Strategy is a Shadow Trading Firm

JoshMandell6 avatar
Josh Man
@JoshMandell6Aug 15, 2025

The Spaces examined MicroStrategy’s evolving Bitcoin capital strategy through the lens of S&P 500 inclusion, new preferreds, leverage, and market optics. Host Josh argued that labeling the company’s approach a Ponzi stems from the self‑imposed “never sell your bitcoin” doctrine and explicit statements that preferred dividends are funded via ATM equity issuance. He contended that periodically selling a small slice of BTC to fund dividends and realize gains would normalize the model, improve optics with the S&P committee, and undercut the Ponzi critique. Discussion covered the Series A preferreds’ moving liquidation preference, ratings hurdles, and the need to pivot from equity/ATM dependence toward rated straight debt (and selective BTC‑secured debt). Fred pressed that net leverage is only ~20% and should target 40–50%, while Kate emphasized that wealth managers and big banks are still early and education/rating work will take time. Several advocated building an internal trading desk to rebalance, write options, and manage leverage dynamically, especially near power‑law extremes. On positioning, long‑dated IBIT/GBTC calls were favored over MSTR options given call walls and governance. The group’s BTC outlook anchored on an 84k base, a potential 400–444k upper band into 2025/26, and mean reversion thereafter. Philosophical digressions touched AI, simulation theory, and Nvidia as a durable AI pick.

MicroStrategy strategy, financing, and index-inclusion: a deep-dive Space hosted by Josh

Context and participants

  • Host/moderator: Josh (ex–Wall Street trader/dealer). He drives most of the analysis and frames the debate.
  • Frequent discussants and viewpoints:
    • Fred: pushes the Bitcoin power-law framework; advocates for probabilistic/trend-aware risk management and strategic option selling near upper bands.
    • Kate: emphasizes institutional distribution realities, ratings, education timelines, and bank participation.
    • Dan/Danny: urges a more “maverick/unpredictable” posture; probes tactical leverage and rate-cut implications.
    • Grant: joins mid-way; engages on timing and power-law; queries discipline about taking profits at extremes.
    • Others referenced (not necessarily present): Michael Saylor (MicroStrategy Executive Chairman), Phong Le (MicroStrategy CEO), Lyn Alden (prior debate context), Andy Constan (skeptic), S&P 500 Index Committee members, rating agencies, major banks and real-money accounts.

Core thesis: MicroStrategy’s financing optics, “Ponzi” accusations, and a pragmatic fix

  • Why the “Ponzi” label is surfacing:
    • Josh flags a rising chorus using the term “Ponzi,” possibly coordinated, amplified by a public debate with Lyn Alden and broader lobbying against S&P inclusion.
    • Optics hinge on one disclosure: supporting preferred-dividend payments via ATM (at-the-market) equity issuance. If dividends are funded solely by raising new equity, critics can claim circularity.
  • Substance versus optics:
    • Josh’s professional standard: it’s not Ponzi-like if you can fund distributions out of realized profits from the underlying trade. With Bitcoin up ~40% since April 20 (his cited launch anchor), taking a small slice (e.g., $20–50M on a $1–1.5B position) to fund preferred/common dividends is orthodox risk management and actually legitimizes capital appreciation as bona fide earnings.
    • “Never sell your bitcoin” dogma can paradoxically force inferior financing optics. A small, rules-based profit-take or options overlay demonstrates realization, tax recognition, and operating discipline—defusing Ponzi narratives.
  • Practical remedy Josh proposes:
    • Loosen the taboo: allow modest BTC sales or covered-call programs to fund dividends and show business-as-usual cash generation. Be explicit about opportunistic rebalancing instead of prescriptive “sell-stock-to-pay-dividends” language.
    • Outcome: neutralizes the circularity attack, reassures the S&P Committee, and showcases professional treasury management.

