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- [00:00]
A
So, but you know, at the end of the day, it's, you know, any gains that sit inside strategy is a result of shareholder losses. It's, this is not a win win.
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Hi, everyone. Welcome to Unchained, your no Hype resource for all things crypto. I'm your host, Laura Shin. Before we dive into today's discussion, let's hear a word from the sponsors that make this show possible.
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This episode is brought to you by Kape America's Privacy. First mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location and your data actually stay yours. Get 33% off six months at Cape Co. Unchained Fidelity has been investing in blockchain since 2014. They're not wondering if digital assets will shape the future. They're hiring the talent to help ensure they do. Explore opportunities today@crypto.fidelitycareers.com Fidelity is an equal opportunity employer. Quick plug before we keep going. If you want crypto news without the hype, subscribe to the Unchained Daily. It's our free morning newsletter. The day's most important stories explained clearly
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in a few minutes.
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Sign up@unchained crypto.com newsletters.
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B
Today's guest is Vinnie Lingham, co founder of Praxis Capital. Welcome, Vinny.
- [01:22]
A
Hey, Laura. Good to be on. Thanks for having me.
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B
Yeah. Oh my gosh. The Strategy story has been like a slow motion disaster. It's been unfolding for a few weeks, but it sort of feels like it's kind of ramping up now. This morning I saw that MSTR stock drop to as low as 86.82. It's currently at $90.07 and that's like probably a little bit more than 80% down from its all time high in November of 24 at $470 and 83 cents. Meanwhile, STRC stretch has, which, you know, that's sort of been at the center of all the drama, is now trading at 7830 or sorry, 7458. And this morning it dropped to as low as 7,8 3. Sorry, it's now trading at 7830. And this morning it dropped to as low as 7458. So obviously that's well below par. You know, I saw also at least yesterday, Strategies M nav is at 1.06 and it's probably changed since as well. And what's interesting is like this came just a couple days after Strategy announced that it had raised another $335 million, it sold 2.7 million shares of its common stock. They used 300 million of that to boost their cash reserves to 1.4 billion, which will allow them to fund the dividends on their preferred stocks for it's probably like roughly 10 months, ish or so. So you would think that would have bolstered people's faith and strategy. But despite all that, despite having more of a Runway to meet their dividend obligations, it seems like the market has less faith in strategy. So why do you think that is? What's your take on everything going on?
- [03:11]
A
Well, first of all, this is all very predictable. I mean I put a tweet out there in I think October of 2024 saying that, I think Saylor, ultimately you've got the tweet there. It was an unpopular prediction at the time because MicroStrategy was at an all time high literally around that time. And I was saying that he will do more damage to Bitcoin than FTX ultimately. And it's been like 18 months. And I think people at the time, they were like, vinny, you're crazy. This is nuts. Why are you such a hater? And now they're like, oh shoot, maybe you were right. He's constructed a very, very complex financial engineering web, which people call it like a Ponzi scheme. It's not a Ponzi scheme. Ponzi scheme is actually pretty simple. Take money from investors on the one side and give it to new investors and give it to old investors. This is like a sailor scheme. This is something totally different. He's created this basically very complex preferred stack where he's got debt and then he's released so many different preferreds. He's got like sdrc, but he also had strd, sdrk, strf, and none of them worked, right? But he kept releasing new ones and new ones. And the reason he's able to raise so much money by the way, is it just he paid the bankers so much money on Wall street. He gave them huge commissions, he could pay them tons of. It's just incentive driven, right? If he's paying them 3% to raise a billion dollars, they're going to do it. They're going to get their customers to put money into this blindly. And you know, he has a way of like speaking about the stuff which makes people believe that it's, it's legit. And he's like, he used chat GPT to do the engineering work on this stuff, right? Even admitted that like a week ago. And so people are losing faith in him because literally, they're realizing that, you know. You know, it's ChatGPT's hallucinations that made this whole thing come together, and. And now we have a huge problem on our hands, and I just don't see. And I get. I get the argument from some people, like, oh, you know, zoom out. Bitcoin's gonna be fine. Oh, people are still collecting the dividends that they would have gotten anyway, blah, blah, blah. But the problem is that this is. This is a. That's like a personal narrative people may have on. On this topic. The market is speaking, and it's saying that SDRC needs to trade at 20% discount to give a 14.5% effective yield. He cannot repay this to 100 bucks. I'll bet anyone that this almost never gets to 100 bucks ever again. Like, it just can't. Right? It's. The damage has been done. People will be cashing out at 100 to get the money back because it's not safe, right? 11.5% isn't safe anymore, and he can't jack up the interest rates. You know, there's a chess move for this. It's called zugzwang. It's like every move you make, you know, is a losing move. You can't make a move here. And so if he jacks up the. The. The.
