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Woo! Here we go. Welcome back. True North.
The Investment Grade Bitcoin Podcast. Welcome back to episode 53.
We've got a whole crew with us today. Let's bring them on stage.
We've got Soleil, myself, Dan Hillary, and Ben Workman.
And we are going to get after it today.
We're going to talk about some of my favorite topics, that being risk.
and for those of you that are new to True North, the investment grade Bitcoin podcast,
we talk about everything here. We talk about everything finance, everything Bitcoin and
every Wednesday night and we touch on Bitcoin treasuries, macro analysis,
securitization and tokenization of Bitcoin, different products within the market and general
humanity trends and hit on macro and everything happening in this world because in my opinion,
This is the biggest story in all of finance and the world is changing as we know it.
And we want to make sure we're at the front end of what's happening there.
The people that are on the screen are a mix of people that have been following Bitcoin for an incredibly long time and have been at the front of the securitization within the market and the financialization and integration within these products and the existing financial ecosystem.
So excited to talk to you about all this stuff tonight.
We've got a we've got a fun agenda for you.
I'm just going to pull this up myself. And tonight we're going to talk about macro. We'll
hit on metals, MSTR statistics update. We'll talk about what is credit, what is credit risk,
maybe dive into the strategy credit model a little bit and think through it. I think there
will be some good conversation around that front. We'll contemplate the credit model.
And then we'll consider downside risk of the perpetual preferred equity. We'll think downside
risk to the BTC, downside risk to the PREF holder, downside risk to the common stock,
think about all of those different components. And if we've got some time, we'll get into bad
bond of the week, which quick hint, it's Japan. And we'll jump in there. So without further ado,
maybe I'll pass around just just quick thoughts on what people are thinking about. Maybe I'll pass
it over to you. So lay like, what's that? What's top of mind this week? And we'll, we'll start that
as a kickoff? Yeah. I mean, my credit score is finally good. And, uh, I wouldn't mind getting
some credit right about now. There were some times when it didn't look like a good deal for
the creditors, uh, sending me an application, but I'm all about it now. High credit risk,
high credit quality, 800 credit score. Right on. Give a kick over, over to you, Ben. I mean,
we've been, we've been burning the candle on both ends, uh, getting deals done. Uh, we've just launched
a secondary offering of our perpetual preferred equity SEDA successful $225 million, uh, raised
there. And, uh, yeah, we're, we're excited. What are you thinking about? It's been a wild couple
of weeks here for us. I mean, we've, we've been on a tear here to start out the year, but you know,
mostly the thing that's grabbed me right now is just watching this metals run. I mean, these,
these metals are on a generational run here at the minute at the minute and i think that you're
starting to see a lot of uh fomo follow-on starting to happen as we're hitting these peaks
with the feeling that these things are never coming back down and that they're never gonna
spin up a little bit on generating more of them and getting more to market but wow what a run
right and if you had a post earlier today jeff that i was looking at which was
kind of scaling the magnitude of this run that we saw just with the expansion of the market cap on
gold. And, you know, Bitcoin's clearly been lackluster during this run, right? You're seeing
all these store value assets really take off. But now you look at it and you start to see where
these price levels are getting to. And I have to imagine that these are the levels where doubt
starts to creep in to some investors' minds as to whether this type of a run can continue to be
sustained. And if you start getting that capital rotation and it starts looking for a new home
and even a portion of this flows into Bitcoin, we could be in for some fireworks here over the next
couple of months. So I'm excited to see how this plays out. These are the strange times that make
investing in markets so incredibly interesting. And I'm watching this one very closely.
100%. 100%. Before we go to you, Dan, I've got a quick word from Tim Kotzman.
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
right yeah that was a little bit of a glitch uh everything we talk about here is for informational
and educational purposes only we're here talking about what we see behind the scenes within the
market and how we think about the general marketplace from credit perspective, equity
perspective, all those other things.
So thank you for that, Tim.
Pass it over to Dan.
What are you thinking about?
What's top of mind?
Yeah, I think what Ben's talking about obviously is hugely important.
I've been pretty locked in on the whole stretch thing.
And I think the stretch behavior, price behavior over the past few weeks has been quite remarkable
considering that Bitcoin has fallen 30% off its highs.
and stretch just continues to, you know, march on ahead.
Saylor's been able to issue a lot of stretch.
And then, you know, all the behavior at 1XMNAV,
MSTR common issuance, it's quite remarkable.
And I think, you know, I don't see a world
in which the rate of capital acquisition by MSTR slows down.
And I think there's probably been a lot of hard internal conversations.
Are we going to expand our balance sheet at 1XMNAV?
And clearly they are.
And then furthermore, the market, you know, is liking them at 1XMNAV.
Like they've issued a lot of equity here and they're not falling below that one times NAV threshold, which I think is massively important.
It's something we were trying to figure out.
You know, we talked about it a lot, but now we're seeing it in action.
Yeah, that's a great point.
And this is something that, you know, we had a conversation with an investor earlier this week.
And it's been fascinating to watch just the volume and how these preferred stretch specifically is trading.
And it's like, who's selling?
I think the question is who's selling when the price drops and how do you think about these
things, right? The incentive of the holder is to, if you know that strategy is going to do everything
in their power to get it back up to a hundred and then they're sitting on it at a hundred,
you have incentive to be a buyer below a hundred and anything above a hundred,
you have incentive to be a seller. So it's, it's fascinating when you start to think about the
infrastructure of and the get into the mind of the buyer, like who's who's buying this
and who's selling this at those different price points?
And what what's the reason for buying and selling at those price points?
It's a it's a fascinating conversation.
And even even people that are have been working in industry for 30 years are asking the same
question.
Yeah.
And I saw a little thing in the Bitcoin preferred group and some guy was like, yeah, I'm just,
know, every month's shifting a little bit more of my fixed income portfolio into stretch.
And, you know, I'm getting to the point where it's, you know, I'm going from 3% annualized
return on my fixed income portfolio to three and a half to four to five, you know, as stretch
takes over a majority of that portfolio.
And I'm like, yeah, that's what's going to happen across the entire market, in my opinion.
And it's happening in the, you know, BlackRock preferred fund as well.
Like this is just happening across all fixed income funds.
And you think this product is what, seven months old?
And I was trying to calculate like, what is the Sharpe ratio of stretch?
How would this fit into a portfolio?
And it's tough because the data is skewed given that they just went through an IPO.
But if you take the last 60 days of trading data, the Sharpe ratio is like 1.15.
And that's that's with the big drop that we saw in late November, early December.
And if if the instrument trades very similar similarly to how it's traded in the last 30 days,
I think the Sharpe ratio goes significantly higher, like two or three. And so then that
question becomes like, how do you compare this to anything else within the market? This looks just
far and away better than a lot of the other fixed income instruments in the market with their
relative volatility and the return that they're giving in those other instruments. And the fact
that these are liquid I mean it been trading what did it trade today Another million in volume today It been averaging a in volume every single day for the last month which is crazy That a lot of volume
I think what's particularly interesting about these, and I think we'll see whether this thesis
plays out over an extended period of time, because I still think we're kind of in that testing phase
for these products where the market's really trying to figure out, you know, how do these
respond across different market conditions? Does the market respect the over collateralization
positions of these? Do they like the cash reserve positions of these? But what I think is actually
kind of interesting is that if you wanted to live within the Bitcoin ecosystem and you feel bullish
about the long-term prospects of Bitcoin, but it doesn't mean that throughout the cycle, you don't
have periods of time where you want to be risk on and risk off. I wonder if these products with
their over collateralization and with these extended cash reserves start to become more of
a risk off play for a lot of investors that are native to this space where say you wanted to
rotate, you know, say people are holding IBIT for Bitcoin exposure at one point in time and Bitcoin
goes on run and they start, you know, seeing it look toppy. Do they start rotating out? And is the
place where you land that in something like Stretch, which is effectively giving you S&P
returns in what a lot would consider a very risk-off or a low-risk type of a product.
I think it creates a really interesting value proposition for investors out there. And we've
been seeing a little bit of it because Bitcoin really hasn't been providing a lot of assistance
here for this entire sector. And you've seen it kind of across the market in the way that
common equities are reflecting that and they've drawn down a fair amount you've got a lot that are
you know at nav slightly below nav hovering in that range and then you just see this continued
demand for the preferred products you know we saw it obviously with our offer you know getting out
the gate and doing the ipo where we came out starting to raise 100 million and saw a huge
amount more demand at 200 million you know we had to go through the process where you're marketing
that you're having the conversations with the investors and you're going through that education
learning curve. And then the follow on offering, you know, happened in a matter of days. And the
investor base was already educated on it. And there was a lot of demand there. And so you were able to
get that done and find a market clearing price pretty quickly for the scale of the capital that
we were trying to raise. So the demand is arriving. But I'm going to be very interested to watch how
these perform, you know, both when the markets start to run, right? Do you start seeing capital
draw out of these products when it looks like Bitcoin might start going on a run when people
are no longer looking to go risk off? And does that get reflected with stretch, you know, kind
of hovering a little below that $100 par mark where they're not able to raise quite as much
capital, you know, on that one at any given time? And then when people go risk off, do you see that
demand start to spike? Is this kind of the Bitcoin ecosystem risk off style equity of choice? I'm
going to be very interested to follow that for a bit. 100%. I think this might be a good time to
jump into just the statistics that we run through every week because it's a good frame of reference
to think about like balance sheet risk and where we're at relative to where we've been.
So on the left-hand side here, so we've got a couple of columns. We show this every week
and this is MSDR financial leverage. Maybe I'll clean this up and make it look better one of these
days. But Bitcoin held as of January 15th, follow this column. Bitcoin held is $712,647. Bitcoin
price, $88,745. Last I looked, MSDR price $158. So they're holding $63 billion of assets. They
have $2.25 billion USD reserve, $8.2 billion of debt, $8.3 billion of PREF outstanding. So the
PREFs have now eclipsed the debt, which I think is a huge milestone. There was more PREF outstanding
than there is convertible debt, a big, big milestone for strategy. Net capital on balance
sheet, $57 billion, annual PREF payment, $879 million. So if you just take this net capital
figure, which is the BTC assets priced in USD minus the debt, you get $57 billion.
dollars. Effectively, they've got 68 years of net capital to pay the dividends. So the leverage
ratio on the balance sheet, 9.4%, just incredibly under leveraged, right? There's very little
leverage on the balance sheet. You think of amplification is the notional outstanding,
plus the debt outstanding gets you to a 25% amplification on the balance sheet.
Important to note here that the amplification, the PREF equity is equity. It is not debt. There's
no cliff maturity. They do not have to pay back that number. That's why they're not using it in
their leverage calculation because there is no repayment of principle. This is like an interest
only loan effectively into the future. So in order for the Bitcoin price to go or the Bitcoin,
the value of the Bitcoin they held on the balance sheet to go less than the debt on the balance
sheet, Bitcoin price would have to drop to $11,210, which is an 87% decline here. I think it's
incredibly unlikely. So why do I bring this up? And then this is further to the points that Ben
and Dan were making here. Even if Bitcoin were to drop 50% from here, which I think is also
unlikely for many reasons, a 50% drop from here would drop the price of Bitcoin to $44,000.
