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Established in 2006 as a Community of Reality

Welcome to the Neno's Place!

Neno's Place Established in 2006 as a Community of Reality


Neno

I can be reached by phone or text 8am-7pm cst 972-768-9772 or, once joining the board I can be reached by a (PM) Private Message.

Established in 2006 as a Community of Reality

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Established in 2006 as a Community of Reality

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    Short Sellers Profit As Bitcoin’s Drop Moves MicroStrategy Dangerously Close To Collateral Call

    Rocky
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    Short Sellers Profit As Bitcoin’s Drop Moves MicroStrategy Dangerously Close To Collateral Call Empty Short Sellers Profit As Bitcoin’s Drop Moves MicroStrategy Dangerously Close To Collateral Call

    Post by Rocky Sun Jun 19, 2022 5:27 pm


    Short Sellers Profit As Bitcoin’s Drop Moves MicroStrategy Dangerously Close To Collateral Call

    Michael del Castillo, Forbes Staff 6 days ago








    Bitcoin is crashing down 15% to $24,200 in the last 24 hours. That’s great news for Ryan Ballentine, 35, short-seller with the Maryland investment firm Bireme Capital. His tiny $60 million fund placed a big bet against the stock of MicroStrategy, a publicly-traded business research software firm that holds nearly 130,000 bitcoin on its balance sheet, worth about $3 billion today.
    Short Sellers Profit As Bitcoin’s Drop Moves MicroStrategy Dangerously Close To Collateral Call AAYpSVS© Provided by Forbes MicroStrategy CEO Michael Saylor speaks at the Bitcoin 2021 Convention, a crypto-currency conference held at the Mana Convention Center in Wynwood on June 04, 2021 in Miami, Florida. Getty Images
    In the absence of an SEC-sanctioned exchange-traded bitcoin fund in the United States, Tysons, Virginia-based Microstrategy has become a leveraged proxy for bitcoin for many investors. Along with the rise in bitcoin, its stock increased from about $145 in August 2020 to over $1,000 at its peak in February 2021. Today it trades at $146 per share, down 73% year to date versus a decline of 43% for bitcoin and a drop of 21% for the S&P 500.

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    About halfway through that meteoric rise, when the stock was trading at $700, Bireme Capital saw something unhealthy going on and bet against the company that crypto fans were falling in love with. The firm began selling its stock short, a risky technique that involves borrowing stock and selling it at a high price in hopes that one can buy it later at a much lower price. After watching from the sidelines as Microstrategy’s stock climbed nearly tenfold, Bireme is finally having its day in the sun as Microstrategy’s shares have plummeted.

    “I think there's a lot of people who think MicroStrategy is also a zero,” says Ballentine, CEO and co-founder of Bireme Capital. “It had a roughly $700 million enterprise value before they bought bitcoin. Now, they're running a billion-dollar loss on the bitcoin. So, we think the numbers say zero, even at current Bitcoin prices.”

    Founded in 2016, Bireme is a small investment management shop for high-net-worth individuals with separately managed accounts. In the summer and fall of 2020 the firm started taking a bearish view of tech stocks, adding shorts including “crypto-hype stock” Overstock.com and eventually, so-called meme-stocks like AMC that “have a meme-premium built-in, that we were happy to take the other side of,” says Ballentine. “For a lot of these short positions you just have to run the numbers and see they don’t make any sense,” says Ballentine.

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    Some $37 million of Bireme’s capital or 62% is devoted to what it calls its “fundamental value strategy,” which looks for investor biases to find misvalued opportunities in U.S. equities. Initially, Bireme targeted Microstrategy in January 2021 committing $400,000 to short the firm at a nominal interest rate of less than 1% from Interactive Brokers. Ballentine views the low-interest rate as an indication that few if anyone was doing so at the time.

    Then, a month ago, the firm doubled its short position. The interest rate to borrow the stocks had peaked at about 14% and is at 6% today, which Ballentine sees as evidence the number of short-sellers against Microstrategy has increased. In other words, it is increasingly difficult to find Microstrategy shares to short.

    The short interest in Microstrategy is now roughly 3.5 million shares, or about 35% of the total float, according to Bloomberg, up from about 1.7 million at the beginning of the year. Earlier this month legendary short-seller Jim Chanos said Microstrategy’s “core business isn’t worth a whole lot,” according to a CoinGape report. “We had a big profit on our short position,” says Ballentine, whose firm has so far generated $420,000 in unrealized profits. “We actually added to the short position,” he added. “We think it’s a zero.”

    “We saw the potential for this kind of downward spiral,” says Bireme co-founder and chief investment officer Evan Tindell, 37. “It happens anytime you borrow money to buy a volatile asset. You’re at the mercy of the pricing and the potential for margin calls can exacerbate on the downside.”

    Microstrategy bought its 129,218 bitcoin for an average price of $30,700, according to its first-quarter earnings report. In that report, his firm also announced it had bought an additional $205 million worth of bitcoin via a loan from Silvergate Bank that used 19,466 worth of bitcoin as collateral. But in May the price fell below that average for the first time in two years.

    In spite of many panicked reports that warned of Microstrategy’s imminent failure, Saylor says, and SEC filings confirm, that the loan, officially in the name of Microstrategy subsidiary Macrostrategy, remains in compliance with its covenants so long as the price of bitcoin doesn’t fall below $21,000. Bitcoin’s recent swoon to $23, 200 came dangerously close to causing MicroStrategy to take action by adding more bitcoin to its loan reserve. According to SEC filings, its $205 million Silvergate loan requires a loan-to-value ratio of no more than 50%. “We will generally test every day at the end of the day, to see whether we have a collateral call,” says Saylor. “And then we'll stay ahead of that.”

    “I totally believe Michael Saylor when he said he’s a huge believer in the long-term prospects of Bitcoin,” says Ballentine. “And they'll have to post additional Bitcoin or dollars to more fully collateralize that subsidiary.”

    “We're agnostic to the long-term value and usefulness of bitcoin because at the end of the day, Bitcoin could be extremely useful and MicroStrategy can still go bankrupt,” says Ballentine. “Like those two things aren't mutually exclusive, it doesn't say anything about the value of the technology or where we're headed, in terms of the usefulness of Bitcoin in the world.”

    https://www.msn.com/en-us/money/savingandinvesting/short-sellers-profit-as-bitcoins-drop-moves-microstrategy-dangerously-close-to-collateral-call/ar-AAYqosw?ocid=U453DHP&li=BBnbfcL

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