A late piece of data explains the defensive actions of Strategy

Many friends know that $MSTR has dropped 46% this year, which is a significant decline. However, ETFs such as $MSTX, $MSTU, and $MSTP, which are 2x leveraged to MSTR, have fallen 81% to 82% this year. This data better illustrates that Bitcoin is the underlying support for MSTR.

MSTR itself is a leveraged play on Bitcoin, and adding the already leveraged MSTR ETF on top of this product amplifies the risk multiple times.

It is understandable that many investors purchase MSTX, MSTU, and MSTP to have products that go long on bitcoin:native at the US stock market level. Many may not realize this, even though Bitcoin spot ETFs have now been listed on exchanges like the Nasdaq, some institutions and investors are restricted and cannot directly buy Bitcoin spot or spot ETFs.

At this time, the closest to Bitcoin in the US stock market is MSTR, and the leveraged MSTR ETF is equivalent to multiple leveraged bets on Bitcoin, which is not the biggest problem.

The biggest problem is that these types of products typically reset leverage daily. When Bitcoin is rising unilaterally, there are no issues, but once it enters a continuous decline or experiences high volatility, the net asset value can be rapidly consumed.

Hence, we can observe that when Bitcoin's price falters, MSTR and preferred stocks including $STRC begin to decline as well. The ETFs that are leveraged long on MSTR subsequently drop dramatically, leading MSTR into a spiral of skepticism.

The harder BTC falls, the more MSTR drops, and leveraged MSTR ETFs drop even more sharply, causing investors' tolerance for such high-elasticity products to decrease.

This significant drop also explains why Strategy has begun to enter a defensive state.

This is because many funds that have indirectly gone long on Bitcoin through MSTR have already experienced substantial losses. After these losses, the market's demands on MSTR will heighten. Previously, they may have only looked at BTC's rise and fall trends, but now they must also consider financing costs, dilution rates, preferred stock prices, and cash coverage.

Of course, the most important factor remains the price changes of Bitcoin; it must be clear that BTC's price is the primary influence on MSTR. Moreover, MSTR's price changes will also affect the price changes of preferred stocks and leveraged ETFs, not the other way around.

Additionally, MSTR can still finance. Last week, common stock ATM was able to raise $1.1524 billion, indicating that investors still have interest in this US stock that goes long on Bitcoin. However, the cost of financing is higher than before. The lower the MSTR stock price, the more shares need to be sold to raise the same amount of money through common stock ATM, making the dilution suffered by common shareholders more pronounced.

Therefore, starting from this point, Strategy's choice to preserve cash, buy less, or temporarily not buy BTC is a very realistic decision.

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