The 200-week moving average is $57,000. Historically, Bitcoin has gone below the 200-week
moving average in bear markets for short periods of time. I think the longest period Bitcoin traded
under the 200 week moving average was the period of 22 to 23, in which we're talking calamity for
Bitcoin, right? You're coming off the heels of a one in a hundred year pandemic. Interest rates
were dropped to zero. And then in 22, interest rates ripped to 5%. You had a political regime
that was trying to kill crypto, Celsius, BlockFi, FTX collapse. You just had calamity across the
entire ecosystem. And at that point in time, strategy had more debt on their balance sheet
than they had assets on the balance sheet, yet they still had a long maturity date.
But thinking about the relative strength of the balance sheet today, you've got 9.4% leverage,
relative to where they were in 2022, they'd be twice as strong today if there was a 50% drop
in Bitcoin than they were in 2022. And I think that's just a helpful framework when thinking
about just where we are in a macro landscape, where we were in the past and thinking about the
relativity here. And what's on the horizon is a potential change in the chairman of the Federal
Reserve, who's very pro Bitcoin and probably going to drop interest rates. You've got an election
coming up in November. All incentives are aligned for the economy to be ripping on all fronts
in order to retain control and power within the political system.
And the infrastructure has completely changed. You think about 22, there's no Bitcoin ETF,
there's no digital credit instruments. All this stuff didn't exist before.
like the architecture and the plumbing of the market has fundamentally changed.
So yeah, the strategy balance sheet looks incredibly strong here and stronger than ever.
I mean, they've got 712,000 Bitcoin on the road to a million with product market fit.
And we're here at year one of digital credit. And we're going to see what this
leads to here in the future. Yeah, their credit score is almost as good as mine.
infinite infinite credit score well uh on that topic actually while we think about the landscape
here i'm going to quickly jump and shout out our true north event that we have on the horizon coming
up so we have true north vegas so this is a we've got an event it is an in-person event it is happening
in las vegas on february 23rd monday february 23rd it is on the front half of strategy world
It is a four hour in-person event. This event will not be filmed. It will not be recorded.
You have to be at the event in order to see what's going on. We have 43 tickets left at this event.
And I just want to paint this picture of where we're at here in this point in time.
We're in year one of digital credit. This company strategy issued $8 billion of this stuff over the last year.
and they've got capacity to issue 15 to 20 billion dollars more of this type of instrument
here over the next year. They've dubbed this their iPhone moment and we're at the precipice of like
the entire market changing, right? We're talking, Dan's talking to people that are shifting their
entire fixed income portfolio over to STRC. So there's going to be people within the industry.
So myself will be there.
The entire True North team will be there.
We will have several people that are working in the industry,
participating and interacting within this event.
So preliminary schedule, I'll show you guys what this looks like as well
for those that are interested.
So the first two hours, the first hour will be kind of a True North discussion.
I'm picking live True North.
The second hour will be presentations.
And then the next two hours will be eight different breakouts.
sessions. So two sessions will go at a time. These will be led and moderated by members of
True North, and we will have people participating that operate within the industry. So our goal is
to give a really unique perspective of what it's like to work in the environment, in the Bitcoin
treasury environment what people are thinking about what institutions are thinking about I got a handful of big breakout topics and discussion points on the left Is Bitcoin dead Look thinking about macro How are
corporations and people making Bitcoin productive? Can a portfolio of Bitcoin products beat everything
in the market? What's it like buying $500 million in Bitcoin? The mind of a digital credit buyer,
insights from institutions, blazing the trail in the legal environment. Is paper Bitcoin real or a
myth, retail trading landscape, battling conviction versus emotion, international credit landscape,
quantifying credit risk from an institutional lens. And our goal is to provide perspectives on
all these different things with people that are leading the charge there. So I can't confirm
the exact guests at the moment, but we are working on getting a really exciting panel of guests that
are there to talk about these topics as well. Some of which you will have known, some of which
that you are not familiar with and that are sneaky working behind the scenes in the marketplace.
So it's going to be a lot of fun. After that, we're going to have a party from
8 to 11. We want this to be an incredibly high alpha session. And then the party from 8 to 11
is to extend any conversations that you've had at the front half during the panel sessions or any
of the breakout sessions. So yeah, I think it's going to be a great time. We're going to be prepared
to throw a good party and really really uh deliver on all of the alpha there
you guys want to you guys want to add anything else spam and beer at the party spam and beer
spam hopefully it's slightly better than that but that's gonna be awesome we've already got people
on the ground in vegas scoping all this out making sure that we get a good setup and you know we're
We're taking it a little bit of a different direction than we did with the original one
by bringing in some of those outside perspectives and bringing in people who can have the deep
conversations from an institutional lens that are operators in the space, that are investors
in the space, that are capital allocators in the space.
And I think it's going to provide a really unique insight into this entire sector as
a whole.
So I'm really excited about this one.
It's shaping up to be a really awesome event.
It's going to be a great time.
I'm hoping to see a lot of you there.
Yeah, absolutely.
Can't wait.
One other thing, we do have sponsorships available
at this event.
If you're interested in sponsoring this event
and helping us throw a great party,
they're not needed, but we love our partners.
We've got a small business partnership
and then two larger partnership options.
The larger partnerships options will also include
a bit of a sponsor banner participation
in the future on our future streams.
We're gonna have a banner down here at the bottom
It shows our partners that help support everything that we've got going on here.
So if you're interested, there is a sponsor tab on mstrtrtrunorth.com forward slash sponsors.
If you click this link here, it'll send us an email and we are happy to roll with that.
Cool.
Thanks for the support.
Look forward to meeting everybody in person.
Okay, cool.
Should we talk metals?
Because this is ridiculous.
these numbers i did this just a few minutes ago like these numbers are insane
um so as of today silver market cap 6.6 trillion 6.6 trillion okay the middle of last year 7 28 25
the market cap for silver was 2.1 trillion so right now silver is the second largest asset
on the planet it's larger than any publicly traded equity i think the largest publicly
traded equity right now is Nvidia. It's a four and a half trillion. So it's gone from effectively
below the mag seven to surpassing the mag seven in the last six months, which is a pretty wild
ride for the price of silver. If you go look at like the 25 year chart, it's just a crazy 25 year
chart. One thing that is interesting that I've found is an inflation adjusted peak for silver.
If you go back to the seventies, when there was another kind of blow off top for silver,
the inflation adjusted peak is around $148 per ounce. So I think this thing could have more room
to run. I don't necessarily want to touch it. I don't want to touch anything that looks as
completely vertical as this thing does. But I think the reality is you got silver is used in
a lot of infrastructure, right? It's used in, it's conducted for electricity. So it's used in
you know building electricity units it's used in computers it's used all over the place but i think
the relative size and scale of its use case is uh is relatively small i looked i looked the other
day it's uh so there's two billion computers on the planet and and the each computer uses like a
gram of silver so if you were to double the number of computers on the planet it it would be something
like you need eight billion dollars worth of silver at today's prices which is like on a size
and scale perspective the size of campbell's campbell's noodle soup market cap it's just like
so small on a relative basis but you know there are many other industrial use cases but um
it seems like that that concept of its industrial use case might be like slightly overblown i mean
when people need to buy these things like compute for computers and stuff the price doesn't matter
if the demand is so high so it's a bit difficult to rationalize some of these things oh but it tells
you that you could see consumer good prices go up that are using it right that's going to be one of
one of the problems here when you look at any of these metals that are used for any of these
products is that when these prices spike like this you know there is the incentive for the miners to
to get out there and start mining more of this stuff and getting it to the market because you've
got huge demand right now. You're going to have companies panicking for supply because you're
worried about these runaway costs of these inputs that go into your products. It's going to create
some ripple effects out there beyond just how we traditionally view these, just in that store
value category and people kind of hoarding them as investments. On that utility side of it,
it's going to create some downstream impacts to the products that we see. And particularly,
you're going to see it in the electronics clearly because you're seeing them used there so it's a
little bit scary to watch it run away like this you know the one thing that you always have to
train yourself for is is the fact that nothing goes up in a straight line forever right we've
seen that play out several times we've seen don't tell peter schiff that peter schiff thinks uh you
know gold's going to fifteen thousand dollars and he was on spaces yesterday going uh ape shit so
yeah okay well yeah i guess whatever but it's going vertical forever apparently but you start
to see and now you go look at you know top assets by market cap and now it's number one gold number
two silver and just a few months ago i think silver was what seven or eight so they were down
there a little little way so they made a massive jump i mean they basically triple it's basically
true talk about they like it's a person but it effectively tripled since like september right
It's been just on this massive run, which, you know, you got to ask yourself what it is that's driving that and how scary is it to see this much demand going into these metals and to see this consistent.
Right. It hasn't been, you know, a flash over a matter of three or four weeks.
It's been that sustained demand and the sustained drive up in the price here over the last, you know, call it four or five months.
And so you wonder how many people that are in the paper products are trying to get physical delivery at the moment.
And, you know, what you're seeing there, if you're finding out that there's issues in that chain, it's just really, really fascinating to watch because it's a pretty large macro indicator when things like this happen that something's showing some cracks out there.
Yeah, that's a good point about people waiting for physical delivery because, you know, a lot of people are like, oh, well, let me just take an SLV position or a GLD position.
But if they force majeure and just decide to sell some of these paper contracts in cash, you may not do as well as someone holding physical that can really just get the physical price.
But then, of course, if you've got physical, you have to find someone that will actually be willing to take it from you.
And, you know, they're going to shave off a little percent for themselves as well.
So it's not always going to be exactly the advertised price that you're going to be able to get.
and you have to be a little bit careful trading trading the paper contracts.
It's interesting with the physical metal because you actually see a fair amount of it like if you
go and visit pawn shops and things people go in there and try to try to sell it there you try to
buy it you're usually you know within a couple of dollars or whatever that spot price is but I was
seeing some reports that that had widened and what they would actually offer you was something
like 15 below the spot price right now.
And you were just hearing that there were all kinds of people in trying to start to offload
their physical metals here at this price.
So I'm going to be curious to see if that ultimately translates into a pullback here.
But, you know, it's incentivizing some people to really think about this, because if you'd
been holding this for a long time and all of a sudden it's worth a significant amount,
there might be some people that are ready to increase the quality of their life a little
bit beyond being able to look at the shiny stones. So I won't be surprised to see some
incentives that drive people to sell some of their actual physical holdings here in the near term.
Yeah, you guys are gold bears, I feel like. I don't know.
Is it going to 15,000, Dan? Tell us. Inform us.
I mean, the gold chart is super weird. So I'm not sitting here betting it will go down,
especially if these are sovereign buyers right Like this behavior aren like it not the same thing as when Bitcoin ripped to 17 in 2017 Like these are real sovereign kind of a chain in the hedge
in the monetary order in the world.
So like, yeah, I'm definitely not sitting here
like thinking it's going to go down.
But I think, you know, the tether story is really, really interesting.
I think they're buying what?
Multi-billion dollar allocations of gold every week, right?
So they're becoming one of the biggest sovereign holders of gold in the world.
And so that's crazy.
And then that intermixed with the stablecoin story.
Obviously, Tether released a US Genius Act compliant stablecoin recently,
but they're also buying gold reserves and Bitcoin reserves for their Tether stablecoin.
