「Buying the Dip」 in the Stock Market 2025: Madness, Premiums, and Arbitrage

In the summer of 2025, it's the Crypto Equities summer.

Casting an eye on the capital markets, the real star of this year is not Meta, nor NVIDIA, nor those traditional tech giants, but the "strategic hodl" equities that have brought Bitcoin onto a publicly traded company's balance sheet. Looking at this chart, you can intuitively see MicroStrategy's frenzy.

Over the past year, Bitcoin has surged by nearly 94%, outperforming the vast majority of traditional assets. In comparison, the likes of Meta, NVIDIA, Tesla, and other tech giants have seen gains of at most 30%, while companies like Microsoft, Apple, and the S&P 500 have mostly hovered around 0, with some even experiencing pullbacks.

Yet MicroStrategy's stock price has skyrocketed by 208.7%.

Behind MSTR, a large number of crypto hodl equities and Japanese stocks are each staging their own valuation myths. Premiums on market value/net asset value (mNAV), loan rates, short positions, convertible bond arbitrage, and even GameStop-style short squeezes—all of these are brewing collisions in the undercurrents of the capital market. A blend of faith and structural games, with institutions and retail investors having different mindsets—on this new battlefield of "coin stocks," how do traders navigate their choices? And what hidden logics are driving the market?

In this rhythmic BlockBeats article, we will dissect the frenzy and game theory behind this "strategic hodl" equities from the perspectives of three professional traders: from MSTR's premium fluctuations to the arbitrage stealth wars of emerging companies, from retail investors' fantasies to institutional calculus, unraveling layer by layer the cycle of this new capital narrative.

The Truth of "Strategic Hodl" Equities

Going long on BTC and shorting MicroStrategy seems to be the viewpoint of many traditional financial institutions and traders.

The first trader interviewed by BlockBeats, DragonHeart Salt, adopts precisely this strategy: "These types of companies exhibit a huge implied volatility (IV) difference. I buy Bitcoin options over-the-counter using SignalPlus software, while simultaneously selling call options on such companies like MSTR at the U.S. stock market open."

In DragonHeart Salt's own words, this is the "long BTC + short MSTR" volatility scissor spread strategy, which is a strategy that generates stable returns.

「This strategy is actually a judgment on the 'Premium Reversion Range',」 said another trader with a more conservative trading style, Hikari: 「For example, assuming the current premium is 2x, and you expect it to fall back to 1.5x, when the premium declines to this level, you can lock in the price difference as profit. But if the market sentiment becomes overly exuberant, pushing the premium to 2.5x or 3x, it will result in unrealized losses.」

「Premium」 seems to be a word that all traders cannot avoid when discussing the 'strategic holding' of equities.

The so-called mNAV (Market Net Asset Value), in simple terms, is the multiple between a company's market capitalization and the net value of its actual held crypto assets.

The popularity of this metric is almost entirely attributed to the Bitcoin buying frenzy initiated by MicroStrategy (MSTR) in 2020. Since then, the price of MSTR has been closely tied to the ups and downs of Bitcoin, but the market price has consistently been well above the company's actual 'holding net value'. Today, this mNAV 'premium phenomenon' has also been replicated in more and more crypto asset equities, such as Metaplanet and SRM. In other words, the capital market is willing to pay far more than the sum of the 'coin-based + core asset' for these companies. The remaining part is essentially a bet on holding, leverage, future financing capabilities, and imagination space.

mNAV Premium Index, the Exorcism Mirror of Micro Strategies

Looking back at the trend of the MicroStrategy mNAV Premium Index. From 2021 to early 2024, the mNAV premium has been running between 1.0 and 2.0x for a long time, with a historical average of about 1.3x—meaning, on average, the market is willing to pay a 30% premium for Bitcoin on MSTR's books.

However, starting in the second half of 2024, MicroStrategy's mNAV premium hovered around 1.8x. By the end of 2024, amid Bitcoin's consecutive attacks on the $100,000 mark, MSTR's mNAV premium also surged, breaking through 2x and reaching a historical peak of 3.3x on certain extreme trading days.

In the first half of 2025, the mNAV index fluctuated repeatedly in the 1.6–1.9x range. It is quite apparent that behind each change in the premium range is a cycle of capital expectation circulation and speculative sentiment rise and fall.

