I'm blind to you, haters
Try and touch me while I instigate us
Miss every busy love
Ask your only world I run so
Said I'm blind to you
Haters
Your thoughts be ruined my creators
Me say baby's in love
Fly, fly
Hey, ask you how the world around south
When things stop a path
Them a smile and a laugh
Them all the love we see you fall by the real side
Them all a dig up your past
Pray for you don't fall past
Them trigger mode from blast like them nana pride
Blessed love to do them
Welcome back.
We are back.
True North episode 32.
We are going to get after it.
We're going to have a good time today.
We're going to talk about credit markets and we are going to have some fun.
We've got the crew.
I'm in a new location.
I'm trying to get my stuff figured out here.
And here we are.
There's the crew.
All right, tonight we've got Soleil, myself, Dan, Hillary and Adrian.
The crew is back.
I'm in a new spot.
I've got a virtual digital basement background.
So we're back into it.
I got made fun of for my NFT the other day or earlier today, which is fun.
If you're not looking at all of the different technology, I think you're missing something there.
So I wear it as a badge of honor that I had my shitcoin phase.
So here we are, and we are going to get into it.
So today we are going to talk about MSTR leverage update and a Q3 update.
So $14 billion fair value appreciation in Q2.
We're going to talk about convertible preferred equity.
We're going to do a deep dive and jump into it, have some fun.
Theoretical preferred equity ceilings.
Soleil's got some good background and information on that.
It's something he's been talking about a decent amount.
The market landscape and the architecture.
Just talk generally about the broad equity market architecture, these different landscapes,
different countries, different systems and how they work and think through it and how
the implications for all of these equities.
Talk a little bit about the S&P 500 debate.
We made a lot of noise about it at the end of Q2, but I don't know if you noticed, it's
been exceptionally quiet since then.
And I think it will be exceptionally quiet until we get into August.
and if there's any time left over, we'll just shoot the shit and we'll keep going.
So thank you to anybody that's here. If this is your first time, the MSTR, or we're just calling
it True North now, True North, the investment grade Bitcoin podcast. We're here talking about
Bitcoin treasury companies, primarily strategy and the changing landscape of the equity market
with these new companies that are issuing equity, issuing debt and how they're
they're accretively adding Bitcoin to their balance sheet.
So our goal is to educate the market,
talk about everything that's going on,
talk about what people are talking about on X online
and think through the education of all these different systems
and with different backgrounds and different perspectives.
So, sometimes it may be a little bit more controversial
than others and sometimes we will talk about quantum computing
for 25 minutes and go down rabbit holes.
So we're here to have some fun.
All right. Well, with that said, I think it's time to jump into leverage update. What do you guys think?
Yes. Let's talk leverage.
The whole game these days, capital stack.
Capital stack and leverage. There's a reason we go over this every single week, and it's because it's basically the most important part of a Bitcoin treasury company's balance sheet.
So here you can see the leverage.
So this is MSTR's financial leverage.
And, you know, when you think about when you think about how a corporation is managing their portfolio, you've got assets, you've got debt, you've got liabilities, and you've got to think about these things on different horizons.
You've got to think about the risks that you may foresee at any point, any point in time.
And it's very similar, like managing a Bitcoin treasury is very similar to managing an insurance company balance sheet.
And I'm surprised there's not more insurance people here in this landscape because it's very similar correlations.
You've got liabilities on the horizon and you've got assets that you need to match to those liabilities on the horizon and make some money on the spread in between.
And now with the Bitcoin balance sheet, it's just your asset is just much more powerful and your
liabilities are much smaller because you got to take into consideration the volatility of the
underlying asset that you hold. So my background has played exceptionally well into this space and
understanding the leverage of a balance sheet and managing a whole capital portfolio. So looking at
strategy's balance sheet, which we're focusing on strategy because it's the largest, right? It's the
largest by more than 10X. I think they've got 11 times more Bitcoin held on balance sheet than
anybody else. The amount of Bitcoin they held at as of today, 7.9 is 597,325. Bitcoin price,
I think was around 111,000. We are cooking up. We are near all time highs. Hopefully we can hit one
here during our show and stream. That will be fun. We've done that a couple of times.
And so strategy is now sitting on $66 billion worth of assets, $8.2 billion worth of debt,
$3.4 billion of preferred stock. So if you think about the net capital held on balance sheet,
it's about $54 billion, which is a very, very powerful balance sheet, right? You think about
$54 billion, it's kind of easy to shirk it off and say it's similar to $54 million. No,
So $54 billion is so much money.
It's $100 million, 540 times.
It's just so much capital.
It's like hard to comprehend.
And that capital number can grow exponentially quickly
and can start becoming vastly larger,
which makes them more powerful into the market.
You think about size and scale here, $54 billion.
that's like around the 180, 190th largest company by market cap.
If you think about just the net capital that they hold on balance sheet is powerful in and of itself.
So the leverage ratio sitting at 17.5% leverage ratio.
So the price of Bitcoin, so the credit rating for the balance sheet is 5.7X.
So that's the debt coverage multiple.
How many assets do you have relative to your debt?
So this is, think of the BTC rating and the BTC price needed for assets to be worth less than the liabilities.
So in order for strategies, assets to be worth less than the debt or the liabilities that they have on the balance sheet, the price of Bitcoin needs to go down to $19,465.
I think the probability of that is incredibly low.
Just given that we're a $2 trillion asset, you're talking about a $2 trillion asset going down to a $200 billion asset.
I think that math is right.
Maybe a $400 billion asset, something like that.
So significant drawdown, 82%. Looking on this next column, this pro forma basis,
this is subtracting out the $3 billion of debt that they've got currently trading as equity in
the market. Effectively, this is the $3 billion of convertible debt that's so far in the money,
it's very close to, it's basically trading as if it's equity in the market because it's so deep in
the money. There will be a point in time where that debt will be called away and that debt will
be cleared off the balance sheet and converted into equity. This is not a dilution moment because
that debt that will be converted into equity is likely very fully hedged out via short positions.
So when that debt is closed out, it's likely that there will be a canceling out of short positions
and canceling out of equity, which is kind of a net zero impact on the company valuation. But
who knows exactly how that will play out? But I think that's effectively the buyers that have
purchased this at the very beginning were convertible debt arbitragers. And I think that
the majority of them are using those tools to manage the balance sheet.
Okay. Any questions? You guys have anything to add on that? I mean, $66 billion of capital. I mean,
we are cooking here. If you look at the beginning of the year, it's $41 billion of capital.
And I mean, hell, they've increased their Bitcoin held on balance sheet by 150,000.
we might need to go back and see who's closest here. We're halfway through the year, right?
What were our guesses at the very beginning? Yeah, I know. I've been thinking about those
guesses for a while. They're, let's see here. They're here.
They're applicable to the Bitcoin treasury landscape. So I remember in November,
we were forward projecting the BTC yield as a function of equity dilution or creative dilution
and taking in the Bitcoin on the balance sheet.
And I personally expected that the ATM accretive dilution
would be able to continue into perpetuity
or at least at just a slightly lower rate
throughout the rest of the year.
And I was completely wrong about that.
And that's something we're seeing
in a lot of Bitcoin treasury companies
is this idea that you can continue exponential accretion
of Bitcoin per share as market cap continues to expand.
And the one thing we've learned from strategy
is that you can't.
As the market cap continues to expand
and as it gets larger and larger
and the equity is bigger and bigger, you can't just issue equity and buy Bitcoin and have
the same effect on Bitcoin yield and have the market still demand that equity over a
long period of time.
So you can't just project out historical looking Bitcoin yield forever into the future.
Yeah, there's like an economies of scale thing.
Yeah, base effect math, whatever you call it.
And it makes sense because the ATM is dependent upon the sentiment and the MNAV, right? So sentiment is going to waver and there's no way to project into the future what sentiment will do. So I think that all kind of aligns mathematically and from a common sense standpoint, at least in my view.
Yeah, exactly. And ATM, the ability to ATM and do a creative dilution is a function of
demand for the equity. And as the equity becomes larger and larger, and the yield has to drop
because of the assets being larger on the balance sheet, the demand for the equity will potentially
slow, especially during periods of low sentiment, like Adrian's saying. So there's just a lot of
factors and independent variables at play here. For me, the most important thing is sentiment.
I think everything is downstream from sentiment in terms of the price, because that's going to
drive most of the multiple. It's all about perception and subjective market psychology,
really, with a lot of the demand that comes to equity.
Well, maybe on some of the smaller, you know, less well-known ones, right? And you got to think
about everybody that's on X following all this stuff right now. Like all of these seem well-known,
right? Smarter Web Company, AltBG, Metaplanet. Go talk to anybody about, like, go walk into your
grocery store and ask anybody if they've seen what, you know, the price of SmarterWeb did today.
like you know so nobody's going to get it but i think on a on a larger scale you have more people
that are paying attention to this because it has a bigger impact on the other components that are
in their portfolio that you know like qqq or um any of these other things i i played golf this
weekend and uh it was funny i i uh the guy i was paired up with i told him i uh you know i talk
about bitcoin a little bit and he's like oh have you heard this company strategy i'm like yeah i
know it. I know that company. And, but yeah, and so, you know, that's, that's the first company
that comes to mind, right? It's not, it's not any of these other companies. And I think that
because of strategy size and scale, they will continue to be that kind of household name.
And they, they will be, they will be the one that everybody knows of. And these other companies
will be a little bit smaller. So Adrian, what I'm getting at here is that sentiment
that retail sentiment will probably drive valuation of the smaller ones a lot more than
some of the much bigger ones. People think that, why is the stock going down? It's because a bunch
of people are mad on Twitter. No, that's not the reason. We're talking about a stock that has
billions and billions and billions of dollars that are traded every day. That's not retail.
Those are computers. Those are computers that are trading back and forth consistently.
I completely agree. And the other thing I think that's really important is this idea
that like when we got involved in strategy or when I got involved in strategy and MSTR,
I looked at it as a leveraged Bitcoin equity. The key point being that there's leverage
in the capital stack. Because strategy at the time wasn't ATM-ing that much. There was
very little ATM. They had a lot of outstanding convertible debt. They had senior secured
debt. And what that created was a leveraged balance sheet that created that kind of exposure
and leveraged exposure to Bitcoin. And now everything is just BTC yield over a short
period of time because of equity issuance. So I think people have kind of conflated those two
things and having leverage in the balance sheet is one thing. And then having Bitcoin yields,
another thing. And obviously they're kind of similar, but they're also different. And it's
interesting to think. That's an important clarification. Yeah, right. There's this
component of leverage that's important in insurance. And again, a lot of similarities
here to Bitcoin treasury companies and insurance companies. There's this concept of, well, it's
called combined ratio, right? So if you take premium in the door and you pay out claims
throughout the year, and at the end of the year, you get judged on how much loss you
have relative to the premium, how much premium you have. And so your loss ratio or combined
ratio, let's just say it's a 70%. It means 70% of 70 cents on the dollar of every dollar you brought
in the door, you had loss, but you've got a 30% profit for the year. Most people would think that
looks really good. But if you were a seasoned professional in the insurance industry, you would
say you left money on the table. You should have taken on more risk. And you should have levered
your balance sheet more and taken more premium in and taken more leverage on, taking more risk on.