So I think it's really interesting to think,
is there a world in which Tether completely pivots away from short-term treasuries,
especially if short-term treasuries go down to 2% at Trump's bidding next year. That could be a
crazy macro catalyst. And also, we talk about it sometimes at Buck, Tether has such a great
business. They make the most profitable company in the world per employee just because they sit
and collect the short-term treasury bill rates in their treasury. But they're already diversifying
away from the US sovereign debt. And so why are they taking that, what could be conventional
considered a risk in diversifying into gold, into Bitcoin, in this kind of stuff. And it's because
I think that smart big money is realizing that this sovereign debt is in fact as safe as people
want it to be. So maybe it's just like a massive repricing. Yeah, it does seem like it's supply
driven, not necessarily like debasement trade, store of value driven. And I'm not calling that
it's probably got room to grow. I mean, double, triple, whatever. But eventually, people are going
to attack those profit margins and the supply will have to come up and meet demand eventually.
And the question that I'm really asking myself is, do I want to wait another 20 years for
this to happen to metals again or own Bitcoin?
And, you know, we've got that statistic that nobody that's ever bought Bitcoin and held
it for four or five years has ever, you know, lost money.
and looking at the 20-year chart on gold and silver,
it's like, okay, I don't have that kind of patience.
I know I'm supposed to be low time preference,
but that's a little bit much for me.
So Dan, you bring up a good point about Tether
and I agree with you.
I think there are a lot of companies
that are starting to do this,
thinking about reserves,
thinking about lack of confidence
in the sovereign US debt, US treasuries
that they're keeping on their balance sheet.
My only caveat to that is gold in the last five days has gone up 5.2 trillion.
Let's say 5.1 trillion.
That's 5,100 billions in five days.
Even if Tether's slanging $60 billion of, let's just say, $5 billion a week,
that's $20 billion a month times 12 is $140 billion. We're talking like $5,100 billion
has moved in five days. You lost me with the numbers, Jeff. I totally agree.
The scale is just like totally mind numbing, right?
Like it just...
I think it just goes to show people need to realize there's a lot of money out there.
And like ultimately, like the price of Bitcoin goes up,
not because there isn't an ample amount of capital sitting around waiting to go into it,
but it's because like, you know, it gets adopted slowly.
So I think people are too quick to compare, you know, Bitcoin to gold right now.
Like I think we're obviously expanding the total addressable market for digital sound money
as Bitcoin goes up.
And I think it's a really good thing.
I think that the number of like the total asset number in the world has got to be like massively gone up in the last six months.
I haven't checked. Right. Like the Jesse Myers in nine hundred trillion dollars.
Like just looking here at silver and gold going from from twenty five trillion to forty five trillion.
You're up you're up twenty trillion. But the rest of the stock market is also at all time highs.
The equity market still is like pushing all time highs.
the bond market is still high. There's more money out there. Yeah, there's a lot of money out there.
It's just interesting to see how that is playing out. Let me put some more relativity here.
In the last 184 days, the market cap of these two combined has gone up $20 trillion.
Average market cap change per day is $100 billion. The MAG7 today is $21.5 trillion.
So over the last 184 days, silver and gold have gone up an entire mag seven, like the best seven companies in America, their entire value of their market cap.
That's what silver and gold have done in the last 184 days.
That's crazy.
That is nuts.
That's just a crazy relativity.
Like that's the best performing companies on the planet combined their entire equity market cap value.
That's a crazy number.
No, and I mean, this would not have been on the bingo card in 2014, 13,
as QE was starting to ramp up,
that Gold Rock would outperform the greatest capital market in the world.
Yeah.
Yeah, interesting stuff.
Interesting times.
It's fun listening to Peter Schiff spit talk on the spaces
and just completely dunk on the Bitcoiners.
I think we'll have our time.
If any of this gets remotely interested in digital scarcity, right?
Like this is a scarcity.
Gold is a scarcity story.
Silver is a utility story.
If there's any interest in going from physical scarcity to digital scarcity,
I think like a splash of this capital moves Bitcoin very quickly.
So yeah, it will be, I mean, time will tell.
We'll figure it out.
Yeah, you got to give the bull guys like shift there.
their time right now, right? I mean, you can't look at them and say, you know, at the moment,
he's definitely right. You know, it's, it's been a pretty, pretty impressive run here. So
I'm not mad at it. I think it shows that we've got a significant weakening in the confidence
of sovereigns right now. I mean, clearly you've just got this disaster kind of brewing over there
in Japan. Everyone's constantly watching what's happening there. You know, that's sort of a
canary in the coal mine there with the Japanese yen. We talked, I can't remember when it was,
but we were talking about the perception of the risk-free rate. And the risk-free rate is feeling
more and more risky every day now. People are starting to dig into these balance sheets of
these sovereigns. You're starting to see the weakness in the policies. You're starting to see
the way that they're managing the economies and trying to drive the GDP growth. And a lot of that
focuses on the U.S. We got the news today, right? They're not cutting rates, even though when you go
and look at the truflation data right now, I think it's got inflation down at like 1.18 or something
to that nature. Which is pretty insane. And they're referencing figures from November. And
you're starting to see that and you wonder if we're at kind of a standstill here until Powell
moves on from that role, right? Is he just kind of digging in in place here and we're not really
going to see anything move maybe until May. And it's starting to create some uncertainty when
you're seeing a lot of these numbers that are tracked pretty regularly by these more open source
providers that have been relatively accurate. And you're seeing that number come down. And there's
a lot of weakness out there in the macro environment. So I'm not entirely surprised to see a
lot move into these metals. We all look at digital scarcity and it makes complete sense to us.
You've got the ability to transact value anywhere in the world using this.
There's massive utility in the financial rails around a store of value asset like Bitcoin.
But metals have been around for thousands of years.
And so I'm not surprised when we look at, Jeff, we were talking about this earlier, how small the Bitcoin world feels.
You go to all these conferences, you're bumping into a lot of the same people, you're having a lot of the same conversations.
you know, we're still at the very early phases of seeing the major Bitcoin adoption.
And I think it's going to come. The world's obviously transitioning to digital. I don't
see us going backwards from that. It's accelerating forward. So that's going to be a reality of what
the world looks like in the future. And I think that, you know, having a digital asset with true
defined scarcity like Bitcoin that can transact in a digital world as well is going to be something
that's massively, massively valuable. But at the moment, when people are scared,
they revert back to what they've always known. And what they've always known in the past,
what their parents knew, what their grandparents knew was you've got to have some gold. And I think
you see some of that right now. And plus, you see the sovereigns, right? And obviously, the
sovereigns are not immediately going to go pile into Bitcoin right away. I think it would be naive
of us to think that there was that was just going to turn on a dime here. So not surprising, you
know, and to Dan's point, this this could extend for a lot longer. And I wasn't necessarily, you
know, calling for gold to pull back and stop running entirely. My point was more things don't
go in straight lines forever. Right. You tend to get some turbulence along that path. And so it's
entirely possible that it continues to see sustained demand as long as people are starting to lose
some confidence here in these governments to manage their economies.
So we'll have to see how it plays out.
Yeah. What's the top?
Is it like 60 trillion?
Could it double from here?
Was that rational?
there's no fiat bottom right there's no fiat bottom that's true that's true it's all about
what the value is being denominated in at the time and if your denominator is broken yeah so
if your denominator is broken and maybe it's front-running news new money supply
didn't sailor say that like the master plan for the u.s would be to sell all their gold
buy Bitcoin and then just announce it and just drop the bottom right out of gold and Bitcoin
pumps. I mean, 2026 would be the perfect time to do that. So I'm sure I have tons of government,
important government people watching me. So I think it feels like right now they could just
revalue the gold at these levels, right? Really improve the balance sheet with that. That was a
conversation a long time ago and they were looking for budget neutral ways to build out a Bitcoin
reserve and one of those was to revalue the gold reserves you know now it would seem like a pretty
good time to revalue the gold reserves if you wanted to really you know pump that number up
and see what you're working with but yeah i mean that was that was one of the guys there's no gold
in the vault actually yeah yeah is empty and we can't we actually can't revalue it the pawn shop
might have more gold than fort knox yeah yeah interesting but i think even if the u.s was going
to do that like i think you would want to see some more adoption of countries globally first
knowing that you're the one that can step in and really kind of take over because you know you've
got the stronger reserve currency that you can print yourself so your ability to accumulate is
going to outpace everyone else's so i think you'd kind of want them in the game a little bit
and then uh let them know that size of your economy matters the amount of currency you got
matters, having a money printer matters in the transition to where that's no longer a viable
option. That's a very fiat game to play when you can print the currencies. And the danger in an
asset like Bitcoin to these countries is it completely changes the way that they operate.
You can no longer just fund everything you do by clicking the magic money button all the time
and pretending it's not happening or having an impact,
you've got an actual finite, scarce value asset
that you have to work within now.
And that brings a lot more honesty to the process.
And I don't think we're quite ready for that yet
at the government level.
I don't think they're quite ready for that yet.
Honesty and accountability is not exactly
in high supply these days.
Man, if somebody sold all the gold
and bought Bitcoin with it,
I mean, that's probably if a country did that, I would say that's probably a black swan positive event.
That's difficult to quantify.
Speaking of fiat reserves, shall we talk about credit model on the PREF equities?
Because this is something I've been thinking about a lot.
Actually, before we get there, this is kind of to tie this together here.
is thinking about the physical world versus the digital world.
This is something I've been speculating and thinking about a lot
is how computers interact with assets today
and how they will interact with assets in the future
and how value is stored and held within computers
and how that will change into the future.
It's hard to ignore and deny that that trend is going up into the right.
Computers are making more decisions.
It's going up in the right.
Computers have completely surpassed human intelligence far and away.
I pretty much use AI like a calculator now for just kind of everything.
And these computers, I know that banks and high-frequency trading companies already have tons of computer algorithms that are tied into equity markets and things that move quickly.
and they're harvesting fractions of pennies on a dollar
just based on being in different positions
at different points in time.
And when you think about the future
of underwriting an asset,
underwriting an asset that's native to the decision-making
is going to be preferred.
And what I mean by that is the fact that a digital asset
like Bitcoin is native to a computer,
whereas a physical asset like gold is native to humans like the computers will prefer interacting
with bitcoin because it can underwrite it could underwrite the supply within the protocol like it
it's harder for a computer to underwrite like the geological supply of gold because that's unknown
like a computer can't know know what that is and know how society interacts with that supply
whether it's mining it or spending it or transacting with it etc like the computers will
prefer to interact with a native asset or native type money and i mean how long will that take
might take a long time it might take a decade it might take 20 years but i think the world is
trending in that direction um like as as you know grandparents die away and they stop hoarding their
gold, the younger people take it and they convert it into what's native to them. So yeah, go ahead,
Dan. Yeah. I mean, I was just talking to my dad about this actually. Like we're in this weird
exponential phase where technology is progressing exponentially, right? Like you guys have probably
started messing around with Claudebot and like, I mean, AIs are really interacting on behalf of
humans and interacting with native kind of software in a way that is absolutely mind blowing. The
applications are insane, but still economic values tied to the individual and the human.
Right. So like while people can't figure out where the value is being accrued, and I think part of
this gold thesis is that like no one understands where the value is going to be accrued. Like in a
year's time, like right now, I think Opus 4.5 is absolutely hands down the best model out there.