In the words of Dragnheart Salt, this is actually similar to the traditional business concept of leverage, where the market evaluation of these companies' future leverage will affect their premium: "MSTR has been funded through multiple rounds, with bondholders throughout Wall Street, and this ability to pull in money through issuance is its core competitive advantage. The market expects you to continuously raise money in order to dare to give you a higher premium." In contrast, startups and small-cap "HODL stocks," even if they shout until they're hoarse, find it very difficult to gain the same level of trust and premium from the capital markets.

What Premium is Considered Reasonable?

Butter, a typical quant and data believer, makes all decisions based on historical percentiles and volatility.

"A premium of 2-3 times for MicroStrategy is considered reasonable by the market." After calculating the price changes over the past year between Bitcoin and MicroStrategy during the same period, Butter said this.

From early 2024 to March, as Bitcoin climbed from around $40,000 to $70,000, a 75% increase, MSTR surged from $55 to nearly $180, an increase of over 220%. During this round of increases, MSTR was about three times that of Bitcoin.

By November to December 2024, as Bitcoin once again approached the $100,000 mark, rising by about 33%, MSTR surged from $280 to around $520, an increase of about 86%, more than double Bitcoin's increase.

However, during the subsequent pullback period from December 2024 to February 2025, when Bitcoin fell from $100,000 to $80,000, a drop of about 20%, MSTR's drop was also twice as much, with a cumulative decline of about 50%.

Similarly, from March to May of the same year, as Bitcoin rebounded to around $108,000, a 35% increase, MSTR saw an increase of nearly 70%, still double.

In addition to the premium index, Butter also pays attention to the annualized volatility. According to his calculations, in 2024, Bitcoin's daily return standard deviation was about 4.0%, corresponding to an all-weather trading annualized volatility of about 76.4%; during the same period, MSTR's daily return standard deviation was about 6.4%, with a daily annualized volatility in the U.S. stock market as high as 101.6%. Entering 2025, BTC's annualized volatility fell to about 57.3%, while MSTR still remained around 76%.

Therefore, Butter's core point of view is very clear: "A premium fluctuating within a range of 1.5-3 times the mNAV is a very clear trading signal." By combining volatility with mNAV premium, Butter has distilled the "simplest trading logic" —— to long when the market is low volatility + low premium, and short when it is high volatility + high premium.

Hikari's approach is similar to Butter's, but he also incorporates options strategies for assistance: selling put options to earn premiums in low premium ranges, and selling call options to collect time value in high premium ranges. Here he reminds retail investors: "Both sides of the margin account are independent. If leverage is applied to both sides, it is easy to get liquidated in extreme market conditions."

Convertible Bond Arbitrage, Wall Street's Mature Strategy of Playing MSTR

If premium arbitrage and options trading are the required courses for retail and quant players in the "coin-stock" world, then what truly large funds and institutional players value more is the arbitrage space at the convertible bond level.

On October 30, 2024, Michael Saylor officially launched the "21/21 Plan" during an investor conference call: to gradually issue $21 billion in common stock through At-The-Market (ATM) offerings over the next three years to continue buying Bitcoin. In just two short months, MicroStrategy completed the initial target —— issuing a total of 150 million shares, raising $22.4 billion, and adding 27,200 BTC; then in the first quarter of 2025, the company once again added $21 billion through ATM offerings and simultaneously launched $21 billion of perpetual preferred stock and $21 billion of convertible bonds, bringing the total scale of fundraising instruments to $630 billion within half a year.

Butter observed that this "overtime" issuance has put significant pressure on MSTR's stock price. Although the stock price soared to a high of $520 in November 2024, it steadily declined following market expectations of dilution from the new round of offerings, dropping below $240 in February 2025, approaching the premium low point of the Bitcoin correction period. Even with occasional rebounds, the stock price is often suppressed by the issuance of preferred stock and convertible bonds. In his view, this is also a key logic for MSTR's stock price to be extremely volatile in the short term while maintaining sustained volatility in the long term.

However, for many more institutionally oriented hedge funds, the focus is not on betting on the "rise" or "fall" direction, but on capturing volatility through convertible bond arbitrage.