So that's kind of a concept of leverage is helpful in some capacity in a competitive marketplace.
Yeah, well, Metaplanet changed the landscape, right?
Well, first, I think it was the 42 plan for MSTR.
Because that was a departure from what we had seen in the traditional very low ATM issuance,
high convertible debt leverage ratio in the capital stack.
covering the convertible debt coupons via actual business free cash flow.
That was the structure we had seen prior to the 42 plan.
Then the 42 plan came and we saw the equity issuance.
We saw obviously it transitioned into fixed income issuance, preferred issuance.
And then we got MetaPlanet which was strictly some leverage mostly equity issuance because of the demand for a Bitcoin exposure in Japan So now everyone thinking Bitcoin yield Bitcoin yield equity demand
equity demand. But strategy wasn't like that. It was all about leverage in the capital structure
at the beginning. And so I think people are forgetting that that's how this all played out.
It's all about leverage. It's all about Bitcoin leverage.
Intelligent leverage, managing your leverage with foresight of volatility.
Yeah, exactly. Yep, exactly. Especially in the case of strategy. And that's the other part
people are forgetting. It's like all their debt was covered by their free cashflow from their
operating business nine months ago, nine months ago. That was not long. And so now we're talking
about press. We're talking about arbing CAGRs for Bitcoin. Nine months ago, we didn't even know
what the Bitcoin CAGRs. People thought it was going to a million in like five minutes.
So people weren't even talking about CAGR, right? So now we're talking about arbing the CAGRs,
preferred stock. So everything's changed. It's very interesting to be part of.
Yeah. Landscape. Landscape is changing. It's evolving for sure. Very fast. You know,
we were talking about it today. It's like a year in Bitcoin or crypto is like dog years.
It might even be longer than that. Right. It's like you go one year here. It's like seven years.
Everything happens so fast. It's pretty crazy. Okay. So let's just look at who is closest here.
597,000 minus 446,000. All right. So 150,000 Bitcoin added on the balance sheet in the first
six months and let's see where we're at that was estimates over here and so when they started
um btc msdr holdings as of 12 31 24 is 446 000 and basically we're halfway there we're uh if you
add 150 000 to what they got right now if they just did exactly what they did in h1 dan i think
you're you might be the closest here yeah i don't think we're gonna get there you don't think we're
gonna get there it's gonna piss me off of new york ross which it gets the gets that because it wasn't
he's just a commenter like it's just a comment he's just like threw one out there yeah he just
nails it like right on the nose and we're all yeah well dan let's think about it we've seen
all it depends how much how significant the demand for strike is in my opinion it all comes down to
the strike atm because i think strategy knows they can't use the common atm in the same way they have
in the past because of the introduction of other leveraged bitcoin equities in the market and
because they understand now so think about this this is a really important there's something i've
been thinking about a lot i'm not sure if uh you guys will think it's correct but let's say so like
uh buffett famously said he'll issue shares when the company's trading above the the um what he
believes to be the fair value of the company, right? He'll sell equity at above the fair value.
Well, if now strategy is a Bitcoin refinery and they have these operations that are the USD premium
versus the Bitcoin premium and are issuing preferred equity, then the value of the company can't be one
MNAV. It has to be one MNAV plus the value of these operations. So I think it would actually
be in strategy's best interest to not sell equity at anything below maybe two MNAV or 2.5 or three,
whatever they believe to be the fair value of those Bitcoin treasury operations.
So I think they will have to actually slow down the ATM issuance of the common and use the press.
And the press, I think, will still take time to ramp up. And I don't think we'll get to those
crazy Bitcoin price targets that I predicted at the beginning of the year.
Well, so I've got two, I've got a couple of perspectives on this or theories.
I think you're going to be surprised, Dan. I'm hoping. It's not just hoping. I do think the S&P
500 catalyst can provide some significant energy into the MSDR stock, which could provide significant
ability to capitalize via ATM. And you think back to where we were in November, right? And I know we
talked about this a little bit earlier, and maybe we disagree on this, but there was a catalyst in
November where strategy raised $17 billion in 45 days, right? $17 billion in 45 days. There are two
things that happened. You had a presidential election and you had QQQ front running. In my
opinion, there was a, there was a period of time in mid-October where strategy passed the threshold
of $40 billion to be potentially included in QQQ. And, and it became evident that there was very
highly likely that they'd be included in QQQ. So I think we saw front running in pretty much
all of November and they had the instruments in play, the capital plan in play in order to
capitalize on that capital that's coming in the door. Agree with all those points. Yeah. Thank you,
Dan. So, you know, there's two things, right? A lot of people say, oh, it was the presidential
election. Well, it's like, yeah, it's the presidential election, but the presidential
election doesn't cause $17 billion to come in the door on a single stock, right? I think there was
some component of that. I would argue a large portion of that, probably 80%, that was a function
of QQQ, this capital that's coming in the door. And 100%, 100%. So I guess the real question is,
has S&P 500 already been front run? Was it front run back in February of last year,
when they passed the threshold of $14 billion to potentially be included, but we knew that the
earnings weren't going to be there until they adopted FASB fair value accounting in
2025. I don't know. I don't know.
Yeah. And I think it's a function of market fair value, right? I don't know. I just think about
the incentives of the people in play and the thing that's nerve wracking for me, not nerve
wracking, but I'll just be, I'm not a bear here, but I'll think about it. If the MF rips to three
or four, and we start getting these massive billion dollar, 2 billion, 3 billion, 4 billion
dollar weekly ATM sales, I think strategy perfectly capitalized on this new opportunity,
which they were able to see in the market that never had happened before.
The amount of demand for their stock, the NASDAQ front running, all of that.
And they capitalized it and captured the gain in Bitcoin per share.
But I don't think that opportunity will present itself in the future because the market is
now aware of the implications of such behavior in the short term but i think it makes it a little
difficult moving forward and they'll have to be more diplomatic with the way they issue that that
common equity at right yeah it's it's i mean who knows right it's tricky right every every dollar
that they bring in the door on mstr let's just say there's a ton of energy if they're doing a
t-wop v-wop sort of situation and they're able to t-wop v-wop t-wop yeah they just fetty wop the
atm the mstr atm in there and uh if they're in a situation where they have the opportunity to
raise i mean what you've got 18 billion dollars left on the atm uh here on mstr they raised 17
billion in 45 days and i think over like 20 25 billion in uh 100 days something like that so
So if you think of the scale and if a similar type scenario happens with S&P 500, which could happen, I'm not guaranteeing it's happening.
It could happen.
There could be a significant amount of capital and energy that's coming into the stock really quickly.
And you'd want to capitalize on that because that gives you so much more power to issue more prefs.
Right?
Because that's instant capital held on balance sheet that improves your leverage ratio and improves the credit rating, BTC rating of all the other instruments that you could offer.
So instantly, this is what they, all of these instruments are so synergistic, right?
Like you use the MSDR ATM.
It's like, great.
Now I could go issue more of these because the technical theoretical credit rating should
be improving, right?
If, if they're using the MSDR ATM and they're buying Bitcoin, buying Bitcoin, buying Bitcoin,
strife should rock it.
Yes, I completely agree with that wholeheartedly.
Strife should rock it, right?
Like, because it's just, yeah, but you can't tell them that strife.
What do you want to own?
strike and stride. All of them, all of them, the credit ratings.
You want to own it all. I think you want to own it all. If you're long MSTR, you don't want to,
I think there, a lot of people say like, oh, but all of these benefit the common.
It's like anything. You've got a great company that's overpriced. You can have a,
you know, a shit company that's underpriced and, you know, you may make money in one scenario,
maybe money in another. In this case, I think the press are still underpriced relative to where
they could go. So I think if you want to be long in STR, it's really cool to own every
part of the capital structure because they all shine in different kind of periods of
time. Completely agree with every bone in my body.
Oh, same wavelength here. Yeah. Adrian, so late. Can we talk about this idea of strife
approaching the risk-free rate as press convert? Because I think that's like huge for understanding
capital stack and where it will be in the next strike or strife yeah right yeah let's lead it
off unless so late adrian you guys have anything else to add on that um on that topic here we're
talking leverage we're talking uh you know prefs and the dynamics at play and the rest of h h2 2025
now we can move on to um to preferreds all right go ahead go ahead dan so they kick us off
yeah let me um well so i did so like we refresh where we were how the capital stack yeah yeah do
that no will you do that i need to remind sorry you want me to refresh what how the different
layers of the capital stacks just so everyone remembers oh sure how it's so you know strife
is going to be at the top um they're they're basically guaranteed to be made whole first right
And then we got strike right below them. And at the very bottom, I guess the junk bond version
is STRD. And so that's the most risky and should trade at a lower price and potentially provide the
most dividend. Anything I missed there that you wanted to cover?
Creates a yield curve. MSTR, the common stock equity is the most risky. So it sits at the
bottom. So in the event of a liquidation, the whole reason this works is because the way that
these are contractually designed is that they add more risk into each instrument. So Strife being
the most senior, Strike being the second most senior, Stride being the least senior, and MSTR
being at the very bottom. Basically, in the event of a liquidation, MSTR shareholders get money last
if there's any money left over.
It's just theoretical.
It's theoretical risk.
Yeah, I forgot to mention, which is the
I forgot to mention the common shareholders at the bottom.
Yeah.
No, that's not.
They just sound fair.
Yeah.
Well, the convert stood above strike, strike and strike, don't they?
Correct.
Very top.
Yeah, but we're not doing that anymore.
Yeah, get those.
Get those out of here.
Yeah.
Well, Jeff, do you know the actual
Well, can they call those early for conversion, but it creates bad blood with the convertible
investors so they're incentivized not to do that?
And it's actually disadvantageous to MSCR because there's a provision that essentially
converts more shares to the convertible.
Yeah.
It's less advantageous depending on the price of the underlying common stock.
