Path dependence challenges the belief that each one worth paths with the identical begin and finish factors yield related outcomes. As an alternative, the particular sequence of worth adjustments can considerably alter profitability. This idea turns into crucial for MSTR choices, the place:
Volatility is excessive: Bitcoin worth actions instantly influence MSTR’s valuation, inflicting sharp and unpredictable swings.Hedging prices are excessive: Frequent changes to take care of delta neutrality in a unstable setting can erode profitability.
Instance of Path Dependence
Take into account two situations with MSTR’s worth actions over a yr:
Path A: MSTR experiences extensive swings, reaching a excessive of $500 and a low of $300 earlier than settling at $370.Path B: MSTR strikes much less dramatically, peaking at $450 and bottoming at $320, but in addition ends at $370.
Whereas each paths have the identical begin and finish costs and volatility, their revenue outcomes differ dramatically as a result of timing and magnitude of worth swings.
