We're groovin'
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Here we go.
True North, the investment grade Bitcoin podcast, episode 29. We are grooving, we are bringing the
vibes back, and we are cooking. We've got a crew here tonight. We've got myself, Neithu,
Adrian, and Dan. We are going to get into it. We've got so much data. This is going to be a
jam-packed episode. We've got a ton of information, a ton of data, a ton of things have happened in
the last week. We're going to try to get through as much information as we can. We're going to talk
about MSTR leverage update, STRD, the IPO. We've got new capital coming into Bitcoin on the horizon
that hasn't been announced yet. Quadruple threat ATM with MSTR, which has never been done before.
Bitcoin treasury company update. We'll just talk broadly about Bitcoin treasury companies.
Just given how much data we have, I think we'll keep that relatively minimal. And the rest of the
community is doing a great and absolutely fantastic job talking about all of the other Bitcoin
treasury companies um you know meta planet and the smarter web company alt bg the one in europe
all of those things everybody's doing great content so keep it up uh we'll also get into the
strf strk strd we'll talk about credit spreads a little bit peg ratios price earning to growth
ratios and mag 7 and just compare those at scale and we'll do some projections into 2035 we'll get
a little into the moon math which will be a good time we'll talk about s p 500 tracker market
bewilderment estimated earnings for a q2 just based on where we're at and what's on the horizon
we can do a little testing back and forth and see what kind of thresholds we're looking at looking at
and just talk about the fixed income market in general so i i've got enough content and data
that i could talk through an entire two-hour episode by myself but i've got the guys here
on the screen to help keep me honest and bring in other data and information too and give additional
perspective. So for those that are listening and if you haven't listened before, True North or the
Investment Grade Bitcoin podcast, we talk about everything that's on the horizon with MSTR,
Bitcoin equities, and how the financial landscape is changing. Our goal is to unpack these really
complex topics into digestible pieces of information with data and analysis behind the
scenes. So we are rogue. We are following this a little bit more closely than the traditional
financial world. Most analysts, when they look at MSTR or they look at these Bitcoin treasury
companies, they are completely missing the entire story here. So before we get into
some of the data information, we've got a quick message from Tim.
Ladies and gentlemen, what you're about to hear may be amazing, but it is not financial advice.
It's for informational and educational purposes only. Jeff, back to you.
Awesome. Thanks, Tim. And Tim runs the Bitcoin Treasuries podcast, and he helps bring the voice
of all the people that are running all of these different companies that are adding Bitcoin to
balance sheet and how the market is changing, moving. And go watch Tim's podcast if you haven't
already. Okay. So that's the intro we got through there. And shall we start with a leverage update?
And we'll just jump right into the data and get into it because I don't think we should waste any
time. You guys cool with that? Yeah, let's do it. Cool. All right. So here we go. Back to sharing my
screen. All right, we show this every week. And the point of this is to show MSTR's leverage,
right? Because every day you will see a post on Twitter saying that MSTR is over levered,
or MSTR is incredibly, they're just doing something incredibly risky. They've got so much leverage on
their balance sheet. They're taking on so much debt to buy Bitcoin. And the purpose of showing
this and tracking this over time is to show it's actually not that much debt. The leverage ratio is
is actually incredibly low.
So over in these two columns here, AS and AT,
we've been tracking this for quite a while now.
As of today, so Bitcoin strategy holds 582,000 Bitcoin.
The price of Bitcoin is around $108,000.
So assets held on balance sheet is 62.8 billion.
The amount of debt that they have is 8.2 billion.
The amount of preferred stock
with a recent issuance is 3.2 billion.
So net capital sitting on balance sheet is 51.3 billion.
So the liability to asset ratio, so their leverage ratio is about 18%, which is incredibly low.
Many of the other companies in the entire S&P 500 have leverage ratios 60, 70, 80, 90,
some even greater than 100 because they are betting on future performance of the company.
So when you see the commentary that MSTR is over levered, you can actually just look at the data
and say, and you can look on Strategies website and it shows you how much assets they have and
much debt they have and it's one of the only companies in the world where you can 24 7 365
you could go see like how collateralized the company is based on you know assets and debt
which is incredibly transparent and on a pro forma basis so showing this on a pro forma is helpful
because you know they've got uh about three billion dollars of convertible debt that's currently
trading in the money as equity and convertible debt that's in the money trading as equity is likely
already hedged out, meaning that the buyer of the convertible debt has already shorted and bought
back their position completely such that they have short interest held on the stock, but it's held
one-to-one with equity. So when those convertible bonds are closed out, there will be a canceling
out of the short interest and the canceling out of the equity, basically a neutral impact on the
stock. And that would cancel the technical debt held on balance sheet. So bringing the net capital
held on balance sheet up to 54.5 billion, dropping their liability asset or their leverage ratio down
to 13%. And that gives a debt coverage multiple of 7.6 times. Basically, they have 7.6 times the
amount of assets than they do debt on the balance sheet. So the final two rows down here, I think,
are important and valuable to look at. So everybody says margin call, right? Like all the bears say
a margin call, MSTR is over leveraged, they're going to have a margin call. Well, first of all,
none of the debt is secured. So the Bitcoin, they don't have to sell the Bitcoin at any point. They
have no covenants within the debt that requires MSTR to sell the Bitcoin. So that's the first
point. Second point is in order for there to even be any problems to begin with, the price of Bitcoin,
we need to fall below $14,000 and stay there for an extended period of time while the convertible
debt comes due, that means the assets held on balance sheet would be worth less than the debt.
That would be how there would start to be issues if there would start to be issues.
I guarantee you, everybody listening to this call would be selling their teeth and their
t-shirts and their Pelotons and their weights and everything to go buy as much Bitcoin as
humanly possible. And that would be an 87% drawdown from here. And just based on how de-risked
Bitcoin has become in the last 12 months with government adoption, legislation, SEC, new
administration, all of that jazz, I think that's a very incredibly low probability.
Now, the last thing I want to point out here, and maybe I'll zoom in to make this a little bit more
clear is I wanted to point out the net capital held by MSTR. So this is the net capital. That
means this is just the general assets less the debt held on balance sheet, right? So as of today,
62.8 billion of assets, and you've got, what is that? 11.4 billion of debt. So that's $51 billion
of net capital. Now, just go look at the companies that have $51 billion market caps,
right? 51 to $54 billion market caps. Basically the net capital that strategy is holding on its
balance sheet right now is bigger than the entire market cap of FedEx and Aflac and MetLife, like
large systemically important insurance companies, right? And, you know, distribution companies,
public storage, energy companies, et cetera. So it's incredibly powerful. That's the reason
they're trading so high right now. In my opinion, I think they're undervalued and underpriced because
the amount of capital that they hold is just incredibly strong. This is the strongest financial
company in the entire market, in my opinion, especially if you're denominating your world
on a Bitcoin standard. So I will pause there. You guys have anything to add?
Yeah, I've been thinking about, I know the ATM on the common stock is a dirty word,
and we've been so excited that we don't even have to use it anymore because we got all the preferreds.
but using it is what got us into this strong deleveraged position in the first place.
And, you know, Saylor likes to talk about these closed systems, and it just seems like
we can heat up the system with the preferreds and we can add leverage, but it's the ATM on the
common stock that lets us kind of vent that pressure if they were to ever get over leveraged.
so it's going to be funny to me at some point if people start clamoring for the common uh atm like
oh we're getting to the top of our leverage and like people start whining and complaining
uh that they want more atm on the common stock i i just think there's um there's a future where
that could possibly happen absolutely totally totally agree and one other thing to point out
here right strategy has told us that their target leverage ratio is between 20 and 30 percent so if
you look at that pro forma column, that column AT, you're at 13.1% leverage ratio. And now Bitcoin
price could fall and that leverage ratio could rise. However, there's still room and capacity
to potentially grow that pretty significantly. They could take a significant increase in the
amount of debt and leverage held on balance sheet and still be within the target leverage ratios.
The reason they target that 20 to 30% is because that gives a huge buffer if the price does fall,
65% in a short period of time, they're still not going to be over levered. And I think it's a
protection mechanism. Yeah. So, I mean, there's potential, we can talk a bit about stride too
here. I think talking about stride, yeah, jump into stride. Go ahead. I think that the design
of stride, the non-cumulative dividend clause was designed such that they could increase the
leverage ratio in times of distress, right? And that's something I think about a lot too, is
let's say Bitcoin takes that 60% drawdown, 70% drawdown, that leverage ratio will by design
increase substantially during that fall, right? If their assets are worth 50% of the current value,
their leverage ratio should in theory be twice as high. Now, if they have to go back and buy their
shares by selling preferred, or if they want to just continue increasing BTC yield, then Stride
has to be able to exceed that 30% threshold and still be a valid over collateralized instrument.
And since it's non-cumulative, they can exceed that 30% threshold specifically with stride.
Right. Right. And the reason they would issue stride in that circumstance is because it is
technically the lowest on the capital stack, right? It is the junk grade fixed income product
that MSDR is providing, right? You don't want to sell your investment grade product in a time of
distress. Maybe they will, right? They can have all of these instruments moving at the same time,
right? This is the fascinating part with this whole thing. You have an ATM on every single
one of these instruments. And depending on whatever's happening in the market, wherever
energy is coming from, they're able to capitalize on it. And they're able to have, I'm sure they've
got algorithms in place such that, you know, if there's, it's probably a VWAP type algorithm,
where if there's a lot of energy coming in the door and a ton of volume coming in on the stock
or the preferred instruments, you're able to tap it and tap into that increased volume
and sell and issue more shares of all those pieces. So yeah, it helps with the timing.
Totally, totally. But, and think of, and think about the optics. I just think about the optics
in a bear market. Like let's say they had to sell a preferred equity to continue BTC yield, right?
They're trying to have consistent BTC yield. If they were already had a 40% leverage ratio just
by happenstance of Bitcoin falling, and they were going to go out and issue strife, the Bitcoin
rating on strife would be decreasing with every billion dollars of strife they issue. And so
that's something they've been able to manage with stride. Now issuing stride, they're increasing the
the btc rating of strife and strike while issuing this junk preferred so yeah absolutely
absolutely strd was like the last the last thing that i was you know semi worried about if i wanted
to steal man a bear argument and actually like make a decent one you know defending that 1x m nav
was the kind of like the only last remaining uh puzzle piece that i had and strd just solves that
problem And really the only thing that the next thing that I would be worried about would be like when Bitcoin market cap exceeds the bond market And we a long ways off from that So I not really worried about the stock for quite a while
Yeah. And there's a good question here from Chris and Dan, maybe you want to take this
on playbook and sentiment if they miss a payment on stride, because you looked into this, right?
