Comment by themgt

Yeah, as a layman this MSTR explainer was an "aha" moment for me:

No, what is likely happening with all the convertible bond issues is that MicroStrategy prices the bonds in a manner to attract market neutral hedge fonds, meaning arbitrageurs. Saylor has briefly mentioned these firms, as opposed to firms seeking actual Bitcoin exposure. For issue after issue, they can be spotted as the largest bond holders by anyone with a Bloomberg terminal. By buying the bonds, even when conversion price is at a large premium, and by simultaneously shorting the shares, these arbitrage funds can lock in close to risk-free profits. Due to the convex nature of the value of the convertible bonds, the hedge funds attempt to profit no matter whether MicroStrategy shares rise or decline

Like, a broker profiting off PFOF in the stock market makes sense because there's an underlying asset generating real cashflow that people are buying into. But where is the money in crypto actually coming from? You have to pay miners, brokers, rugpulls/thefts/etc and there's barely any cashflow from the underlying assets (dApps?). But if it really is ~just a casino, with retail gamblers as the only real source of cash, it can still be profitable for smart money to pour billions in and use their PhDs to trade the vol. It goes up, it goes down, overall retail is bleeding huge amounts of cash on a sort of 5 dimensional pyramid scheme but enough gamblers go viral winning the slots/blackjack that the casino doesn't run out of customers.

Can this continue indefinitely? Maybe / probably? Seems similar to sports betting, Polymarket, retail now ~70% of options trading. The west and especially America becoming a gambling culture. The "bubble" may burst and reinflate over and over.

https://medium.com/@bdratings/all-your-models-are-destroyed-...