So as the price of the common stock goes further and further out, it gets closer to this, I
guess you'd call it like a parody of like how many how many shares it should be represented of
so if you call it early it there's just more shares associated with it and you know
i'm not 100 sure exactly how that like how much energy is being stuck into you know trading and
arbing mstr relative to the converts that are deep in the money i think it's got to be a very
low proportion but um yeah i'm not 100 sure yeah no that makes sense
But it seems like from everything we've gathered that the converts are on their way out.
And that's extremely important for the positioning of strife because strife to really gain its, to take its throne, it needs to be at the very top of the capital stack.
And that's extremely important because in the, in the prospectus of strife, sorry, I said strike.
I apologize.
I mean, strife.
It's crown jewel.
And in the prospectus, no preferred, no senior liability or liquidation equity can be issued above strife without the consensus and vote of the strife shareholders.
That's the only preferred with that clause in its prospectus, which means nothing can be issued senior to strife other than these convertible term debt instruments.
instruments. And once those have been taken out of the capital stack, Strife will be, right now,
it's roughly, I think, 10x over collateralized, not quite, it's like 7x over collateralized.
If today we're sitting at the top of the capital structure, it would be 66x over collateralized
by the Bitcoin and strategies balance sheet. And so when we talk about approaching the risk-free
rate, this is what we mean. And when any amount of Bitcoin is bought via any other equity capital
raised, it will directly benefit the credit worthiness of strife. So if you think of it as
a limit, the limit of strife or the credit spread of strife will tighten as it approaches the risk
free rate of the US dollar. And that's ultimately the terminal coupon of strife is the risk free
rate of the US dollar. If you believe Bitcoin's money, good. That's a super important distinction
that when those convertible bonds roll off, STRF is literally at the top now and their credit
worthiness just goes through the roof. Through the roof. What's the difference between a 7x
over collateralized preferred equity instrument and a 66x over collateralized equity instrument
in a highly volatile environment? It's night and day. It's absolutely massive.
Huge. Real quick, we got some feedback in the comments and I got to play a video real quick.
Ladies and gentlemen, what you're about to hear may be amazing, but it is not financial advice.
It's for informational and educational purposes only.
Jeff, there we go.
There we go.
Just had to get that in there.
Thanks, Tim.
This is not financial advice.
Thank you, Tim.
And I forgot to do that at the very beginning.
30 minutes in and we'll put it at the beginning in the YouTube.
Everything before this was financial advice.
I guess so.
Just kidding.
Yeah.
Yeah, no, that was fantastic.
Thanks, Dan.
You hit the nail on the head, right?
the the collateralization level of this the the difference between 7x and like 65x over
collateralization is vastly vastly vastly different um and i you know i think it might make sense to
jump into this uh this image that i put out on x what was it yesterday and go through this because
i think this is what this is what's happening with um all of these instruments and i think it
it could be worth going over it.
So unless you guys want to take this any other direction,
you know, go for it.
No, that's not good.
And we should hop into it.
And someone asked what the risk free rate was for a perpetual,
for a perpetual instrument of perpetuity.
It tends to be based off the three month T bill risk risk rate which is 4 right now So everything in the market is judged relative to that risk rate So you think about
the credit spread. So like what's Strife trading at today? It's got to be, it was like 8%, 7%?
yeah so uh so strife set strife set eight uh then it the the credit spread is you know 400 basis
points so it's the relative risk like how risky is this instrument relative to the risk-free rate and
it's still at an eight percent risk-free rate is is is treated as if it's distressed debt it's like
still so far mispriced and it's got opportunity to continue to grow because of the relative risk
relative to the risk-free rate in my opinion so and you know if we focus on the left hand side of
this uh this image here then we could kind of go through why what's going on with the prefs and
this applies to all of them strf strk and strd when these instruments were priced by the market
at IPO. Let's start with STRK, Strike. Strike was priced by the market. Nothing like this had ever
come to market before. It was the first of its kind. I think it was priced at either $80 or $85
to par. Par was $100. So that means they're offering $8 per share, which would be 8% at par,
but it was priced at $80, meaning it was offering 10% per share, and it was still convertible into
common stock equity into the future. So as the market was digesting this, the credit spread when
this thing was issued was like 600 basis points. There was nothing else in the market trading like
it. You could look at like any of the other preferred stock instruments. You could look at
Boeing, you could look at PG&E, which I brought up ad nauseum, and you could look up GE, Apple,
Microsoft. You could look up even the crappiest companies you've ever heard of. And Macy's. Yeah.
Yeah, JC Penney.
JC Penney.
Those companies, I don't even know if those companies still exist.
Macy's even still exist.
But you can...
Yeah, that trades at about a 250 basis point credit spread.
250 basis point credit spread.
With senior secured notes above the unsecured debt, which I'm talking about.
And that's really important.
We should get into it later.
Right.
So you think about the relativities here, right?
And you're talking about this preferred equity being priced at a 400 credit spread relative
to a Macy's senior convert or senior debt.
And that means, in my opinion, that this was significantly mispriced.
So as the market recognizes what this product is, which takes time,
the you see this, the price of the convertible,
we're going to call this instead of calling it convertible bond,
the price of the preferred equity is going from point A to point B
on the pricing curve because the market is recognizing
It's going from distressed to fair value bond-like pricing, like a fair bond pricing with its relative risk being valued correctly or appropriately, maybe not correctly, appropriately.
So that's what we've seen with STRF and STRD because these IPO's so low at such a discount and technically relative to other things were considered distressed.
that's why we've seen the price go up drastically in a short period of time because the market is
beginning to recognize that these aren't as risky as they originally thought and you know if you're
going to go raise a billion dollars of capital and doing these weird new instruments that have
never existed you need to make it attractive in order to do it so the early capital that came in
the door they're they're taking on you know technically more risk because these instruments
haven't existed before. Maybe it's reputation risk, not just credit risk. And that pricing
was reflected as such. I don't think that will happen again. I don't think there will be
situations where these deals get priced as low as they do, but I could be wrong. Who knows?
So what we are seeing here, so if just thinking about strike being the convertible preferred,
so again, ignore this convertible bond, just call this convertible preferred price.
we're going from point A to point B. In my opinion, I think we're still in this distressed,
this technical distressed zone. So there's still opportunity for the price of strike to increase
upwards relative to its credit risk. So it starts trading a little bit more like a bond.
Now, when you look at this image in total here, you see this dotted line up and to the right.
This is equity. Just if you assume the equity share price is going this direction
and it's going in a linear fashion, this red line is how the preferred equity would price
relative to the underlying price of the equity. So what you could see in this situation here is
that even if the price of MSDR is going up from, let's just say right here, 0.0 to this line over
here in the distressed column, you'll see that the equity moves up linearly, but the convertible
bond is moving up kind of exponentially because the market is re-rating this. Now there may be a
point in time where once the relative price of STRK from a risk perspective is start to reflect
a more accurate risk assessment, STRK may underperform the underlying common stock equity.
And you can see that here with the red line flatlining a little bit while the equity line
is still going up vertically. Now, will that happen? I'm not 100% sure because nothing is
ever been in the market like this before and i think we could see a situation where instead
the price of the of the convertible preferred looks a little bit more like this um where where's my
you guys see this yeah so we may see a situation where uh the the convert the price of the
underlying SDRK moves a little bit differently because it's such a unique instrument and MSDR
is the underlying equity that underlies how this thing is priced. So it may move a little bit more
linearly, which Dan, I think is probably part of your underlying thesis here that...
Dan Hennig It's super weird. It's super weird,
right? Because there exists an arbitrage between strike and MSTR at all points in time.
And so it's like, and then you have the ATM working on right now only on one of those instruments.
And so there's all kinds of weird pricing discrepancies like at every second of the day.
Right. And this is just the strike instrument, right? If you think about STRF and STRD,
again, those are not convertible into underlying common stock equity. So it will only have its
relative risk pricing. So it will be priced relative to other credit risk within the market.
It won't have any, it shouldn't have much,
if any correlation to the underlying MSDR price.
It should be more of a correlation
to how much capital is held on balance sheet,
the value of the assets relative to the debt held
on balance sheet and it's over collateralization
or the BTC rating and how it compares relative
to underlying interest rates.
And you've got two components
that control pricing with strike, right?
You've got interest rates,
like what is the interest rate that it's paying?
And what is the underlying convertibility?
And those both have different weights at different points in time.
So like as the, you know, if we were to see a situation where, you know, interest rates drop 300 basis points like President Trump is calling for, the price of all three of these instruments, strike, strife and stride should should rip up if that actually happens, because the relative risk would be get repriced very quickly.
So the price would go up, the yields would fall, and this would happen across anywhere in the bond market. If there's a repricing of the underlying risk-free rate, bonds will rip higher. And I mean, everything will likely rip higher. Asset, stocks will rip higher, bonds will rip higher, yields will fall. And who knows what kind of world that looks like.
Yeah. And we'll talk about, I did a video on Macy's balance sheet as well, and I'll talk about
that later. But for reference, their free cashflow last quarter was actually 38 million. And so in
their assets, they only have about 6 billion worth of real estate assets, a portion of which is
actually secured by their senior security instrument. So there are nuances in these
different companies. And I think all the points made in the comment are correct. And that strategy
doesn't have the same amount of free cash flow to cover the debt obligations. So yes, it's a
different framework for understanding the risk associated with these instruments, but you have
to also understand the perpetuity of the instrument and the liquidation preference makes such that
strategy in a worst case scenario, we'll have to issue equity to pay the dividend, even if it's
trading below par. So that's all part of the kind of prospectus framework at play here.
Bingo. Bingo. Yeah. You got something to add to it, Adrian?
You have anything to add here?
This all makes sense.
I've just been listening to it very intently.
I think everything you're saying makes sense.
Yeah, so I was doing a little grok-foo with the potential ceilings for these.
And we're talking about strike first, which is the most complex one.
That one's the one that makes my brain hurt a little bit.
But if we take the risk-free rate, at the time I was doing the math, I was using about 4.5%.
But if you take the $8 dividend at par and you divide that by 4.5%, you get a ceiling, if we're just going to assume that the risk-free rate is the ceiling, of about $177.78 just for the dividend only.
But here's the weird part.
So it's got the perpetual call option, right?
At $1,000 from par.
And if you go out a couple of years,
$1,000 strike call option is going to be about a little over $4,000.
And since it's a 10 to 1 conversion, you can add about 10% of that.