「Convertible bonds usually have a higher implied volatility than options of the same term, making them an ideal tool for 'volatility arbitrage.' The specific method is to buy MSTR convertible bonds on one side, and borrow equivalent common stock to sell short in the market, locking in a net Delta≈0 exposure. With each significant stock price fluctuation, by adjusting the short position ratio and buying low and selling high, you can harvest volatility as profit.」 Butter explained, 「This is one of Wall Street's most mature arbitrage games.」

Behind this, a group of hedge funds are quietly using convertible bonds to play Wall Street's most mature arbitrage game—'Delta neutral, Gamma long.'

He added, MSTR's short interest has once been as high as 14.4%, but many shorts are not 'bearish on the company's fundamentals,' but are funds engaged in convertible bond arbitrage, using continual shorting to dynamically hedge their positions. 「They don't care at all whether Bitcoin goes up or down; as long as there is enough volatility, they can repeatedly buy low and sell high to capture the arbitrage spread.」 Butter summarized this way.

And MSTR's convertible bond, in a sense, is also a bullish option derivative.

Hikari also has a set of experiences in combining options and convertible bond strategies. He described buying options as buying a lottery ticket, occasionally hitting the jackpot, but most of the time paying the market 'premium tuition fee'; selling options, on the other hand, is like being a lottery shop owner, relying on collecting premium as a 'steady income stream.' In his actual trading, options and convertible bonds are both tools for risk diversification and cost averaging.

「Different from traditional spot or leverage contracts, the greatest significance of options lies in the 'time dimension.' You can choose different expiration dates such as 1 month, 3 months, 6 months, each with its own implied volatility, creating countless possible combinations, turning the strategy into a three-dimensional portfolio. This way, no matter how the market moves, you can always control risk and returns within your own tolerance range.」

This train of thought is precisely the underlying logic of Wall Street's most mainstream derivative arbitrage. In the case of MSTR, this type of structured arbitrage has become the main battlefield for smart money.

Is It Possible to Short the Micro Strategy (MSTR) Strategy?

However, for ordinary investors and retail traders, this seemingly lively arbitrage feast may not necessarily be a cause for celebration. Because as more and more hedge funds and institutions continuously bleed the market through 'issuance + arbitrage,' common stockholders often end up as the ultimate bag holders: they may not be able to dynamically hedge like professional institutions, nor can they easily identify premium regression and dilution risks in time—once the company undergoes large-scale issuance or encounters an extreme market situation, paper gains can quickly turn into bubbles.

It is because of this that in recent years, 'short micro-strategy strategies' have become a hedging option for many traders and structural funds. Even if you are a hardcore Bitcoin bull, during periods of high premium and high volatility, simply holding MSTR stock will face a larger net asset value drawdown than just holding BTC. How to hedge risks, or capture the 'regression trend' of MSTR's premium, has become a question that every trader in the 'crypto-stock' market must face.

When it comes to discussing the short-selling micro strategy, Hikari's attitude noticeably becomes more cautious.

He said that he has experienced losses due to the short-selling micro strategy. He admitted that he had specifically written a post-mortem on this on his public account—starting to short MSTR at $320 last year, the price kept surging to $550, causing extreme pressure on his position.

Although he eventually "barely broke even" when MSTR dropped back to the $300s, the pressure of facing a high premium and stubbornly enduring the retracement, he described as something "outsiders find hard to understand."

This trade completely changed Hikari's style. He plainly stated that now, if he were to short, he would never use naked shorting or directly selling calls; instead, he would prioritize strategies with limited risk such as buying put options, even if the cost is higher. He no longer rashly confronts the market head-on. "You still have to tightly lock the risk within your own acceptable range," he concluded.

But as mentioned earlier and pointed out by Butter, in recent years, MicroStrategy has significantly expanded its common stock and preferred stock authorization, directly increasing it from 330 million shares to over a hundred billion shares, while frequently issuing preferred stock, convertible bonds, and continuous ATM offerings. "These actions have laid the groundwork for unlimited dilution in the future. Especially with the ongoing ATM issuances and premium arbitrage, as long as the stock price is higher than the net asset value, the company management can 'risklessly' buy coins, placing continuous dilution pressure on the common stock price."

Especially assuming a significant Bitcoin sell-off, this model of 'high premium financing + continuous coin buybacks' will face greater pressure. After all, MicroStrategy's model fundamentally relies on the continuous high premium in the market and confidence in Bitcoin.

For this reason, Butter also mentioned two double-inverse ETFs specifically designed to short the MicroStrategy strategy: SMST and MSTZ, with expense ratios of 1.29% and 1.05%, respectively. "But this is more suitable for experienced short-term traders or for hedging existing positions. It is not suitable for long-term investors because leveraged ETFs suffer from the 'leverage decay' effect, often resulting in lower returns than expected."