I mean, these kind of junk, I'm going to say junk because for lack of a better word,
these junk instruments, they pay the dividend 100% of the time. They don't miss dividends.
that that's not the that's not the intended goal that missing the dividend is like the last resort
sort of situation it's like if you're in trouble uh for an extended period of time and you just
need time that's what these are designed for and in that circumstance the the price of those would
fall drastically and then the relative yield of those would rise pretty pretty significantly
and the market would respond i mean these are these are liquid instruments you would see those
change over time. But go ahead, Dan. Yeah, you're totally right. In my research,
I found that most preferred non-cumulative preferred equities had made every single payment
throughout the history of those equities. And then furthermore, even financial institutions that were
about to go under during the financial crisis were still paying these preferred non-cumulative
dividends unless the company had actually gone bankrupt. So likely the only scenario in which
strategy wouldn't pay the cumulative preferreds as if for some reason they had to sell Bitcoin to
pay the preferred dividend, they had no other access to capital. I would assume, I would imagine
they wouldn't sell the Bitcoin to cover the preferred dividend or the non-cumulative dividend
for stride, although they would sell Bitcoin to cover a strife or strike dividend.
good point and and i'll come back to both those and i'll get the question real quick uh so do they
when they use the atm on any of these instruments they uh when they issue new shares of stride or
strife or strike it is at the market value not at par which is super important which is like
really part of why this whole thing works right because as the price of these instruments rise
and the technical yield falls, they're able to issue more shares at the new market value price,
which is significantly more accretive to MSDR, right? Because you're selling less shares for the
same amount of yield. And so you would have technically less dollar cash flow dividend
liability on the balance sheet at a future point in time while you're bringing this other capital
in the door. So as the price of all of these rise, their efficiency increases drastically.
So that's why these instruments have significant torque on the balance sheet, because as the prices
rise, as they're more successful, they are more impactful on just overall Bitcoin per share and
Bitcoin yield. And I think there's two ways to look at that. Let's say Strife rises to $150
a share and the effective yield is like 6% on Strife. When they issue Strife and buy Bitcoin
with it, you can think of it two ways. Either they're arbitraging the Bitcoin CAGR versus the
6% dividend, or they're capturing a $50 gain for each share of Strife they sell. And then they're
arbitraging the difference between a 10% CAGR on Strife payments and whatever CAGR Bitcoin is.
So you can almost think of it as Strife appreciates as an immediate capture
in value for MSTR shareholders because of the difference in liquidation preference and market
value like Jeff said.
Right, right.
There's another good, I mean, Steven, put tops to another good question.
When will MSDR continue to use the convertibles?
Are they basically cooled off from them or will they use three other financial products
ATMs?
So the convertible bond market is still open for business.
They can go, they could go issue those instruments like right now today.
I mean, conditions aren't great.
IV is low.
So you'd have to, you'd sell the convertible bond at a lower potential strike price than
you may want to, and the other instruments are far more efficient. So if you think about just
how the instruments work, right? Like when you sell a convertible bond, the convertible bond
buyer is selling the stock immediately. They're selling effectively 70% of the stock that's issued
to them to hedge their position and hedge their downside. And they're doing that on day one.
So you get this like massive, like jolt of dilution on day one. Now, if you think about
these other instruments that they just designed, there isn't dilution on day one. There's dilution
one quarter down the road and then dilution another quarter down the road when they have
to pay the dividends. So they are using these other capital raising instruments to pay the
dividends at a future point in time. So the dilution schedule is significantly more accretive
for all the other preferred instruments, which is why there's a lot of focus on them and why we're
talking about them. I would prefer that they use and build out the market for all of these preferred
instruments because it's significantly more accretive than the convertible bonds. Also,
there's no time horizon on them. So you have no debt covenant of a specific point in time when
you have to pay the debt back and refinance or take on additional convertible debt, et cetera,
et cetera. So I think there's a lot of focus on that. But go ahead.
Yeah, I was going to say, I think the IV is low just because the leverage ratio is so low.
So the good news there is that with the preferreds, they can crank up the leverage,
which would increase the, you know,
an opportunity for a better environment
to issue the convertible bonds.
So it's almost kind of like they control their own destiny
at this point.
And yeah, and furthermore,
I think Bitcoin's vol is just down too.
Everyone wants to blame MSR's vol relative to Bitcoin's.
Vol has compressed,
but Bitcoin's vol is also at an all-time low.
So like that's just something to consider.
Yeah, it's been pretty flat, right?
I mean, all things considered, we haven't seen those big, like, you know, 10,000, 5,000 swing days.
Hopefully they're on the horizon, but yeah, it's been relatively kind of just up and to the right for the past couple of months.
So one other thing I wanted to bring up, and Dan, you kind of hit on this, was basically the leverage, right?
Or if you're in a situation where the price of MSTR is distressed or whatever that may be,
let's say the price of Bitcoin falls 50%, right?
If the price of Bitcoin falls 50%, the amount of Bitcoin that strategy would hold falls 50%.
So now you have $30 billion of debt and $11 billion of liabilities.
If they need to go raise capital, I would underwrite a loan for them all day. You have $30
billion of assets and $11 billion of debt, and you're holding Bitcoin. I would be all over
writing that instrument. There's a lot of capital in the market that would be interested in providing
them capital. The terms may not be great, but they are significantly over collateralized still,
even if the price of Bitcoin falls 50%, 60%, 70%, they're still significantly over collateralized
relative to other financial companies that are in the marketplace.
So I think that's just a really valuable thing to keep in mind is like, they can go refinance,
right? Like just as anybody can go refinance their house, like you can go get different debt,
you can negotiate terms on your convertible debt, like you're the issuer that provide you
the initial debt, you go negotiate those terms and interact with these players in the market.
That's a really good point, Jeff. And Saylor mentions that a lot. And a lot of us retail
overlook that. We don't have the perspective you have. And he keeps saying like an operating
company, not a closed-end trust can recapitalize and refinance their balance sheet, issue securities,
buyback securities. And one point I tend to forget to think about is that refinancing mechanism.
There's so much capital in the market, right? Like the market is $900 trillion, right? There's
so much capital in the market that you can go attack if you need it. And your ability to refinance
is just the ability to network, right? And so now you've got Sailor and the strategy team and Fong
and Sharish and Andrew, they all have all of the connections in the entire market, right? Like
you got ex-Morgan Stanley, like ex-bankers,
and they're connected to all these different capital instruments
via convertible bond and all these guys.
Like somebody would be willing to give them a loan
no matter what, pretty much,
unless like, you know, an asteroid hit,
even if an asteroid hit the earth,
like somebody would still probably give them a loan.
So I think that's just valuable to keep in mind.
Yeah, and it's in actually these,
as long as they have assets on the balance sheet
that someone counterparty believes are creditworthy
to some degree or worth something,
they will issue secured, like someone will always issue a secured loan at high interest rates,
as long as there's capital and strategies balance sheet. So worse, worse, worse, worse case.
Right. And that's kind of steel manning the other side of this, right? And you don't have,
Dan, to your point, you don't have that much perspective of working in the capital markets,
unless you work in the capital markets, right? I've negotiated deals to keep insurance companies
alive when they, you know, half their portfolio burnt down in the paradise wildfire. Like you
can wheel and deal on anything. Everything's negotiable, right? Everything's a contract
and big money and everything's negotiable. So I know you guys were speculating at least
in our group thread on some additional or future products that may start with STR. You
guys want to toss out some ideas, what you think might be on the horizon?
Yeah, I think Adrian's got that one.
Oh, well, yeah, we came up with, what was it, Smurf, Strip, and Slurp.
Slurp.
Yeah, so I don't think those are going to be necessarily viable in the market.
But with regards to other offerings, I've actually been playing around with that idea.
At the current time, I don't know if they have a need to.
I think they have every kind of offering that they would need for the near-term future.
And it makes far more sense for them to grow these markets and grow these offerings and
grow the market cap of those before they would further add additional offerings to the market
and potentially remove interest from those offerings. Because if you think about strike,
it's giving you that potential upside with a dividend. If you think about strife, it's acting
like the bond. And now you have stride acting as that quote unquote, the junk bond. What other
offering do they really need at this point? They have them all sitting around the primary equity
of mstr and we have three five four flywheels operating i call it the 4tm that's what i started
calling it in the um on on twitter they have that run they have the ability that they're going to
start running that because you know he's going to do it on stride it's only a matter of time
so i i think they would actually and i don't want to use the term hurts but they may hamper
the impact long term in the market of these three offerings that they bring in another one anytime
soon i can see them looking into it probably by the next cycle but i don't know if they have a
need for it within the next two three years i just don't see it what about foreign capital markets
adrian foreign yeah foreign well would that be the same product that's actually a question i have for
you guys would they just offer stride in foreign markets or would they have to create a different
security to offer in these foreign jurisdictions so i i think they can potentially do stride in
in those different jurisdictions.
Where it gets complicated is where does the money sit
and how does it interact?
Oh, God.
So, like, apparently that's some of the issue
where it's like, okay, let's say you raise this capital
in this other jurisdiction and you buy Bitcoin with it.
Do you buy the Bitcoin and send it to the US?
Like, they don't want you to do that, right?
So, do you buy Bitcoin with it?
Does it sit in that jurisdiction?
How does it move?
Do you have to have an entity in that jurisdiction?
When you file for that product on that marketplace, what are the rules and regulations that exist in that marketplace?
Is it better to just have a whole separate instrument with a separate sidecar vehicle that sits in that country and all the capital sits there?
And there's some kind of interaction between the parent company.
So I think it's incredibly complex and a little bit harder, more difficult than we may think it might be.
But one thing that's really unique about the three products that they've done right now is that they all hit different market needs.
They hit different pools of capital.
It's not like they threw out these three products and hitting the same group of capital.
I mean, retail has access to them.
But you've got the investment grade bucket that's fixed income with the least amount of risk.
You've got the junk bucket, which is higher yield, like high yield savings account kind of thing with, you know, anybody that's looking for junk bond status type instruments.
And then you've got the convertible preferred, which is anybody that wants, you know, that equity like upside with downside protection.
So it fits three different solutions.
And I think there are other pools of capital out there that may have similar type solutions.
I mean, they could potentially offer one that's got a monthly dividend, right?
like that would be appealing right all the three instruments that they've got right now have a
quarterly dividend and maybe they right yeah they so they can do that but i would almost see so this
is why i said that at the current juncture they don't i don't know if they have the need for it
it would make more sense in my mind for these three offerings to scale much larger before they
would look into doing something that's monthly right now that because that does make sense so
it'll be a different offering different dividend percentage they can do it monthly but like the
foreign markets one i see that being viable when they're much much larger when i see what i think
when the market cap of the company is approaching like i don't know 500 billion that can make a lot
of sense for them to have foreign offerings on top of monthly offerings on top of quarterly offerings
because at that point you're essentially operating as a i don't know i don't even know what you
classify them at that point if if i really had to think about it but that is the kind of feature i
can see just that near term i think they are they're very very it's very very beneficial for
them to scale these three as large as they can get near term and ride the um the market that they
create to scale and um besides that though i mean there's all kinds of things that they can do once
that once that once that threshold's hit yeah i mean i kind of disagree right the the only reason
is it just takes time for the market to be built on these.
