I tried asking ChatGPT and here's what it said:

The EU enters the large model training arena with... ...$56M "This morning Brussels announced plans to develop an open source AI model of its own, with $56 million in funding to do it. The investment will fund top researchers from a handful of companies and universities across EU countries as they develop a large language model that can work with the trading bloc’s 30 languages. The project will also tap into supercomputers from companies like Spain’s Mare Nostrum and Italy’s Leonardo, both of which have received funding from the EU."

(Dry) January is finally over and, wow. this has been anything but a boring month! Time for the monthly update on MSTR and BTC, which will be a bit longer than usual. The basics - Monthly performance, beta and R2 - Believe it or now, January was a strong month for both MSTR and BTC! Judging by the amount of moaning on this platform, one would be forgiven to think that my favourite two assets have been suffering from a terrible disease. - MSTR is up 16% and BTC stands 11% higher than on 31.12.2024. This is an excellent performance! - The Beta factor, i.e. BTC's influence on MSTR's performance stood at 1.6x, which is lower than the 1.9x in December, but hardly surprising given the ongoing ATM activity, which effectively deleverages MSTR and hence also reduces the gearing on BTC - My simple univariate regression continues to explain the relationship between BTC and MSTR well, as about half of the variation from the regression line can be explained by the BTC price change (R2=47%) - Another, simpler indicator is the percentage of days, where we see synchronised price movements. In January 65% of all trading days showed that MSTR and BTC moved together. - One of my favourite measures is to look how MSTR performs on days where BTC goes up and down, and the reason for the joy in this statistic is that MSTR consistently performs more strongly on "Up-Days" than it loses on "Down-Days". - The attached chart shows this in the form of blue and orange bars and just look how beautifully asymmetric MSTR reacts when sentiment is positive as opposed to negative days where the drop is far more muted. - For January the "Up-Day"-multiple was 2.9x (ie MSTR share price moved 2.9x better than Bitcoin on positive BTC days), whereas it only dropped only by 1.7x on "Down-days" So, what's not to like? - The issue in our community is that we have grown rapidly from a few hundred followers in 2023 to now over 26k and a lot of people have jumped on the bandwagon at $400+ levels. - The frustration is understandable (though the impatience less so) and let's dive into this a little more Vitality check-up - MSTR's volatility and mNAV-sentiment - What has changed between the first half of 2024 to now? Easy: Michael @Saylor realised that he found a (temporary) glitch in the system. - The extreme levels of volatility of MSTR shares (see chart) allowed him to issue enormous amounts of convertible debt for ... 🥁...FREE (well let's say "free", as long as we ignore this inconvenient business of diluting shareholders later down line) - Without having to commit more operational cashflow (which MSTR doesn't have at the moment) to support further debt issuances, he was able to print free money and buy more bitcoin with it - On 31.10, he decided to take it to a whole new level with the announcement of the 42bn strategy. With 21bn in ATMs and 21bn in debt issuances, MSTR would become the preeminent Bitcoin holder in the world. - He started off with the equity issuances, which was clever given how high the mNAV (>3x) was standing, so he got a lot of bang for his buck and gobbled up hundreds of thousands of bitcoin in the space of a few months. - However, the aggressive buying up of bitcoin by tapping the ATM has taken its toll on investor sentiment. - Just think of the following: We started the year 2024 with 169m outstanding shares and after the 21+21 announcement, the ATM machine went into overdrive. As of end of January, we have over 252m outstanding shares. Now, whatever the BTC yield was that was achieved during this period, common share owners had to digest a dilution of 50% - a tough ask! - When enthusiasm waned, so did MSTR's volatility. As you can see in the chart, we peaked at an annualised 20day vol of around 160% at the end of Nov 2024 and are now at a "mere" 90%. Whilst this still more than double the vol of BTC, it is also clear Michael's mantra of "Volatility is Vitality" went into reverse for now - The mNAV, the degree by which the market cap of MSTR sits above its bitcoin holdings, consequently also reverted and we now trade at pretty much exactly 2x, which 10% lower than in December 2024. - Looking at the daily mNAV over the past 4 years, we are coming closer to the median of 1.8x (credit to @martykendall2 for providing the data on 1st, 3rd quartile and median) . - The change in mNAV moves consistently with the change in BTC price, so BTC sentiment is key for MSTR to expand that multiple (as I demonstrated in last month's post, a 1% increase in the BTC price leads on average to a 1% increase in the mNAV). - So, if BTC continues to go up, I expect that sentiment for MSTR to improve and those $400+ buyers would also start smiling again Outlook: the bad, the ugly and the good (for MSTR) There are a number of factors that will drive MSTR price, some of which are negative and others positive: - As discussed, current volatility and sentiment levels dropped for MSTR and this is a serious problem for the share price in the near term. - Case in point - and I know some people will disagree with me on this - is $STRK: STRK has just come out with a de facto yield of 10%. - This is a far cry from those golden days, where the coupon was zero and money was for free (I know that dividends and coupons are not the same thing, but my point stands nevertheless). - Since MSTR has no money to spare, they can (and will have to) pay the STRK dividend with further ATMs. Even if it was oversubscribed: It is an expensive product to issue at these conditions. - So financing further purchases has become far more expensive for them and consequently MSTR will struggle to issue new convertibles so long as the current sentiment prevails. Just look at Semler's 4.25% coupon on its convertible bonds as the latest available data point. It was far higher than I had imagined it to be, even accounting for its smaller size (but amazing operating cashflow prowess) But this is not a Barish post - There is no need at all to despair - There is plenty of positive catalysts that will help MSTR boost the share price over the course of this year, because ultimately, the price of Bitcoin determines Mstr's journey ahead: - The good news is that my concerns about a selloff in Btc in Q1 due to the disappointment over the non-delivery of a BTC reserve on day 1 (how laughable was that hopium?!) have not materialised. - We instead had a bit of a wobble to 90k, but held our ground at above 100k pretty quickly again. If this continues to hold - and technical indicators look good here - then this will provide some downside protection for MSTR until sentiment changes again. - Coming to some of Trump's activities, the single biggest "gift" for Bitcoin holders will not be the new crypto measures, but his other policies, such as the import price increasing tariffs, labour force reducing mass deportations, and lower taxes and interest rates heating up an already unemployment-free economy, as well as the lack of credible debt reduction plans. - These measures will be mostly terrible for USD-inflation long term and hence will push up the price of Bitcoin as an inflation-hedge. - Bitcoin will become ever more important to escape USD inflation unless they have the balls to re-introduce a Bretton Woods style linkage of the USD to a BTC reserve, which in turn would also push up the BTC price. - The current all-time high of the gold price, which is essentially a leading indicator for eventual/late adoption of Bitcoin tells it all. Even @PeterSchiff will come around and hold parts of his wealth in BTC (if he doesn’t secretly do so already!) - So all of this will continue to push Bitcoin ever higher, and in its wake Mstr will benefit accordingly, probably to the tune of 1.5-2x faster if historic trading data - as measured by the Beta - is a guide - The mNAV may continue to go lower in the short term, but will eventually will revert to higher levels once Bitcoin, volatility and sentiment pick up. All in all, I would say that patience is going to be needed until MSTR starts taking off again, but I don't see a particular reason why this wouldn't be a worthwhile wait. Head down! Bear it out! Happy weekend!