So basically $4 per share,
which only brings us up to
no
isn't that
we'll get there
but so the
option contract is going to be
$40 per contract
but since strike is 10 to 1 conversion
you're only going to get $4
so that brings us to
182.41 including
the call option
but I'm going to let you
I'm going to let you guys tell me why that's
bearish and then i'm i'm gonna save my my bullish pitch for the end
i feel like it's not bearish no
yeah isn't it four hundred dollars so it's four thousand dollars represents a claim over a hundred
shares of mstr so it'd be a thousand shares of strike it'd be a thousand shares of strike right
okay okay cool math all right so here's the weird thing so the reason why call prices
aren't even more expensive than they are is because they have an expiration date right so
if you if you drove a drove a car off the lot it depreciates but what if it didn't what if the price
of that car could only ever go up how much would you pay for it right yeah it wouldn't matter yeah
Yeah, there is no number, right?
I could, yeah, if I could pay $100,000 for the car
and I'm never, you know,
I would just be able to sell it for 100,000 or more
in the future.
So it's really hard to figure out
what the real price of that call option is
that never decays.
So that's usually the problem with buying a call
is you have to give yourself enough time to be right,
but you have forever to be right.
So this estimate for how much the call option improves the price of strike is very hard to kind of imagine.
And if you look at the Kelly Criterion formula, which basically tells a gambler,
based on the ratio of the likelihood of winning a bet,
like how much you can bet per occurrence to never go broke,
if you plug in a bet that you can never lose and only win,
Kelly Criterion will tell you to put in 100% of your portfolio,
like as much money as you can possibly get,
which I'm not necessarily recommending anyone to do,
but I'm just saying that's what the math says to do.
So it's just kind of a weird thing.
And I know we've had some conversations offline that we think it's extremely unlikely that the ratio of strike price to strategy price would ever get to the point where it would actually be advantageous to convert.
however if you if you say that it's a very very small chance of it happening but we have infinite
time like no matter how improbable something is given an infinite time frame it's inevitable
so like winning that call option is an inevitability at some point so it's just
it's extremely valuable because you can never lose and only win. And it's, it's kind of hard
to imagine what kind of premium would be added to strike's price to pay for that.
Absolutely. I think you said that really well.
Well, then think about the convertibility.
Yeah, every bone, but think about the convertibility as it exists, right? If you could convert,
So I just add this to this mental framework.
If you can convert strike to MSTR today, which you can't below a thousand bucks a share,
but in theory you could a thousand bucks a share.
If you were just to convert your strike into MSTR right now, you'd have $41 of MSTR per
strike share, right?
That's the 10 to one conversion.
So you can think about it as an indefinite call option, like Soleil's thinking about
it, or you can think about it as just a conversion rate, which represents an exact delta percentage
relative to MSTR. So it's a 40 delta, a little less than that, 35 delta instrument as it sits now.
Should we talk about why somebody would convert?
Let's hear it.
Well, I think it's a fun, it's an interesting conversation, right? Like,
why would you convert? Like, why would you convert strike ever?
Why ever? If there was paying a 0.0000001% coupon, it would be, I think, irrational to convert.
It would be even so. So you think that there's no incentive ever to convert?
No not zero You sell it You sell it On the open market it would be worth 0 more
But what if it's not liquid?
Why would anybody be buying it?
Because they want MSCR with a conversion preference and a dividend.
What's MSCR worth?
What's the difference?
If you had an MSTR share that paid you, if you had MSTR or you had the ability to pay or buy MSTR that paid you 0.01% annually for the next infinity, how much more valuable is that?
I mean, are dollars good?
Yeah, because I mean, even if it paid 0% dividend, if it was trading at a greater than a 10 to 1, you could simply just, it would be just arbitrage.
You just buy as much strike as you possibly could,
and you would just immediately convert.
And if strategy was trading at 1,100
and strike was trading at 10 or 100,
you would just buy as much strike as humanly possible,
and you would immediately convert,
and you'd just be making 10% as fast as you could do it.
So strike will always trade at a premium.
But I feel like you would convert for a few reasons.
One, if there's an instrument that's issued more senior to you,
right so something could be more something could be issued in between strike and strife
totally yeah so let's say you get to a situation where to you're like you're talking about dan
where the yield is 0.001 and there's another instrument that gets issued more senior to you
and now the conversion premium is higher let's just say it's two thousand dollars a share or
three thousand four thousand dollars a share what yes strike 2.0 like that right you've got now
you've got one more senior that's trading at, or that's got a conversion of $4,000, but it's back
to paying you $8 a yield, $8 per share yield. So you've got two options. You can now be less,
because you're effectively shifting further out. You're more like equity. You can go shift. You
can convert into MSTR and sell, or I guess into, and buy into the new instrument that's issued in
between potentially.
That's a really good point.
But I completely agree with you, you might want to shift into that new instrument.
But I disagree with the idea that you would sell, that you would convert into MSDR and
sell MSDR, because I think there would still be a market for STRK at that point.
And you just sell STRK and buy the new instrument.
Interesting.
But if it's, let's just say it's, what if it says that, what if the BTC rating is like
20?
On strike.
On what?
That only adds to its value in my opinion.
It's just like crazy over collateralized.
And you're like, okay, well, the risk of this thing is like zero.
Yeah, well, I'd much rather hold the thing with the liquidation preference
than the thing with the liquidation preference.
I guess you got voting rights is another thing.
Oh, voting rights.
You brought that up in our chat.
What is that valued at?
None of the press have voting rights.
That's a reason to convert.
I think that's a super valid reason to convert.
You want shareholder voting rights.
Yeah.
Totally.
And yeah, it's really interesting.
But I want liquidation preference, especially now the liquidation preference moves.
So before the liquidation preference was static.
So it was fixed at $100.
So if the price of strike traded up to the limit, let's say MSDR is trading at $4,000, strike would likely be trading at around $4,001.
dollars. If the liquidation preference is a hundred, strike still has slightly more value
in that case, but not that much more value than MSTR common, right? Because $3,900 is
not protected by the liquidation preference details. But now that the liquidation moves
up with the price of strike, I think it actually adds significantly more value to that security.
right but then again like if there was a scenario in which this is the other part there's a scenario
a liquidation scenario mstr would trade down to zero or trade down to nab mstr would trade down
to nab in a liquidation scenario then strike would also trade down uh to match the arbitrage
between the mstr price and strike price which would lower the liquidation preference so there
could be arguments made that actually the increasing liquidation preference doesn't even matter
because in any scenario which liquidation preference would help you,
the common trades down so low that strike would follow the decline in MSTR.
The liquidation preference would trade down as well.
We're starting to get comments.
This is sounding like Adrian's talk about quantum entanglement.
I think it's interesting to think of where it could go in a 1M NAV scenario.
What if they had these products when you were buying, Jeff?
And specifically, what if they have these products in a one MNAV scenario where the free cash flow of the corporation doesn't service the debt?
Say that again.
So what happens in a one MNAV scenario for the common equity holders where the free cash flow of the operating business doesn't service the debt and the debt being the coupon payments of the insurance?
Yeah, right.
Right.
You're going to have, in a 1MNAV equity common scenario, they're going to have to service the debt and preferreds with equity sale, common equity sale, or lower in the capital stack, rough equity sale.
And that's harmful for BTC yield, but it also makes kind of the value of your senior claim on assets like that much more important.
So, yeah, it's crazy weird things that happen with those in those.
I think it's helpful, right?
You got to think about tail scenarios and how this all plays out in all of these instruments,
right?
Because they factor into the risk assessment of how this whole thing works, especially
we're going to see other companies start to issue these things.
It's going to get trickier and trickier, right?
Everybody's going to be experts on how these things work.
But then, you know, Seminar is going to issue these and you're going to see a dozen other companies issue these.
And the equation is just getting harder and harder.
So hard. And think about it. Think about it with something like a Bitcoin treasury with a secured note.
Right. Can you imagine if so, like, for example, if strategies convertible notes were secured, meaning they had a margin call provision that sits senior to Strife.
If that were the case, Strife would be worth nothing.
Like Strife wouldn't be worth anything.
it would be or it wouldn't be worth nothing but it would be worth very little so these things like
small nuances like the secured or unsecured provisions of these um convertible notes or
senior capital structure like matters like night and day for how these things will trade
for me i try to because like because like think about it like for inaka's case right they have
like 750 million with bitcoin they have a 250 million um secured uh convertible note that sits
senior in the capital structure. Let's say they issued a strife junior to that senior secured
note and they have a 2X margin call provision on the secured note. If Bitcoin were to drop 60%,
the NACA secured holder could call the Bitcoin, the margin call provision and take the Bitcoin.
And the strife holder would be left with nothing.
Yeah, you've got nothing.
In the case of a level of the banking scenario. So what's the credit worthiness of that?
basically basically if you have a secured note that's it senior this the the probability that
you if you prefs is like zero until they're unsecured exactly and they'll just and until you
wipe that note off your sheet they'll just yield like 13 yeah yeah yeah well it's gonna probably
more right like you'll probably yield higher than that probably i mean it should yield higher than
whatever strides training at now 12 12 yeah it should be it should be higher than that huh
interesting yeah i mean all these i try to still it down to make the decision as simple as possible
and for me it's one i'm getting a dividend two i'm getting some of the upside potential with
reduced volatility to the downside and three is six senior in the capital stack and four
theoretically there's potential for even outperformance at times as we've seen in the last
a couple months.
So I think that all of the points you're ranging
are very, very valid, and I've considered them.
But when it comes time to pull the trigger
on how much strike I'm going to have,
I have more confidence in having more strike today
than I did when I was buying it
when it first rolled out.
And I think that's played out well
for all of us that have done it.
So there are too many moving parts
get an accurate read on it um so for me i tried to steal it down to the most likely outcomes
when i'm making the decision and it's worked out well strike and strike
that's what's so fascinating about him right they're like outpacing the common
it could be and it's just a marketer location yeah but it could be back to what i was saying
um or rather this what sailor creating this economy what he's doing is he's attracting
different players to to the um strategy ecosystem and they're going to have different entirely
different use cases for these these these um offerings i've been talking to people that said
that they don't want to buy msdr but they want to buy strike that's wasted i mean like makes
for like 90. you're 90 99.9 of people right like you you're you're not gonna
it's the best risk you're gonna manage if you're managing hundreds of millions of dollars of
of billions of dollars of capital and you're just worried about like making sure that your
paycheck doesn't disappear you're not going to get fired if you buy this no exactly and if you
have if you're not 100 in mstr it makes sense to buy yeah absolutely you just take the 10 coupon
that's attached to the mstr exposure plus liquidation right now you're protected you've you've got so
much down downside protection well if you think about it let's say that i had a quarter million
dollars right now and i want to get into the market right or rather have a quarter million
dollar allocation i want to put put into the market and i have to choose between strike strife stride
or mstr at a very very simple sense which one's going to give me the most upside with the least
downside and which one is going to be relatively easier for me to understand do i need to understand
mstr to understand strike or do i just need as an investor to understand i'm going to get a dividend
on it is going to be less volatile, but I'm still going to have upside potential.