And if you've seen how the sailor moves, the team moves fast and they get the products
out to market And he over here pounding the silicone on the AI of like what the next product i want to i want to issue to the market what the next best capital uh pool that i could go tackle and uh
you know i think they could do another one in a in a couple of months if they're able to
like these all they all have runways right where they you have to get it out to the market for the
market to digest it and figure out what it is right i mean dan how long did it take before
you it strike clicked for you and you pay attention to stuff every day yeah it took a long time took
like three months right and and that was just taking time thinking about okay how does this
work how does it work together who would want to buy this why would they want to buy it and you're
paying attention to the stock every day now take a traditional bond manager or like a preferred
equity manager and they see this instrument come out and they're like well you know what is this
thing and they've got to they've got to start at ground zero of learning this company so it behooves
them to get all these instruments just like get them out to market even if they don't um if they're
not super attractive right away just because you have you have those instruments in those markets
and it's going to take time for the education to grow so i think our job is going to be harder here
in the new future uh with more instruments potentially on the horizon maybe they take a
little bit of a break but i wouldn't i would think market saturation would be a concern in terms of
just perception but i i don't know it's possible that they can they can spool up another one
really really quickly i just i'm trying to take the approach of what what is the net benefit
moving fast and consistently moving fast or letting them letting the market build and scale
and then seeing what you can do after the fact because they've already gone from
having the the primary equity to three offerings right in a matter of six months
Yeah, five.
Five, right.
So I'm just thinking to myself,
what is the net benefit of saturating the market
with more offerings at this point?
I know what you're saying,
that it takes time for these things to build,
but the opposite could also be true.
Once they have the scale,
it will be easier for them to build it.
I think the point is you're not saturating the market,
you're just hitting a different market.
Like there would be, you know what I mean?
It's like you'd be tackling different pools of capital
with a different instrument.
all tied to the same company. I'm just thinking about market perception is what I mean.
Yeah. I mean, people are going to be bewildered, right? Like who cares, right? If you, if you know
how the math works and you know, the numbers, who cares? People are going to short the stock.
Jim Chanos is going to short the stock. Jim, I hope you're watching this Jimbo.
Thanks for all the conversations recently. It's been great. Um, but, uh, yeah, I, I think that,
I think there's more on the horizon. I don't know. We'll see.
You know, we could try to reverse engineer it from what we've seen them do already. Right. So we know strife is going to be at the top. So they're not going to rug pull their own crown jewel to create something that has the same interest rate or the same dividend and is just as safe. Right. So they came out with STRD and they had to end really that clause where they can maybe not pay the dividend.
And that's really only there to just like, you have to rig it in such a way that it is inferior.
So it will trade at a discount so that it's a little bit more risk for a little bit more reward.
And somebody in the chat was asking why retail would buy it.
And it's because it's paying an ungodly interest rate right now.
And it should always trade at a discount to Strife.
So if you want to take a little bit more risk and get paid more and buy in for cheaper than you could for SDRF, then you'd go for it.
All I'm saying is that there is a definite, since sentiment drives a lot of this, there's a definite consideration for market perception and the market perceiving it as too much saturation with too many offerings too quickly.
That's the only thing I'm raising for consideration.
I'm not saying that the market will be right.
I'm saying that it could be a consideration.
Yeah. And when that time is right, I was trying to figure out other niches that they could do. And one would be something that is a variable rate.
and a year ago I did not realize I was going to be like internet sleuthing freaking different types
of preferred stocks but you know they could tie it to the overnight rate something like that
there's preferreds that are doing that they could the other niche that I was thinking that I found
that they could potentially do would be a fixed duration so 5 10 or 30 years and and it could
actually you just know upfront how long you were going to be able to hold this thing before it was
going to mature. They can they can play around with those things with the with the dividends.
And I don't know if they would know exactly where they would fit in the stack. But you'd know when
that once they hit the market and whatever the market decides they're priced at, you'd end up
with, you know, one more thing to compare with.
We're gonna see so much arbitrating
between all of these different instruments as well.
Like we're gonna see people that are,
because these are the most liquid preferred instruments
in the market that the market has ever seen,
there's gonna be trading amongst all of them.
And I think that's one huge benefit here
that is probably overlooked by most people
is that because these are liquid fixed income instruments,
the most liquid fixed income instruments,
You have a whole host of arbitrage opportunities against other fixed income instruments based on how fast they move relative to interest rates, et cetera, et cetera.
And I think the liquidity is also incredibly helpful, right?
This isn't like an OTC fixed income bond on some podunk tiny little company that's just not liquid in the market, right?
This is, you're getting yields that are higher than Podunk company that is not liquid.
You know, DISH, like a DirecTV corporate bond is not liquid, but this is incredibly liquid
and it's paying a higher yield.
So the attractiveness of these instruments is really high right now.
And I think it's just only a matter of time before the market begins to see how attractive
they really are.
so i did want to get into this and i think it's a good timing when we're talking about these
these things so this what you're seeing on the screen here this is the yield of these different
instruments over time since inception so down on the bottom here this is uh this is the 10-year
u.s treasury over time so you can see it's relatively flat at the beginning of february
is about 4.5 percent and as of today is about 4.4 percent so relatively flat the blue line
this is STRK. So this is the lowest yielding product at the moment, but remember it's got
that convertibility option. So it can convert 10 shares of STRK can convert into one share of
MSTR at a future point in time. So there is a, not only are you getting paid 7.4%, which is a big
Delta between the 10 year US treasury, you also get a call option on MSTR into perpetuity forever.
So it's just a really fabulous product there. And then the black line is STRF. So this is the
investment grade product. This is the least risky product. So in the capital stack,
it goes convertible bonds, STRF, STRK, STRD. And that one's currently paying around 9.5,
9.6% as of today. But you can see the general trend here. Since it launched, it paid,
I'll say around a 12% dividend. It got a little bit worse and it has been drastically
dropping over time. Again, this is incredibly powerful because as the price of these products
rise and the relative yield drops, they become more beneficial to the MSTR shareholders because
the capital that you're bringing in the door on each one of these ATMs is directly going to buy
Bitcoin and you're taking on the excess risk that these fixed income holders do not want to take on.
So it's just a great product.
And then the last one here is STRD.
As of today, it's trading at 11.3% yield.
So highest on the stack.
And we'll follow how these change over time.
Now over to the right is credit spreads.
So this is mapping the delta between these two instruments,
the STRK instrument, the STRF instrument
and the 10-year US Treasury.
So this is basically known as like the risk premium, right?
So the gap between the risk-free rate,
which 10-year US Treasury in this case,
is the credit spread.
And the gap between the black line and the red line
is the credit spread for STRF.
So this is how much additional risk the market is pricing in
relative to the risk-free rate.
So we'll go over to it here.
And so I'll draw your attention.
This looks very similar to the last chart is
you could see the credit spread change over time.
But basically what this is showing is that the credit,
the credit quality, the market has said
that the credit quality of these instruments is improving.
That's effectively what this table is showing.
You could see the blue line is kind of went up
over the first couple of months as it was trading.
But since April, the price of these products has been rising and the market is starting to understand the value, the relative credit of these instruments relative to the 10-year U.S. Treasury.
So you start to think about like, what are the risks, right?
What are the risks for any of these instruments?
And we kind of hit them at the beginning.
You've got digital risk.
You've got collateral risk.
You've got potential custodian risk.
and you have to compare how these risks stack up relative to your effective risk-free rate,
your ability to print money. And I think there is going to be a point in time in the future
where the STRF product does flip the US 10-year treasury and the relative yield of
the credit spread between STRF and the 10-year US Treasury will flip negative,
aka meaning that the strategy preferred instrument will be less risky than potentially
what the US government is offering. I think that's a possible horizon. That's what I'm here for. I'm
excited for that potential future. I think we'll be positioned pretty well. And the reason being
is that they are managing the collateral incredibly well. The balance sheet is incredibly strong.
They've got 10x more Bitcoin than anybody else.
And the size and scale is the real moat here.
They have a digital capital moat, which is a dollar moat.
And I think they're going to be the strongest financial company the world's ever seen.
And we can get into some of that data in a bit.
So you guys have any questions on this, like the credit spread?
I've got it lined out here.
When I first learned about credit spreads, I thought it was some wicked complicated metric
to calculate, but then I realized it was just a difference.
And it made it a lot simpler.
So for anyone listening, credit spread is just the difference.
It's just the delta.
Yeah, just a simple delta.
It's kind of saying credit spread is like the equivalent of Jeff Park saying risk vector.
Yeah.
So one thing that's also pretty neat here is you can look at when the credit spreads of each of these peaked, the 10-year U.S. Treasury was at its lowest.
And so as the 10-year US Treasury has been rising in recent weeks, the relative price of these other instruments is falling and the yield is falling.
So you're getting this like compounded effect of the credit spread, right?
Your risk-free rate is rising and the relative premium, the risk premium of these other instruments is dropping.
So you get this kind of compounded effect on the credit spread.
So you see this, the delta is dropping quickly.
So you could look at the linear trend.
The trend lines are the dotted lines behind each of these.
The blue dotted line is the linear trend since inception of STRK.
The black one is the linear trend since inception of STRF.
And the relativity is relative to the 10-year US treasury, which has been slightly up over the same time horizon.
Cool.
Yeah, no, I think that's really like if you're in this trade and you're looking at strategy,
you're looking at MSTR and then you see all of what's going on here. I mean, I think a lot of
this first time repricing of these debt instruments up to their actual effective or risk credit
spread that should be appropriate is a once in a lifetime kind of capital ramp up. And that's why
I've been loading up on strike is I just believe that this is kind of a once in a lifetime opportunity
to realize that appreciation.
Yeah.
Why don't you walk through that?
Because I think a couple of people,
you've been posting that you've got these products,
which is, I think, a great idea.
And walk through that, say that exact same thing
and explain why you're holding these.
Yeah.
Well, because if you look at the capital stack there,
you know, five to 10 to even more,
I haven't checked recently,
over collateralized by the Bitcoin holdings,
which is something that most fixed income products
or even preferred equities aren't by their principal companies. And so what I believe is
that these should be trading at maybe 100 basis points or 200 basis points above the risk-free
rate of like 4% or so. And so what does that mean? Well, it means the principal has to appreciate
such that that yield declines relative to its value. But the way I look at strike, at least,
is strike has that convertible option and then also the cash on cash yield. So I think strike
is just this weird instrument where you're getting like 11% or 12% yield on the cash portion you hold
that doesn't represent the convertible option. Whereas then the convertible option itself is
actually in a way a superior MSTR product because you get that $100 liquidation preference. So I
still think the market's underpricing strike in a way that is tough to explain without visualizing
it. And finally, what I want to say on that is it's a one-time thing. Once the market believes
Bitcoin credit is a thing. It's not going to fluctuate. And I know Penny Ethers in the
chat talking about how the reason this is changing is because of the price of Bitcoin
and the over collateralization. I argue that market participants aren't going to value
this Bitcoin credit differently whether it 5x or 6x over collateralized in the capital stack They going to have to come to terms with the fact that Bitcoin is in fact collateral And that what we seeing right now in the price appreciation of Strike and Strife It the
fact that the market's coming to terms with Bitcoin as collateral and the idea that MSTR
can cover those dividend payments by selling equity. And it's not dilutive in a sense. So
I think it's not necessarily just the amount of over collateralization, but instead the
concept itself, which is a one-time deal. And these are fixed income instruments. You need
to compare them to fixed income instruments, not the underlying asset that MSTR holds.