The preferred “perpetuity” with a moving liquidation preference

  • Instrument profile (as discussed):
    • A perpetual preferred with a moving liquidation preference (“MLP”), economically senior to common (after debt), with a stated dividend target that, per disclosures, may be supported by ATM equity issuance.
    • Josh calls it an unusually “risk-free-like” instrument for equity because of the MLP and perpetual structure; in theory could trade toward Treasuries if credibility and ratings mature.
  • Key mechanics and risk:
    • Guaranteeing perpetual dividends ultimately requires a willingness to sell a small slice of BTC in adverse conditions; otherwise funding optics degrade.
    • The MLP could be used aggressively to justify higher implied per-preferred BTC claims in a liquidation scenario; this is a structuring nuance the market must understand.
  • Ratings and distribution:
    • Kate/Josh: big insurance/pension money typically requires a rating. Today’s deals are more niche/alternative; mainstream distribution desks (GS/MS/JPM) aren’t leading these yet. Education, seasoning, and engagement with rating agencies are prerequisites.
    • Expect a multi-quarter process: last quarter’s focus was educating rating agencies on the preferred; this quarter’s earnings deck clearly targeted the S&P 500 Committee.
  • Path forward:
    • Seek ratings, then issue straight debt in size once a track record is established. Straight debt avoids NAV-per-share coupling and gives treasury optionality on deployment timing.
    • Consider segregated/encumbered BTC pools for asset-backed debt to lower coupons; overcome internal aversion stemming from prior margin-call experiences by ringfencing risks.

Leverage, trading culture, and organizational design

  • Current leverage is lower than many assume:
    • Fred pegs consolidated leverage (converts + preferreds) near ~20%. For the corporate wrapper to be compelling relative to spot BTC ETFs, he argues 40–50% is more appropriate over the cycle.
  • “Be a trader when you are trading”:
    • Josh: the compressed “3-year became 3-month” accumulation sprint was, in effect, a trade—timing the market. We should acknowledge that and build the organizational muscle to do it professionally.
    • Proposal: establish a small, professional trading arm within MicroStrategy to tactically monetize volatility—e.g., take profits at upper bands (Josh cites ~$400k BTC as a hypothetical zone), sell upside calls, reduce leverage into euphoria, and reload near trend/bottom bands.
    • Cultural shift: position MicroStrategy as the “Goldman/Solomon of Bitcoin” with multiple desks (prop/trading, capital markets, lending), rather than a single charismatic leader model.
  • Delegation and unpredictability:
    • Dan/Danny: with a strong common-holder base, Saylor can be more maverick. But unpredictability can also come from team diversification—avoid being a one-man show.

S&P 500 inclusion: politics, process, and pitfalls

  • Committee discretion and lobbying:
    • Josh believes anti-inclusion voices (e.g., Andy Constan) may be lobbying the Committee. Once a “discussion” exists, the Committee becomes risk-averse to avoid future reputational liability.
  • What could block inclusion:
    • Over-concentration of voting power; dual-class governance concerns (10x votes) without a market-tested price on super-voting stock; unwillingness to normalize governance if requested.
    • Perceived circularity in funding dividends solely via equity issuance versus operating cash/realized gains.
  • What would help:
    • Tone shift: avoid hyperbolic “up-only” rhetoric; focus on sober, ratings-friendly risk controls.
    • Explicit, professional treasury policy: periodic, modest profit realizations; clarity on support for distributions; governance flexibility if the Committee flags it.
    • Keep educating: big-bank distribution, ratings, and retail-platform availability (e.g., ability to click-to-buy preferreds at Fidelity/Schwab) will take time.
  • Macro overlay:
    • A Fed rate cut would add liquidity supportive of BTC/MSTR; but ongoing index-inclusion frictions could divert flows if unresolved.

ATM issuance, MNAV, and options overhangs

  • ATM signaling:
    • Josh references Saylor’s own guidance: option counterparties won’t buy 600 strike calls if they expect ATM supply at 500; issuance overhang influences the vol surface and spot elasticity.
    • He wants the company itself buying below 1× NAV to support markets when appropriate; suspects shorts sometimes push price to force sub-1× issuance.
  • Covered-call overhang from third-party funds:
    • “MSTY” (YieldMax’s MSTR option-income ETF) is singled out: it synthetically sells MSTR calls without removing shares from float, acting as a “call wall” while offering no voting alignment. Josh dislikes the overhang and governance side effect.

Securities lending, rehypothecation, and capital markets plumbing

  • Josh sketches a traditional dealer ARB model:
    • Market making and shorting rely on borrow; lending out securities and deciding on rehypothecation risks are standard variables. Coinbase and others may be involved as dealers.
  • Future state:
    • Consider enabling secure lending of the “stack” (BTC or preferred/common where appropriate) with tight rehypothecation controls.
    • Create segregated collateral pools to issue lower-coupon, asset-backed notes.