I think for a lot of people, that's all they need to hear.
So we're going into a lot of the detail because we've been in this for God knows how long
right now, and we're weirdos that like this stuff, right?
But for an investor that's looking to allocate capital that wants exposure to this, that
perhaps doesn't understand all the different nuances, I think that's why Strike and Strife
have been outperforming.
they're getting into the play without needing to fully understand the play.
Yeah, yeah, yeah.
Yeah.
Okay.
This company has $66 billion of Bitcoin and they have $8 billion of debt.
So the Bitcoin would need to go to this in order for this to blow up.
And you get paid 10% and Bob's your uncle and see you later.
Like you're good.
Essentially.
It's a much easier sell.
I mean, the really cool part about this compared to the convertible bonds, right?
the convertible bond market you it's just a bunch of vol junkies that are out are being uh convertible
bonds trading in the otc market relative to the underlying stock and just playing with data and
numbers and computers and now like these these preferred buyers is a completely different cohort
of people which is so cool because the people that are buying this this is like this is saving this
this is this is solving the retirement issue in america in the world right like these bitcoin
backed instruments could truly save the world and their ability to like it could save the retirement
problem like social security everybody on the screen is not never going to touch social security
but that's an issue right that's a bit that's a big issue um insurance companies right if we
reach a hyperinflation situation uh all of the liabilities on insurance company balance sheets
can get just blow up and these insurance companies get taken over by the state and everybody that
worked at the insurance company loses their job and you've got jobs that are lost and
like these products can help solve those potential future problems which is which is just really cool
like they're different cohort of buyer and it solves an issue whereas the convertible bonds
were a little bit more of like just need leverage need capital let's hit it with the vol junkies and
yeah it's a it's just super neat like if you think about also um the the most
and i want to be very careful what i say here i know strategy probably doesn't want to directly
compete with with misty and imus with a monthly but i think it would make sense for them to do it
because it attracts yet another investor base to this ecosystem.
And the pitch can be our monthly div may not be as juicy as Misty or Imus in certain months,
but if you look over the course of time, that dividend they've paid out has wavered, right?
But we're going to offer you a set payment every month that you can count on,
just like they're going to give you a set payment every quarter that you can count on with Strike and Strike.
right. So the likelihood of this growing in terms of offerings, and I think we talked about this
about like three weeks ago, Jeff, what kind of different offerings they can come up with.
I think that is the most common sense one I would do. And I think you have the perfect
four offering model that they can scale in perpetuity or perhaps just into next cycle
until they see what they're really interested in doing. But just coming back to my point about
simplicity all people want to know about they're not us right all they're going to want to know
about is okay how much did how much of a dividend do i get yeah for x amount of shares that's all
that's all they care about that's all the misty bro is it going to go away and exactly that's all
the misty bros care about right they say i didn't buy a house i bought x amount of misty shares and
it's giving me this amount of much of money every month that i'm living off of it right so if you
if you think about what they're doing with strike and strike and stride, if they did it with a
third, a fourth offering, call it STRE, stream, income stream or something, you can easily say
to the market, we're going to give you a fixed monthly dividend. There's going to be no, it's
not going to be as high as Misty could be potentially certain months, but it's going to
be a steady cash flow that you can count on. I think that also goes to the point of these
instruments are very easy for the market to understand perhaps our stride but i think strike
and strife are because i've had a lot of people talking to me they understand striking strife but
they still don't understand mstr they still understand mnav they still don't understand
the leverage ratio even though that's the simplest part about it they have a lot of trouble
understanding a lot of these different aspects with the common which is why the preferreds i think
have been outperforming you're getting a lot of players in institutional and retail that understand
it and they can put it on there they can put it in a very simple box and say x is going to give me
y and that's and i think that's um part of the massive appeal so i think holding strike and
strife holds massive appeal long term i i personally think the strike strife stride are
going to have a s curve adoption right like it's going to be you know holy you know
people are going to recognize this it's just going to take a little bit of time right like
Like education, Dan, it took you four months to figure out like for strike to just click
and you're like, oh my God, wait, actually, hold on.
There's a lot here.
How does this work?
And, you know, how does it work?
Well, I didn't understand the implications of strife until, you know, a couple months
ago.
Yeah.
And that's you who's paying attention to this all day.
You don't have a job.
You're literally, all you're looking at is all this stuff.
And now you've got to go communicate this to people and sailors got to go communicate
to people and the people that we communicate this to have to go communicate it to people
and it just takes time for that to kind of proliferate in the market and yeah it's uh it's
it's evolving jeff do you mind if i bring up this uh it needs to have the surfboard though
i think it's wicked relevant uh because like when we talk about all this stuff we're talking about
you know, Stripe sitting at the top of the capital stack and you've got all this Bitcoin
being added to the balance sheet, the Bitcoin's growing. So every single instrument in strategy
capital stack is increasing the collateral factor of Stripe. And Stripe is limited in its issuance
because it needs to be so over collateralized. And the other products have to be over collateralized
as well that are junior to it. But as you can see, as the risk-free rate approaches one or zero or
any sort of lower pause then go go over this explain what this is explain what people are
looking at okay um this is a price of it's a model that prices strike sorry strife again the crown
jewel of the theoretical value of strife relative to the risk-free rate which is the three-month t
bill rate of u.s treasuries and the credit spread and again credit spread is just a super fancy word
It seems unapproachable.
It just means the risk premium associated with the coupon payments of strife.
So if strife were risk-free, it would trade at the same coupon payment as the three-month
treasury bill issued by the United States government.
That would be a zero credit spread.
And you can see the limit as both these things approach zero because it's a perpetuity.
So since a perpetuity or a perpetual dividend yielding product, the face value of that product
is the integral of all the future coupon payments discounted based on the risk-free rate.
So as the risk-free rate approaches zero, the value of that perpetuity approaches infinity.
The point being is as the risk-free rate decreases and the risk of strife decreases,
the yield will continue to decrease which will push the principal up higher and higher and that's
what this little corner represents so if you believe in bitcoin and you believe the usd
and you pick a risk-free rate in your head long term you can kind of model out strife's price
over a long period of time as it goes to the risk-free rate right because it's most senior
in the capital stack and you think about what's the probability that the bitcoin effectively goes
to zero and it's incredibly low. So it should approach a 0% credit spread over time.
Exactly. And if Bitcoin's CAGR is 20%, 30%, 30%, and they're yielding Bitcoin per share,
there will be a point in which strife, well, it depends how they manage that leverage ratio,
but it could be 100%, 200%, 300% over collateralized based on a buy a 20 CAGR asset.
And at that point, what is the risk on that?
Relative to the US government.
Yeah, relative to the US government, right. And so I don't think it actually trades through the US.
Exactly. I don't think it trades through the risk free rate in a scenario that's not
predatory towards MSTR. Not the three month T-bill rate.
Yeah. Not the three month T-bill. Yeah, right. That's fair. Maybe 10 or 30.
30 or something like that yeah exactly yeah right yeah it's an interesting interesting question
interesting equation um oh there was a there was a comment on here it keeps popping up that uh
i kind of want to address it's like uh serious people will always be hesitant of these preferreds
as long as they're funded through more of themselves and i think this is an interesting
comment here and it's not um people like obviously people jump to this ponzi scene
ponzi scheme concept but what's really happening here is financial strength this is like uh this is
that's the word i'm looking for um like refinancing every moment every moment that they they raise
capital just you could think of it as like a refinancing like they're adding more capital as
a function of their capital strength. Just like the same concept of, you know, the value of your
home goes up and you could go refinance it, go get a mortgage to go redo your bathrooms and your
kitchen or something like that. It's a function of your financial strength. And as the value of
this underlying Bitcoin asset continues to grow, people are like, they look at the relative risk
and the amount of capital that's sitting there and it's an underwriting equation like do i trust
that they can pay this out as a function of underwriting the financial strength of the
balance sheet so it's like a continuous underwriting that's going on so yeah and i think
that ponzi question was that or what did he say he said it's like the press yeah the press as long
as there's what as long as they're funded for it if you're worried about that yeah but really it's
the bitcoin it's the bitcoin it's bitcoin that pays for it bitcoin going up forever
and the mscr commons a layer three product on top right right yeah and i mean and people are also
sleeping on the software business right like the software business is that for a while the software
business is actually it's pretty cool right they've got like an a a bi an ai for bi that can
apply to any ai instrument so anybody that uses it can hold on to their own data which is pretty
fucking valuable like anybody any company that's using an ai platform any any words or anything
that your employees are typing into an ai program that data isn't the companies that data is the ai's
the AI companies. So strategies providing an,
a product that can apply to any of these different AI instruments where they can
keep and maintain their data, which is really cool. Uh,
and there's a, there's a, I think that could,
I think it's got some legs and I think the ability to continue to generate
significant revenue into the future is pretty, pretty significant.
They can definitely scale the BI business and the AI and the AI side of the house.
That's one of the things I've been talking about for so long.
And I'm glad that they're still pushing and they're still trying to innovate there.
Because I really think that that is going to catch the market off guard if they're able to scale it.
Even moderately.
And they don't need to scale to the level of Microsoft.
They just need to scale it 5x in the next decade.
Right.
It's funny.
Oh, go ahead.
Yeah, they just need to scale it 5x in the next decade.
and that makes a significant difference
in the way this entire thing plays out
in terms of, one, the preferreds,
the kind of multiple they can demand from the market,
the ability to ratchet up their Bitcoin purchases
as Bitcoin's price goes higher.
There are a lot of different ways that this can play out
with regards to the software business.
I'm really glad that they haven't forgotten about it.
I think that that should be part and parcel
of anything that they do going forward.
yeah for anybody that went to strategy world or even if you didn't if you're listening to this
right now and you didn't go to strategy world about why did you say 15 of the people were there
for the bitcoin about 85 of the people were there for the software yeah and like you walked into the
main room and they did presentations on software and all there there were a bunch of employees
there that they're like yeah i like bitcoin because i you know the value of my equity package
is going up but i i really don't really understand what's going on and they're there for the software
side of the business there were software sales um booths and things there and there's a big focus on
that software side i mean it makes up what 95 of their employees they've got 1500 employees and
you know i'm a tenner on the capital team and as they grow they can attract more talent they can
can attract better talent that can go into the software and BI side.
Reflexive.
Exactly.
Yeah.
So like people that are sleeping on the BI side of the business, I think that's a mistake.
Because I've been saying for a while, when it comes to data, that's what I do day to day.
The need for strong database tools, platforms, and middleware solutions is so extreme that
there are guys that I know right now that are juggling five and six clients at once because
of the demand.
that they have a they do have a moat that they can build out there.