That's the product. It needs to be compared relative to the risk-free rate. And that's how
the market is going to start looking at these products is the delta between the risk-free rate
and this risk product. These are risk products that are paying you a yield for taking on that
taking on that risk. And Dan, I think your point is really important. This is kind of like a one-time
benefit where once the market does realize the relative credit rating of these instruments,
the collateral of these instruments, understanding what the risks are, if they get rated, they're not
going to get unrated. They may get rating downgraded or upgraded at future points in time,
but they're not going to get unrated. And once these instruments are rated, you're going to have
a whole nother entire you know 90 of the fixed income market can potentially buy these things
so that's a that's a huge huge uh benefit uh coming for these instruments at a future point
in time also if you get to a situation where interest rates drop the relative yield of these
products looks significantly better than if the interest rates drop the yield is going to look
high relative to the risk-free rate. So that credit spread may stay constant, but the price
of these instruments may rise and the yield may fall in line with the credit spread,
offering additional principal price appreciation. So it's good stuff. Great products.
Yeah, great products, really. And oh, interesting thing I learned today was that
strike and strife are both marginable securities on fidelity whereas strd is not yet and i don't
know if that's the difference between the cumulative nature of the strd dividend the
fact that it hasn't been trading for more than a single trading day uh x y and z but that's an
interesting distinction uh on fidelity brokerage as i was trying to buy stride on my you're like
how can i buy these on margin right on i'm like well i can buy yeah x amount of stride or i can
buy double out of the strike. Yeah. How long does it take to get these rated? Who knows? It could
take a while for these to get rated. There are several rating agencies out in the market, three
big ones. You've got S&P 500, Moody's and Fitch. And it just takes some time getting in front of
them. I'm sure that they're on this marketing campaign and Blitz trying to explain what these
products are doing. And each one of these credit rating agencies would put their neck out to put a
like to put a rating on any of these products. It is a risk for them.
Right. What happened in the 2007, 2008, 2009 financial crisis is all of these investment grade
instruments ended up going bankrupt and they were worthless. And go watch the big short. And
And they now have rules in place to prevent that from happening again. They're a little bit more
strict on what the ratings may be. So now you come in the door with this completely novel
instrument backed by Bitcoin, which is unknown by many and many people don't understand what
these things are. And then you have a company that's taking leverage on Bitcoin in different
ways and offering these new products that are created by AI that the world has never seen before.
And it's just so many things that you have to explain to a group of people that maybe
are a little bit archaic and slow in how they look at things.
And so it may take a long time.
And I suspect that a sailor and a strategy team want to make sure that they get the right
rating as well.
I don't think they're going to get a rating on these instruments just to get a rating.
I'm sure these companies are saying, hey, we'll give you a triple B or double B, whatever
it may be, but the team might say, well, yeah, strife should be investment grade because it's
six times, seven times over collateralized. And I'm not taking your double B. This is investment
grade and you rate it investment grade or we're just not going to get it rated. And I think that's
probably where the conversation's at right now. And the market can just price it as they see fit
as well. Right. And that's kind of what we're seeing slowly over time. So hopefully the market
just prices it. The market will adjust, but the market will adjust even more when more capital
can buy these things. It takes more volume. You need significantly more volume. There just needs
to be a lot more people that want to buy these things and that will drop the credit spread
relative to the risk-free rate. Cool. Shall we shift gears? Dan, there was something that you
wanted to go over we're at 50 minutes here we're cooking yeah it actually is is uh exactly what
we're talking about now so let me pull it up here boom gotcha did you see it hit it cool okay
it looks like a bunch of numbers but it's pretty straightforward uh for all of us so right now this
is the leverage ratio x stride so this doesn't include stride and the whole idea here is that
stride is like a unique sort of product in that you don't have to fit that 20 to 30 percent
leverage ratio which i think could be the case i'm not sure how they're going to use it regardless
so we're at a 16.1 leverage ratio without stride uh annual interest expense expense with stride is
336 million dollars and that includes convertible debt all the prefers now so at these different
Bitcoin prices here and at a 582,000 Bitcoin count, this is the effective leverage ratio without
stride. So if Bitcoin were to fall to $60,000 flat, you'd be looking at a 30% leverage ratio with
stride. Now, these three boxes here represent the billions of dollars they could issue in stride
up to these leverage ratios. Because like my whole thing and the thing I've been thinking about a lot
is like, okay, you see a 60% drawdown, the multiple compresses, it goes below one, you have to buy
back the shares, whatever, or you have to continue yielding Bitcoin. So you have to be issuing a lot
of stride. So how much can you realistically issue up to certain thresholds? And I think a 50%
leverage ratio during a bear market using stride between the 30% and 50% leverage ratio is completely
100% appropriate. And so you'd see here if Bitcoin waterfall to 60,000 with the current leverage
stack, equity stack, they'd have about 7 billion worth of room to issue stride up to a 50% threshold.
So that's something you can look at and consider. Oh, wow. Okay. Hold on. So walk through that
again. So you're looking at the delta, you're looking at the delta between your... So everything
in column F is a 50% threshold and you were saying you could go from 29.5% to 50%, you'd
raise 6.9 billion via stride.
Oh, exactly.
Yeah.
If you were to lever up that, so in this case, you're at a 30% leverage ratio with your high
quality instruments, that 20% delta using stride represents $7 billion.
So that's how much stride you could ethically issue.
They could issue more.
60% leverage ratio of stride. Well, it just kind of depends on the performance of that instrument,
how much liquidity is there as well. Because you want to manage the interest expense. And if that
thing just gets hammered because the price falls and the yield goes up to 20, which I doubt is
going to happen. But if it did, Soleil would be all over it. If the yield goes up to 20, he's like,
hell yeah. I think we'd all be buying it. Actually, that's an interesting thought. And Dan,
I know we talked about this, right? If you're in a position and you think the market's overheated,
you could, the trade may be going from, now this is financial advice, the trade may be going from
leverage to strife for stability. And if you see that the market does potentially fall,
then you would want to jump into stride because the yield of stride would probably be rising,
which would be much more attractive. You can think of it as like a high yield savings account.
And then when you think the tide has turned and Bitcoin is looking good again, you go back into leverage.
And you just kind of run that cycle over and over again.
And you just kind of, you know, your own little flywheel.
That's an interesting, interesting talk.
That's really interesting.
I have one more thing I want to mention later on that, but I'll go here in a second.
So this is the same deal.
It's just with an increased Bitcoin count.
I think strategy will have 650,000 Bitcoin at least by the end of the year.
So if you think you're going to see a bear market in 26, how do the numbers change?
And with their current debt structure, it just means in a bear market, if we go down to 60,000 in 26, they could issue 8 billion up to that 50% ratio.
But bearing all the liquidity and concerns Jeff mentioned earlier, with even more Bitcoin, same deal here.
You could offer even though. Yeah, exactly. That's the point I'm trying to illustrate.
I see somebody in the comments. If it's at 50%, that means they aren't paying the dividend. That's
just completely wrong. They're going to be raising so much capital, even at a 50% leverage ratio.
They've got plenty of capital to pay the dividend. Yeah. Considering the dividend
payments right now are only 330. So again, that would be 10% of... So here, right now,
the dividend payment is 336 million annually. If we were to fall to that 60,000 price and they were
to issue here, 7 billion worth of debt, they'd be paying roughly 10% on that 7 billion, which is
another 700 million. So that's a billion a year in debt expense, which I think they could cover
quite frankly. Yeah, absolutely. And that's a dramatic situation. I don't think they issue
7 billion worth of stride in the bottom of a bear market. I don't really see that as being like...
Yeah. Maybe they would though. I mean, if the market's there.
and then you're just you're getting bitcoin at a discount right like that's if you're just the
long bitcoin all the time if the market if the if the volume is there why wouldn't you
yeah because you're totally right because you're going to be scooping up bitcoin when nobody else
is scooping up bitcoin because you have the instrument that can scoop up the bitcoin
right i don't know that's kind of how i see it
uh yeah i mean crazy holy moly okay um i've got some realize i was i wasn't bullish enough
yeah i saw this i i don't think i don't think we're bullish enough i before we jump into some
more data i mean adrian sole did you have anything you guys you guys want to hit on or topics you
want to kind of riff on before we jump into some more data here no i just think that um these are
these offerings their their impact on the market and their impact on what strategy you can do
So it's going to be very, very, very interesting to see it play out over the next six months, six to 12 months, and especially into next cycle.
I'm looking at where strategy was in August of 2020.
I'm just trying to project forward what this will be like by this time in 2027 or 2028.
That's the thing I'm having a lot of fun trying to figure out in my head.
So, yeah, I think these instruments are genius moves.
and I think their impact is going to be disproportionate.
It's just a matter of in which ways.
So, yeah.
Yeah, I can't wait to see if the people running the playbook
are going to be able to repeat this as well.
Because I know Dan was saying that Strike,
the price right now is kind of like a one-time deal,
but if somebody comes out with their own version
of Strike, Strike, and Stride,
will the market already have figured out the strategy versions
or will this all just kind of like play out
in a smaller scale with these other companies?
It's going to be fun to watch.
I don't know if many of them can even do it.
They should.
All of them should.
They should, but could they?
Would the interest be there?
If you already have strategy doing this,
would they have the same level of interest?
The interest would be there.
The yields would just be higher.
Really?
Yeah, the yields would be higher.
There's more risk associated with...
Depending on the over collateralization.
Yeah, well, yeah, right.
It depends on the collateralization, but also like a smaller company is more risky than a larger company.
Period.
Totally.
And they don't necessarily have the track record.
So, so like, yeah, and that's, I mean, there's going to be R being in between all those products, right?
Imagine a thousand Bitcoin treasury companies with fucking preferred instruments.
And there, and there's just algos that are R being between like the price of Bitcoin and all of these different instruments and different yields and between the common.
and it's just going to be a whole frenzy of algos between all of these different liquid instruments
that have never existed before yeah there's gonna be a lot of algos guys a lot of algos
so you're saying there's not going to be a shortage of things for us to cover
i don't think so yeah i don't think so but stride like look at stride right it it launched at 85
$85 and it traded up to $89 today. Like with a cumulative, it took strike and strife trade,
didn't they, they traded up very, very slowly at the beginning. And Stride is essentially a
worse product in theory, but it's already trading up because people know it's going to close that
liquidation gap, I think. And I mean, what this last week, the amount of capital that they raised
is going up, right?
Like this is a, we're looking like an exponential trend
here every single week when they're issuing these,
or the ATM, right?
I'm gonna pull up the graph.
Yeah, let's look at the graph.
Yeah, back to the data.
We're gonna look for it, throw the graph up.
Also, penny ether is a total bear.
What the heck?
Okay, here's the graph.
Okay, this looks pretty exponential to me.
Shout out CJ that's tracking this.
I know a bunch of other people are tracking this, but everything in the orange is STRK
and everything in the green is STRF.
And eventually there's going to be an STRD ATM that sits on top of this.
So just last week, they issued $112 million of these instruments.
And you can see the interest is continuing to rise as the market is figuring out what
these potential products are.
So can this continue?
I believe it can.
What's the limit?
I have no idea. We're going to see weeks that these numbers are going to be down because the
markets just may not be there. And there's going to be weeks where this is higher, et cetera,
et cetera. But I think the general trend, if you zoom out, they're going to be raising
significantly more capital as the market is figuring these products out.