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The.
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The yield, he. You know, it reduces his Runway. He has less cash to pay up. I mean, he literally has to choose is he going to sacrifice. What is he going to sacrifice here? Does he sacrifice MSTR or does he sacrifice something else, like fcrc? But, like, it's. Something has to give, and I think people are waiting for that.
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B
I mean, it looks like so far, he has been sacrificing MSTR in the sense that, like, you know, the holders of the common stock are getting diluted by some of the moves that he's been making. So I feel like that's maybe why the MSTR price has been dropping. You know, it's sort of like. Okay, I have a question. Okay, wait. So I have a question for you, because Jeff Dorman came on the show recently, and he said that he felt like that small sale of 32 bitcoin was a mistake. He feels like he. Or he felt like Saylor should have just, you know, sold, like, $2 billion worth, created, like, a nice little Runway for himself, and then the market, you know, would have been, like, ripping the band.
- [06:55]
A
He had the Runway. He had the Runway. He had. He. He repurchased, like, 1.5 billion bucks worth of debt for 20, 29. It was stupid. I mean, he, he basically blew his Runway and then he basically put the price of the cost of doing that on MSTR holders. And look at the price of MSTR since he did that. It's just slow. I mean, it's in free fall right now. I don't know where the bottom is. He can't pay the premium to him now. That's the issue right now. We've seen this with gbtc, we've seen this with a whole bunch of things in the past. The fact that he's sitting in 1.06 or 1.07, that needs to be a discount, that needs to be 0.9 and then the game is over. So the market's going to punish him. I think you shouldn't see MSTR trading at anything above 80 bucks within the next week or so. Maybe even within the next day or two.
- [07:44]
B
Well, so, so what? Okay, what, what do you say to people who are like, he has 32 years, sorry, the Bitcoin he holds is worth 30 years of the current price
- [07:56]
A
only with stays with the current price. If we go into a D. Look, bitcoin, and I've been in bitcoin for a long time, has retraced 80 to 90% in almost every bear market. This bear market's 50%. So if you say, look, maybe it retraces 70% or 80%, it's going below 50K. So that 29, this is what people don't get, right? If you're holding a non USD, it's not dollars, right? It's an asset that's priced in dollars. And if bitcoin goes down 30, 40% from year, then the 30 years becomes 20 years, becomes 15 years becomes 10 years, right? And at the same time, he's having to dilute MSTR shareholders the whole time to pay the interest. So if this bear market extends for a year or two from where we are right now, and everyone's like, oh, the next halving is coming, blah, blah, blah, you know, it can be a while, right? It's a while for it to happen. And you know there's a real cash strain. The business doesn't produce any cash. So the only way you make cash is sell MSTR shares or sell bitcoin and he sold 32 bitcoin and the market puked, right? So it's kind of like if he has to sell 100,000 bitcoin or whatever it is, I know there's some other preps and converts that are coming forward. Like the price of bitcoin just drops. He's been the guy that's been pumping up the price of bitcoin the whole time from the FTX lows, right? He's been the biggest buyer of bitcoin. And so what he does is he buys bitcoin at inflated prices, which pushes up the mark on MSTR shares, which allows them to sell more MSTR shares to buy more bitcoin to push the price of mstr. It's this weird loop that he created which works well on the way up, not so much on the way down. And so he was literally like, he's the guy who's been pushing bitcoin to call it a premature high. And by the way, everyone thought bitcoin was going to go to 250, 500k million dollars. It didn't do it because it's some level of market manipulation. That's what he's doing. If he's able to buy bitcoin at a marginal price, that pushes the price of bitcoin up and therefore has a reflexive loop into the price of mstr, he's able to basically manipulate the price of his shares by buying an external reference point. And this is the problem, right? It's kind of this weird convexity that happens between MSTR and btc. And so because he's able to manipulate btc, and by the way, BTC doesn't trade in high volumes per day on Coinbase, BTC's daily volume is like 10,000 or 14,000. So when he's buying a large chunk, he's able to push that. And he also gets people into this sort of this loop where it's positive loop, where they think, oh, it's just going to keep going up, keep going up.
