MicroStrategy’s senior debt obligations are unsecured, making them highly vulnerable to market volatility. These bonds resemble Collateralized Debt Obligations (CDOs) in that they are tied to MSTR stock as collateral. However, unlike traditional CDOs, there are no tranches differentiating the risk levels for bondholders, making the entire offering equivalent to the senior/AAA tranche.
To make a housing market analogy, we’re in the phase where mortgage lenders fund homes with low equity in a rising market and resell the debt. This makes mortgage brokers looser with money, accelerating the buying frenzy, which increases prices and keeps the cycle going. Eventually, multiple companies will adopt this strategy, applying it to different coins. Funds targeted at investing in this debt will create the equivalent of a CDO, generating profit as long as someone is performing well.
Should the Bitcoin market collapse, MSTR bondholders would be left with MSTR stock, which would likely drop in value, similar to how mortgage-backed securities lost value during the housing crash. But with Bitcoin, there’s no way to foreclose on the asset, leaving bondholders with limited options to recover their losses.
This structure is effectively akin to mortgage-backed securities based on unsecured, volatile assets—where, if the market crashes, there’s no collateral to reclaim, just depreciated stock tied to an unstable market.
Sources:
https://www.yahoo.com/news/m/d809cca2-df5c-3def-a460-647e55c18039/how-did-microstrategy-sell-3.html
https://cryptobriefing.com/microstrategy-bitcoin-investment/
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