shares/takes out loans to buy Bitcoin → investors buy the stock to get exposure to that Bitcoin treasury → when the price of $BTC rises, so does $MSTR.

(And over the past year, $MSTR has been trading at a ~3-5x premium – meaning if Bitcoin rises 10%, MicroStrategy rises 30-50%). 

Currently, MicroStrategy is valued at 2.3x the amount of Bitcoin it holds (aka $MSTR market cap is currently $82.96B, and it holds $36B of Bitcoin).

Which means (so far) the Bitcoin Strategy is working.

…ok, now for the scary question. 

2/ What does the worst case scenario look like? 

Let’s start here: $MSTR’s Bitcoin Strategy has largely been built using five year ‘convertible notes’.

Basically, $MSTR sells people the right to buy $MSTR stock five years in the future. If it doesn’t reach a set price in those five years, investors get their money back. 

If it does, their investment gets ‘converted’ into $MSTR stock at that set price.

So no matter what, investors buying these convertible notes (aka giving a loan) are getting their money back. 

If the set price is reached and an investor’s cash is converted to stock, but they think the shares still have upside, they can hold on to them. If not, they sell. No money lost.

So why not just buy and hold $MSTR stock for five years? ‘Cause buying and holding still has downside risk – convertible notes don’t.

(You’re essentially trading some upside in order to lower your risk to zero).

Now, most of us retail investors can’t get in on the convertible notes, so once we explain the doomsday scenario we’ll answer if it still makes sense to buy the $MSTR stock.

The problems could begin to arise when/if the following scenario plays out…

*We interrupt your regularly scheduled programming for a quick word from our sponsors*

(Scroll down for more!)

HOW MICROSTRATEGY COULD COLLAPSE (P2) 💣

In case it hasn’t clicked yet, $MSTR’s $82.96B market cap is HEAVILY tied to its $36B $BTC treasury.

(Look at that correlation! 👇)

And as of a few weeks ago, MicroStrategy began its plan to buy $42B worth of Bitcoin over the next three years, using said convertible notes.

(Which will only increase the correlation).

So here’s how things could go to hell:

Currently, $MSTR owns 1.84% of all $BTC that will ever exist – and that’s only set to increase over the next three years.

The 1000ft view of all this scenario?

The forced sale of even a small chunk of that treasury could be enough to hurt Bitcoin’s price, which could force $MSTR to sell in even greater amounts as more debts come due.

(Pushing both $BTC & $MSTR prices lower, as each payment requires more Bitcoin to be sold).

We don’t expect this doomsday scenario to play out, however there is definitely a none zero chance that it does happen.

And honestly, we wouldn’t be surprised if (at some point in the future) MicroStrategy is forced to sell some of its $BTC. 

3/ Is $MSTR a good investment?

It’s still fairly early on in this bull market, so it’s likely both $BTC and $MSTR do well for the foreseeable future.

That said, we think there’s a high likelihood that $MSTR’s 3-5x premium degrades well before a bear market (or god forbid, the doomsday scenario) takes place.

Which means as Bitcoin’s price continues to rise in this bull run, there’s a good chance $MSTR’s stock price could stay flat, or even go down.

To really bring the madness of the current premium into view: $MSTR could fall 55% tomorrow and its market cap would still be inline with the amount of Bitcoin it owns.

Most of the flows and volumes in $MSTR are funds who are hedging and arbitraging their investments in Microstrategy, which means they don’t actually need $MSTR to go up to make money.

If you have no idea what that previous sentence means, don’t worry – neither do I! 

But perhaps that’s a sign that we should both stay away from $MSTR. 

The takeaway? Microstrategy is no longer a simple levered play on Bitcoin. 

It’s a complex and volatile financial instrument that (unless you really know what you’re doing) is probably worth shying away from. 

Alright, stay safe out there folks!

MILK ROAD PRO PORTFOLIO UPDATES 📊

What is this, a pullback for ants?

Like clock-work, every Tuesday, we’re here to share our updated list of investments from the Milk Road PRO Portfolio. 

Disclosure: We are not a day trading portfolio so don’t expect a high volume of trades. Read our “how to build a crypto portfolio in 2024” report to learn more about our portfolio strategy.

Portfolio performance 📉

The Milk Road PRO Portfolio saw a significant increase over the past 7 days. Our portfolio value is at $130.5K, up 6.29% since last week.

Markets have been on a strong upward trend this past week, with the Russell 2000—a broad index tracking U.S. companies—hitting fresh all-time highs.

What does this tell us? Clear confirmation that we’re in full risk-on mode. 🍌

Investors and market participants are closely watching to see what changes might come once Trump is officially inaugurated in January. While U.S. markets are optimistic, global markets are more cautious, anticipating potential new tariffs. These could dampen global demand as Trump pushes to boost domestic production and ensure key technologies are developed at home, reducing reliance on other countries.

Meanwhile, in the crypto world, things are looking bright as well. Over the last 7 days, the market has been overwhelmingly positive, posting a solid 6% gain. 💪

Portfolio changes 👀

BITE-SIZED COOKIES FOR THE ROAD 🍪

Emergence, The Block’s debut conference, is taking place in the stunning city of Prague. A conference in early December, followed by a winter getaway in Europe—sounds like a dream, doesn’t it?*

Bitcoin slips to $91,000. Is this part of a classic pullback or just a minor correction? Our friends at Blockworks have full breakdown for you.

Bitcoin ETFs saw $438M of outflows yesterday. Seems like we’re finally seeing a (relative) cooldown in the market after a wild November.

We’re currently growing our team and are on the hunt for someone to lead partnerships at Milk Road. Think you’ve got what it takes? Click above to read the job description and apply.

Milk Road’s Bitcoin Price page offers real-time pricing for $BTC, keeping you updated on every move. With a clean layout and reliable data, it’s perfect for those closely tracking Bitcoin’s market activity.
*this is sponsored content

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.