You know, the open source Chinese models will be light years better than Opus is now in six months
time, 70 months time, right? So who's going to capture this economic value, if it's all being
pushed to the marginal cost production? And like, there's a lot of boomers, like, who think and I
think you're starting to realize like, like, yes, during, you know, the mobile wave, like the network
companies were able to capture all the the dominant networks were able to capture all the value.
But like, it's tough to say who's going to capture the value here, because I don't believe there's
going to be sort of fiat monetary capturing the way there has been with permission networks over
the past 10 20 years so like where does that leave value and people are starting to chase scarcity
right and they're chasing gold but it's because it you know money's still analog like money is tied
to your personhood via a traditional you know ledger system in the banking
on the traditional banking rails so like that will change but slowly and so like economic value is
slow but you know um the sort of technological progress is exponential
Yeah. And it's happening at light speed right now. It's like, uh, deciding which AI model to use. It's like, there's a new one every week, right? It's insane. I'm like, and I, I'm, I'm like asking, uh, my analyst, Hey, go look at what's going on here. Uh, because I'm using this, but should I be using that? And I like, don't even have time to go analyze whether or not I should be like jumping and using that model or, you know, it's like, it's all moving so fast.
and like some people are dedicating their entire life to understanding how these things are moving
it's just it is mind-blowing it is totally mind-blowing and if you're if you're at a company
where you cannot use ai you're gonna get left behind like if you're only using ai in your spare
time like like you'd read a book after you're done with work you're you are totally gonna get
left behind everybody that's using these things are uh they're accelerating just incredibly fast
that they're pushing the pushing the bounds of progress incredibly incredibly quickly i totally
agree i think i but the thing i've been thinking about recently is anyone with ideas is just in a
position of infinite scale and and implementation i saw a funny meme or something it was like
it's something along the lines of it's like hiring senior idea guy, junior,
you know, assistant idea guy, guy to go get lunch, you know?
So like, I think there's, there's merit to that. Honestly,
like if you have the ideas implementation becomes free and that is a crazy
idea.
Yeah. I mean, just the fact that I was able to, you know,
I use cursor code and I'm building like dashboards myself.
And I don't, I don't like, I have the idea and I just go instantly type it in
in plain English, like what I want to see.
And it's like, boom, it's there in front of my face.
And I was like, I didn't even have to learn any of the technicals.
Like that is, that is just insane.
Yeah, it's insane.
So I think there's value.
Go ahead.
No, I was going to say for people that don't feel like, you know,
or maybe a little depressed, like I'm never going to be able to keep up with
this because it's going to be kind of impossible.
It's just going to be, you know, the best AIs right now,
we're going to be free apps on our phone in five years or whatever. But because Bitcoin captures
all of the deflationary advancements, all you have to do is buy Bitcoin. Like if you personally
can't keep up with AI and technology, Bitcoin captures all of that on its own. So you can just
stack sats and let technology go to the moon
and you can basically cement your position in time now and just ride Bitcoin on AI coattails I think the risks that are going to come with all these AI tools right I think you getting
efficiency and convenience at the risk of privacy now. We live in a world where even minor
inconveniences will stop us from doing something. And so being able to plug in tools and have it do
everything for us. I was looking at this Claudebot or Moltbot, which is what it seems to be now.
And it lives on your computer. It's basically got access to everything. It's got your emails.
It's got access to files. It'll integrate into your Telegram and your Twitter and all of your
social media. You're providing full access, basically, across your entire life. Every bill
that's going to come into your email is going through that thing. And it's at the convenience
of effectively having a virtual assistant for yourself.
And so I'm always a little slow to adopt some of those,
just because anytime I'm putting something on
that's now got access to everything,
even when they tell me that it's private,
it makes me a little bit nervous.
But it's clear that this is the direction
that things are going.
And I think that convenience
and the speed of innovation and efficiency
is going to take over what we used to focus on
with privacy, right?
Because now you've got to have everything out there in the open to integrate it all together, to make it really efficient, to allow you to be hyperproductive, which is where a lot of people are going.
And to Dan's point, there's really no idea you can't build now.
You know, there's no, and a lot of times, sometimes when you get stuck with one of the AIs, you go to the other AI to ask what's wrong with the first AI, right?
And it'll fix the problem for you.
Like the amount of time it takes to get from idea to product, as long as it's a digital product, is incredibly fast.
I mean, I had an idea for something the other day and I built it in like an hour and a half and it was exactly what I would have wanted.
If I was back in my old life and I was writing that code myself, it would have been months to get that done, to get through all the testing, to write all the unit tests, figure out the right way to deploy it.
Just to get everything done would have taken a huge amount of manual effort and that's no longer the case.
So, you know, it's a beautiful and a scary time to be alive right now because you're watching the pace of the speed up and not slow down.
And with every step, we're trying to take friction out of our day to day lives.
And sometimes that can be a slippery slope.
So you just got to be aware of what you're doing with this stuff.
Yeah, I've seen all the all the posts where it's a cloud bot lost all my money and traded.
It's a trade to a million dollars, make no mistakes.
And it's Claude Bott lost all my money.
It drove me back in time where we were doing the risk,
and I'm going to date myself,
but it was the risk reward analysis of, you know,
downloading a song on LimeWire or Napster or something.
And you were just fully taking on the risk
that that thing was just going to break your computer
with some virus, you know.
But you could get that song that you could now listen to
all the time without having to like record it off the radio
or something.
Yeah, I still have an iPod full of, you know, thousands of songs that I've downloaded. Shout out LimeWire. Good times.
I think it is an interesting development in having all your context sit in one space.
Because like ultimately the models are becoming like interchangeable.
And once you have personalized context that gets built up over time, like I'm going to probably be using context that I'm developing now from my thoughts and actions and prompts and all that stuff.
in five years time, the same context,
it'll be like a massive hard drive.
Right now, it's a cloud.
Yeah, but you'll be able to port that
into new models over time.
So it's like the models are a commodity.
It's just your context, your authenticity.
That's like the only thing I can think of
of value in the whole loop right now.
And then this last week,
ChatGPT is trying to take some percentage
of like innovations that come using chat gpt ai like that's a i mean that's a risk too like who
owns it yeah you got to be able to own your context and your branding i mean digital id i
mean i know they've been like struggling with this like my dad tried to do a digital id startup like
100 years ago and they've been working on these sorts of these problems for like a long long time
then we saw strategy orange with like the same digital id i think there's going to be real use
case, but like, does it get decentralized into Nostra? Like where does your digital signature,
you know, reside? Like in much in the same way, people like classic cars. I think in the future,
people are going to like classic analog videos of people that record it themselves. So like in the
same way you verify a 1975 911T and make sure all the parts are the same, the engine stock,
and there hasn't been any modifications. People are, I think are going to do that on videos of
people and want to see humans actually, you know, creating. So I mean, I don't know what that's
going to look like, but I think there's a massive market there. I mean, the lawyers are going to have
a heart attack when they have all these lawsuits about who owns, who owns what, where the property
rights sit for all of the digital output that comes out of it. Oh my God. Good thing I'm not
lawyer and uh i think about risk okay wait until someone builds the next you know like black rock
aladdin platform using an ai tool and then it turns out that all that ip actually belongs to
the ai provider and now they own that tool yeah exactly and then it's then it's gone yeah yeah
then black software is going to zero like software you can make software so quickly now it's just
Anytime someone asks for predictions for 10 years in the future, I have no freaking idea.
Because it wasn't too long ago where the thing that was getting touted around was learn to code.
You were definitely going to be saved if you knew how to code because those jobs were always going to be in demand.
Applications were gaining.
Everything in your life was going to be applications.
These AI tools come out and that is just getting kneecapped right now.
like now it's back to what they said it was going to be before where you know it was all the trades
they thought were going to start going away and automated find the handyman to save your life
right like nobody knows how to do anything anymore and so it's it you know in the real world not the
digital world a lot of people know how to do things in the digital world now but um it's just
fascinating to watch this develop so you know people always ask like what does this look like
in 10 years, I have no freaking idea, but I'm pretty sure the world's going to be more digital.
And I think that that's kind of how I'm going to align my investment thesis here over the next 10
years, because I don't see that train slowing down one bit. I only see it exponentially increasing
because I've seen it in the last six months. Yeah. Here you go. Somebody just posted this.
I'm a developer and no longer code. I just use it. Yeah. Exhibit A.
Wow, that's crazy. Okay, let's switch gears a little bit, but also kind of in the same vein.
And I want to talk about the preferred equity a little bit in the credit model. And think through
this a bit, because this is, again, interaction between analog and digital, just on the credit
front. And I had an interesting thought experiment the other day. And I'm going to share it with
everybody here while we go and pull up the credit model. And my question to everybody here is,
at what amplification percentage do the strategy preferred instruments
have risk return parity with high yield corporate debt?
and that's a that's a pretty big question because it there are multiple things that are that you've
got to think through here with that question what is amplification is amplification a measure of
risk what is risk is risk volatility or is risk default uh what is credit like what what is a
credit claim? What does that look like? How does it look relative to the rest of the market?
Does the denominator, like is your balance sheet denominated in fiat or Bitcoin? And how do you
start to think about these things compared to each other? And so what I did is I jumped into
the strategy credit model. And I think, I would love to talk to strategy folks about this, but I
I think this credit model needs to be expanded on and built on quite a bit, particularly because no changes have been made since the addition of the USD reserve here, the 2.25 billion of USD reserve that's been added.
none of the BTC rating, BTC risk or BTC credit takes into consideration of the 2.25 billion of
USD reserve, which I think that needs to be folded in here into at least the BTC risk and
the BTC credit pile. So for those that are unaware of what's going on here, this is on the strategy
website. You can click to the credit tab and you can look at the relative risk profile of at least
what strategy is indicated as the relative risk profile, these particular instruments.
So BTC risk being the probability that BTC rating. So the collateral, effective collateral rating
over coverage rating falls below one X at the end of the duration period. And it's,
it's the cumulative probability. And all of that is based on the underlying assumptions. So it's
the price of Bitcoin today, the BTC volatility, your assumption of volatility into the future
and the BTC ARR, so the annual rate of return that you select.
Let's just put 30 in here.
So why do I think this needs to be changed And maybe let walk through this a little bit more Duration So this duration number is the number of years to the put date for Converse and the Macaulay duration for preferred equity
So if you look down here at the preferred stock,
effectively what this duration number means
is the number of years that you would need to hold
the instrument in order to get your money back.
So that's helpful when you're thinking about
like a risk profile of this instrument.
Like what if I bought it today and held it for, you know, I would need to hold it for 10 years in order to get my principal all the way back out effectively that you put in on day one.
And so it's helpful thinking about it in that context.
And bond managers, when they're thinking about portfolio, they're thinking about, okay, duration, like how long do I hold this?
That's going to give me cash flow for that amount of period.
I'm going to double my money in that time period.
And all of this is a function of the underlying interest rate.
So if you look at Macaulay duration of other bonds in the market or other perpetual preferred equities with lower interest rates, the durations will be significantly longer because the rates are much lower.
If rates are lower, the duration goes further out.
Okay.
Any questions there, team?
No.
Okay.
Cool.