- [10:34]
B
I mean, so, yeah, you were very prescient to have tweeted all the way back in October 2024 that you think ultimately MicroStrategy's strategy could do more harm to Bitcoin than FTX. So walk me through how you think the MSTR empire could crash.
- [10:53]
A
So I think it ultimately goes with. It goes in the world where he has no more cash left and he can't sell and he can't sell. So the moment MSTR trades at a discount, and it's very close to that right now, and some people's calculation show it is a discount, but whatever, like it's close, once you get it to a discount, he cannot raise more cash, right? Any time he sells mstr, it's basically very dilutive. Because he's selling it at below M Nav. Okay, so he's locked out. He console mstr. Then he can't sell STRC because it's not sitting at about a hundred bucks, right? So that's also diluted. So then he starts running out of cash in the organization that call it 9 months, 8 months, 7 months, the market crisis is in, well, well in advance. And so then he, the biggest buyer of bitcoin is being removed. People selling bitcoin are going to push the price of bitcoin down. And, and you basically, you know, you have this imbalance that forms in the market where people need liquidity. There's no one, say someone who has provided liquidity for years is no longer providing it. The price of bitcoin goes down, goes into a deeper bear market. He has to sell something. He has to sell bitcoin to pay the interest on the preps. He can suspend the interest on the press, which is one, one thing he can do. But they are cumulative, right? So he has to. He still owes that money even though he suspends payouts. And he has to basically wait it out. Look, the only logical thing he can do right now, and he won't do this because this is not his style, is to stop buying bitcoin and stop sending MSTR and just wait it out. But he won't do this. It's just not. He's too narcissistic to do this. And so he was wrong. And so I don't know how it crashes, but he's going to bring it down. And I have a crystal ball, but I can just tell you from, I don't know the guy, but just watching all his hubris over the years. And the other thing is, people don't appreciate this. The reason the microstrategy is sitting in a position, sitting right now, is that it sold shares to people at $500 plus all the way down. And people are paying huge premiums because they believe the story. Those people have lost money. If you bought a share, 550, and now it's 80 bucks and you held it all the way through, you've lost money. But the company's in good stead because it was basically selling their shares, their junk, their junk shares effectively at a huge premium at 3 times m nav. And because people believe that there was a bigger player. I know it's just wrong. And this is why I tweeted about it. People just misinterpreted this whole play. So don't mistake the success of msdr or strategy being that they have, they have accumulated all this bitcoin, they've done it at the expense of shareholders, which is what my point has been. It's been at the expense of MSDR investors over the past couple of years who are buying it at inflated prices, believing that there was a bigger player and there isn't. It's just a Treasury company holds bitcoin, it should trade at a discount like every other treasury company. But he's really good at the sales pitch. So. But you know, at the end of the day it's, you know, any gains that sit inside strategy is a result of shareholder losses. It's not, this is not a win win.
- [13:46]
B
Okay, so I need to understand one thing. What do you think is the reason for this crash? Is it literally just that the market lost confidence in him? Because I'm sure you've seen there's all these other hypotheses floating around. So one is like there were leveraged liquidations. Another is Travis Kling. He tweeted about kind of like a potential Soros style attack. I think like others were also saying this, but he basically said that in his theory there's bitcoin bulls who just don't kind of like the effect that strategy has had in bitcoin. And so, you know, for them, they want to reduce strategy and sailors influence on bitcoin. And he feels like potentially there's some bulls who are just trying to, you know, diminish the influence they have. But I don't know if you have any other.
