Haven't talked treasury companies around here in a while (#1407381, #1409654), so today when Matt Levine did I felt my obligation to the schtackers to relay it. I'm thinking the hype around this has died down a little, so I'm not constantly thinking about it + mainstream media outlets aren't constantly ranting about it, ergo everything is sort-of quiet on the treasury front?
We have talked a few times about what I think is the essence of the “digital asset treasury company” trade, which worked for a while last year until it didn’t.
Step 1 really is the mystery. Why tha hell would efficient-ish markets trade a wrapper for something at a different price than the underlying?! Yes, yes, weird dreamy stories about "yield" and future of banking; we know.
"“Sell stock at a premium to buy assets to retroactively justify the premium” is a strategy as old as the stock market.""“Sell stock at a premium to buy assets to retroactively justify the premium” is a strategy as old as the stock market."
It was true, for instance, that Strategy Inc. (formerly MicroStrategy) traded at a large premium to its net asset value, so it could sell stock at a premium to buy Bitcoin, so it could increase its Bitcoin per share, so this all worked. “Accretive dilution,” people called it.
IF it actually works, that is the company issued more stock at a premium and bought more bitcoin for it, creating "bitcoin yield":
therefore many people who bought the stock at a premium were right to do so [2] : The premium reflected the future growth in net asset value that the company would be able to achieve by selling stock at a premium to buy more assets. The premium reflected the company’s ability to monetize the premium. This is obviously circular but that doesn’t make it wrong.
NOW, GameStop. Michael Burry and Byrne Hobart were apparently out rallying to its defenses -- and "until those shareholders change their mind" sure is the key to Strategy's past success:
I (dont?) love this space.
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I'm imagining an investor thinking "Ok, the worst case scenario is that they're valued at the underlying asset, but there's also the possibility that the mad bastard in charge really does pull off his crazy plan to sustainably increase the holdings/share."
Your description of the scheme brings a distinct geometrical shape to mind.