By: Eric, Foresight News
The Alphaville column of the Financial Times published an article on February 24 titled "Mirror mirror on the wall, what is the most shorted stock of them all?" providing some very interesting data.
The article shows that the median short position among S&P 500 index constituents has risen to 2.7%, reaching one of the highest levels in nearly a decade. Among all constituents, Strategy has the highest short position at 14% of its market value, while Coinbase ranks fourth at 11%. This indicates that among all companies in the U.S. with a market capitalization of over $25 billion, Strategy is the least favored.
The article published in the Alphaville column does not represent the views of the Financial Times, characterized by sharp and unrelenting rhetoric. In an era where cryptocurrencies have gradually become mainstream, the articles under the Alphaville column continue to criticize cryptocurrencies relentlessly. Whether Bitcoin is at $10 or $100,000, they consistently believe that cryptocurrencies are meaningless.
On February 2, seasoned investment banker Craig Coben, former Vice Chairman of Global Capital Markets and Head of Global Equity Capital Markets at Merrill Lynch, also published a critical article about the Strategy model in the Alphaville column.
Craig Coben's views are not extreme; he also believes that there is currently no "run" risk for Strategy and that there is no liquidity crisis. However, he points out some core issues, such as the accumulation of Bitcoin not generating cash flow, which necessitates continuous financing and constant dilution of common equity stakeholders' rights. Additionally, Strategy's approach tends to buy at times of high market sentiment, when Bitcoin prices are elevated, which is a systemic problem without resolution.
Regarding the high short position of Strategy, some analysts believe that not all short positions are "naked shorts"; some may be used by hedge funds to hedge Bitcoin spot positions. Nevertheless, this still indicates that there are many who are bearish on Strategy; at least everyone feels that if Bitcoin falls, Strategy cannot be an exception.
In Craig Coben's article, he mentions that Strategy refers to the five types of perpetual preferred stock it launched as "digital credit," a concept Michael Saylor has emphasized repeatedly since the end of last year.
In this framework, the first layer of "digital capital" is Bitcoin. The second layer, "digital credit," refers to various types of perpetual preferred stocks issued by Strategy. These preferred stocks come with high yields, and Strategy needs to pay corresponding interest to holders annually.
The third layer is "digital currency," which includes currencies for trading, such as stablecoins, issued based on the financial products in the second layer. The Saturn mentioned in the image plans to issue a stablecoin called USDat based on STRC and U.S. Treasuries, and this project has received investment from YZi Labs.
If you don't understand this logic, you can use the United States as an analogy. The U.S. continuously issues Treasury bonds based on its influence, only needing to pay interest before maturity and refinance old bonds with new ones when they mature. As long as the U.S.'s international influence and the dollar's status do not weaken, this game can be played indefinitely. For Strategy, Bitcoin represents the U.S.'s influence, digital credit represents Treasury bonds, and Strategy also needs to issue new bonds to pay the annual interest on preferred stocks. However, as long as Bitcoin prices are consistently rising in the long term and drive up Strategy's stock price, the company can repeatedly issue new shares to finance purchasing more Bitcoin and pay interest, continuing this cycle indefinitely.
Michael Saylor is someone who firmly believes that Bitcoin will change everything. In his view, the belief that Bitcoin will rise indefinitely is more credible than the belief that the U.S. will keep winning forever, so he is more willing to issue currency based on an asset that is "destined" to appreciate, much like the dollar was originally pegged to gold.
Strategy's approach is not new; it merely needs to ensure it has sufficient cash to pay interest and can continuously finance Bitcoin purchases. Like U.S. Treasury bonds, this is a game that everyone knows will eventually come to an end, but it is uncertain how long it can last. Currently, Strategy's cash reserves are ample; its CEO stated that only if Bitcoin consistently remains below $8,000 for 4 to 5 years would Strategy be forced to sell Bitcoin.
If this extreme condition is ever met, it is not just Strategy that would disappear, but the entire Web3 industry could vanish.
Even an old-school banker like Craig Coben must admit that Strategy will not face financial issues in the short term. But for hedge funds, Strategy is a good tool for hedging against Bitcoin's decline; for short sellers, it is reasonable to short a system that can only operate with rising Bitcoin prices during the cryptocurrency downturn. At least, currently, there are not many reasons to be bullish on Strategy.
Michael Saylor's ambition to launch a new currency using Bitcoin is itself quite interesting. The currency used to buy Bitcoin is dollars, and the interest paid is also in dollars, built on a system based on tens of billions of U.S. cash but aimed ultimately at dismantling the very bricks and mortar of that system. Perhaps the elites on Wall Street are chuckling, as they have no interest in examining whether Strategy can truly become a century-old enterprise; they only care about when your stock price will rise or fall.
Michael Saylor believes that Bitcoin will continuously set new highs, making it the cornerstone of everything; holders and users of dollars believe that the U.S. will continue to thrive, thus tacitly allowing the debt ceiling of U.S. Treasury bonds to keep rising. Both are based on belief; who is more advanced than whom?
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