- [14:40]
A
I don't think it's one thing. I think there's a confluence of attack vectors on MSTR and different actors with different reasons to attack it. But the point is that it's not bitcoin. Bitcoin can't be attacked like this. So he's basically added a ton of leverage and concentration risk to Bitcoin. And that's what people don't understand. Like if you want to own bitcoin, buy Bitcoin but don't buy a share of MSTR at three times the value of the underlying Bitcoin that it holds. That's just silly. And then there's this whole amplification, basically you can add that leverage yourself on Vexus. You don't need to use MicroStrategy to do it. And when you can get stopped at as well when it goes down, it's just silly, right? Like we're playing these silly games and we've been in crypto for a long time. We all know how leverage blows up everyone. It's blown up three arrows. It blew up Luna. And you know, like, leverage is silly. This is just leverage in a different form. So it's like a sailor scheme. It's not a Ponzi scheme. It's just a highly levered form of Bitcoin. And hey, it's great for traders. You can trade MSTR and get huge leverage on it, effectively with amplification, and you have to trade Bitcoin anymore. But like, you know, it's so antithetical to all the, the ethos of bitcoin when it started off and the people that cheering it on. I just like, I'm like, you are not cutting up from bitcoin. You understand why bitcoin was created and what the ethos was. And so bitcoin kind of lost the path over the years as people became more microstrategy fans than bitcoin fans. And so this is like my critical argument there is that bitcoin was always like your keys, your bitcoin, that sort of thing, right? And so if you don't own the keys, you don't own the bitcoin and you're buying shares in effectively some sort of quasi ETF type structure with a whole bunch of financial engineering and Vijay Boyer, party whatever his name is on X, you know, him and I never see eye to eye on things for many, many years. The one thing we do see eye to eye on for years is the fact that this is just bad for bitcoin and this is gonna, this is gonna, you know, have a. This is just like over, over, over financialized engineering. It's not going to end well. It's not ending well right now.
- [16:41]
B
Yeah. All right, so in a moment, we're gonna talk about where things go from here. But first we'll take a quick word from the sponsors to make the show possible.
- [16:49]
C
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- [18:07]
B
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- [18:09]
C
Explore crypto careers at Fidelity today and make the decision that could change your future for the better. Visit crypto.fidelitycareers.com to learn more. That's crypto.fidelitycareers.Com Fidelity is an equal opportunity
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employer Back to my conversation with Vinny. I wanted to also ask you they moved recently to buy monthly dividends. Do you feel like that hurts or helps strategy situation?
- [18:34]
A
That actually hurts. And I, I wrote about this on on X. And you know, my ex is at Vinny Lingham if anyone wants to follow me. But you know, I wrote about this actually a month ago and I said this is actually a bad thing. And the reason it's bad is, you know, the monthly dividends and the value. I also think that is maybe because I wrote it because people figured it out. But the bimonthly dividends is a problem because now when there's a crash like this or there's a big drawdown, they have to adjust the interest rate faster to keep up with what's going on because it doesn't give the market time to breathe and rebalance. And that's what's happening right now. So now they have to every two weeks really look at like first of all paying a dividend. But then, you know, how do they adjust? And maybe, maybe they don't change the adjustment period, maybe they still do it monthly. But you know, I don't know how they cannot do an interest rate hike at the end of this month and people are actually realizing they cannot because it'll shorten their Runway on cash. So, you know, his only choices, and we'll find out next week, is dilute MSTR shareholders to try and buffer the cash reserves, which is probably what he's doing right now, this week anyway. But I think the bi monthly is actually a big mistake. And you know, they did it.
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B
Okay. And then I also wanted to ask you about A tweet by Matt Walsh of Castle Island Ventures. He tweeted that he thinks the convertible notes may now matter more than the preferreds. And so they're actually not due until, you know that. Well, it's all at different times, like September 2027, March 2028, June 2028, et cetera. But he basically said that now Strategy has about $6.7 billion of converts outstanding, and those notes give holders put rights on specific dates. And he said, quote, if they are not converted, refinanced or repurchased, holders can require strategy to buy them back for cash at par. And these different conversion prices are like 1834-336721-50233, 204. He said if MSTR is high enough and the conversion conditions are met, holders
- [20:36]
C
may try to convert.