So let's jump to this BTC risk calculation for a moment because I think there's a critical
question here. So the cumulative probability that BTC rating falls below 1x at the end of
the duration period. Okay. So my question to you guys and maybe to the audience as well is
And why is it structured like that?
What does the BTC rating falling below 1x at the end of the duration period mean?
And does that mean that strategy is not credit worthy if the value of the Bitcoin fell below
the notional value of the preferred equity at the end of the duration period?
So effectively, what I'm asking is, does the notional value of the preferred equity even
matter?
if there's no, if the preferred equity cannot call, like if there's no maturity risk of the
preferred equity, like does the notional outstanding number even really matter?
We'll start there. Yeah. So my gut response to that would be because it matters in the MNAV
calculation. And unfortunately the markets, it's going to be difficult for a market. So I don't
think markets give Bitcoin a premium like they would expectations of future cash flow, even if
we may believe Bitcoin will CAGR into the future. I don't think equities will price the Bitcoin CAGR
into the current price of the equity because then you would just price the future CAGR of Bitcoin
into the current price of Bitcoin now. But so that being said, I don't believe that you could have
real value in the equity if the total outstanding liabilities in the form of liquidation preference
exceed the entire collateral stack.
So if we had 100% amplification,
then the total outstanding liquidation preference
would cover the entire Bitcoin on strategy's balance sheet.
And so it would be difficult to say
that strategy's equity would be worth anything.
I'm not talking about MSTR.
I'm talking about the prefs.
No, yeah, but I'm talking about
what amplification ratio is appropriate.
Is that what we're talking about?
Yeah, it's a little bit of that,
but it's also the relative risk here.
I mean, like, does it matter though?
Because it's the value, keep going, keep going.
Yeah, I'm just saying.
So I think ultimately it's a function
of how much amplification ratio
can you apply to the capital structure
in such a fashion that it's still
a credit worthy instrument.
Is that the question kind of?
Maybe I'm hearing off.
Yeah, a little bit, yeah.
But my point is if the liquidation preference
gets to 100% of the total outstanding assets,
then it would be difficult to assign a value to the common equity without expecting a future price
appreciation of Bitcoin. There are times when the market does not price in a future expectation of
Bitcoin. So it'd be difficult in that scenario to raise capital. So the point being is if you
reached a 50% amplification ratio and Bitcoin would fall 50%, then you'd be sitting at like
100% amplification ratio. That, in my opinion, would be a risky scenario. So I think it's a
function of where you expect Bitcoin to fall or appreciate to and how much amplification you have.
Yeah, I think there's a few things there, right? So you've got, if you think about amplification
at 100%, so you've got your notional outstanding, let's just say flat interest rate, right? Let's
just do it right now on today. If they had, um, let's see, what's the, what's the Bitcoin? No,
BTC reserve 60, $62 million. Let's think about this. Actually, I did this in Excel. Let's go to
Excel. Um, right here, right here. Okay. All right. There's a lot here. I basically just rebuilt
the credit model and it did an Excel. Cause I wanted to do some, I wanted to do some analysis
here. So, okay, Dan, my question then also becomes if strategies amplification goes to a hundred
percent, but they still had two and a half years of dividend reserve, would you still buy the credit
product? Yeah, I think that's a good question to pose. Right, right. Like, like, would you,
like they're still credit worthy yeah and the notional outstanding then even at that point like
you would have uh even at a hundred percent your your dividend liability would be ten percent of
that annually so you'd still technically have like six uh or you'd have ten years of dividend
coverage if your amplification was a hundred percent and a two and a half your dividend
in reserve. You know what I mean? So like, like there is a point at which like the dividend rate
becomes attractive again, based on the Macaulay duration going up for every, you know, a hundred
basis points of yield that the, you know, uh, yield increases. So like, so 10% to 15%, your
Macaulay duration got chopped at half. Yeah. So, so my question in is at a hundred percent
amplification, are the strategy credit products still better than high yield corporate debt?
It's a tough one.
It's a tough one, right?
Like, because you're like, well, they have the money, but they've got two and a half years.
They've got two and a half years of dividend payment.
Like if the price of Bitcoin fell, I mean, shit, they would have to fall like 70% here
in order for them to get to 100% 100% amplification.
But even if it did, they'd have two and a half years of dividend payment.
they'd have two and a half years of dividend coverage already just in cash liquid.
You know you're going to get that.
And then you have to make an assumption on Bitcoin.
You've got to underwrite Bitcoin into the future.
Which that's tricky, right?
And that's what I'm trying to wrap my head around.
is like, I don't know if that, if risk return parity between high yield corporate debt
and these preferred equity instruments exists.
Yeah. You do almost wonder if, if a part of that, and I love that this is a conversation,
right? It tells you how you, this space is just in general, because, you know, when's the last
time that you heard these types of discussions around any investments really, where people are
analyzing them at this depth, but you almost wonder if the Macaulay duration is what becomes
effectively the most important metric to track, because are you really monitoring
for the point where the collateral base plus cash reserve would fall below the asset value
for full principal repayment over the Macaulay duration? Is that kind of the tipping point
in that whole equation ultimately?
Like, is it not the notion?
Like, I get what Dan's saying
about the liquidation preference, right?
If you're evaluating it from a bankruptcy scenario,
you know, and if that's why you're buying these instruments,
like, well, then that's going to be
what's very important to you.
But if you're looking at this from,
are they credit worthy?
Can they continue to meet their obligations?
And when does that start to become a concern?
You know, the Macaulay duration
may actually play into that
because what you're looking at
the overall asset base relative to the dividend obligations which is the obligation right there's
no principal repayment of the notional by the time you get to the liquidation preference conversation
you're in bankruptcy right so a lot of things have happened already by the time you get there
so in the meantime before you get to that type of a scenario you're really focused on the management
of the dividend obligations and i do think that that's probably the balance it's probably where
the assets come within striking range of the Macaulay duration.
And then you're starting to take more outsized risk relative to the investment.
Because if you're looking at it and the assets match your Macaulay duration,
you're effectively down to being able to break even over that period of time.
Get your money back.
If the assets maintain value over that extended period of time.
Right.
I think that's a good point, Ben.
Yeah.
Maybe the McCullough direction is a lot more important than we're giving a credit for but but that's but that's assuming
BTC flat zero
Completely was like yeah, you have to model your own assumption
You have to model your own assumptions for what you think Bitcoin is gonna do right?
That the whole model around this It why all of these businesses are so polarizing is because everyone has a as their own for what Bitcoin is going to do here over the long duration right You got the bears that say it going to zero and then got the bulls that say you know we one day away
from infinity tomorrow and you're just, reality is going to be somewhere in the middle there. But
that's what ultimately makes these. And what's interesting is you're seeing now billions and
billions of dollars of investor capital being willing to underwrite that risk now.
which is what's been so impressive about the scaling in the preps and the amount of demand
and not you know there's a lot of retail demand on these you know we saw it going through the ipo
and we had a book and there was a heavy amount of retail demand that came through in that ipo
but you're also seeing it on the institutional side you have major institutional holders of
these products as well and you know that that demand is increasing so they're more and more
willing to continue to underwrite Bitcoin as a growing asset here into the future.
And they're willing to allocate capital according to that.
And I think that's a hugely positive sign for the entire space here.
But this discussion about how the market and how these allocators are viewing risk, to
be honest, I'm not even sure this level of discussion has happened yet.
You get into the early days where you've clearly got a buffer.
You're not in a stress situation.
You've got over collateralization.
You have cash reserves.
you're in a pretty solid footing position at the moment. And so the focus really becomes on
the dividend yield and how that can impact your overall portfolio.
If we start to see one of these drawdown events in Bitcoin, where all of a sudden we do see
Bitcoin at the 200 week moving average or something like that, all of a sudden, now you start to see
how people start to shift the risk parameters in real time, which is part of the weird answer here
is there is no singular model at any point in time, right?
It is the risk on risk off model
and it does adjust in real time
based on those market conditions.
And so you start to look at
where does that focus shift,
you know, in a risk off scenario,
then what does the focal point come on?
And as I've, you know, kind of talked myself into it,
I'm starting to like the Macaulay duration match
of the assets as an anchoring point.
I got to play with it more
because I haven't really thought that through all the way yet.
But I like that as an anchoring point
and then it flexes one way or another here.
So I think one of my favorite parts about this discussion
is tying back what we were talking about earlier
is like being digitally native risk.
Like this is digitally native risk.
Okay, that hasn't existed before.
You're not talking about physical risk.
You're talking about underwriting the risk of an asset.
okay, now put yourself in the computer's shoes. I would want to arbitrage any discrepancies in
risk across assets that are similar or slightly different. If you believe you have the model of
risk, you would want to trade in and out of these digitally native risk instruments
where there's opportunity, arbitrage opportunity.
That risk is mispriced in different places,
especially if you have a clean expression of a balance sheet,
like what strategy is putting together here
and our goal at Strive.
So that's an interesting concept, right?
I've talked about this previously.
We've got all these preferred instruments
and the preferred instruments are creating
without infinite trading pairs
where you can calculate risk in real time.
if you come up with a risk calculation
and you think the market is starting to think that way.
And that's, I think, an interesting concept,
an interesting topic.
Mike's here.
I'm going to throw him in as well.
What's up, Mike?
And the...
Oh, the other thing I was thinking about,
and this came up from a conversation with...
It was Udi was trying to call me out on the old Twitter sphere and was saying like, okay, what happens if the price of STRC drops to 50?
Like, okay, well, the price of STRC drops to 50, the yield of it rips to the roof.
They still have two and a half years of dividend coverage.
Are you a buyer?
Are you a buyer of STRC?
That's a good question for you, Dan.
Right?
Like, are you a buyer of STRC at 50?
like if bitcoin price fell the price of sdrc dropped to 50.
yeah i mean i'm just trying to figure out how to lever up on stretch as hard as i can
but not not even then i just mean now because i like the more i think about it to your point like
the less i think the probability of it falling falling that low it quite frankly is especially
with the depth of liquidity that we're seeing now like you know you could in the early days we saw
that dip down to 90 and the volume was you know half on a daily basis of what it is now and so i
think as the volume profile gets more robust and and every month that goes by and those dividends
get paid it's more of kind of a proof of concept uh seasoned issuer profile so i don't know i just
i think you'd want to buy like three times as much stretches triple triple leveraged
I think there's this perception out there because I've heard the term, you know, like bank run and, you know, the infinite spiral of the interest rate.
And I think people forget that the interest rate adjustments are discretionary.
Like while there is a mechanical component to it in terms of how they're tracking the VWAP to figure out, you know, what they're planning to do on the adjustments.
If you get into one of these scenarios where either you've got a black swan event that drags us down 50% again, or you get some weird market correction in these instruments where you see the price flash down, even if the balance sheet hasn't significantly contracted, it doesn't mean that they're going to start spiraling up the interest rates during that time period.
Like an answer can be sit still. Don't have to issue more. Don't have to raise the rates. You've got the flexibility at management discretion to be in a holding pattern in those types of events. And so you don't end up in this position where you're compounding your obligations, which I think there's a misnomer out about there because I've seen a lot of people like, well, if people just drive it down, they'll just have to increase the interest rate to infinity. And then they, you know, they're busted.
