Thread by @duganist

Listening to these Saylor podcasts, first off:

1) This man is having a manic episode

2) He's not wrong

3) Tracy Alloway could barely get a word in edgewise and it's funny

4) Saylor has invented Bitcoin Volization, it's beautiful let's explore the process:

Step 1) Put Corporate EBIT History in a box

Step 2) Cut a low-interest coupon out of that box

Step 3) Put a 5 year call option in that coupon

Everyone wants to arb off 5 years of low theta volatility

You're getting paid to hold an option for 5 years.

You're *getting paid* to hold an option... for *5 years!*

60 monthly call premiums, plus 4.75% in total interest.

Or 5 Annual Call Premiums

$113 for a 510 call on MSTR. That's a 30% annualized return.

MSTR is tracking BTC price, it's up ~15% today tracking the big move over the holiday. At 40k it will likely be at 510 already.

The point being that this is repeatable, not just for MSTR, but for any company, and a company can continue growing its balance sheet by doing this:

1) shorter duration, each bill issuance tracks a different OTM strike

2) borrow against unrealized BTC gains to grow corporate earnings with IR arb hence increasing (theoretically, bubbleliciously) creditworthiness, balance sheet can scale

3) closer strike, 0.1% coupon

So what's crazy to me about all of this, is that, combined with the full set of tools that custodial BTC has access to, the earnings growth is fairly market-neutral, and this can get big. Maybe dangerously big, you're thinking. But so is the bond market, eh?

Also crazy: the general financial engineering move of borrowing against *volatility*. Sure they're borrowing against cashflows, assets, and raw revenue (MSTR could lay off half the work force and boost FCFs significantly to pay debt in worst-case), but options are the coupon!

Converts have been issued since the 90s as a way to juice yield in Japan, where yield was scarce. But now it's coming with bitcoinization. Whereas MSTR's stock volatility and option prices were lower before, going all-in for Treasury turnt up the vol and now they're levering it.

Imagine, getting a lower cost of capital on a borrow by selling an embedded call.

It'd be cool if you could do this in a protocol. A secured borrow with a covered call on the address. Like Drawbridge Lending, but embedded an address.

Native secured convertible loans.

This is a great business model for banks to adopt, they can lever like mad and focus on interest rate arb that is risk-free-ish. Of course banks will just lend to people who do that trade, for the meanwhile, may take a lot of familiarizing the decentralized+multi-custodial stack.