Yeah, I think these products are, there's going to be massive demand for them. That's something I
wrestle with too. I've thought about it a lot. It's like, will there always be a demand for an
equity at a premium or a leveraged Bitcoin equity? I mean, I don't know, but will there
always be demand for 10% yield? I mean, yeah. Like so long as there's fixed income products in the
market, there will be a demand for a high dividend over collateralized equity. And that's just
something I keep thinking about, thinking about, thinking about. Yeah. And STRK here is the other
interesting, and just thinking about the structure and where they sit in the capital stack, right?
STRF, STRK, STRD, as they issue more STRK, that pushes STRD closer to risk too. So there's this
dynamicism of like how close each one of these instruments is to risk because of the size and
of the issuance of each one of these products. So, and the underlying price of the Bitcoin,
which will be again, something that people are going to be tracking. There's going to be algos
that are spinning 24, 7, 365, moving around between all these different capital instruments.
Yeah. Bitcoin's going to tick down 1%. They're going to have an exact,
you know, fair value price for STRF based on that Bitcoin move based on everything. It's going to be
nuts. But I think that I think the large general thesis here is that the entire fixed income market
is mispriced. Either all of these instruments are mispriced or the entire fixed income instrument,
the entire fixed income market is mispriced. And I think it's a little bit of combination of both,
right? So we're talking like a 600, I'm looking at you, Penny Ether, we're talking a 600 trillion
dollar market that's mispriced with physical risk, vacancy risk, things blowing up, tax risk,
all of these different things, right? You think about real estate, you've got all those issues.
You think about fixed income, you look at comparable fixed income instruments in the
market, like the PG&E preferred equities paying six and a half percent interest.
They just had a $10 billion loss in 2018 from the wildfires in California,
right? Like that's a completely different risk profile than anything that's digital
and six times over collateralized, right? Like the entire fixed income market is mispriced.
And that capital is hungry for better products. And here you now have better products in a slightly
different vehicle that are powered by Bitcoin. And the demand is going to be off the fricking charts.
Like, yeah, totally. Really well. We're in like, we're in month five of these things.
Like, everyone can make money on them. That's a beautiful thing. If you're here and you believe
this, if you think everything we're saying is true, you can go out and buy them and make money.
It's a beautiful thing. Yeah. Yeah. It's great. That's great.
Um, okay. So we shift gears. So we look at some fricking data. I've got a bunch of data
and some moon math. We'll go through it. Should be good. That'd be fun. I've got some, I've got
some serious moon math sorry about people's screens we're going to have a lot of white
excel here for quite a while um rip anybody that's watching this on a big screen so uh we're going to
we're going to jump right into it and you guys stop me at any point if you get any questions
and i'm just going to run through this so this is the q2 earnings estimate uh you know before taxes
so take that into consideration uh bitcoin price has it today 108 500 and so the gain on the
the Bitcoin held from Q1 is about $13.7 billion. Now, Bitcoin accumulated in Q2, you got 53,000
Bitcoin and the gain on the Q2 Bitcoin because the average price of the Bitcoin purchased in Q2 is
$95,000, made about 678 million on that Bitcoin held in Q2. So the net gain in Q2 is 14.3 billion.
This clears the positive earnings over the last four quarters threshold by $9 billion.
dollars. Let's just do a quick, some quick math. If the Bitcoin price fell to $94,000 today,
this, the earnings for the period of $5.9 billion would still clear the last four quarters of net
income and it would still be positive, thus qualifying for the S&P 500 by $605 million.
So basically we've got a pretty big buffer left between where the Bitcoin price is today and where
it may close at the end of Q2 for strategy to have positive earnings at Q2, thus qualifying for the
S&P 500, which I think is going to be the biggest story of 2025. Like a lot of attention is focused
on the Bitcoin treasury companies at the moment, but I really think that this S&P 500 potential
and the bewilderment potential associated with that is the biggest story of the year. I mean,
it's a significant amount of capital that may be coming into MicroStrategy and it could drastically
change the capital landscape. So part two here is I wanted to look at the trailing 12 months
earnings. So I wanted to get a true PE ratio. So if you go on like Yahoo Finance and go look at PE
ratio, it's zero because technically last quarter they were negative. And FASB Fair Value Accounting
was taken into consideration for the last year in 2024. So they actually didn't reflect the $12.7
billion dollar gain that they had in 2024. So all of the websites that track PE ratio are incorrect
because they have the wrong earnings number. So I wanted to back into what the earnings number
actually should be and what the PE ratio should be. So I wanted to see the trailing 12 months
earnings on the Bitcoin that they've purchased in the last 12 months. So in the last four quarters,
they purchased 367,600 Bitcoin, which is a shitload of Bitcoin. And the gain on that Bitcoin is $6.6
billion. The amount of Bitcoin that they purchased prior to 12 months ago was 214,000. And their
average cost basis on that 214,000 is 67,000. So the gain on the Bitcoin that they purchased prior
to 12 months ago is 8.8 billion. So a composite net income before taxes, right? So this number is
skewed of $15.4 billion. So the share is outstanding, $279,525,000, a trailing 12-month
earning per share estimate of $55. So the current MSTR price is $387. And that brings a trailing 12-month
PE ratio of seven. The S&P 500 average PE ratio is 26. The QQQ average PE ratio is 35.
MAG-7 average PE ratio is 31. So if you were to take any of those PE ratios and apply it to MSDR's
trailing 12-month earnings, you'd get a price between $1,400 and $1,700 as kind of fair if
you were to take the average PE ratio for the MAG-7 companies. What is the primary difference
between all of these other companies or all of these other categories of stocks and their PE
ratios? It's primarily inclusion in the S&P 500, right? Like all of the MAG-7 is included in the
S&P 500. S&P 500 holds anywhere from 5% to 7% of the MAG7 stocks. So these are passive flows
that are coming in from insurance companies, 401ks, and everybody that's buying the S&P 500,
which is trillions of dollars of capital that's following the S&P 500.
So it's a really big deal. Any questions on that so far?
No, we're cooking.
It all seems good to me.
Okay. So there's one other component here that I think is missing. And so you've got about $3
billion of shares that are currently trading in the money from the convertible debt. And so when
you look at the market cap of the company, the market cap of the company is a reflection of the
shares outstanding, not fully diluted shares. And there's roughly 14.7 million shares that are
currently trading as equity. They're pegged to the convertible debt. And I think the market cap
of MSTR is probably understated by about 5.7 billion. So those 14.7 million shares that are
currently trading in the money that are hedged one-to-one to shorts at the MSTR price of $387
would be about a $5.7 billion market cap understatement. So just throwing that out there,
another piece of data that's really interesting. All right. Now I wanted to shift gears and this
we get into the moon math. Maybe I'll make this a little bit bigger so you guys can see it.
And this is going to be confusing. So hang, hang with me here. So I wanted to get to a price
earnings to growth, a peg ratio, which is how most of the large mag seven stocks are compared
against each other. So this is price earnings to growth. Basically, what is the expectation?
What is the expectation of the growth and earnings for any one of these large companies?
Why is this important? This is important because the Mag7 stocks basically pay zero dividend.
Like some of them pay dividends, but it's like 0.71% dividend. Nobody's buying Microsoft for the
yield, the dividend yield. So what's the point of holding the company? What's the point of holding
the equity? You want price appreciation and some sort of growth of that earnings. And the price
will reflect the growth of that earnings in a future point in time. So I wanted to compare
that concept to how strategies earnings can grow into the future, right? Because we're calculating
a PE ratio and the relative earnings. So I looked at the Bitcoin that they hold on the balance sheet
today. So that's in this column here, 582,000 Bitcoin. And I wanted to project an estimated
Bitcoin yield into the future such that in 2035, we can see, all right, how much Bitcoin would they
hold net of dilution in 2035? So I think it's actually probably helpful to take a pause real
quick and talk about what is Bitcoin yield. Bitcoin yield is the percentage change. Hold on.
Yeah. BTC gain and Bitcoin yield. BTC yield is the percentage change in BTC per share.
and Bitcoin gain is the BTC acquired without shared dilution. So in both of these considerations,
it's when I'm looking at Bitcoin yield, I want to keep share price constant. And I want to look at
the amount of Bitcoin that I project MSTR to hold in year 2035 while holding share count constant
and not taking into consideration dilution. Actually, it is taking into consideration,
just omitting the dilution and the Bitcoin acquired with dilution. So it's omitting both
of those components. So I've got a Bitcoin yield rate up here at the top in each one of these
columns. So in 2025, I'm estimating a Bitcoin yield for the rest of the year of 20%. They're
at 17% right now through June 11th. So if they doubled what they had today, that'd be another,
that'd be another 20%. And projecting at 2026, 10%, 7.5% for the next four years,
and then three and a half percent for the next four years into 2035.
Dan, you follow? Soleil, you follow? I like this. Okay. So I'm projecting a Bitcoin yield. Again,
I want to think of net of dilution. I want to keep the share count constant.
Right. And then I looked at Bitcoin CAGR. So I wanted to play out a compound annual growth rate
into the future. And what I use for the compound annual growth rate is I used the assumptions from
strategies, Bitcoin 24 model. And this is from a sailor Sharice and CJ over at MSTR.
And I've taken their annual rate of return projections from 24 all the way to 2035. And
you can see it's going down, right? The trend of the compound annual growth rate is an assumption
that it's going down over time as the scale gets larger and it's harder to grow the relative network.
Cool. Yeah. I love that. It's a great model. It's a good base case.
Okay. So now based on that, in this scenario here, I've got in 2035, I've got strategy holding 1.2
million Bitcoin based on these Bitcoin yield assumptions. And the Bitcoin gain, so this
column here, or this row is reflecting the amount of Bitcoin that's gained in each one of the years,
right? So from in 2026, it's just taking the difference between the Bitcoin in 2026 minus
Bitcoin in 2025. And then the year over year Bitcoin gain is the relative, that's the Bitcoin
gain times the Bitcoin price. So it's reflective of the multiplication of those two. And then I
follow the Bitcoin price here just based on these CAGR assumptions going into the future. So in 2035,
we're looking at holding 1.2 million Bitcoin and a Bitcoin price of $2.9 million. That might be high
that might be low, but I think it's a good potential projection on what we might see at
a future point in time. So in 2035, and maybe let's just focus on 2035 and just kind of forget
all these other years, but now that you guys get a lay of the land, right? So in 2035, if the Bitcoin
price is $2.9 million, that means strategy would hold $3.6 trillion in assets. $3.6 trillion in
assets. The largest company on the planet right now is Microsoft and it's $3.4 trillion. Just
to put that into perspective. And the rest of the capital markets will grow and those companies will
grow. Right. Because fiat's going to keep getting printed. Right. So then I wanted to see, all right,
what is the earnings that they made that year based on our BTC yield estimate and the Bitcoin
CAGR? Right. So I wanted to take the Bitcoin gain. So the earnings and the Bitcoin held
is a function of actually we got a nine here
the earnings on the bitcoin held
this is just gross it not taking into consideration tax is the Bitcoin price in 2035 minus the Bitcoin price in 2034 Okay So it the delta between the two So how much did the
price of Bitcoin increase from 2034 to 2035 multiplied by the Bitcoin that's held in the
prior year? Does that make sense? Yep. So basically how much did the Bitcoin price increase in that
year? And I want to multiply it by the Bitcoin held in the prior year. And that's, you know,
those assets that are held in the prior year are going to appreciate to that new price in the future
year. So, and I'm not even taking into consideration any gain, any dollar gain,
Bitcoin dollar gain on the Bitcoin gain during that time period.