So it's the, it's the, that's not real, right?
That's not actually the mechanics of how it works.
And so there's plenty of things to do during times of duress in the market, or even in
just the specific equities where you can control that outcome and manage your assets effectively.
So I think that that narratives is quite overblown on these.
Yeah.
You know, let me chime in here.
So, so Jeff, I think that your response was, was great to Udi.
And the part here is because it seems like people don't understand bonds.
And as bond prices go down, the effective yield goes up.
So let's just assume on STRC, its annual percentage rate is 11%.
If the price goes down to $50 and strategy does not change the yield component at 11% per year,
the effective yield is 22%.
percent. And people are like, which craft did you just use? I'm not a bond guy, but what I do know
is if I could now buy something for 50 bucks and it pays 11%, that 11% was based upon a target
price of between 99 and 101, assume a hundred bucks. So 11% of a hundred bucks is what it pays.
if the price that it's trading at is $50,
strategy, let's assume they just don't change anything.
The effective yield becomes 22 bucks, right?
Because you drop, the price now is half as much.
And I don't know why people don't understand bonds.
On the flip side, if the price was to go to 200,
your effective yield would drop to 5.5, right?
Even though they're still paying 11%,
that's just the way that bonds
and the way the prefs, they work.
And that response that you gave to him was great.
And that's when somebody would say to me, well, now what Ben is saying is if there's
this tail risk that happens, of course, guys, I want you to realize something.
These black swan events, I mean, they happen like every year.
I mean, the yen carry trade, 10, 10, when you had some exchange blow up.
I mean, we get a black swan event every six months.
I don't know.
We seem to keep on surviving it.
But anyway, with that said, I don't know why people don't understand the mechanics.
so i i was i was thinking about this a little bit more too it's like okay if the price of strc went
down to 50 and there's no buyers you know who's a buyer is strategy probably because they sold it at
90 and always buy it back i want to comment on that somebody made this comment that that strc
has a range between $90 and $100, right?
And I'm like, no, this was by design.
The IPO was done at $90 in order to attract those investors to make that difference.
We said, hey, we're going to issue these at $90.
And when it goes up approximately 11%, in addition to the yield,
that's what attracts the investors to go in to create a market for it.
And so the casual observer or on X is like, oh, no, it's trading between 90 and 100.
No, this was by design.
And after a while, it just gets tiresome to report to, you know, to reply to these people
because they didn't do any homework.
And you're like, really?
Am I wrong?
You guys correct me if I'm wrong.
No, no, that was the whole idea behind this.
It's like, oh, my God, they just never heard of, you know, we're going to launch a new
product and we'll do some incentive pricing to get people to see how great it is. In addition to already being
double the typical rate.
By the way, I've been listening to you guys for the past hour.
I think you did a great job.
I'm going to jump into this model here because I tried to break it.
And maybe we'll think through this a little bit because I was working with Matt.
And Matt's CEO of Strive.
He's got an institutional background of fixed income working at CalPERS.
And we came up with this concept and this idea of BTC earnings-driven interest coverage.
It's this sell over here. And what this concept is, is like if you make an assumption on Bitcoin
rate of return, which I've got over here on the left side, I put in here at 20.
What this is doing is if Bitcoin gain is treated as earnings, and if you're taking an average time
horizon of Bitcoin going up to the right, how much are the earnings on your balance sheet
increasing relative to your dividend obligation. And so this is actually a similar framework to
comparing bonds in the traditional market. So you can look at interest coverage ratio. So if you look
at this table here, again, none of this is financial advice, but this is a perspective.
And this is an NYU study that was done in January of 2025. It was looking at large non-financial
service firms and their credit, their relative credit rating, which is this third column here,
based on the interest coverage ratio. Anything at the yellow line and above or below, sorry, is
considered investment grade by rating agencies and anything below the yellow line is considered
junk bond. So what I'm showing here on the on this, this number here, BTC earnings driven interest
coverage for strategy, I've got at 7.03 and this is based on their existing balance sheet.
Okay. This is based on $64 billion in assets, $16.5 billion of notional outstanding. That gets
us to an interest coverage ratio using a Bitcoin annual rate of return assumption of 20%. So if
you're thinking long-term strategy would have on an earnings, their earnings would be seven times
the annual interest obligation. Okay. So where would that map? That would map relative to
non-financial service firms somewhere in the AA category. In terms of large non-financial service
firms, this is interest coverage ratio is pretty much the highest tier investment grade.
Obviously, there's volatility around that, but that's just using a 20% ARR. If I change that
number to 30, let's just change it to 30 for funsies. That number goes from seven to 10.
effectively the balance sheet is growing 10 times or 10x greater than the dividend obligation on the
balance sheet obviously that would be the highest highest grade investment grade so what i tried to
do was i tried to break this i tried to understand how much how much stretch could strategy issue
in order for the BTC earnings-driven interest coverage to drop into the C category,
which is where most high-yield corporate debt is, is the junk bond category. So I'm trying to get
this number down to like 1.5. And so I had to come up with some underlying base assumptions.
And this is tricky, and we can play with this a little bit. So I've got in here in this column,
I could put in additional STRC sold.
And let's just start with $300 billion.
300E9.
Okay.
At $300 billion, thinking of fees of 1%,
strategy would net $297 billion.
And I assumed of this cash that they raised,
they store two and a half years of dividend right off the bat.
Just all of the capital that they bring in,
they're just storing two and a half years of dividend in USD right off the bat. So that means
that of the 300 billion sold, they'd hold 82.5 billion. And then their net to buy Bitcoin would
be 214 billion. Obviously at today's Bitcoin prices, that would be just a ton of Bitcoin,
2.4 million, the price would run. So it's not completely realistic, but the coverage ratios
are still helpful to consider. So the interest, the incremental dividend obligation at that point
in time would go up by $33 billion. They'd have $33 billion of annual interest obligation,
but they're also storing $82 billion of USD off selling the stretch in this example scenario.
I'm not forecasting what they will be doing, but I think this is an interesting concept.
And so at that point in time, they'd have an $84 billion USD reserve.
And they would hold, what is this?
276 billion worth of Bitcoin.
So with a BTC ARR, let's drop this back to 20.
That would bring the BTC earnings driven interest coverage ratio down to two, which would still
be double B plus in this scenario using a 20% BTC ARR.
And that's with Bitcoin at 87,000 where it's at today.
Okay.
So, and that gets them to an amplification ratio of 88%.
All right.
And I think the question that I've been trying to wrap my head around is like, does that
make sense?
Does it make sense to hold USD reserve on any share of STRC sold?
That's an interesting question.
And this is what kind of made me realize also that the USD reserve, like if strategy is going
to maintain a two and a half year USD reserve, and they're going to sell the absolute crap out
of these preferred equity products, that USD reserve is going to grow relatively quickly.
And they're likely going to be a very large continuous purchaser of US treasuries, which
would make them like systemically important because they're continuously buying them.
if they're selling this preferred equity as quickly as we think they may here in the horizon,
if we understand the risk appropriately. And that's an interesting value proposition.
And then another question that comes up here when you're thinking about such a large USD reserve is,
does that impact return of capital dividends? Does that matter? Are the institutions that
buying this, do they even care? And how does that flow through? And I think this is all an
interesting calculus. And the other thing I did is I assumed, let's just assume they issued
$300 billion of this stuff. And they bought, for practical purposes, 2.4 million Bitcoin.
and then the price of Bitcoin immediately falls to $50,000.
And the amplification ratio increases up to 131%.
The earnings-driven interest coverage ratio at that point drops down to 1.38x,
which in this scenario, I think they're starting to approach parity
with high yield corporate debt
with a very large issuance
and effectively two and a half years
of coverage based on the USD reserve.
I guess the BTC rating at that point
would fall below one,
which I think that may potentially be a concern
if the notional value outstanding
is an important statistic.
I don't know.
It's one of the reasons I've landed here is because my past life working in insurance companies, working with insurance companies, insurance companies were leveraged 300%.
They had, they were taking in, they had significantly more risk on their balance sheet than premium dollars that they were taking in annually.
so in like the business model it's like not very sexy right they're making eight percent returns
annually because of the float they're taking the premium they buy an asset and then they pay out
the risk into the future based on actuarial tables and all this other information and
so i was starting to conceptualize like there's a hundred percent plus amplification makes sense
like does that break the model uh and how like how can we start to think about it especially
because it's equity, right? These aren't cliff maturity debt obligations. This is equity. And
is that like, how do we start to think about this stuff? Obviously not a problem that strategy has
to deal with right now. They've issued $8 billion of this stuff and I'm modeling adding 300 billion,
but I think it's a valuable analysis. Based on what metals did, that's a drop in the bucket.
It is. But you know what, Jeff? Strategy already lived through a Black Swan event. It already lived through 2022 and 2023. And the company survived. Everything with Bitcoin, it's like, well, you better get Bitcoin because when the US dollar takes a billion dollars to go buy a bunch of bananas, you're going to need Bitcoin, gold, and lead.
People are like, lead?
Yeah, for bullets.
I mean, it's always that.
With strategy, it's always like, okay, tell me what happens when it goes to bankruptcy.
It's like, okay, what happens if Bitcoin trash retraces 70%?
Okay well that already happened for strategy and they survived it So I think what we keep on hearing with this is that there always some cataclysmic event that about I mean this yen carry trade blowing up
that seems to happen every year now, right? For the past few years. And I'm like,
I don't know, I survived the yen carry trade, not that I participate in it. And it's like these
black swan events keep on coming. When the next black swan event comes? I'm like, I don't know,
you seem to be worried about this a lot. And I wrote a whole article about this,
was hiding in plain sight. The strategy has these three buckets. It has MSTR that it uses to buy the
majority of the Bitcoin that it holds. It has the prefs. And then, so that's two fuel tanks.
And the third fuel tank is the cash. And up until December 1st of last year, their cash holdings was
basically zero. So we're basically seven weeks later, they have two and a quarter billion dollars,
whatever it is, 30 months outstanding. I think that they push that to whatever, 36 months,
48 months of cash, not because they want to. I think they never touch it. And it's just to make
the S&P, the ratings company feel good that they have four years of payments in cash. They could
write a check anytime. And they just say, look, we can make our payments for the next four years
there's a down market okay how many years of cash do you need for a down market in something that
never matures i mean it's not a rhetorical question it's a straight question so all the
modeling you did here it all makes sense i mean if you change this to a more reasonable number
if you say they're just going to do 12 billion dollars a stretch this year so 20 yeah that's 20
billion, right? So one additional piece to add here, Mike, and this is, I was just thinking about-
But scroll down a bit. I want to see where four falls out, 4.1x.
Or it's investment grade, it's A.
Right. And I'm not, that's not a crazy, let's make it more realistic. Say 10 billion.
10 billion. They raised two and a half billion dollars at IPO. So at 10 billion, it puts it at
5.08 by your own calculations and it's it it's you know a2 or higher so that's that's a reasonable
number for them to raise this year 10 billion so so so mike one of the things that i was thinking
about and when i was modeling this wait hold on one second i have never seen this your table before
ever right correct uh if you looked at the sata presentation at the ipo you would have seen it but
but that would be the only time.
It was deep in the presentation.
I did not see it.
Okay.
I'm just admitting, I never saw this before.
