How BTC/MSTR pair trade plays out :
Short MSTR at 2.5-3x MNAV, buy BTC -> Positive effect on the BTC price, creates a somewhat virtuous cycle (dilutes MSTR shareholders as Saylor buys more, but BTC keeps going up - so that’s ok). This is called a compression trade and
@RealJimChanos famously played this out perfectly.
We’re in the unwind stage now (traders are buying back MSTR/dumping BTC). MNAV is < 1.3 - the meat of the trade is over. Might chop around for a bit, but likely heading to 1.0 MNAV as an equilibrium point.
The decompression stage begins when MNAV < 1.0. Then traders will buy MSTR, short BTC (watch funding rates go up). This creates a vicious cycle (as we saw this with GBTC). MSTR can’t really sell more shares to take advantage of a falling BTC price because the underlying asset (in BTC) keeps falling. If this happens during a bear market, it gets worse, until the bull comes back.
At some point, Saylor can’t pay the interest on the prefs and has to sell BTC. Herein lies the danger of what MSTR is doing in terms of concentration risk.
At the end of the day, I’m just pointing out risk, not saying it will happen. But, let’s watch…