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B
Strategy can elect to settle in common or a mix of cash in common. If not, the puts become cash obligations. The first three total about $4.5 billion by June 2028. This could put the company into default if not addressed. And he was talking about how at the bitcoin price of about 67k, the funding would. Funding those three puts entirely with Bitcoin would require roughly 74,000 Bitcoin and the full schedule would require 111,000 bitcoins. So what's your take on what he said there?
- [21:14]
A
I think the market's pricing this in as well. I mean, this is like about a year away. And if he doesn't have the cash to pay. Look, I'll take what Matt said at face value. I haven't fact checked this stuff. I'm sure he's right. This is the problem right now. Say that he sold 32 bitcoin and the whole thing crashed. Like, imagine having to sell 100,000. He's been the buyer holding it up. He's been artificially manipulating the price of bitcoin for a long time now. And so when he has to dump bitcoin to raise cash, it's not going to end well. And he's going to try and sell mstr, but MSTR has to create a discount before we get to the point where this sort of, I think, settles down. I think what happens is we basically get to a point where MSTR becomes, or strategy becomes reasonably irrelevant and needs to be in that irrelevancy phase for a while. Otherwise, if he just keeps doubling down, doubling down, he's going to break the whole system. So I think he just needs to back off right now.
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B
Okay, so Last question. It's a two part question. First of all, do you think MSTR can be saved? And if so, how? And then second, what do you think is most likely going to happen?
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A
I mean I was running MSTR right now, I think I could probably save it. It would basically require stopping all bitcoin purchases, letting it find its natural resting place, not diluting MSTR shareholders and just waiting for the cycle to play out, whatever that means. It's just, the hubris just kills me here because even last week he was buying more bitcoin, just buying, you know, the big mistake really was spending $1.5 billion buying 20, 29 converts out. That was silly. I just think, I mean, I think they're really bad traders in micro strategy. They're really, really bad traders. They've always buying the top and that's because they're pushing hard. You know, I don't know, I don't know if I could save it maybe, but I could very help stop the hemorrhaging. And, and I think, I think at this point they have to stop the bleed and they have to just wait it out. I don't think there's a, I don't think trying to do the playbook they've been using the past couple of years is going to work. I think trying to manipulate the price of Bitcoin to, to keep MSTR flying higher, higher is, is, first of all it's not working and second of all it just won't work going forward. That's what they're doing.
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B
So what do you think is most likely to happen now?
- [23:37]
A
I think a most likely outcome is MSTR drops to like between, you know, fifty and eighty bucks, trades at a discount to MVav. Bitcoin, you know, keeps going down till it finds a natural resting place and then, and then MSTR trades at a discount to whatever that M nav is at the bottom. And, and then you just have to wait it out like we did with GBDC back in the days and a few others like you said, to wait it out and wait for the market to recover and rebuild, etc. But stop, you know, stop trying to get to a million Bitcoin, stop trying to just stop trying to manipulate the market is what I'm saying. But you know, if failure to do that is basically a lead to a meltdown, in my opinion, again, no one, no one's going to take my advice here. So let's see what happens.
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B
And, and just like last question on that. So during that time they would keep paying the preferreds down or they would stop that. Or what would you.
- [24:25]
A
They wouldn't have a choice. They would have to sell some bitcoin and pay off the preferreds and hope the price doesn't drop too much. It's the, the gambit here is that, is that could you do less damage by being more conservative with how you up run the company and stop trying to push for huge returns up front and let the stock create a discount until everything recovers. Right? Until macro conditions change. Until, you know, but like, but the constant like let's, let's buy bitcoin to push the price up so our MSTR price goes up is that game is over. I mean that is just market manipulation and I think they've been doing it for too long now.
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B
Wow. Wow. All right, Vinny. Well, as usual, it was a pleasure having you on a chain. Thank you so much.
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A
Thanks, Laura. Great to be on. Cheers.
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Nothing you hear on Unchained is investment advice. This show is for informational and entertainment purposes only and my guest and I may hold assets discussed on the show. For more disclosures, visit Unchained Crypto.com.
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Don't.