As BTC approaches the $100,000 mark, over the past week every macro observer seems to have become an expert on MSTR convertible bonds, with cryptocurrencies once again becoming the focus of the news, attracting mainstream attention to the greatest extent since the FTX incident.
As we have mentioned before, the "easy phase" is over, and with late-arriving investors entering the market with a large amount of leverage, future market volatility will increase significantly.
Microstrategy has successfully exercised a $400 million over-allotment option on its original $2.6 billion convertible bond (0% coupon, 55% premium), increasing the final size to $3 billion. According to Cointelegraph, Allianz Insurance is one of the major participants in this transaction, and these convertible bonds maturing in 2029 broke through $104 on the first trading day.
The irony of Wall Street's involvement is obvious. For years, they have accused cryptocurrencies of being high-risk and lacking fundamental value, and now these banks are competing to lead this transaction. In fact, when BTC was between $6,000 and $60,000, these banks claimed BTC was worthless, and now these underwriters are suggesting to investors that it is "quite reasonable" to pay a 55% premium on a $95k price basis, and through an indirect stock tool to buy BTC. We will not go into depth on how MSTR has become a convertible bond financing convexity tool for TradFi investors, but we must admit that these mainstream "gatekeepers" (including regulators) are bringing mainstream investors into this market through this incredibly incredible structure, and it all seems reasonable and legal because it is done through "regulated securities", a typical traditional finance trick, isn't it?
Mainstream institutions naturally won't miss this opportunity, and have quickly launched Microstrategy's leveraged ETFs (MSTX, MSTU), giving retail investors more "suboptimal" ways to leverage trade BTC spot. According to Bloomberg, the demand for these leveraged ETFs has put pressure on the prime brokers responsible for securities lending, with the related asset management size increasing to nearly $5 billion in the past week.
(Friendly reminder: Except for short-term trading, do not buy leveraged ETFs, as leveraged ETFs are mathematically designed to gradually lose value over time. Please Google their daily return calculation method for more details.)
Prime brokers - the banking units that work with clients on securities lending and other businesses - have reached the limit of the swap exposure they are willing to provide to the T-Rex 2 X Long MSTR Daily Target ETF (ticker MSTU), which is less than a month old. By some measures, it was the most volatile ETF ever launched on Wall Street. -- Bloomberg
The mainstream frenzy has further fueled the recent market bubble, with a well-known TV commentator suddenly changing his tune to support cryptocurrencies, resulting in a significant increase in leverage in the market at the current level and a sharp rise in actual volatility. According to reports, due to the failure to break through again, nearly $500 billion in long positions have been liquidated in the past few days, possibly the largest liquidation wave in history.
As we have always reminded, the cryptocurrency market will be very volatile in the short term. BTC technical indicators show severe overbought conditions, and the public is experiencing FOMO for this asset class. If the BTC price can successfully break through the psychological barrier of $100,000, the price may have the opportunity to further rise to the $120,000 to $130,000 range, but we are not optimistic about the prospect of a smooth upward trend, as the overall asset market is in an overbought state. Selling put options as an income or target buy strategy may still be attractive in the short term (DYOR: not investment advice).
Speaking of options, after Nasdaq launched the IBIT ETF options, CBOE will launch the industry's first cash-settled options, and we still expect the options market to become an important growth catalyst for the industry after 2025, and SignalPlus will provide you with comprehensive support for your options journey!
Lutnick (Trump's new Commerce Secretary) and his company Cantor's recent initiatives in the cryptocurrency field should have a positive impact on the long-term structural development of the ecosystem. According to recently disclosed information, in addition to being the custodian of Tether, the company has also invested $600 million to acquire a 5% stake in Tether (valued at $12 billion), and the company will also launch (off-chain) Bitcoin financing business, providing fiat currency loans to clients with BTC as collateral, further strengthening the role of Bitcoin as an asset on the balance sheets of the mainstream ecosystem.
Turning to TradFi, Nvidia's earnings report exceeded expectations last Wednesday, with the high-income consumer index hitting a new high, reflecting the strong purchasing power of the (high-income) population in the US. The market rebounded strongly from the earlier pullback. The economic surprise index has risen to a strong first-quarter level, and inflation data has not yet broken upwards, leaving room for the Fed to cut interest rates (56% chance in December), with the soft landing scenario still solid. In addition, Bank of America reported that over $448 billion has flowed into the US stock market so far this year, breaking the 2021 record and reaching an unprecedented level.
The US market will welcome Thanksgiving holiday on Thursday, and trading activity this week is likely to be very light. Hopefully this will also give us a chance to catch our breath and welcome the arrival of the last month of the year.
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