And I think it's with small and midsize business.
They don't need to go after who is Microsoft's going after.
They're not looking to get
strategy software on every on every laptop in the world.
They just need to carve out a niche.
Yeah, I think just scale into that niche.
And that can give them five X from here with the software business.
What's really cool is that the product itself is like leaning
into the Bitcoin ethos of like decentralized nature of data.
via AI, which was super cool. So that underlying ethos of Bitcoin is playing out into the software
business. Yeah, it's, I mean, Adrian, your point on the reflexivity of hiring talent that cannot
be understated because it's so valuable, right? Everybody in the world is eventually going to
want to work for strategy because the equity package is going to look lucrative, right? The
equity, the amount of value. If you understand, if you're a software guy and you understand what's
going on with Bitcoin, you'd be interested in getting a job there doing anything. Most of the
guys I know that know about Bitcoin do what I do. Right. What? Just, yeah, exactly. Cool. All right.
What other, what other topics do we have here? Actually, I mean, to answer that person's question
directly. I think every entrepreneur looks for areas that have high margins and then they attack
that margin because they're delivering value. So what do we have here? We have people who want
fixed income products and the only thing that they have available to them are the crappy ones
that strategy is absolutely demolishing with their products. They can't get access to
Bitcoin's CAGR. So they're more than happy to get, you know, trade their money for a better product
than what they have now. So there's a, you know, there's a value that's being delivered.
And I'm not worried about that market drying up until Bitcoin's market cap is bigger than the
bond market. When that happens, like maybe we'll have to figure something else out. But until then,
And I'm not really worried about the preferreds having to pay for themselves.
Yeah, I agree.
It's a massive arbitrage.
That's the only way to look at it, in my opinion.
Because none of this works if Bitcoin has a negative real growth rate.
None of it works.
It's all a complete fugazi.
It'll go to zero.
But if Bitcoin has a real compound annual growth rate indefinitely into the future, it will work.
The other really really interesting point about Strife is the bet they made about these compound annual growth rates The bet they made with Strife is that until the end of time until the end of time the real compound annual growth rate of bitcoin will be greater than that the risk rate of the us dollar that the that they made with strife
until the end of time if that ever ceases to be true strategy will be on its way to insolvent
that is a nuts bet to make well it's a one way it's a one way that it's a one-way bet well we
got the big beautiful bill and it's entirely all or nothing yeah yeah we got the big beautiful bill
and the cuts don't don't come in until the next uh the next term right so which means never so i
don't think there's any any risk and that we're going to stop printing anytime soon
no exactly but the crazy thing is like if strategy is going to exist in 40 years
the terminal rate of bitcoin growth still has to be greater than risk-free rate because we have no
way of wiping strife off the balance sheet no way zero strife will still exist unless they buy it
back and if strategy were to buy back strife from the shareholders its value would go through the
roof and that would be so there's so many crazy like edge case scenarios there i think bitcoin
will have a terminal growth rate higher than that of the u.s risk-free rate so i think we're good
all right guys i got to drop all right adrian final thoughts and well oh yeah higher higher
all right man take the dog out enjoy yeah and before we move on i know i was hyping up strike
but full disclosure i'm still a full common shares mstr dgen 100 i haven't moved anything over to
strike um so yeah still irresponsibly long and all that good that's so funny people are like oh
oh why'd you sell all your mstr to strike they don't know that I'm in options yeah it's like
couldn't be more wrong actually uh yeah but yeah it's a weird commentary on the Twitter sphere these
days 100 um I think right strike at certain prices makes it hard to justify common but
we're starting to get to the point where common's becoming attractive again yeah and ivy's so low
On Bitcoin and MSTR, if you think that there's going to be a lot of energy coming into the market in the next six months, that equation starts to get a little bit more lucrative and juicy.
But I mean, you still got $4 billion in MSTY.
People are still obsessed with income and not fully risk on.
They think that they're going to take the MSTY dividends and reinvest into MSTY and that's going to outperform MSTY.
I don't know. I feel a little skeptical on that.
The only thing it's going to outperform is like TSLY.
Yeah, it's just a little bit, it's more inefficient, right?
Especially if it's not a tax advantage account.
If it's in a tax advantage account, maybe it makes it more sense if you're in retirement age,
but there are less DGENs in the retirement age probably looking through that process.
I don't know. It seems like a lot of work if you're going to go through that.
And if you're going to take the dividend of MSTY and just plow it back into it, it seems like there are better ways to do similar type thing.
I don't know.
Yeah.
And there's a lot of slippage, right?
Like I've run a lot of back tests about selling weekly covered calls, rolling them a certain specific.
And I've backed this at an amount of like three years just using the historical options data because like that's what you got to do.
you have to figure out, like, let's say you're selling, but like, for example, let's say you
sold an at the money call for a month and MSTR went up, you'd have to sell some of your shares
and I had less shares. And then you go and sell an at the money call and it goes down. Now you
have less shares, you collect that income, but you have less shares to sell at a depressed price
again. And that's like the slippage. If MSTR is going up, down, up, down, up, down every month,
you slowly lose money. And that's kind of how MSTY works is you're collecting all this income,
but you're sacrificing all this principal stability and it ultimately decays, especially
in a falling IV environment. And IV will decline over the next five, 10 years. So thinking you're
going to have a fixed dividend payout while you experience an avarotion is like, I don't know,
to suicide and a completely different risk profile to any of the preferred instruments
people are like why would i buy you know strike strifer stride when i could buy misty it's like
well completely different instruments like like you've got one monetizing the volatility via the
derivatives market and you have one that's a function of the credit quality of the balance
exactly that's these are these are so different you're betting on like three smelly quants
in some office in New York versus Bitcoin as the collateral.
I'll take the Bitcoin as collateral in the three smelly quants.
That's a good way to put it.
Yeah, I mean, that's a really good way to put it.
Three smelly quants and a bunch of T-bills on leverage.
Yeah, yeah, that's ball-sweely.
That's ball-sweely collateral.
But it is.
I don't know.
Four billion.
Three smelly quants, that's a good hedge fund name or a punk rock band.
know one of the two i mean they're making what 30 mil a year off that fund it's a good deal it's a
it's a good enough deal that we keep on it's a good year to underperform mstr with dividends
good work if you can get it think about that you want a ponzi scheme that's a ponzi scheme
yeah well hey people are buying it um you know if you've got a shorter horizon
Yeah, it's not that bad. It's like whatever. I'm just exaggerating. It's like, it's cool.
You got fat dividends. It outperforms during certain time periods, so whatever.
Yeah. It's just interesting.
Just theoretically.
Yeah. Well, especially now that the other instruments exist, right? You can hold the
dividend paying stocks with lower risk.
I haven't done this yet and probably should,
but look at like efficient and frontier with all of those instruments and try to
like model out some assumptions into the future four years down the road.
And I bet some combination of strike,
strife and stride,
probably strike and stride and MSTR and MSTR calls.
You probably wouldn't even allocate,
you probably allocate zero to MSDY, I would assume, like on the efficient frontier.
I'm assuming it's like not even on the efficient frontier.
Like you wouldn't even, it doesn't help.
When you said MSDR calls, you mean long or short?
Long, long calls.
And if you held common, maybe you go short, depending on certain situations.
I don't know.
I think there's 10 million ways to skin this cat.
And you can do it efficiently and inefficiently.
And if you're going to care that much, you may want to put more effort into doing it yourself.
I don't know.
That's tough.
Yeah, I think...
Yeah, leverage.
And we don't talk about that because we're not professional capital allocators or degenerate hedge funds.
But I think we've talked about it a bit before, guys.
But I don't know.
At a certain point, especially if you can get cheap enough borrow rates on capital, there was a point in time where levering up strike three to one was a better, in my opinion, risk-adjusted trade than MNB.
STR calls in common because of like the downside protection and provisions in the perspective.
So it's like kind of crazy to think like what you can create in a leverage portfolio using
these, um, Oh yeah.
Secure these products.
Is that only because going back to Jeff's chart, we're kind of in that distressed exponential
phase, like at some point, if it levels off, does, does that, do we lose that advantage?
I mean, I guess, is it the early, the early adopters?
Are they the ones that are getting that advantage?
It's when you're sitting at this kind of...
Yeah, down here.
Yeah.
That makes sense.
Ryan's dropping...
Because at that point, if...
That's so funny.
At that point, if you were to get leverage from your margin account at 8% and Strike is paying 10%,
And you're like, why wouldn't I lever up as much as humanly possible and buy Strike?
Because I feel like the security of this is great.
The upside is fantastic.
If anything improves here, all is gravy.
And it's going to cover my margin cost.
That was the crazy arbitrage, the interactive brokers margin rates and the strife 11% coupon payment for a little bit.
free money free money guys i'll pick it up whoa we'll get it that's awesome that's awesome all
right and even if you're not paying margin dividends i mean the the strike drip dividend
into more strike is like a a perpetual call option buying like self-replicating and buying
more perpetual call options of itself. Yeah. Which is a weird, which is so cool. I love your,
it's so cool. And, and MSTR because they have the ATMs on all of them, they have the ability to
capture that volume coming in the door so they can send out the dividend. And if they have,
if everybody's got this like ATM, if everybody's got automatic drip selected for their dividend
paying stocks, you've got all this capital coming back in the door and you're like, Oh, cool. Great.
high volume day. Let me, let me T, T wop some ATM in there, bring some of that capital back out
and go buy more Bitcoin with it. And so it's just a super cool design of all the instruments.
Fantastic. Totally great. So now this is the part of the show where we talk about coins.
Should we start debating each other about coincilium and smarter web company and
and all of these others.
I don't know.
I do. I do think I do think, as you pointed out earlier, Dan,
I mean, I think scale is just scale is incredibly important here.
And like at some point there's there's going to be so many competitors in the space.
If you're not a household name, like it's going to be tricky to.
Continue to outperform.
It's like this isn't going to exist forever.
Like we are in a very unique point in time where there's a lot of strong, wealthy people,
retail investors that are investing in some of these smaller companies and are able to
move them quickly with a relatively small amount of capital.
But I mean, what happens when somebody like, I don't know, like pretty damn big comes into
the market with just a huge amount of capital?
I don't know.