Go ahead.
One of the interesting concepts in this is
what I wanted to do was
see if I could create a model that
where like, would you buy the common equity of this company?
Like, let's go back to the extreme example, right?
300E9.
Okay.
Obviously, them acquiring 2.4 million Bitcoin right now
doesn't make a ton of sense.
But just look at the USD numbers, right?
If this company held 277 billion in Bitcoin
and they had an $84 billion USD reserve
and a $33 billion interest liability,
is this a sexy common equity would you like it
you know like i like that that's what i'm that's what i'm trying to wrap my head around
and like this assumption let's go back to the 20 or the the 10 like you were you were talking
about earlier this assumption mike assumes zero common equity dilution so that assumes
is zero additional capital raised on the common stock.
Okay. Is that an interesting model?
Like what does that look like?
And again, you're thinking about credit in isolation,
like on any one individual day, which is difficult.
You have to model this stuff out in scenarios
because the hardest part to model here
is that strategy has access to the common stock ATM
to pay the dividends too.
which it's tricky to model that third component like i think if you look at this business model
in isolation at the margin even if you didn't have access to a common stock atm to pay the dividends
i think the business model as we've shown previously in some past episodes
that business model i think is still pretty interesting like if somebody gave you a bitcoin
today and you had to pay them $11,000, I don't know, $10,000 a year from here on out for the
rest of your life. Actually, Mike, this is a good question for you. I asked this to somebody earlier
this week and I kind of got poo-pooed on. Ben's laughing because he was on the call.
Mike, if you had the ability today to get an interest only loan on a house, but you had to
pay the interest for the rest of your life and you never had to pay the principal back,
would you do it? And it was fixed. Fixed rate for the rest of your life. Boom.
Fixed rate and fixed payments? And the answer to that is yes.
And that might sound like a pretty bad idea, but it's not. And I'll give a good reason for that.
First of all, if it's interest only, you're not paying back any principal. So when you get past
a 15-year mark, it doesn't change. And that always, that interest, as long as in America,
it's deductible. So I have this deduction. So what happens is I'm not paying back the principal
on the house, right? And the dollar gets inflated, right? And Chris said the same thing here also.
So would you do that? Well, sure, because you buy the house for a million dollars, right?
You know, you're in Calgary.
Okay, you buy the house for 500 grand, right?
You know, at 6% interest, I think you end up paying triple the value of the house if
you paid out over 30 years, given about a 6% interest rate.
Somebody can track me on that.
But on this, you think about how long am I, you know, in 30 years from now, I'd be 88
years old.
I'm like, at 88 years old, you know, then I'd have a paid off house.
You know, I'd sell it and give it to my, you know, to the kids.
In this case, what happens to the house after I die?
That might be a viable question.
Yeah, fair.
For the most part, the end of it, the perpetual.
Perpetual.
If you can pass it down, the house and the loan.
Yeah.
And so at that point, the question is that money that you'd put into it.
I'll give you a real world example.
Back in the olden days, the really olden days, 2005,
this was before the 2008 financial crisis or i bought my first house and and it was in san jose
the house was 540 000 the market was kind of weird the interest rate was about six percent
so the dot-com bubble had burst in 2000 and the market kind of went down and so you could do an
interest only loan but what happened was i had money in my ira account which i did not want to
take out and pay any form of taxes on it. And they had a no money down deal. So I had a great job. I
had great income. So I did not take an interest only loan. I took a no money down deal. And what
happened to that house in the olden days in 2005, I sold that house in January of 2018.
and I get I'm in Silicon Valley.
And on that house, the net gain was a shade under $1 million.
Now, I lived in that house for 13 years.
I put money into it and I took a $500,000 deduction.
So 20% on the remaining $400,000 was $80,000.
And people were like, oh, I never make money on a house.
Well, maybe you bought the house in the wrong neighborhood.
Maybe you didn't live in it long enough.
and so I did that and I refinanced it and wait you want to hear the craziest part about this
Jeff this was the craziest part about this in the old days so it was a no money down deal
but I'd have to pay right it was a no money down deal and I'd have to pay PMI so my loan broker
said dude you don't want to pay PMI and I'm like no I don't and he goes he says me oh I'll get you
out of this, no problem. And I'm like, tell me how. He goes, we'll finance the house for 540 grand
with a $400,000 primary loan, no money down with $140,000 home equity loan.
The HELOC, so you had a double.
The HELOC.
So that became the 20% down. And I said, and so I didn't have to pay PMI. And this was all legal.
This is in America, in California.
I did that in 21.
Right.
Yeah.
Right.
I did the same thing.
Yeah. And so I said to them, I said, wait a second, I'm taking even more risk and you got me out of paying PMI. And the guy goes like this to me.
Don't tell anybody. And you did this in 2021.
I did it in 21. Yeah.
After the great financial crisis, it's like, oh my God. And people are like, oh, I never heard this before. Well, talk to somebody that's done it before. I didn't know that it existed. Wow.
I did 10% down and I took 10% HELOC, which got me to the 20% threshold so I could get into a conforming loan.
So I didn't have PMI, but it was like same concept, but it wasn't zero down.
No, but so the point here is this, is that when anybody ever makes the claim, oh, strategy or strive or any Bitcoin, they're just doing financial engineering.
Like what?
Yeah.
everybody if you're not doing financial engineering then you're not playing the game
you know hate the game not the player i i didn define these rules 100 some somebody wanted me to plug in a trillion here so i gonna do that 2012 guys guys I got to jump off a little earlier tonight All right Later Dan See you Dan Um
even if you plug in a trillion here, like, uh,
if they sold a trillion of SDRC and they held two
and a half years of cash back, obviously like these numbers don't make sense.
Like Bitcoin would have to go nuclear higher.
They're not able to acquire 8 billion, 8 million of Bitcoin, um,
at $88,000, it's just impossible.
Yeah.
But like you look at the interest coverage,
like that concept is just like, it's still,
this is where I was like trying to wrap my head around,
like does parity even exist?
Like does parity between high yield corporate debt
and digital credit?
I think there's actually a gap between digital credit
and high yield corporate debt that like,
I don't think there's an amplification number.
maybe it's like 200 maybe it's 300 where like that like there's actual there's actual parity
there that was the uh game i was trying to work through you brought up another interesting
question earlier jeff and i'd be curious everyone's response to this say strategy lost rock status
right oh yeah you've got this massive reserve they're generating too much income off of it
or they you know can't find ways to neutralize it what percentage of the demand for call it stretch
do you think goes away
i i don't think it changes i don't think i don't think it changes i don't think it changes because
even like i'm we're talking about we're talking about risk i'm trying to break the risk model i'm
trying to break strategies risk model here and i'm like cranking i'm like cranking it as hard as i can
and i'm like this risk still still looks better than high yield corporate debt like on a relative
basis i mean who knows how this thing would trade like maybe it's more volatile maybe not i don't
know it might be so liquid at that point if there's 300 billion of this stuff outstanding like
Like I, I, I just, it's just so far, like the, the relative return for the risk profile
of it is so far.
Like even if there isn't rock status, like you get qualified dividends, it still beats
everything.
Yeah.
Rock just seems like gravy.
It's like not the primary, but then people were saying, oh, and it's rock.
Like what?
And it's rock.
Well, it's interesting, right?
I mean, ROC is a really interesting feature if you're an individual holding it in a taxable account.
Then it's a massive benefit.
But if you're an individual holding it in a retirement account or you're an institution,
like maybe you're a hedge fund and at the hedge fund level, you're not paying the taxes.
So maybe it matters to some of your investors if it's passed through from there.
But for a lot of the other institutions that are running pensions and endowments and all these other things, they're tax exempt anyways. So there's not really a rock benefit to them. And so the question really becomes what percentage of the demand is coming through retail brokerage accounts that are taxable.
And that could also be coming through like the FA channel as well, right? People with financial advisors and they're managing the accounts. That's probably where some of those taxable accounts would sit. But what percentage of the demand is that cohort of investors?
And so while I think if it came to the point where they lost the Rockstat as there would initially be a big uproar, but I agree, I don't actually think it would really dampen the demand at all because I think that these products are so unique and so attractive.
Even just the yields they're paying out, it's higher than the average S&P 500 return.
And so it's already an attractive instrument. So I just don't think it draws down that much.
I used to think very differently. I used to think there would be this massive outrage and there'd be
this huge period of time where all of a sudden you'd see this wild volatility in it because
everyone would be rethinking the product. But then I had to really get down to, well,
what percentage of these investors get that benefit? And I think it's a lot smaller than
people would expect. I don't know if it's 3%, 2%. I don't know, but I'm guessing it's small
because there's such a huge amount of institutional ownership in these products. And that's not really
a consideration for them. Ben, I'll give you a point here. Look, with all the stable coins that
are coming out and the purpose of the Clarity Act, what I believe is that they want the stable coins
to be able to pay some form of yield to people that hold the stable coins.
I have not checked on this and I could type it in right now into AI,
but I would guess right now that those dividends that will be paid on a stable coin will not be rock.
Yeah, probably.
Probably.
So, yeah, so we got 10 minutes left.
I just wanted to cover up the last few things here.
You know, I joined late.
Look, I think this analysis is great.
But what I've witnessed over the past couple of weeks is that people are still struggling
with FASB fair value accounting.
Okay.
So-
Was it 2024?
Yeah.
And it went into effect January 1st of 2025.
You could have done it January 1st of 2024, but now it's two years later and I get on
calls and people consistently don't know this.
And so for the people on here, I just want to say this real quickly.
it doesn't matter what Bitcoin treasury company you are, who has it, the 12, you know, at 12 PM,
you know, sorry, 12 at night, 1159, 59 seconds, the price of Bitcoin at the end of the quarter.
And then at the end of the quarter, if the price of Bitcoin is higher, it's positive, you know,
from the starting price, or if it's lower, it's a loss. That is the same for all Bitcoin. If it's
even, it's even. Same for all Bitcoin treasury company. It's not the total amount of Bitcoin
you bought with your average price and the difference between the two, it works each
quarter and it resets.
You guys all agree?
Yep.
Right.
And then if it's, so people were, so originally the Black Swan event last year at Strategies
event was, oh, so they implement FASB, they have positive EPS, they never sell the Bitcoin.
Oh my God, that's going to trigger corporate alternative minimum tax.
We were all sitting there. We're like, we want to talk to the accountants to get an answer on it.
And then whatever. Yeah. Last May, we were all over it.
Yeah. Everybody's like, this is horrible. They don't even sell the Bitcoin.
They got to pay taxes on it, even though the EPS is positive.
Well, then it comes out. And this is the important part. FASB is used for GAAP accounting.
IRS is taxes. FASB and GAAP, IRS over here, two separate groups.
and the IRS comes treatment says, no, if you don't sell it, even if it's positive EPS,
it's not taxable. And strategy says this. Even to this day, people are like, so if I said about,
you know what CAM is? You know, C-A-M-T? Yeah. Okay. Now reconstruct that back to me.
I don't want to destabilize people on a phone call. I don't have time to listen to somebody
fump for over this. And so I just say it directly to him. This is what it means.
And I had a guy fighting me on this.
Oh, they got to sell the Bitcoin in order for it to be positive EPS.
I go, no.
He's like, yes, it does.
