Willy Woo: What are the potential liquidation risks of MSTR?

Original author: Willy Woo

Original translation: Shaofaye 123, Foresight News

About MicroStrategy MSTR Convertible Bond Risks

Currently, the only liquidation risk I can see is the convertible bonds it issued:

• If the convertible bond buyers do not convert into shares before maturity, MSTR will have to sell BTC to repay the debt holders.

• This will happen if MSTR does not increase by more than 40% in 5-7 years (varies for each bond, see chart below). Basically, either the MSTR-BTC correlation fails, or BTC fails.

There are other risks of varying degrees:

• The risk of competition, where other companies copy and replicate MSTR, reducing its premium relative to net asset value;

• The risk that the U.S. Securities and Değişme Commission (SEC) would intervene in future purchases, reducing MSTRs premium to NAV;

• Fidelity and Coinbase鈥檚 custody risks;

• Risk of US nationalization (seizure of BTC);

• Saylor Key Person Risk;

• MSTR operational risks;

As a final note, please note the Convertible Notes table, while it gives some idea, it is not exact as I am using Grok AI.

Other questions about MSTR

Question 1: Why doesn鈥檛 MSTR have self-hosting rights?

Willy Woo: As it stands, the exact escrow arrangement has not been disclosed. From what we know, MSTR may have co-signing rights in a multi-signature arrangement. This is a sensible way to proceed.

Question 2: Will MSTU and MSTX be liquidated and harm MSTR?

(Translators note: MSTU: Invest in T-Rex 2 X Long MSTR Daily Target ETF; MSTX: Invest in Defiance Daily Target 2 X Long. The two MSTR ETFs have accumulated over $600 million and $400 million in assets respectively.)

Willy Woo: MSTU/MSTX = Higher risk. 2x is achieved through paper betting on MSTR, with liquidation levels close to instant (plus, no claim on real BTC).

Note: Derivatives positions will devalue BTC.

In addition, due to the impact of volatility, long-term holding will not reach 2 times (losses are more expensive than gains).

Question 3: What if a large number of stock holders sell their stocks at the same time due to external events (stock market downturn)?

Willy Woo: This is only a short-term impact, and in the long run, the market always means increased returns, so it is not a real risk. Debt holders can convert it up to 5-7 years after purchasing the notes. As long as Bitcoin is 40% higher than the initial price within 1-2 macro cycles, there will be no problem.

Question 4: Are there leveraged ETFs that gain exposure through options rather than swaps?

Willy Woo: The volatility arbitrage ticaret desk at TradFi hedge fund does this day in and day out. $70 million is a very small amount, but it is enough to support the size of any given day based on volatility mispricing in the options market.

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