I'm just throwing out a name, DraftKings, right?
draft kings comes into the space they adopt a bitcoin treasury strategy and they hire
i don't know maybe they go steal dylan leclair from uh meta planet it's like okay well what
happens there right you've got real potential competitors that are going to come into the space
there are despite what a lot of people think there are a ton of really really really smart
people out in the world and if a ton of people are making money more smart people are going to
come into the space and they're going to find opportunities and make opportunities that,
you know, don't currently exist. So I think there's a decent amount of risk out in the
marketplace for some of those smaller entities. It's just something to be aware of. You know,
I'm not saying there's outsized opportunities in some of these, but timing and sizing is just
incredibly important. And I'll continue to bound that drum. You've got jurisdiction risk that is
unknown, you have known and unknown risk variables, right? You've got your known risk is you've got
copycat risk, you've got collateralization risk, you've got, you know, operational risk,
you've got leverage risk, you've got volatility risk, but you also have these unknown variables,
which are, which are, I can't even, I can't say what they are because they're unknown unknowns.
And because this space is so new and doesn't, it hasn't existed before. So I think that
there's some more volatility on the horizon in both directions and just be wary and cautious
with sizing because uh this is very similar to people you know investing in altcoins and losing
their stack and uh they came in with 100 bitcoin they come out the door with 50 bitcoin and
they could have been better off they just sat on their hands so kind of a similar scenario my opinion And I think it I actually don think like trading Bitcoin Treasures is like a bad thing at all like i think you can get in and you know get to like it actually for a lot of people it
been very profitable so i endorse um degenerate behavior at times but you have to be very um
conscientious of extrapolating forward past regressions of bitcoin per share acquisition
we talked about this earlier, you can't just look at an exponential Bitcoin yield and assume that
will happen forever. And that's what I did. When MSTR was hamming ATM in November, I was like,
oh, this would just be exponential, whatever. The man tries out.
Well, let's talk about that a little bit, because I think that's really important too.
Everybody thinks that these trajectories are going to be exactly the same as MSTR.
The reality is it's not going to happen. And there are different components here.
And part of this, in my opinion, is a function of the architecture and the design of the stock market.
Right. Like you've got MSTR was included in the MSCI total world index, but then it was also included in the Russell.
It was previously in the Russell 2000, which is only for U.S. companies.
The Russell 2000, which is a very large index, is only for U.S. companies.
Russell 1000, only U.S. companies. QQQ, which is the NASDAQ 100, is only for NASDAQ listed companies.
It's global companies, but you have to be NASDAQ listed.
If you're NASDAQ listed, you're subject to different short rules.
So people can short your stock more consistently, like what's happened to MSTR.
And then if you want to be included in SPY, you have to be a US listed stock.
So we're talking about like systemically the five to seven largest index funds in the world
and mutual funds that are only for US companies, right?
So if you're thinking about what are catalysts where you can see a significant amount of capital
coming in the door that maybe didn't exist before. Well, you have to have these things on the horizon.
Right. So again, when I look back and I look back at November, I look back at March. If I go look
back at March of 24, and Ryan will remember this very, very, very vividly. They were included in
the MSCI Total World Index and they got revalued in the Russell 2000. And the stock went up from
February to March. And I think there was some front running going on and there was capital
coming in the door. There's a significant amount of capital that brought the price up to, you know,
from $400 up to $2,000 in 40 days. That happened in 40 days. And the same thing happened in November,
right? You saw a significant run up in capital. You had $17 billion that they were able to bring
in the door and capitalize that and put it on the balance sheet. And I truly believe that this is
passive money as a reflection of these index funds and the inclusion in these funds. And
that capital comes in in waves and it can only happen if you hit the criteria and meet the
criteria. And some of these international companies are not able to be included in some of these
funds. So they can be included in other funds, but the size and scale is just drastically different.
So if you're thinking that XYZ company is going to have a situation where they're seeing this huge
run up in stock price and get $17 billion in the door like strategy did in November,
it's just probably not going to be the same situation. And it might take a lot longer from
a time perspective. And you think about, well, what is the price of Bitcoin when that happens?
And how much Bitcoin do they accumulate at that time? It's also going to be a significantly
different equation. So, right, like, and I posted this a couple of days ago, when I first invested
in MSTR in the end of 22 and 23, I was thinking to myself, this is the best risk-additioned trade
in the entire market because they have a monopoly on the space. They had 10 times more the amount
of Bitcoin than the next closest holder. And the value of that moat at that point in time was like
two and a half billion dollars. Basically, it would have cost two and a half billion dollars
for anybody else to catch them. And now they've actually held that relative moat. So now they have
an 11 times moat. They have 11 times more Bitcoin than the next closest company.
So the moat is the same, but the size and scale of it's significantly larger in a closed system.
Right. There's not going to be more than 21 million Bitcoin.
So it's OK. OK, you've got even further here.
You're you're you've just shoved your moat even higher.
Now, the cost of that moat is 55, I don't know, 60 billion dollars in order to buy the same amount of Bitcoin that they would have at today's prices.
And that's assuming that doesn't move the price and the price doesn't run away from you.
So like who can who can do that?
like who's going to be able to buy that much Bitcoin to capture, capture that,
uh, to capture that value. And I just, I don't, I don't see it as realistic.
I don't see it happening. And a lot of people have commented, well,
mag seven can do it. They can go buy this much Bitcoin and issue prefs and,
you know, have this exposure, but it's just not the same, right?
Like you're going to have a different proportion of your company.
That's a function of, uh, the valuation of any of those individual equities.
So like if Apple were to go convert a hundred percent of their cash balance
sheet and then go offer a cash balance sheet to Bitcoin and then go offer these preferred instruments,
they're not going to move the same. They're a $3 trillion company with cash flows
and iPhone exposure and technology and AI exposure. It's just going to move differently. It's not
that direct correlation to Bitcoin. I mean, they might perform incredibly well. I'm sure Apple
would do really well if they did this, but it's also been very clear to see that via the Microsoft
shareholder vote and the meta shareholder vote,
what Microsoft was 99.5%
of people voted against
exploring Bitcoin. I think meta was like 96%,
97%.
I think the probability that happens is just so low.
There's no incentive to do that.
Zero.
You know, Apple returns
$112 billion a year.
Dude, don't get me started on buybacks. Do we want to talk
buybacks? I've got a whole...
I've been working on buybacks.
Check this out.
This is cool.
Actually, I wasn't planning on sharing this, but let's go over it.
Who's this?
They make like 140 billion in revenue or no, it's 240 in revenue, like 140 and 140 in free
cash flow and then 112 billion.
I need to pour some more Lagavulin for this.
That's a huge fumble.
I can't think of a bigger fumble.
Dude, this is going to be the biggest mistake of all time.
Is the share buybacks from some of these large companies.
I mean, the shareholders can buy Bitcoin.
How many S&P 500 companies have Bitcoin right now?
Two.
Like two or three?
Two.
Two?
So 498 don't.
How long before that number is zero?
Oh, man.
Because based on Tim's freaking marathon,
I watched 12 straight hours of Bitcoin treasury companies yesterday.
And he broke YouTube and just shut off after 12 hours.
So I still got to go back and watch the rest on X.
But like there's so many companies coming.
And some of these, some of them are going to be in the S&P 500.
And some of these ones that don't adopt Bitcoin are going to be on their way out.
I mean, some of the S&P 500 companies will adopt Bitcoin and have a chance to stay.
But how many just don't figure it out and are just jettisoned forever?
A lot.
A lot of them are not going to figure it out.
I mean, it's the.
This is like this is like a Kodak moment, right?
You know, just like not adopting, not adapting.
And they don't they're not going to know until they're already dead.
Right.
A lot of these companies are going to they aren't going to know
that they need to do something until they're already dead.
Right.
And I think that's just a painful reality.
Let's talk, talk through this a little bit.
and I still could have work on this, but I was looking back at some of the historical large
stock buybacks since 2023. And to your point, Dan here, 5125, Apple bought back $100 billion
of stock. 42425, Google bought $70 billion of stock back. Microsoft bought $60 billion
in September. NVIDIA, $50 billion in August. Apple, the prior year in May, bought $110 billion
dollars back. Now, and I know Ryan feels really strongly about this, and maybe we'll bring him on
to talk buybacks here at some point soon. But why do you hold an equity? Why would anybody hold an
equity? You're holding an equity for some future promise of cash flows, and that can come in
multiple different ways. That could come in dividend or share buyback. And share buyback
might be more efficient because of the taxes associated with it and it allows you to make the
moment in time where you sell the stock and then take the tax hit i was kind of thinking like an
apple stock apple stock is kind of like a an mstr purpose like yeah yeah well that's why so because
apple has been so successful and they've they've emphasized doing these really big buybacks that's
why so many people like when i worked in my last company uh most of the execs in the company when
I talked to him about stocks and stuff. They're like, all I own is Apple. I just treat Apple as
my savings account. Like I don't any I don't own anything else. And I was like, I sat back for a
minute and that really kind of sent me down a rabbit hole. I was like, holy shit. People do
that. And they literally he's like, OK, I own a couple of American funds, which are capital group,
and I own Apple as a savings account because they've got these huge stock buybacks. And it's
like it's not going down iphones are everywhere and right you look you look at it and you're like
wow i mean they're gonna buy back if they're gonna tell me just the fact that they're telling me
that they're gonna buy a hundred billion dollars of stock back you're like i'm gonna front run that
everybody's front running everybody all the time i'm gonna front run that that's awesome
i want them to buy the stock back and they're gonna do it they're gonna tell me they're gonna
do it and then they're gonna actually do it i'm gonna buy it beforehand and just hold on to it
and then they're going to continue to do this like why would i not that's why it's a three and a half
trillion dollar company can you imagine if mstr got a yield on their bitcoin from jp morgan and
just yeah once they get certain locs from jp morgan old jamie diamond and um all those guys
yeah that's it's very very possible um that that's not going to go through the absolute moon
yeah yeah 30 30 000 a share i mean the sailor said he wasn't going to do so let's just
Maybe let's just hide most of these just to make it simple.
Actually, I'll keep the Chevron one because that one's awesome.
But Apple in May, they had $100 billion stock buyback.
When they did the stock buyback, the Bitcoin price is $97,000.
Let's just say they allocated 25% of that to Bitcoin.
So you buy $25 billion worth of Bitcoin.
That would have purchased 256,000 Bitcoin.
So today's value of that would be $28 billion.
So they would have made $3.5 billion in, what is that?
Three months.
So the return since they did the buybacks, 14% stock, the stock price has only moved 1% though.
And where'd that go? And so the market cap of the buyback was 3.1 billion or 3.1 trillion.
And the market cap today is 3.1 trillion and the market cap change. And I was trying to,
and that the missing piece here that I'm trying to pull together is like,
what would the, what would, what should the market cap be?
You know, what's the as if value of the stock, if they would have purchased Bitcoin,
that's that missing piece. I'm trying to like back my way into it, uh, around, around it.
Um, but the, the bigger one here, let's look at Chevron, which is this cool.