I said, then you did not pay attention.
And so, Jeff, what you've shown in this chart right over here, and this is the fault that
we hear, oh, we're a bunch of podcasters, don't know what we're talking about.
Okay, you go produce your Excel spreadsheet with your analysis and take me through it.
And they never do it.
And so my takeaway with this, with everybody, is that I love talking about this.
And I saw Dana's comment in the spaces.
You guys get out of paying PMI and how to pay it.
If the person you're talking to, financial advisor, your doctor, your lawyer,
if they don't know something, they can't tell you anything about it because they don't know about it.
If they do know about it, if your real estate broker, your mortgage broker,
knows about how to get out of paying PMI,
then they have the opportunity to present that to the option to do that.
If they don't know about it, they can't present it.
And everybody's like, well, this guy's been doing the job for 20, 30 years.
He might not know, you know, that person might not know squat.
And so listening to on these spaces,
there's a lot of people that don't know squat.
And after a while, I can't call them out,
but I just wanted to wrap up with this, that I think that, you know,
you guys do a great job.
I listened to you guys here for, you know, an hour and a half before I joined.
and you know and i just the last thing that came up was this it came up again today with jameson
lopp it's like strategy doesn't doesn't you know post the proof of reserves i'm like for god's
sakes we went through this in may of last year sailor talked about it and i had this invention
i don't know if you guys know about it it's called the google type in sailor proof of reserves
wow there's the article there's sailor and said why he doesn't want to do proof of reserves it's
the google not even ai it took me one second to do that then i used ai and i said look at all the
sec filings and tell me how they handle their custodians and i found that that took like yeah
you get custody information i mean it tells you everything i said here's the filing the pay it's
58 pages it's like amazing that i can screenshot it and send it to the person when i start to do it
took me like three minutes.
Look, I don't want everybody to say that AI is so great
and then they don't know how to use AI or Google.
You can't have both.
You just can Oh AI is so easy to use but I don know how to use it You can tell I a little fired up But anyway wrapping down here Well I mean like you think about 700 coins you like holy shit billion
It's crazy.
It's a lot of coins.
But it's what, three and a half percent?
Right.
So like historically, a lot of people have been selling Bitcoin that have been in Bitcoin for a very long time.
You've got that switching hands.
It's changing over to corporations.
Corporations are accelerating.
They're buying more. Tyler's buying more. And it's moving from these people that were founders
in Bitcoin and how Bitcoin's evolved into corporations that are going to hold this for
the long run. And I mean, that's frustrating to a lot of people, especially people that
have been in this for a long time. But yeah, we're getting down here. We got seven minutes.
Let's pass it around. Let's do final thoughts. I mean, Soleil, you've been observing everything
going on here. What's on your mind? Final thoughts, pass it around. I'm going to go back to
the gold bugs, you know, slow clap for those guys. It only took you 20 years to be able to dunk
on everyone else. But the whole, you know, Bitcoin has no utility value isn't the dunk
that they think it is. The lack of utility value is a feature, not a bug with Bitcoin.
Utility value is a market distortion for its store of value price,
and the store of value is a distortion for its utility value.
So you really don't want these market interferences messing with the price of your store of value.
There's people saying conspiracy theories that it's been manipulated and held down and things like that.
And so you really just don't want supply and demand on something that may or may not be used in a computer chip or not. And so Bitcoin is the solution for that as well.
Absolutely.
I think the utility value of being able to transfer value between two parties with no middleman is perhaps one of the most important utilities on earth.
So, you know, they just don't know it yet.
But that utility value alone is going to be massive.
Right.
Yeah, for sure.
I've had so many experiences this week that show me how powerful it is to be able to send value from one entity to the other entity and just have them get it.
I can't tell you how frustrating a couple of months have been working through the rails.
I've never been less bullish on tokenization and all this other stuff that's happening at the back.
I mean, I've had some really, not something to get into here, but I've had some really enlightening experiences now that let me realize just how nice it is for me to be able to send something to one person and they just receive it with nobody in the middle there.
It's pretty beautiful.
I'll just keep rolling here, Jeff, with mine.
And we're not going to have enough time to talk about this.
But, you know, one of the topics that I've really been focusing on a lot is liquidity.
And I think that a lot of investors are skipping what the real measure of demand is in an equity.
I think they look at the price always and they assume that's the demand, right?
If the price is low, demand must be low.
And when you start looking across the sector and you start comparing the volume profiles
of the securities that are trading, you see massive discrepancies.
And the reason why, if there was no demand for MSTR,
strategy wouldn't be able to issue on the ATM.
The volumes wouldn't be so incredible out there.
That product is trading.
There is massive demand.
It's exchanging hands all day long, tons of it.
When you look across the sector, it's not the same everywhere.
It's only certain pockets where you see massive demand. Same thing in the prefs, right? You can
look at the volume demand across the various prefs and you can see where that demand is. And I think
people often equate price with demand. And I think that's a mistake because when you look at
companies like treasury companies, one of the really enlightening moments for me when I started
looking at these, and it's obviously helpful to be on the inside when you're hyper-focusing on
some of these things is you realize that that liquidity is your velocity metric.
It shows you how fast these companies are going to be able to raise capital and acquire Bitcoin
and generate yield and build up that nav floor and build up that Bitcoin exposure.
And you can be as excited as you want about individual entities, but if the stock doesn't
trade and that's one of the products they're selling into the market to raise that capital
is that equity is that amplified exposure you know the difference between trading a million dollars
a day and a hundred million dollars a day if you were to raise capital at a you know
three percent clip is massive and it compounds throughout time if that disparity stands so
just something to focus on. I think that we should deep dive into that here at some point,
because I don't think people really have grasped how critical that component of it is.
Price is going to oscillate, but the real measure of demand is the volume that's out there. So
food for thought. We'll pick that up again later. It's a long conversation.
So strategy's market cap as of today is about like 55 billion, something like that,
but it traded 2.2 billion of stock.
Yeah.
So it turned over.
There's no demand.
Liquidity would dry up.
Yeah,
exactly.
It wouldn't continue to be elevated and expand.
Yeah.
We'll pick it up again.
Another week.
Liquidity,
liquidity,
liquidity.
You can't get Chick-fil-A on Sunday,
but you can get Bitcoin.
True.
Hey,
can I wrap up with one last thing on silver?
Yeah.
Let me share my screen.
Let me share this window here.
Let's see if I got this working.
There it is, yeah.
So this is silver here.
This is a monthly chart on TradingView.
The yellow line is the 200 average,
and the whitish line is the 50 moving average.
And you can see that here, 50 and the 200.
So I'm going to do this line right here.
That is January of 1980.
Okay, so that's the Hunt Brothers.
Okay, then what happened was silver spiked over here, which is May of 2011.
So let me do the math.
80, 90, 2011.
and 11. It took 31 years and it barely broke the all-time high. They're like, wow,
that's a long time to wait. 31 years. Bag holder. It's a big bag holder.
That's a big bag. Then you got from 2011. Now I'm not that good with math, but I think we're in
2026. And so what happens is this over here is it then took another 15 years for it finally to
break the 2011 all-time high and to beat the 2011, sorry, to beat the 1980 all-time high and then the
2011. So you know what? The people that are in silver, you are much better at hodling than I am
silver for that amount of time from the Hunt brothers. I get it. You bought it and you waited.
Even if you bought in 2000 after the, you know, right after the dot-com bubble burst, you had a
good run for 11 years. But if you look at the price then that happened from that bottom in 2002,
it was four bucks and it did 10X. That's a good run. But if you didn't time it right,
what you would have is the exact same bellyaching that we hear all the time. It's like, oh,
you bought it at the top. You were the exit liquidity for everybody else.
And so when somebody says to me, you know, the silver people take a victory lap.
By the way, what you see in there on the monthly, the RSI is at 95.
I could tell you that this typically bubbles, it's really hard for them to last more than three to four months.
And that's the longest, typically, whatever, 12 to 16 weeks.
And that's long.
In a Bitcoin space, it's usually about 12 weeks.
but can silver go to a big number?
Could it double from here?
Yeah.
You know what I'm doing?
I'm not shorting it and I'm not buying it.
Okay.
I'm not doing E.
I'm just going to sit there on the side and watch this.
Ben would be selling you the covered calls on it.
Yeah.
Ben's capable of trading this.
I'm not.
I'm just going to watch this on the sidelines.
And when it's going to crash,
you're going to hear the exact same thing we hear from the Bitcoin people.
When's it going to retake the all-time high again
so I can recover because I bought the top
But now I got to wait.
What do you mean?
I got to wait 15 years for it to retake the all time high again.
That's terrible.
The inflation adjusted all time high.
It was in the Hunt Brothers 1980.
So you're really looking at like 46 year huddle.
If you bought the top.
I was waiting for you to say that.
So this was not this.
I could do it versus M2 or something.
And then the numbers would look horrible.
They look bad.
Right.
So, you know, you know, given right now to, you know, to wrap up with this, you know,
So,
I was pretty busy today, but I'm looking at this.
You know, given, you know, the way I look at strategy right now, you know, am I happy with the price?
Not really.
You know, it's trading at, you know, $1,580.
So for me, I'm like, eh, you know, $1580.
Right.
I'm pretty good.
And so with that, that's all I had to cover tonight.
But, hey, you guys did a great job.
I just wanted to jump in at the end.
Perfect.
Yeah, my final thoughts are the world is getting far more digital.
We're seeing it everywhere you look.
Every corner you turn, you're seeing different AI use cases.
You're seeing different bots.
You're questioning what's real.
People aren't using Photoshop anymore.
Everything's going to AI.
The whole world's changing and moving really quickly.
And it's going to hit finance.
It will absolutely hit finance.
It will absolutely hit asset prices.
When, I don't know, it takes time for this stuff to transition and move, but you think about how
quickly the world changed with computers hitting the scenes, like in the 2000s,
in the equity markets, you had a flood of all of these companies that were trying to move as
close as possible to the New York Stock Exchange so they can get the information a split second
and faster in their computers so they can make a micro transaction and catch a
trade in between an actual transaction in between a trade.
And like that you know moved faster and faster So you got high frequency trading is exploding Algorithmic trading is exploding And that really started with the equity market And now with the advent of these digital credit instruments and algorithmic possibilities risk can be calculated and
transacted quickly. And I look forward to a world where a lot more of these companies have Bitcoin
denominated digital credit products where you've got a Bitcoin balance sheet and your business
is a function of like how that Bitcoin balance sheet grows and then issuing credit products,
then all of that risk can be traded in real time, near real time, just like the equity market,
which should foster liquidity. It should foster less risk in the entire bond market. It should
foster better cost of capital for any businesses. There's so much that can be built by
integrating all of these things into the equity world. So I think the world is going to be an
exciting place. I'm an optimist. So I think the world is going to be an exciting place to live in,
assuming these things get integrated and gold doesn't just keep ripping faces off and become
the new monetary order and everybody has to report to Peter Schiff. That would suck.
So anyway, that's my final thoughts. Appreciate the time, everybody. Two hours and five minutes.
thanks for watching we will see you next week in come to strategy world uh if you if you're
attending grab a ticket we'd love to see you there meet you in person i think it's going to be a
great time a lot of alpha uh and please like and subscribe apparently uh my team told me that helps
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