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29th March 2024 > > MSTR, BTC, & KuCoin.

Updated: Jun 14


The BTC vs MSTR relative value play looks very interesting right now, but for reasons that may surprise you. KuCoin tries to repair the recent reputational damage it has suffered, but in a very ham-fisted way, if I may say so.

Market Snap

Market Wrap

Four days of positive inflows to the ETFs have not prevented a breach of $70k to the downside in the last half-hour or so, which is thoroughly disappointing. Market will be thin going into the Easter weekend, which probably explains this irritating – yet temporary – drop in price.

Curious Cryptos’ Commentary – MSTR (MicroStrategy) vs BTC

Since the CC Treasury made its first investment in MSTR on New Year’s Eve 2020, MSTR stock is up 336% compared to the price of BTC which is up 141%. I have long maintained that MSTR offers a leveraged bet on the price of BTC with no risk of liquidation, for reasons we have endlessly discussed in the past.

This outperformance (or underperformance in a bear market) is far from consistent – market sentiment often pushes prices away from fair value. And perhaps that has been happening of late. In the last month, the acceleration of MSTR’s stock price versus BTC has been turbo-charged in a way we have never seen before.

Since the end of February, the value of BTC held on MSTR’s balance sheet has reduced from 93% of MSTR’s market cap to a mere 52% as of yesterday’s close. For long-only funds like the CC Treasury, the obvious trade is to sell MSTR to buy BTC. Once the ratio returns close to 100% again, the trade is to sell BTC and buy MSTR. Rinse and repeat at every opportunity and that mini-portfolio will massively outperform.

Except for one interesting wrinkle right now which suggests that there may be some legs in

delaying a pivot away from MSTR and into BTC.

Hedge funds and private money will often be delta neutral in their trade strategies, in this case by shorting MSTR and buying BTC. This is the exact same principle as my trade idea above but involving leverage on the short side, which always triggers a warning sound in my head when discussing cryptos and crypto stocks. In this case, the warning is an opportunity for us.

Just yesterday Kerrisdale Capital announced it was short MSTR and long BTC for the reason that MSTR’s balance sheet is about double the value of the BTC on its balance sheet, as noted above. MSTR’s stock fell 14% on this observation (one can hardly call it news, it is not a complex calculation) by Kerrisdale.

So, what is the upside from delaying the pivot into BTC and keeping MSTR for now?

As analytics firm S3 Partners makes clear, both MSTR and COIN have large short bases within the hedge fund community. In the case of COIN, the short interest is 8% of the free float. For MSTR, it is a whopping 24% of the free float, a situation not unlike that we saw with Tesla and GameStop, and we all know how badly they both turned out for the hedge funds.

Borrowing costs must be ratcheting up at that level, making the trade highly negative for daily funding (BTC creates no income).

If markets become more rational in the near future – meaning that BTC outperforms MSTR – the hedgies will be pleased with themselves and will quietly exit the trade, knowing that the bonus pool has grown. But the longer markets stay irrational – and they can do that for a very long time – the daily carry costs mount up, setting the scene for a classic short squeeze propelling MSTR stock price skywards. Just the mere possibility of that happening, increases the probability of that happening.

To be clear, this is not a trade recommendation. Please do not sell BTC to buy MSTR. But if you were going to sell MSTR to buy BTC – which superficially looks the right trade – then the aggressive play (not necessarily the correct one) is to wait in the hope of a short squeeze. If you are bullish on cryptos then there is relatively limited downside to the delay, and massive upside.

I know what the CC Treasury is going to do in this situation.

Curious Cryptos’ Commentary – KuCoin

KuCoin has announced a $10mm airdrop, presumably as a response to the recent SEC charges, in an attempt to shore up its customer base:

There is a piece of classic corporate nonsense in this press release, with the CEO of KuCoin, Johny Lyu, bestowing upon his company a moniker that I am pretty sure no-one had ever used before when talking about KuCoin:

“In the early days of October 2017, at the very early stage of KuCoin, we made the unprecedented decision in the industry to proactively acquire and compensate users in large amounts due to the abnormal delisting of the CFD project. This act of proactive compensation marked the origin of the title of "People's Exchange" - a testament to the community's original affirmation of us. We have always treasured this rare trust, and being "People's Exchange" is our proudest label.”

Yeah right, whatever mate.

If you are a user of KuCoin you may end up with a few extra dollars of cryptos, but you shouldn’t pooh-pooh that concept. My free cryptos collected over the years, all worth not a lot at the time, are now valued at over £15k (yes, I do keep detailed records, but you already know that about me).

The point of this story is – be careful.

This announcement is less than 24-hours old, and already the scammers are out there requesting the unwary to connect their online wallets to claim the free dosh. If you do that, all that will happen is that your wallet will get drained.

The airdrop will only happen into your KuCoin account, and nowhere else.

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