Comment by jerf | Hacker News Reader

Comment by jerf | Hacker News Reader

Parent Full thread

This isn't really about the validity or utility of BitCoin.

It's about the financial wisdom of:

    1. Buy some BitCoin.
    2. Valuate that BitCoin as an asset at well over 100% in value,
       because the market lets you.
    3. Issue stock against your supposed new valuation.
    4. GOTO 1

Strategy (previously MicroStrategy) has been taking advantage of the fact that owning 1 BitCoin has caused the market to increase the value of their company by more than one BitCoin's worth, which they then issue stock against.

It doesn't matter if BitCoin is the future, this is still going to end in tears.

It wouldn't matter what the asset is or how valuable or useful it is... if the market is bonkers enough to value something $YOU buy at 200% of what you paid, simply because $YOU bought it (it's not like the actually become any more valuable when purchased by this company, it's not like an acquisition where there could be synergy of some kind), and then you repeatedly turn that overvaluation into leverage to buy more, the scheme will eventually collapse when the market returns to even a sane 100% valuation.

The only thing relevant about BitCoin is that it's on the short list of assets that a good chunk of buyers is willing to valuate at well over 100% just because someone bought it. A number of people are getting in on this game now too and that's going to further dilute this play.

It makes complete and total sense If you think that Bitcoin is completely and utterly undervalued (Saylor believes it'll be $1M/coin within a decade), and you also understand that it's a deflationary asset, compared to the inflationary asset that is the US dollar (Lost 93% of its buying power in the last 100 years, and 1/5th of all dollars I'm existance have been printed in the last 5 years).

If you believe bitcoin is going to $1m/coin, Saylor buying it at 100k and it being valued at $200k because you can now buy it indirectly through your 401k and safeguard the next 40 years of your savings and your retirement, it is a no brainer. Especially when you compare to what the rest of the markets are doing with the monopoly money that is the US dollar and the US financial policies.

None of that matters in the slightest. If you think bitcoin is going to $1million each, and you have the choice of buying it from the market at $100k (or through several other market vehicles at similar valuation) or buying it through Strategy stock at an implicit valuation of $150k, which should you do?

Bitcoin just happens to be the medium the problem is manifesting on but it doesn't matter what it is. The failure is the market valuating acquisitions at grotesquely more than their market value, and especially for a commodity that has such an absolutely clear market value.

In a way, you're sort of demonstrating the problem. You're so stuck on Bitcoin and going gaga over it that you didn't even understand the actual problem. They're using the brightness of Bitcoin to cover over their dark schemes where you can't see it. It's people like you powering this market failure. Sorry, that's a bit direct, but it's actually healthy for you to hear this. You should understand how you're being jerked around so you can make better future decisions.

(Note that replying with more enthusiastic pitching of the future of Bitcoin would really, really prove my point.)

The market may or may not be "bonkers" to price MSTR at a premium to the market value of the assets it owns.

But there are other non-bitcoin examples.

Berkshire Hathaway is a corporate wrapper around a bunch of assets that are expected to increase in value over time. Berkshire's market value is much greater than the sum of the market values of the assets it wraps.

You might argue that Berkshire is different because the assets it wraps are productive and produce reliable profits for the holding company, while bitcoin just sits there and doesn't do anything.

I'd suggest that producing profits is the attribute that gives Berkshire's assets value, while bitcoin has other attributes that make it valuable. The difference in the source of value shouldn't matter when asking why the wrapper is worth more than the assets it wraps.

Reasonable minds can differ about the sources of value for the underlying assets, but there are many real-world examples where the wrapper around valuable assets is worth a multiple of the assets themselves, and this premium can persist for decades.

That does not track.

If you believed Bitcoin was under valued, you would just buy Bitcoin and not pay a 100% premium to buy shares in their company.

Also being inflationary is a feature of the US dollar, not a downside. It feels like crypto shills never discuss why inflation is intentional and good and rely on the financially illiterate to be shocked by those 93% and 1/5th numbers

People do the same with realestate via PP&E. I think it says more about the currency the valuation is written in than the underlying.

(Not that I'm defending Microstrategy that's obviously insane.)

Yes, strong agree. A properly functioning economy, well, it's probably too strong to say it would never do this, but it shouldn't permit it for years at a time, with all the educated participants in the economy easily able to tell that's what is going on. That this is possible at all doesn't mean the system is broken, but that it is possible at this scale says there is something seriously wrong.

Short term markets are driven entirely by liquidity, they only approach elastic equilibrium in the limit.

Living with this can be painful though. I don't think anyone has serious solutions either other than just waiting for quantitative people to get better at sucking arbitrage out.

> It's about the financial wisdom of

We can make the exact same reasoning if we do those steps but instead of buying bitcoin we buy other company's stock. In fact, this did happen, it was called the merger-mania and happened in the 70s (or 80s? Someone correct me). At the time companies were valued as a multiple of revenue growth, so companies figured they can grow revenue by acquiring other companies. So they would announce they would do it, their stock would jump, then they would acquire by issuing the now-higher value stock. Keep repeating.

The world of crypto is reinventing all the scams that were first invented in the real world. It's not even a hypothetical lol

If you wanna get even more meta, you could imagine the sole point of bitcoin is someone thinking "I'd like to scam people, but the people who are into stocks are already too literate these days. However, if we could invent an entirely new asset class..."

No it is not. You do not understand what bitcoin actually is and why it is valuable or why everyone is trying to get their savings/investments out of the dollar and into Bitcoin (NOT crypto).

You didn't understand what I said, which is that the phenomenon is unrelated to crypto. Could be magic beans.

Reply on news.ycombinator.com