Which I think is fair. I actually think that's just conservative as shit, right? Just super
conservative. And that brings us to a- And it's the most synonymous earnings.
It's new money. Right. So that in 2035 would lead to a $700 billion earnings in 2035.
If all of this math, if we agree with this, we think that strategies BTC yield will decrease
over time and the Bitcoin CAGR will decrease over time. And if a 3.5% Bitcoin yield in 2035
is reasonable, I mean, we could probably argue till we're blue in the face about that, but
it's an interesting starting point. And that would result in an earnings of $700 billion in 2035.
So I just assumed a blended strike, strife and stride yield on that 700 billion, the amount of
of preferred instruments that they would have to pay that would result in about a $30 billion
dividend payment that the strategy would have to pay out. However, they have $3.6 trillion of
assets, and that would only be less than 1% of the total assets held that they would have to pay
out annually. So they're still incredibly strong financially. And then I wanted to back into,
okay, what would a price be? If we still compare the rest of the market,
on some sort of reasonable metric. The current shares outstanding is 279 million. You've got
earnings per share of roughly $2,506 per share. Let's just say you've got an EPS multiple of 15,
which is well below what all the other market is trading at. That would bring a price,
bring MSTR to a price of $37,604 in 2035 and a market cap of 10.5 trillion,
which might be the largest company on the planet at that time. But right, if Microsoft compounds at
6.5% annually, they still might be playing around near the top five, top 10 publicly traded companies.
And I wanted to take a step back, right? And how does this compare to MAG7? What is the compound
annual growth rate of the earnings? And how does this all look relative to another? So the compound
annual growth rate of the earnings is 49.3%, so about 50%. The compound annual growth rate of
Bitcoin in this horizon on the next 10-year horizon is 39%. Again, we can argue till we're
blue in the face about that. Maybe it's 20, maybe it's 40, maybe it's 50. And the CAGR of the BTC
yield I have at 7.7%, which I think is a reasonable conservative estimate on how the
compound annual growth rate of the Bitcoin yield moves into the future.
I think you're right. I actually, I did a similar model like this, Jeff, and it wasn't laid out this
well, but I think I actually had a, and I'm typically pretty bearish, but I had a much more
aggressive CAGR of Bitcoin yield. And I think there's a real scenario in which the Bitcoin
yield is higher than this because of the preferred, specifically because of the preferred.
I walked through that and we'll hit that next. So the current trailing 12 month PE ratio is eight,
once I say seven. So that would bring the price earnings to growth ratio down to 0.13.
Josh thought I was insane for saying this, but I think this is actually a conservative estimate.
If you're taking a 10 year horizon on the growth rate of the potential earnings, you got to go look
at what is the earnings look like in year 10. Right? Like what does the company look like 10
years from now and i gotta peel it back to today and the re and the re and in order to normalize
this relative to like the mag 7 the the earnings the the peg ratios of like apple is two the peg
ratio of microsoft is like 1.5 which means they're relatively overvalued relative to strategy and how
how it fits in the market. And it's a matter of whether you think they'll be repriced down or
whether strategy will be repriced up to their multiple, to their earnings multiple. And I
actually think the Bitcoin yield is going to be much higher than this. And we'll go through that.
I personally don't believe they're going to be priced up to the current earnings multiple of
Mag7. I think they'll be repriced down to strategy to earning multiple. But my price per share in
year 2035 is actually higher than yours, Jeff. So even for the people out there that don't think
they'll be repriced higher in an earnings per share basis. There's still a lot of hope.
Yeah. And that's, you can, there's so many variables here, right? Like this is a really
complicated model and there's a ton of variables that you can play with. The one thing I wanted
to put into perspective is the BTC gain. So I took the cumulative sum of the BTC gain across the
entire horizon from 25 to 23, and that's $550 billion. So that's effectively, just to put it
perspective, that's like raising $550 billion in the preferred income on the prefs over the next
10 years. Do I think that's reasonable? Well, what does the fixed income market look like in 2035
based on a 6.5% compound annual growth rate? And so I did that math and I looked at the fixed
income market starting today is 318 trillion. The real estate market starting today is 367 trillion.
And if you compound that at six and a quarter percent interest rate into 2035, the monetary
supply increase, you're looking at the fixed income market being 583 trillion and the real
estate market being 672 trillion.
So 1.2 quadrillion between those two markets.
And in that circumstance, the Bitcoin raised, the BTC gain effectively, how much capital
to be raised from the prefs of 550 billion would only be 0.09% of the fixed income market.
So I think this is bearish. I think this is like a conservative estimate of what the BTC gain
could be in the future, especially if the market starts to reprice all of these different instruments.
Yeah, and it's all because of the preferred equity. It's all because of the preferred equity. Because when you think about it, as those assets are compounded, Bitcoin will hit a point at which there's a terminal CAGR, right? Much like the S&P or anything like that, where the CAGR stops decreasing, in my opinion, whether that's 10%, 5%, or 20%.
As it's compounding continuously, the actual assets on strategy's balance sheet, they're yielding Bitcoin via these preferred equity offerings into the market backed by their Bitcoin stack. So they're having essentially, they have compound yield, exponential yield on an exponential asset at some point.
So that's the real unlock here is the yield from their Bitcoin stack via preferred offerings.
And I think people aren't thinking about that.
They're just thinking, oh, well, you know, size of the company.
If you use ATM to acquire Bitcoin as the company reaches terminal velocity, that's going to effectively slow down.
The thing is, is the preferred equity offerings play the other side of that, where these actually are an exponential growth on the assets on the balance sheet.
Yeah, I follow.
I follow.
One other thing I'm thinking about here is, right, the world has never seen an asset like Bitcoin before, where you can efficiently store your energy without decay.
So if you think about what that means and the implications of that, that means that you're going to see more abundance.
So back to your comment on, you know, Mag7 getting repriced down.
Maybe it gets repriced down a little bit, but it doesn't have to.
Right?
Because MSTR and Bitcoin is capturing value without decay.
And so there can be more value in the market.
Theoretically.
Right?
I don't know.
That's a weird, that's a brain breaker.
That's a Jeff Booth comment.
We need Mason and Jeff Booth on the scene.
what do you think so what do you think of this model do you want to play with this at all like
what uh yeah i think it's pretty conservative bitcoin kagger um projection especially because
like inflation is just going to keep
going up exponentially too so i don't see how bitcoin's kagger can drop too far too fast
so the numbers are just going to be insane
right it's tricky this is a tricky analysis to do because it's all it's also all dependent on
bitcoin yield in the early years right like if uh if you crank up these numbers like let's just
say there is some frenzy and the bitcoin yield in 2025 is like 50 the remaining bitcoin yield
in 2025 is like 50 i mean that totally changes you go from 700 billion dollars of earnings to
a trillion dollars of earnings in year 2035, right? Which is just insane. So the early years,
because all of this compounds, which is where the torque comes into play, right? And they tried to
show this in their earnings reports where this thing goes exponential because the existing Bitcoin
that you have is earning more value over time. It's earning more value over time. You get this
Bitcoin income, BTC income from all of the Bitcoin you've acquired in the early years, which is just
shows, again, the compound value of the ATM and utilizing the balance sheet early to accumulate
as much Bitcoin as humanly possible. So anyway, that's my moon math for the day.
Yeah, I love it, Jeff. Absolutely. And I mean, shoot, in this scenario,
Right? Look, I just, the only thing I changed was the Bitcoin yield in year one. I took it from 20
to 50. That changed the earnings from 700 billion to a trillion. That brings the price estimate to
59,000 in year 2035. The market cap to 16.4 trillion. Maybe that's, that could be realistic,
right? I think that it sounds crazy to say, sounds crazy to say, but I think that could be realistic.
by 2035 that's not that crazy yeah i mean it just those numbers sound like weird to say right like
16 trillion nothing 16 trillion yeah there's there isn't there isn't a company that's 16 trillion
yet yeah right and now now you've got chris here we go this is perfect well here's the thing if we
if we roll this back in the past if anyone had said that amazon or microsoft or apple or meta
or Tesla or any of these companies would be in something called the Mag 7, where they're all
valued at either close to or over a trillion dollars. That would have seemed crazy too,
right? In like 1995. But things change. Well, let's compare this too. I've got this data,
which I think is super valuable as well. And this is the Mag 7. And basically Microsoft right now
is valued at $3.5 trillion. They hold zero Bitcoin. And the value of Microsoft is 32 million Bitcoin,
which is also just crazy to say. Now I looked at the top 10 companies and I took the cumulative
market cap. So the top 10 companies are valued at 20.2 trillion, which is 187 million Bitcoin.
so that's 8.9 times about nine times the amount of bitcoin that will ever be mined ever and if we
think about any of these companies starting to store their value in bitcoin instead of dollars
this equation gets really crazy really fast right like the the kagger may rocket in the early years
and then start to decay over time and as you have this exponential growth of humanity like with ai
and you've got a store of value that doesn't have decay,
we could see a world of abundance in 10 to 15, 20 years from now,
which is super hopeful.
Super hopeful.
Unique place to be.
Yeah, completely.
It's crazy to me that people are bored with strategy right now.
I'm over here like, oh my God.
I think they're bored because they can't conceptualize the scale.
right like i just said it's weird to say it's 16 trillion dollar company nobody knows what that
means right like it's just it's another comma but no it's like it's it's literally orders of magnitude
greater orders of magnitude and uh people can't conceptualize that right because they they're
you chase shiny things because it's maybe a faster horse for a shorter time period right like
I think there are ample opportunities out there to make a ton of money in the Bitcoin treasury space right now.
But the best risk adjusted return, in my opinion, is strategy because of their size, their scale, and their ability to tackle these markets greater than anybody else.
Nobody else has the size and scale to go issue $100 billion of preferreds, $500 billion of preferreds in the next 10 years.
you need massive scale and that scale is going to just get even exponentially larger right as they
as they continue to issue these prefers they just get more of a lead
and they're able to issue more and more because their relative risk is significantly better
and i mean it's going to be hard there's gonna be a lot of fallen soldiers along the way like
people are gonna get shaken out and i mean you know we've all felt it like why isn't the price
going up why isn't the price going up but if this if these uh models teach you anything it's
The numbers are small at the beginning, but it's growing exponentially.
