Citi just downgraded MicroStrategy over their Bitcoin bet, the stock took a hit and Peter Schiff feels validated for the first time in a decade

Why the pricing docs are already proving them wrong

A thread

1/ MicroStrategy announced $550M in convertible notes to buy BTC. Citi research almost immediately downgraded MSTR from a "Neutral" to "Sell" recommendation and the stock dipped

2/ First, Citi is the only major institution w/ active research coverage on MSTR. Their recommendations will be overweight in the market. Even so, MSTR price remains up ~100% YTD

3/ The analyst listed BTC exposure & insider selling as 2 major reasons to downgrade. Management has sold ~$56M in shares in the last month - the largest seller being the CFO ($26M). A sign of unrest on the new Bitcoin strategy?

4/ I'm not surprised mgmt is selling. They signed up for a BI company and Saylor is changing the company - tying success of MSTR w/ BTC and rumors of new product offerings on blockchain data analytics. A poor man's semi-ETF. Not everyone will be on board.

5/ The analyst is missing Saylor's full play. He's not just taking advantage of a BTC price pump, but lack of investment options for institutional players who don't (or can't) buy straight BTC. With no ETF, GBTC is one of the only games in town atm.

6/Previously unsure investors will dive in.A convert note gives BTC exposure via MSTR w/ downside protection.If BTC (and thereby MSTR) tanks they still have the value of the note. If not,they convert and ride equity of the company w/ the largest stockpile of BTC on the public mkt

7/ Look at pricing docs for the notes. Interest is 0.75% / yr. That's super low and tells you #1 Saylor's interest coverage is. He'll pay ~$4M /yr w/ an operating income of ~$40M. That's 10x coverage. 2x is considered. Saylor's risk is minimal and he's already 2x his treasury

8/ #2 - The fact that he COULD price it at 0.75% and STILL had enough investor interest that he increased the offering from $400M to $550M, with the option for them to buy $100M more. This is obviously wanted on the market

TL;DR: The pricing docs from this morning and the bullish takeaways from them say a LOT more about how the market views this, than a report from Citi and a relatively small stock dip