Will "Holding Stock and Bitcoin" Lead to a GameStop-like Short Squeeze?

If shorting MSTR is an institutional and veteran risk-hedging tool, then "short squeeze" is the ultimate narrative inevitably triggered by every round of capital market euphoria. Over the past year, there have been many institutions openly shorting MicroStrategy and other "holding companies." Many investors can't help but think of the GameStop incident that rocked Wall Street—so, do these types of crypto-related stocks also have the potential to ignite a short squeeze?

In this matter, although the analysis perspectives differ, the views of the three traders are somewhat similar.

Long Heart Salt believes that from the perspective of Implied Volatility (IV), currently, underlying assets like MSTR have not shown a clear "overbought" signal. The greater risk instead comes from variables such as policy or taxation that disrupt the premium core logic. He joked, "All the bears should be in CRCL by now."

Hikari, on the other hand, takes a more direct approach to the analysis. He believes that for behemoths like MicroStrategy with a market cap reaching into the hundreds of billions of dollars, it is challenging to witness a GameStop-style extreme short squeeze again. The reason is simple: the float is too large, and the liquidity is too strong, making it difficult for retail investors or speculators to collectively manipulate the overall market cap. "On the other hand, small companies like SBET, initially valued in the mere tens of millions of dollars, are the ones that are more likely to experience a short squeeze." He added that SBET's price trend in May of this year is a typical case—where the stock price surged from two to three dollars to 124 dollars in just a few weeks, increasing its market cap by nearly forty times. Low market cap assets with poor liquidity and scarce lending are most prone to becoming the breeding ground for a "short squeeze" market.

Butter also agrees with this view and elaborated further to BlockBeats on the two core signals of a "short squeeze" market: one is when the stock price experiences an extreme single-day surge, with the increase entering the historical top 0.5% percentile; and two, the available shareable stocks in the market dramatically decrease, making it nearly impossible to borrow shares, forcing short sellers to cover their positions.

"If you notice a sudden surge in trading volume for a stock, simultaneously with a minimal amount of lendable shares, high short interest, and soaring borrowing rates, this is basically a brewing short squeeze signal."

Using MSTR as an example, in June of this year, its total short selling volume was approximately 23.82 million shares, accounting for 9.5% of the float. Historically, in mid-May, it even briefly climbed to 27.4 million shares, with short interest reaching 12-13%. However, from the perspective of financing and lending supply, MSTR's short squeeze risk is not considered extreme. The current lending rate is only 0.36% annually, and there are still 3.9-4.4 million shares available for borrowing in the market. In other words, despite significant short pressure, there is still a considerable distance from a true "short squeeze."

In sharp contrast is the stock SBET (SharpLink Gaming) that hoards ETH. Currently, SBET has a short selling annualized interest rate as high as 54.8%, making borrowing shares extremely challenging and costly. About 8.7% of the float is held by short positions, and covering all short positions would only require one day of trading volume. High costs combined with a high short ratio imply that once the market sentiment reverses, SBET is very likely to experience a typical "cascading short squeeze" effect.

Taking another look at the situation with TRX, the U.S. stock SRM Entertainment (SRM) appears to be even more extreme. The latest data shows that SRM's borrowing annualized cost has reached as high as 108–129%, with the available shares for borrowing hovering between 600,000–1.2 million, and the short interest ratio roughly between 4.7–5.1%. Despite the moderate short interest ratio, the extremely high financing cost directly compresses the short selling space, and once the market conditions change, the capital will face significant pressure.

As for the strategic reserve of SOL in the U.S. stock DeFi Development Corp. (DFDV), at one point, the borrowing cost soared to 230%, with a short interest ratio of 14%, with almost one-third of the circulating supply being borrowed for short selling. Therefore, overall, although the crypto stock market has the conditions for a short squeeze, the real trigger point for a "long vs. short game" is often those stocks with smaller market capitalization, poorer liquidity, and higher capital control.