It's the classic scenario of, you know, everybody's got that uncle
that bought Apple or could have bought Apple in 1989 for or you know 50 cents or 25 cents or whatever And he like well I didn And you like well they tell the story over Thanksgiving holiday And you like well
cool story, man. Like you wouldn't have held it anyway. This is one of those scenarios. You've
got this opportunity to hold this, like probably the best performing instrument on the planet for
the next 20 years. And people are over here, like picking up pennies in front of a steamroller.
so it's just
a really unique place to be
for me personally
I
just don't want to mess
up
Jeff I'm short calls
I'm short calls
they're very far out of the money
you do weeklies
you do weeklies right
that's fair right you do weeklies like
$200 out of the money that's fine
yeah
thanks boss
look even the the only people that that i've you know twitter there's a bunch of people just
getting bored with strategy but i was i was tracking the um msty and imst positions the
last few days and they're actually taking long positions both of the funds both of the funds
have uncovered long positions and i was like okay covered long positions like uh are they options
or are they just like buying the shares um imst was like synthetics so it's basically
like holding shares and then msty they actually had like some debit spreads
and and there was some like yolo next week type shit and i was like okay
isn't there a big option expiration on next friday oh man i haven't checked that in a while
there's a pretty big off for what june 20th i think um this friday is not small and then the
following friday is pretty big yeah maybe that's what it's about but i was i was kind of floored
yeah like the whole thing is short volatility and they're like nah we're just gonna go long
instead we're long here sometimes you gotta be there's still yeah
what are you going to say
what's the options chain
oh no
they're still slamming their
shorts but they're using that money to buy
some long positions too and they're just
keeping some upside out there
just in case it rips
so hopefully they see
some
code in the matrix or something
they know something's going to happen
yeah we should probably
do an update on uh on the options chain at some point in the near future i mean danny if you're
following this i i pulled up june uh i can't i don't have a sense on scale if there's a website
that pulls us together but we might want to look at that options chart option it's called like
optionscharts.io they'll give you all the open interest by strike on mstr and we can pull it up
there we go there we go search ticker mstr the thing with people getting bored with strategy
that's kind of odd is that um sailor's been saying for quite some time now that the plan
is to hold for years whether it's bitcoin whether it's strategy so i don't know how
well let me rephrase that i do know how people saw the number go up a lot in the last four or
five years and now they're like, well, do something. Why are you 3Xing yet? Right.
But his whole, his whole model has been you buy, you hold, that's how you, that's how you
accumulate wealth. I mean, what did he say in the Jordan Peterson interview, right? He bought stuff
when it was low, he held it for years, decades, and that's how he got rich. He didn't get rich
trading in and out of positions. So I'm kind of perplexed by the more information that comes out
about him and the more information that shows that he is a buy, hold, innovate kind of guy.
Why are people expecting him to create a stock or have a dynamic where everything is supposed to be
ripping up 3x and crashing, then ripping, then crashing, then ripping, then crashing?
Obviously, this is a longer term play and that's what he's building out. So I think a lot of people
to probably reassess what it is they think about strategy perhaps or maybe i'm just being too harsh
i don't know yeah i mean it's built on an equity that no one has ever lost money on if they held
it for four or five years so if you haven't held it for four or five years you really have no
complaints i don't think yeah and adrian to your point like the uh on that interview was great right
you saw the iPhone and you realized, oh my God, everyone's going to have one of these in their
pocket. Right. And I think what you've got now with MSTR is you see these preferred instruments
and you go, oh my God, everyone's going to have one of these in their portfolio.
Everyone. That's at least how I see it. Right. Like I look at the landscape of fixed income
market. I look at this, it's, this looks like the most attractive thing on the planet in a rapper
that they can consume.
It fits within their mandates.
And so
that's kind of how I see it, right?
Well, yeah.
Because while Saylor wrote the mobile wave,
I think you've read it, I've read it.
I'm not sure if everyone in June North
has read it fully yet.
But he's identified trends.
He's got in on those trends
and that's how he's made his money.
Right now, what he's doing with Bitcoin,
he's identifying a financial trend, right?
So he's building all these offerings
on top of it he's built his company around it it's either going to be along for the ride or
you're going to get off the train is what is what i think i'm trying to get at if you're not a person
that can handle the fact that this is a long-term hold and look at see all the moon math you just
did how the years went on 20 26 27 28 right if you can't stick with it throughout that time and
realize that appreciation i think you're just going to end up getting frustrated but on the
flip side i don't understand how people can get frustrated they really sit down and understand
what's what's going on so that's something i've been wrestling with myself with you know the
chatter that we see and people getting bored and whatnot like how to how else do we put this
message across to make them understand that this is what's being done i don't know if there's
anything else we can do besides you know managing the portfolios for them but we're not going to do
that so you know it's just an interesting thing to see play out in real time yeah you just got to
give perspective right like uh the the people didn't see the iphone right maybe they saw the
ipod and they're like yeah okay whatever maybe so so the iphone they're like yeah okay whatever
but they didn't understand that like eight billion people on the planet are going to have these or
want to have one of these and the price of it's going to come down it's going to get cheaper
but they came out and they were like what i don't know eight hundred dollars in like 2008.
um and it was just like who's who's going to have one of these it's kind of clunky moves kind of
slow more than that actually more than that yeah it's got a glass screen you know everybody's
dropping them they're shattering you're like oh this thing is totally dead you couldn't send
pictures you're going to send texts you couldn't send multimedia messages i remember that yep
meanwhile the rate the razor looked super sick it was like super durable you know you could get
thrown in the pool with it and still works when you come out and you could send all your text
messages the blackberries sending emails and it's got a full keypad you're like okay
You can see all these execs using Blackberries.
And it was, I mean, you could have seen it, right?
If you were a bit of a visionary, right?
Like this is a significantly better product
and it will be more desirable
because it's going to get better.
It's going to get cheaper.
Internet's going to get faster.
You're going to have AI platforms on these things.
You're going to be able to learn incredibly quickly,
communicate fast and communicate with memes and images
and all these different things.
and it took thinking ahead and you didn't have information very quickly back then too so like
you know you'd have to go get your news and information from newspapers or magazines or
you go on the internet and everybody's got you know dial up internet and reading forums back in
the day just access to information wasn't wasn't very good and now we have access to information
that's significantly better.
We've got groups of people
that are meeting on the internet.
Like all of us literally met on the internet
talking about a stock that we like
because we think it's the best stock on the planet
because of the internet money.
Like what kind of timeline is this?
This is crazy.
And now we can do that visionary process together
and we can share it with 8,000 people, right?
That are watching us right now.
And that's just a completely different landscape than where we were like 2007.
Just access to information was just completely, completely different.
So anybody betting against this right now is like, I just, it's just crazy to me on people
that are betting against this because Bitcoin holders are the strongest, like hardened people
on the planet.
And they're just going to hold this stuff forever and like work really hard to build
the future of the Bitcoin network too.
Well, is anyone doubting the moon math also coming to your point about pushing it forward
and being a visionary and trying to be able to see forward?
And I know people say this and it seems cheesy, but when it comes to Bitcoin adoption, we
are still very early.
There's millions of people that have adopted Bitcoin, right?
Not billions yet.
So billions is a thousand fold increase from here.
Just imagine what that means in terms of strategy.
Just imagine what that means in terms of market cap.
imagine what that means in terms of Bitcoin's price. And then I think Jeff's numbers look kind
of conservative by comparison, right? And when it hits the point where we actually have billions
of people onto Bitcoin and you have the price appreciation, you have what strategy is,
I think it's going to make things like Berkshire Hathaway look quaint in comparison when we look
back on it and the mag seven and so on and so forth. It's going to be an entirely different
dynamic or different paradigm. Yeah. It's going to be an entirely different paradigm that just
doesn't exist yet. And to you, Solay, when you said, well, inflation is going to be out of control,
right? They're going to be printing like crazy. They have to. Exactly. So throw a few inflationary
cycles into that, throw a few printing cycles into that. Then you know they're going to have
to lower interest rates again, because that's just what's going to have to happen. Then inflation
is going to go up even more and the price is going to appreciate even more you see what i'm saying so
looking back on it we're probably going to say to ourselves here we were kind of undershooting it
because to what to what sailor says it's either going to zero or it's going to like
tens of millions i i think that that binary is very very very much the case so
as long as they continue to manage this thing the way they are very very effectively very very
strategically and they're doing financial engineering and they're doing you know that
they're they're not over leveraging themselves i have a hard time seeing how they fail yeah
yeah i completely the other thing that's being rethought right now and and it's probably very
similar to everybody rethinking how they used communication modes uh with the creation of
the iphone is like what's the point of holding an equity like why do you hold equity why do you
Why do you hold an equity that doesn't pay a dividend?
Well, essentially you're hoping for price appreciation.
That's pretty much it.
Yeah.
So like price appreciation as a function of what?
Well, right.
Yeah.
And that's kind of part of my general thesis.
Like what's the point of holding the MAG-7 if they don't pay you a dividend?
And it's like, okay, some expectation at a future point in time of some earnings number
based on my perception of how big that market is and how much of that market that they're
going to have.
Think of it this way.
Equity is hope.
People are hoping that they have the right read on it and that equity is going to give
them, they're paying now for what value they think they can accrete from it in the future.
But to your point, that is all, I don't want to say it's smoke and mirrors, but in a lot
of ways it is based upon future expectations that you hope that will come to pass. While
strategy, Bitcoin, represents a far more concrete example because as it stands right now, even
without global adoption, we still have a very concrete use case of 15 plus years or going
on 15 plus years where we've seen adoption growth, we've seen utility growth, we've seen
an entire new class of equities built on top of it.
The MAG7 doesn't quite have that.
Well, let me qualify that statement.
AI is its own thing.
So any company that is focused on AI
that is building out that in the future, I think,
that's a different thesis.
But all of the MAG7 companies can't fully go into that.
Some of them are going to sort of taper off.
So then you're left with what?
You're left with Bitcoin, strategy,
maybe a few of the MAG7 companies,
than ether is what you're left with essentially and you have to hope that your equity investments
your bonds whatever beat inflation outperform the list goes on and on and on so yeah what's
the market look like when every company has bitcoin and you don't have to just search for
the company that's going to give you the biggest returns because they're all expected to at least
least give you a Bitcoin return plus some kind of venture return on top of it and you can just buy
the company that you agree with their mission you can just get rid of all the bullshit research
and just be like this company is trying to cure cancer I want to invest in it this company's doing
this I just want to invest in it it's going to be a completely different mindset so I think there's
two things that are going to happen I do think that they're going to be companies that just don't
adopt it and they're going to die off. And I think there's going to be companies that get eaten by AI
and then you're going to have whatever's left over that's going to have to adopt to this new
paradigm of having this hard asset on their balance sheet. Now, whether all of them do it
by holding Bitcoin directly or in custody, or maybe they do it by some derivative means,
I don know But I do think that the future I not certain that going to be every single company holding Bitcoin in whole storage through custody I think that you have some using IBIT
You'll have some using derivatives and a blended model.
But one way or another, I do think that if we fast forward several decades, at some point, every company, either passively or directly, will have exposure to Bitcoin.
I think that's a likely future.
Everyone having it in the store,
I don't know if everyone's going to hold it themselves,
but exposure to it,
I think that's going to be part for the course.
And Bitcoin yield, right?
Bitcoin yield is going to be,
I think what people would be chasing,
right?
Which would be a function of the products
that you're offering to the market, right?
How much Bitcoin yield can you generate
compared to everybody else?
And also, Bitcoin could become a weird differentiator if you are a company that holds, and this sounds like a stupid example, but bear with me. If you're a company that holds Bitcoin directly in cold storage or Bitcoin through a custodian versus in this future model, a company that has Bitcoin and Bitcoin derivatives, does that now become a different differentiator in the market?
if you are a company that has you know great devices great products and whatnot and everything
somewhat becomes streamlined because of ai because of bitcoin because of all these different
these different i like to call them excluding factors that are going to bleed out the market
that we're going to see over the next several decades does how you manage your bitcoin treasury
become a differentiating factor like you have the pure play of strategy right because they're just
doing Bitcoin. Securitize instruments. Yeah. Yeah. Well, essentially. But what I mean by pure
play is that they are a company that either will eventually hold all their Bitcoin in some form
of self-custody or all their Bitcoin through self-custody and custodians, right? So they're
not having any derivatives. They're creating the derivatives that are not holding any derivatives.