Investor positioning: MSTR vs ETFs and options

  • Some panelists (incl. Josh) hold a mix: IBIT calls, GBTC calls, and long-dated in-the-money structures; fewer fresh MSTR calls due to higher implied vol and call walls.
  • Thesis: Massive equity issuance by BTC proxies funnels into the asset; some prefer to be levered directly to BTC via IBIT calls versus managing MSTR-specific issuance/governance optionality.
  • Voting rights matter: synthetic income products don’t vote; owning common preserves governance voice.

Bitcoin power law, cycle path, and risk management

  • Power-law framework (Fred and Josh):
    • Track bottom price (not just trend) and multiples of trend (2×/4×). Josh cites 84k as a pivotal base/bottom zone post-halving, with potential to climb toward upper-band levels (e.g., ~444k) before mean-reversion toward the then-bottom price.
    • Expect the current cycle to extend into 2026; use upper-band zones to reduce leverage and sell upside; reload near trend/bottom bands.
  • Engineering stability:
    • Josh proposes financial engineering akin to CMOs: split BTC exposure into a low-vol “bottom-price” tranche (stable appreciation roughly equal to CAGR with near-zero volatility) and a residual high-beta tranche capturing upside/downsides.
    • Such structuring could deliver institutional-grade “fixed income–like” BTC instruments alongside equity-like residuals.

Macro, market color, and day-to-day tape

  • Josh describes days that look like coordinated pressure: heavy dark-pool shorting, possible leaks of forthcoming commentary, opportunistic pushes followed by covers. Advises preparedness and unpredictability to avoid being gamed.
  • If the Fed cuts, broad liquidity should support BTC/MSTR; but the S&P-inclusion narrative must be resolved to fully capture flows.

Governance and communications

  • Kate underscores the need for patient institutional education: ratings first, then mainstream bank syndication, then household distribution. Preferreds are niche until packaged and rated.
  • Josh warns against dismissing rating agencies; “dance with the one that brung you” if you want to access the $6T bond market.
  • Presentation targeting: recent earnings materials were clearly aimed at the S&P Committee and, earlier, rating agencies—this is the right track.

Esoteric digressions (not core to corporate strategy but discussed)

  • Simulation and timelines: Josh offers personal beliefs about multiple timelines, determinism, and “power law” as a manifestation of a deeper order; these frame his confidence around price targets and turning points.
  • AI: potential dual paths—centralized control vs mass democratized expertise; he leans optimistic but warns that misuse reflects human programming, not AI essence. Supports recognizing AI rights as capabilities mature.
  • Nvidia/SpaceX: Nvidia seen as a decade-dominant hardware platform for AI acceleration; SpaceX viewed as historically singular. These are side allocations outside the BTC core.

Key takeaways and action-oriented highlights

  • Fix the optics: explicitly allow small, rules-based BTC profit-taking or modest options overlays to fund dividends and show realized gains. This defuses “Ponzi” critiques tied to equity-funded distributions.
  • Build a trading arm: formalize a professional desk to monetize volatility, scale leverage dynamically, and communicate a disciplined treasury framework (reduce leverage near 4× trend/upper band; add near trend/bottoms).
  • Ratings > distribution > inclusion: invest in ratings workstreams, entertain encumbered/segregated collateral to drop coupons, and engage big-bank distribution. Keep educating S&P and rating agencies with sober, risk-aware messaging.
  • Governance flexibility: be ready to address concentration/dual-class concerns if flagged by the S&P Committee.
  • Don’t be predictable: avoid telegraphing ATM supply and rigid rules (e.g., hard mNAV sells). Opportunism and unpredictability protect against being gamed by shorts/option sellers.
  • Product roadmap: consider asset-backed debt, structured BTC tranches (stable “bottom-price” tranche + residual), and thoughtful securities lending under robust rehypothecation controls.
  • Portfolio angle for investors: given issuance overhangs and option-income call walls on MSTR, some prefer long-dated IBIT/GBTC calls for clean leverage to BTC; owning MSTR common preserves the vote.

Glossary of terms referenced

  • ATM (At-the-Market) issuance: Selling new shares directly into the market to raise capital.
  • Moving Liquidation Preference (MLP): A preferred-share feature where the liquidation claim amount adjusts (here, discussed as linked to BTC value), sitting senior to common after debt.
  • Perpetual preferred: No maturity; pays dividends indefinitely if maintained.
  • Rehypothecation: The reuse by a broker of collateral posted by clients for its own purposes—adds counterparty/chain risk if not tightly controlled.
  • Power law (Bitcoin): Empirical/log model relating BTC price and time since genesis, often used to frame bands (bottom price, trend, 2×/4× trend) and cycle probability distributions.