There is Only One MicroStrategy in the World

"For example, if you have a $10 billion market capitalization, and the market believes you can raise another $20 billion for activities, then giving you a double premium is not considered expensive. But if you've just gone public, and your market value is still small, even if you shout 'I want to raise $500 million' until the sky falls, the capital market may not really believe you." Long Xin Salt pointed out the core watershed of current crypto-holding companies—only by truly growing big and strong, possessing the ability for continuous financing and continuous balance sheet expansion, can they qualify for enjoying a high market premium. Those that are of limited scale, just listed, "small players" find it hard to replicate MSTR's valuation myth in the market.

Looking back at the past two years, in the U.S. stock market, "strategic holding companies" have gradually gathered—there are those heavily invested in Bitcoin, those with positions in mainstream assets such as Ethereum, SOL, BNB, and even HLP, and those adopting the MSTR strategy simply aiming for a "holding premium."

How to view the investment logic and market positioning of such companies? Long Xin Salt's viewpoint remains calm: "This track is now too crowded. Companies that only have a 'shell' or gimmick, lacking real business and operational support, are fundamentally too 'young.' Publicly traded companies are not QQ groups, not gatherings of a few people who can easily play the capital game." He emphasized that the capital market has a set of mature rules and bottom lines, and merely relying on the Web3 grassroots temperament and community enthusiasm makes it difficult to thrive in the U.S. stock market.

In addition, there are significant differences in the pricing of such companies in different countries and regions. For example, Japan's Metaplanet, essentially a listed company with a background in the hotel industry, is now the ninth-largest Bitcoin holder globally. Due to Japan's domestic tax policies favoring crypto asset holders, coupled with many Asian investors being unable to buy coins, companies like MSTR and Metaplanet, known as "crypto stocks," have even become the "crypto ETF" in the hearts of many. In contrast, in Hong Kong, some Hong Kong-listed companies are also attempting to allocate to crypto assets, but due to liquidity dispersion and insufficient market depth, they do not enjoy the same dividends as seen in the U.S. stock market. Long Xin Salt bluntly stated: "I am not very optimistic about Hong Kong-listed companies adopting this approach."

Undeniably, including a large amount of Bitcoin on a company's balance sheet is indeed a symbol of strength. However, the market's "rules of the game" have not changed—high-quality companies are few and far between, with most companies merely taking advantage of a trend and valuation premium. Once Bitcoin experiences a major drop, those companies that have leveraged their balance sheets and lack real business operations are easily at risk of financial distress due to depleted refinancing capabilities. They may be forced to liquidate their Bitcoin holdings at the bottom of a bear market, thereby exacerbating downward pressure on the entire market, triggering a chain reaction and creating a vicious cycle similar to a "death spiral."

During a bull market, these companies often exhibit a self-reinforcing structure resembling a "left foot stepping on the right foot"—the coin price rises, holdings appreciate, market capitalization soars, and the market celebrates, while refinancing proceeds smoothly. However, once a bear market sets in, everything can reverse, and the valuation system can collapse at any time. The experience of Long Wen Salt is quite straightforward: "Absolutely do not buy those with high premiums, those that have recently transformed, or those that are too young to avoid risk. Avoid those with more than two rounds of financing—I fear that the senior creditors might actually be insiders, just like playing with U.S. dollar bonds as a real estate developer."

During the interview, Hikari's view was similar to Long Wen Salt's. He mentioned that many newly emerging "strategic holding companies" essentially replicate MicroStrategy's playbook—buying coins, financing, storytelling, and relying on the "holding premium" to inflate market capitalization. Some of them are even originally from the crypto circle, VCs, or project teams in transition. Hikari admitted, "In fact, many of these companies are just here to scam money."

"The reason why MSTR has achieved its current status is simply because its scale is large enough, and it holds a significant amount of Bitcoin. In the future, it has many potential strategies, such as using these Bitcoins for large-scale collateralization or implementing some complex option strategies to unlock the asset's value. As long as the company is willing to distribute dividends and return these earnings to shareholders, this path can actually be sustained.

He added that apart from MicroStrategy, he is currently only focusing on a few "holding U.S. stocks" with truly transparent asset disclosures and legitimate core businesses, such as Japan's Metaplanet and medical equipment company SMLR (Semler Scientific). "As long as the asset structure is clear enough, and the core business is reasonable, these kinds of companies are still worth paying attention to."

As for how the market changes and how strategies evolve, Long Wen Salt, Hikari, and Butter all overwhelmingly agree on one point: regardless of how the narrative unfolds, the most scarce and consensual asset in the crypto market is still Bitcoin.