Toby McMann's avatar
Toby McMann 2 weeks ago
Thank you. Very thought provoking and appreciated. Sorry for the delayed response. Your thinking is next level. Mine is not. So I am learning and appreciate your patience. My understanding... Derivatives on gold effectively increase the supply, putting downward pressure on price through rehypothication. In other words, paper gold and physical gold are treated as (near) perfect substitutes. I think this describes the situation? I am not sure that investors in treasury company preferreds are treating them as substitutes to bitcoin. I think they are betting bitcoin's price will go up "enough" over time (and Strategy's holdings and ability to attract capital will remain sufficient) to keep the dividends coming, and ideally keep the preferred price near par. Conversely, investors in Strategy common are largely betting bitcoin goes up a lot. Around Saylor's assumption of a 30% CAGR. With leverage provided by the converts and preferred, the common is a leveraged bet on bitcoin. Strategy is not (yet) lending out its bitcoin. Its shares are not perfect substitues. So I dont see rehypothication from their activities. Instead, I see Strategy bringing capital to the network by facilitating an more granular alignment of risk appetite for various investors. That is the value that Saylor is creating. He is building Bitcoin's yield curve. But, again, I dont see the value coming from rehypothication or increased supply from substitutes. I dont see a centralization of control from these activities. So I am not sure we will need a fork. Or the medium of exchange use case to solve the problem, etc. But, again, I fully appreciate your thinking is beyond mine in many ways. Just thought I would be transparent, if it helps align our communities view of the situation and risks?
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Ricky Zhang's avatar
Ricky Zhang ricky@ageofabundance.live 2 weeks ago
This is a fundamentally self-contradictory statement: "That is the value that Saylor is creating. He is building Bitcoin's yield curve." Bitcoin has no yield, so building a yield curve just means reintroducing the credit-money stack that bitcoin was designed to retire: someone, somewhere, is now taking leverage and credit risk so that "bitcoin" can pay a coupon it cannot natively pay. With MSTR and the preferreds, we are very much on a path towards what Jeff is describing: 1. Over time, more of the money that would've just bought bitcoin buys the yield product instead, because it pays income and feels safer. At the margin, the preferred quietly becomes a substitute for buying bitcoin. Not in today's snapshot, but that's the direction every year this thing grows. 2. Strategy doesn't lend its coins, but the preferred itself becomes collateral out in the world. One coin sits reserved while the claim on it gets pledged and borrowed against again and again, in margin accounts and structured products. 3. Even if none of that happened: moving more and more coins off the network into a handful of company balance sheets, parked at two or three custodians, is centralization on its own. These all contribute to the centralization of bitcoin when you have infinitely expanding claims on top of a fixed base. Eventually, when there is a bank run, the system tries to change the rules to stay solvent. Because of the nodes and the protocol, it will not succeed this time.
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