> How is sharepoint involved in any of this?
We have no way of knowing. But as a guess, possibly because MS is trying to use sharepoint as the new "windows" -- the tool around which they cement their monopoly and keep the money train rolling in.
> Why is it not transcoding locally?
We also have no way to know. But as a guess: "because everything now must be 'cloud' as 'cloud' is the new hotness".
> What if i throw it a 4k video?
No idea. Try it and see.
Lastly, you might consider switching to something that does actually run locally, where you are in control. One suggestion is ffmpeg. https://ffmpeg.org/