But in this future, if you have companies that are holding the Bitcoin derivatives
and they have a blended model,
does that become a differentiating factor?
Like how many layers of scaling are we going to see
and layers of differentiation are we going to see
when everyone has Bitcoin?
Because I don't think it's going to be possible
for all companies to be able to have actual physical Bitcoin.
I think things are going to get so tight
that they're going to have to go to derivatives.
And if they go to derivatives,
are those companies perceived differently?
is what I'm getting at.
Yeah, that's an interesting point.
I agree.
Well, they're taking more leverage
or stability or different products.
It's a fascinating concept.
I mean, this whole,
just thinking about Bitcoin yield
in the year 2050, right?
It's like, okay,
the Bitcoin yield might be,
we probably need to rethink it.
It needs to be like sat yield.
At that point, yeah.
to be sat it's going to be sat yield and it's like okay our sat yield is i don't know a thousand or
you know 500. like the numbers might be higher because you're just you're doing it in like sats
not in bitcoin it's like the the fact that it's bitcoin yield right now is crazy because every
bitcoin is 100 million sats so it's really there should be a lot more man we should we should
calculate the sat yield and publish that well if it gets to a point where we have that dollar parity
yeah like imagine we get to a point where it's sat dollar parity right so whatever the dollars
money bucks 10 million bucks yeah yeah 100 million bucks right then we get what if it gets to a point
where it's like one set is 10 bucks do you see what i'm saying like decimals well it get it gets
goofy when you really start to to think about that right it really really does get goofy so
that that's where that's where the uh
you know the fact that this asset has never existed before an asset where you can store
your energy without decay is incredibly important that's why it's so that's why it's so goofy
it's so hard to conceptualize like you're you're actual like everybody should be fabulous fabulously
wealthy on the planet because the world is deflating, but you've got a monetary system
that's inflating net of deflation, right? Like all of the increase in technology for humanity
should go to society. In theory, it should. It should go to society, right? So like the entire
technological revolution in the entire 2000s and from where we are at today should have been
like deflationary for humanity, but we had a fiat system. I mean, granted, you're going to have
things that are, you know, destroy value, like catastrophes, like hurricanes and, you know,
wars and stuff. But eventually those things become unprofitable ventures because
they don't make sense to do anymore. Yeah, this whole thing, Bitcoin is just so crazy
to conceptualize, especially on a long-term time horizon. It's hard to wrap your head around.
But I think in that, so I think UBI is probably going to be incredibly important at a future point
in time. People don't want to talk about that, but I fully agree. UBI is probably going to be
incredibly important. Now, what is the UBI? How's the UBI structured? Is it Bitcoin? Is it strategy
products? See, that question right there, that's what I'm getting at. When everything becomes
Bitcoinized, how does everyone get exposure to it in a way that is perhaps not egalitarian,
but beneficial to society? If you have all the corporations and a collective group of individuals
that are on the Bitcoin standard, but then everyone is on UBI on a fiat standard still,
or some kind of equivalent, it's perpetually going to go up. And it's a UBI, so that's
technically fine but are they going to be just at the subsistence level they'll have all of the
stuff that they need but no more do you see do you see what i mean like you can't you can't elevate
past it with a ubi if everything is on a bitcoin standard if you don't have direct access or at
least to the passive access to bitcoin yeah like this some of the concepts in my in my brain go to
okay strategy becomes the u.s government and they are issuing the ubi products right like
like do these preff products become ubi like are these the ubi products uh well it's it's not that
i mean if you start to game it out it's not as crazy as you think how many corporations hold
bonds right now i mean a ton right i saw i saw a number recently what is like 45 i saw that number
Oh, 75% of them hold, or 75% of the bonds in the US have an interest rate less than five.
So we have that to consider.
But in terms of, the reason why I bring it up is this.
What happens when, even before that point, corporations are holding,
will corporations start holding strife on their balance sheet?
How are these products going to scale?
and that's long before we even get to
Jeff's crazy point about strategy
being the government, right?
So we got a lot of years
before we get to that
and there's a lot of stuff that can happen.
What if strife becomes
the corporate equivalent of Bitcoin exposure
from a derivative standpoint?
And what if they have extra products
that they're offering, right?
And so on and so on and so forth.
Like we use the Trojan horse example.
Strategy is a Trojan horse in a TradFi, right?
So what if, like what Jeff is saying, they Trojan horse everything.
They Trojan horse all of Trash 5, all these different offerings.
And one way or another, companies have it on their balance sheet.
And that's before we get to that crazy situation where we're talking about one set is $1.
And that one set is $10 and so on and so forth.
Will strife interest rate flip negative?
Oh, hold up.
What?
i want to hear dan's thoughts on this too if he's still right he looks frozen but
i gotta i gotta run um thoughts on that thoughts on that i really don't think
yeah later we'll see you yeah this is one of the most fun things for me to think about is
hyper bitcoinization because at that point i think never sell your bitcoin becomes a meaningless
statement that people will remember that people said back in the day.
Because if the Jeff Booth future becomes real and all of humanity is getting wealthier forever
because the benefits of technology and innovation is making us all wealthier,
then you only have to spend your Bitcoin at a slower rate than we're getting wealthier
because of innovation.
And it doesn't really matter
that you're spending some sats
because the sats that you still have
are getting so fabulously more wealthy.
It just, it becomes meaningless.
And so I think the new people
that are going to be born into that world,
it's really not going to be that hard
to get your hands on some sats
because all of the people
that will be in existence
will be so wealthy that it's not going to be like now.
We're like, oh my God, we have to live like monks
and stack every little single sat that we can.
There's going to be so much abundance
that there's going to be more,
I want to call it charity because it's not charity.
It's just an interest in sharing that wealth
and investing.
And even if you just get equity
in what some young person is doing,
they want to form a new company,
instead of charging them interest,
you're just going to be like,
okay, I'll take equity in the company or whatever.
And there's going to be more and more investment,
not less, I think.
Well, in that world you're talking about
where spending stats becomes a somewhat trivial distinction.
Why even spend it?
Why don't I just borrow against it?
If you have an asset-
Borrow-
Yeah, but borrow what?
Borrow what?
If everyone's, if the unit of account is Bitcoin,
Nobody's going to loan you their Bitcoin.
Well, this is where I differ.
I don't think the unit of account is ever going to be Bitcoin.
I don't think fiat's going away.
Fiat's always going to be, is always going to exist in some form or another is what I think.
And the reason why I think that's beneficial to Bitcoin is because in this world we're talking about where you have deflationary pressures and you have a deflationary asset.
It doesn't make sense to spend it at all.
it makes sense to borrow against it in perpetuity because you borrow against it today and in five
years alone you took out you can you now do you see what i'm saying or you just never you you
or you just hold the strategy instruments or that i mean they're paying you that they're paying you
in some like medium and you could in theory yeah you can have a you can have a perpetual dividend
paying instrument from strategy or something to that effect and you're living off of that
that dividend if you need fiat right which i mean let's let's let's go back to that example that i
gave earlier right actually hold on i'll just pull it up i won't show it but i'll i'll talk through it
uh okay 23rd let's just say the year's 2035 all right based on all the math that we did earlier
the year's 2035 based on all the compound annual growth rate assumptions all the most stuff uh the
assets held on balance sheet for a strategy would be 3.6 trillion dollars and they might only have
i don't know 600 billion dollars of preferred stock against it so what is that my god that's yeah
That's a leverage ratio of what? 17%. What instruments are they going to be offering then?
A weekly dividend, monthly dividend.
right like uh it's it's the the the bitcoin compound's so big the amount of instruments
that you can offer on such a huge capital stack is like massive right like we don't know what they
are yet but i mean we so in that event weekly and monthly doesn't sound crazy at all yeah but i guess
what i'm getting at is like yeah you're not gonna have to spend your sats you may just convert them
when maybe maybe you can buy strategies income instruments with sats and so you keep that
exposure maybe just in a different format that like can help you live the rest of your life i
don't know i don't know this is getting in the realm of uh tail this is this is uh tail questions
these are tail questions well there's a dozen different ways you can play it out that's the
thing. I mean, it's so crazy. If not more. Right. So.
Huh. All right. Well, we're, we're at two hours. I think we should probably wrap it.
Uh, yeah, I gotta, I gotta drop myself. So yeah, before we get any weirder,
it's going to get weird. Yeah. Uh, okay. Wow. Maybe final thoughts. Uh, I will go ahead and
start. I think there's a lot of, uh, things to be excited about on the horizon. I mean,
you think about the size and scale of what msdr has got here there's no company that's even close
to them and i think it's really helpful to try to zoom out and think about like what it means
to be an order of magnitude larger than another company and what that offers strategy in in the
future it's helpful to use some math if you need to go back and re-watch you know what what the
math that we walked through earlier might be helpful but they're the world of future instruments
the strategy can provide here is huge.
It's enormous.
And the scale is going to be beyond comprehension
with rationality.
You're going to be able to rationalize a valuation that's so high
because the market total addressable market of these instruments is so
vastly large.
So try to try to conceptualize large numbers.
It's hard to do, but yeah, try to use the math to help you.
Maybe over to you, Soleil.
Yeah, thinking about your moon math, and I didn't realize those were the moons around Jupiter.
Because those freaking numbers are wild.
And the future is good.
The future is bright.
Adrian?
patience vision resilience as long as we have those three and we we keep our wits about us i
think all of us are going to be just fine absolutely yeah we're going higher it's going
i mean yeah it's not it's not scoring that's all i got uh because the moon math got me thinking
right the moon math really got me thinking and that's a that's a silly future in a good way
if we really sit down and think about it,
that Bitcoin does what we think it's going to do,
gets $100 million, right?
Strategy is a company that has 700,000, 800,000 Bitcoin,
and they have all these different financial instruments.
It is not unrealistic to think.
Well, Jeff, to your UBI example,
did you get your strategy check this week?
Yeah.
We see what it looks like It the US government The US government is strategy Did you get your strats Your strats Oh yeah Your strat check
I'm just saying this is weird, but we are a capitalistic society.
So is it outside the realm of reason that a capitalistic,
like a capital driven company that lifts and shifts itself into the middle
of this this financial system has this asset and grows so huge that peop that we use capitalism as
a form of as a form of subsisted ubi at least partially and people are walking around saying
did you get your strats stacking strats stacking strats there it is tell me that's tell me that's
out some blade runner my like stacking strats maybe that's the future maybe that's the future
2049 you know maybe we're all stacking strats and uh you got a ubi paycheck on a preferred
instrument from strategy's 25 trillion dollar balance sheet the good news is we're all living
in the future yeah yeah we're all alive yeah we're all cooking yeah we don't need a time travel to
do it either. So yeah, it's good. Exactly. All right, guys. That is a wrap. We got 9,990 people.
Thanks for listening and we will catch you next week. Thanks everybody.