So Chevron in January of 2023, they issued a $75 billion stock buyback. So the price of Bitcoin at
the time was $23,000. They never would have bought Bitcoin, but it's just fun to walk through this
because this is going to be the narrative of the future. After the S&P 500, after that clears,
the prefs are going to continue to be really important. And then all eyes are going to be on
MAG7, large stock, stock buybacks. That is where this narrative is going to shift.
And it's going to be like, should these companies do stock buybacks or should they buy Bitcoin?
And that will be the narrative of like the next five years, I think.
So you look at Chevron, right?
You could have bought $75 billion worth.
Even if you would have allocated 25%, you would have bought $18.7 billion capital to Bitcoin.
I would have purchased 806 Bitcoin I mean more than strategy has right Just buying 25 of your stock buyback at 23 would have purchased you know was that 20 30 more amount of Bitcoin than
strategy, 40, 50% more the amount of Bitcoin that strategy has right now. The value of that Bitcoin
today would be $89 billion. The Bitcoin that would have made $70 billion off that Bitcoin purchased.
the market cap at the buyback was 357 billion. So basically, if they would have spent 25% of that
buyback on Bitcoin, the value of that Bitcoin, $89 billion, relative to the market cap today,
$267 billion. It's almost like a third of the market cap of the value today.
So you'd be much better off buying stock in any one of these situations. Basically, the market cap
since this buyback has gone down 25 but the price of bitcoin has gone up 378 what like
chevron would be trading way higher yeah right they would be the largest you know how we
like regret oh man i should have bought more bitcoin when it was 23 000 yes imagine these guys
in five or ten years when they're looking at your spreadsheet or you know doing this math
themselves and thinking man i could have bought 18 billion dollars worth of bitcoin at 23 000.
yes i mean make it a hundred right kind of regret it just bottomless
kegs of beer to erase that regret oh man right like if chevron would have purchased a hundred
percent of that with uh 100 of that towards bitcoin they'd have 3.2 million bitcoin
and the value of that would be, you know, what is that?
Like 40% more than their market cap today.
The value of the Bitcoin alone.
Yeah, some serious FOMO for sure.
But it's an interesting narrative and you can, I mean,
I'm trying to back into how that would impact share price
or just kind of theoretically, right?
And I think that's where this is going to go.
That, you know, maybe it's not the top seven companies
that start doing this, but maybe it's the smaller companies that do share buybacks.
Because I know there's, you know, companies within the top 100 that do share buybacks.
They're just much smaller in scale.
And the question is going to be, all right, should I do that or should I buy Bitcoin?
What's better?
What's better for the shareholder?
Right.
What what's better for the shareholder?
I don't.
Well, the crazy thing is the shareholders that were presented this at Microsoft and what
was the other company said no.
Like, I get it that the that the board is too scared to do it.
But when it was put up for a vote and the shareholders voted against their own interest, that's the mind numbing part.
Like that's that just makes you realize how early we still are.
Yeah, but when they argue that they could just buy Bitcoin with the cash dividend, you let your investors do that.
Yeah, I don't know.
I think there is something to that, but well, with the dividend like wouldn't you rather this wouldn't you rather the stock hold it to increase their power in the market, their financing
capabilities? Absolutely. I think so. But I'm just saying, I think that may be the other argument.
Yeah. Oh, the argument that they're having. I could buy Bitcoin myself. Just give me the money
back via the stock. Yeah, exactly. Just return the capital on me. I'm buying my own fucking Bitcoin.
Well, but you hold dollars on your balance sheet. They're going to zero. Do you want to
have strength in the capital markets ever? Do you want to be able to go negotiate? When you need a
loan, what's going to be more powerful when you hold a loan or when you're going to get a loan
or recapitalize? I don't know. I mean, right now in the past, it was definitely dollars. You hold
more dollars is definitely more powerful. But in the future, I mean, is that equation change?
Yeah, I think it's transition, right?
And even if the stock buybacks start to do 5%, right?
Like just a negligible amount, 5% of Apple stock buyback.
You're still talking about a $5 billion buy, right?
Annually from Apple.
Yeah.
That's a convertible bond deal.
That's both of strategies convertible bond deals in 20, at the end of 24, they did 5
billion in like, I don't know, a month.
Yeah.
That's a ton of Bitcoin being purchased.
If you take 5% of these stock buybacks in the last two years,
you're talking $37 billion of buy side volume coming into Bitcoin.
Enormous.
Enormous amount of capital.
So I don't know.
I think that's where this narrative and conversation goes.
What's the efficiency?
Why are companies issuing dividends when they can buy Bitcoin?
Because it's much more efficient for your stock.
We'll see. All right. We're hour 40 in. What else did I have? Oh, I did some cool calculations here.
I think these are fun. So strategy Q2 gain was $14 billion in Q2. There were 62 business days in Q2.
The gain per employee is $226,000. They have 1,500 employees. So the gain per employee is $147,000.
The gain per day per employee was $147,866.
So that's like how much every single employee
was technically made from the Bitcoin gain
every single day, every single employee.
And you compare that to Nvidia,
$8,000 per gain per employee.
You compare that to Apple, $2,000 per gain per employee.
You compare it to Microsoft, $1,800 per day per employee.
And if you're talking about efficiency,
I mean, there's nothing more efficient than what strategy is doing here.
Like it is, it is the most efficient play in the entire market.
And I was trying to think of a way to emphasize like how big $14 billion is, because I don't
think people really get it.
I've been trying to like emphasize it like over and over and over again.
$14 billion is so much money.
It's so, so, so much money.
Like, was that like your post about the stack and the dollars to the moon?
The dollars, right?
So I came up with another one that I wanted to share.
I think it's helpful.
Okay, so just hang with me here for a moment.
Imagine a million-dollar house wherever you live, whatever that looks like.
And I know it looks different in everyone's locations, but imagine a million-dollar house.
Now imagine a town with 14,000 people and all of them own a million-dollar house.
14,000 people all of them own a million dollar house nice neighborhood it's a it's an enormous
neighborhood it's a big neighborhood and all of them are a million dollars that's how much money
strategy made last quarter that entire town 14,000 people with million dollar houses like imagine
owning all of it that's how much money they made last quarter or like you go into a basketball
stadium. Most basketball stadiums hold what, like 20, 25,000 people. So you think of that like
three quarters of the way full and you, every single one of them, you own all of their homes
at a million dollars a piece. You know, it's like, it's just so much money. People can't wrap their
head around it. It's just a, it's a, it's just a massive amount of capital in a short period of
time. And that scales, right? Like the scales exponentially as, as Bitcoin continues to rise.
like the base effect math is on the side of strategy here.
Like we're going to look back on this and we're going to laugh, right?
Like five years from now, they're going to make $140 billion in, you know, a quarter.
And we're going to laugh.
We're going to come back to this town analogy and just say, instead of 14,000 people, imagine
140,000 people with a million dollar homes and how big that is.
Like that's, that's where this is going.
and people say, well, you know, it's just Wall Street's going to discount the earnings. No,
they're not. I mean, you have to quantify it with some regard. Yeah, it could be volatile,
but even if you zoom out and you look at it on a long-term horizon here,
like if it drops 50% from here, there's still significant positive position moving forward.
It's just crazy. I mean, it's a crazy valuation framework. Everybody's trying to rethink what
these things are, what they're worth. And it's tricky. Super tricky. Okay. Well, we're hour 50
in. I think it's a good time to wrap. We've got how many people? 9,467 people. Cool. All right.
Thanks for the time, everybody. Investment grade Bitcoin podcast, episode 32. We got final thoughts.
Maybe Dan, kick it over to you. Final thoughts. I thought it was a really productive episode.
Diving in.
Super psyched to be here.
Soleil, over to you.
Yeah, so this was another thought I had from watching Tim's Bitcoin Treasury Marathon yesterday.
There's just so many companies adopting this strategy.
And it also goes back to the Bitcoin per yield or the Bitcoin yield comments that we had earlier.
The most important decision is the same as for the rest of it.
It's just get off zero because your Bitcoin yield will never be higher than that moment because the delta is going to be dividing by zero.
You used to have zero Bitcoin.
Now you have more Bitcoin divided by zero.
So your Bitcoin yield at that moment is infinite.
And inevitably, it's going to have to decrease from there.
But it's still an important metric.
But just getting off zero is the best thing that you can do.
and just seeing company after company after company coming on his show doing this and it's
not going to stop it's only going to keep happening just got me super excited yeah there's so much
capital coming into the space everybody's seeing opportunity here everybody's trying to convert
their mom dad pop grandma brother sister uncle cousin into you know adopting a bitcoin treasury
strategy i had a call with my buddy earlier today he runs a grass company i'm like dude you need to
buy Bitcoin. And that's just kind of where we're at. And he's seriously considering it. He's like,
yeah, we just hired a new accountant. They're young. And I think we're going to do it. And
even that is just going from zero to one. And then you get started with it and you keep going.
And yeah, that process. And I chatted with another guy, Mayblo, oil and gas guy. Traditional guy
works with these slimy oil and gas guys down in Texas and got oil wells and natural gas things.
And he's converting profits that he's making on these oil and gas rigs into Bitcoin.
And it's a private company.
It's like I have no intentions of going public or doing anything like that.
I'm just in my niche and I'm just running it.
I'm buying coin.
That's what he calls it.
He's like, I'm buying coin.
And I'm drilling wells and I'm buying coin.
There might be up days.
There might be down days, but it's all good.
And it's so cool to see.
And that's going to keep happening.
it is going to keep happening uh yeah my final thoughts i i there's so much to be positive about
right now i mean we're we're getting into a really exciting time here in the second half of the year
potential interest rates coming down you've got uh dollar printing probably on the horizon with
the big beautiful bill it's like a good good and bad thing right like you kind of feel you almost
feel bad like this is likely going to lead to more inflation but i think everybody that's here is
probably positioned really well. Assets are going to soar. And yeah, it's an exciting time to be in
Bitcoin. I am just so excited to be working in this space now and keep talking about all these
things. And it's all synergistic. Everything helps everything grow. So I've said this before,
if you're interested in growing in this space, start talking about it. Your X profile is a resume
and everybody that's been on the show,
everybody that's been talking about
the stuff in the space
is building a reputation
and that can,
if you want to get a Bitcoin job,
like just do it.
Like you could just do things
and it's cliche,
but you can
and here we are.
So I appreciate the time, everyone.
We will be back next week
and we'll keep this party,
keep this party rolling.
Hopefully we get an all-time high
and we just start cooking.
Everything just starts cooking.
That'd be fun.
Hell yeah.
All right.
Cheers, guys.
Appreciate it.