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I'm blind to you, haters

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Try and touch me while I instigate us

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Miss every busy love

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Ask your only world I run so

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Said I'm blind to you

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Haters

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Your thoughts be ruined my creators

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Me say baby's in love

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Fly, fly

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Hey, ask you how the world around south

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When things stop a path

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Them a smile and a laugh

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Them all the love we see you fall by the real side

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Them all a dig up your past

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Pray for you don't fall past

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Them trigger mode from blast like them nana pride

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Blessed love to do them

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Welcome back.

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We are back.

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True North episode 32.

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We are going to get after it.

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We're going to have a good time today.

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We're going to talk about credit markets and we are going to have some fun.

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We've got the crew.

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I'm in a new location.

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I'm trying to get my stuff figured out here.

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And here we are.

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There's the crew.

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All right, tonight we've got Soleil, myself, Dan, Hillary and Adrian.

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The crew is back.

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I'm in a new spot.

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I've got a virtual digital basement background.

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So we're back into it.

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I got made fun of for my NFT the other day or earlier today, which is fun.

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If you're not looking at all of the different technology, I think you're missing something there.

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So I wear it as a badge of honor that I had my shitcoin phase.

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So here we are, and we are going to get into it.

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So today we are going to talk about MSTR leverage update and a Q3 update.

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So $14 billion fair value appreciation in Q2.

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We're going to talk about convertible preferred equity.

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We're going to do a deep dive and jump into it, have some fun.

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Theoretical preferred equity ceilings.

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Soleil's got some good background and information on that.

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It's something he's been talking about a decent amount.

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The market landscape and the architecture.

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Just talk generally about the broad equity market architecture, these different landscapes,

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different countries, different systems and how they work and think through it and how

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the implications for all of these equities.

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Talk a little bit about the S&P 500 debate.

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We made a lot of noise about it at the end of Q2, but I don't know if you noticed, it's

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been exceptionally quiet since then.

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And I think it will be exceptionally quiet until we get into August.

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and if there's any time left over, we'll just shoot the shit and we'll keep going.

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So thank you to anybody that's here. If this is your first time, the MSTR, or we're just calling

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it True North now, True North, the investment grade Bitcoin podcast. We're here talking about

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Bitcoin treasury companies, primarily strategy and the changing landscape of the equity market

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with these new companies that are issuing equity, issuing debt and how they're

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they're accretively adding Bitcoin to their balance sheet.

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So our goal is to educate the market,

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talk about everything that's going on,

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talk about what people are talking about on X online

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and think through the education of all these different systems

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and with different backgrounds and different perspectives.

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So, sometimes it may be a little bit more controversial

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than others and sometimes we will talk about quantum computing

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for 25 minutes and go down rabbit holes.

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So we're here to have some fun.

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All right. Well, with that said, I think it's time to jump into leverage update. What do you guys think?

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Yes. Let's talk leverage.

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The whole game these days, capital stack.

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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.

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So here you can see the leverage.

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So this is MSTR's financial leverage.

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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.

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You've got to think about the risks that you may foresee at any point, any point in time.

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And it's very similar, like managing a Bitcoin treasury is very similar to managing an insurance company balance sheet.

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And I'm surprised there's not more insurance people here in this landscape because it's very similar correlations.

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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.

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And now with the Bitcoin balance sheet, it's just your asset is just much more powerful and your

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liabilities are much smaller because you got to take into consideration the volatility of the

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underlying asset that you hold. So my background has played exceptionally well into this space and

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understanding the leverage of a balance sheet and managing a whole capital portfolio. So looking at

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strategy's balance sheet, which we're focusing on strategy because it's the largest, right? It's the

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largest by more than 10X. I think they've got 11 times more Bitcoin held on balance sheet than

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anybody else. The amount of Bitcoin they held at as of today, 7.9 is 597,325. Bitcoin price,

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I think was around 111,000. We are cooking up. We are near all time highs. Hopefully we can hit one

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here during our show and stream. That will be fun. We've done that a couple of times.

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And so strategy is now sitting on $66 billion worth of assets, $8.2 billion worth of debt,

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$3.4 billion of preferred stock. So if you think about the net capital held on balance sheet,

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it's about $54 billion, which is a very, very powerful balance sheet, right? You think about

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$54 billion, it's kind of easy to shirk it off and say it's similar to $54 million. No,

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So $54 billion is so much money.

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It's $100 million, 540 times.

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It's just so much capital.

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It's like hard to comprehend.

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And that capital number can grow exponentially quickly

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and can start becoming vastly larger,

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which makes them more powerful into the market.

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You think about size and scale here, $54 billion.

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that's like around the 180, 190th largest company by market cap.

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If you think about just the net capital that they hold on balance sheet is powerful in and of itself.

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So the leverage ratio sitting at 17.5% leverage ratio.

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So the price of Bitcoin, so the credit rating for the balance sheet is 5.7X.

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So that's the debt coverage multiple.

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How many assets do you have relative to your debt?

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So this is, think of the BTC rating and the BTC price needed for assets to be worth less than the liabilities.

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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.

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I think the probability of that is incredibly low.

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Just given that we're a $2 trillion asset, you're talking about a $2 trillion asset going down to a $200 billion asset.

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I think that math is right.

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Maybe a $400 billion asset, something like that.

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So significant drawdown, 82%. Looking on this next column, this pro forma basis,

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this is subtracting out the $3 billion of debt that they've got currently trading as equity in

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the market. Effectively, this is the $3 billion of convertible debt that's so far in the money,

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it's very close to, it's basically trading as if it's equity in the market because it's so deep in

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the money. There will be a point in time where that debt will be called away and that debt will

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be cleared off the balance sheet and converted into equity. This is not a dilution moment because

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that debt that will be converted into equity is likely very fully hedged out via short positions.

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So when that debt is closed out, it's likely that there will be a canceling out of short positions

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and canceling out of equity, which is kind of a net zero impact on the company valuation. But

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who knows exactly how that will play out? But I think that's effectively the buyers that have

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purchased this at the very beginning were convertible debt arbitragers. And I think that

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the majority of them are using those tools to manage the balance sheet.

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Okay. Any questions? You guys have anything to add on that? I mean, $66 billion of capital. I mean,

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we are cooking here. If you look at the beginning of the year, it's $41 billion of capital.

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And I mean, hell, they've increased their Bitcoin held on balance sheet by 150,000.

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we might need to go back and see who's closest here. We're halfway through the year, right?

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What were our guesses at the very beginning? Yeah, I know. I've been thinking about those

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guesses for a while. They're, let's see here. They're here.

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They're applicable to the Bitcoin treasury landscape. So I remember in November,

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we were forward projecting the BTC yield as a function of equity dilution or creative dilution

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and taking in the Bitcoin on the balance sheet.

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And I personally expected that the ATM accretive dilution

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would be able to continue into perpetuity

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or at least at just a slightly lower rate

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throughout the rest of the year.

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And I was completely wrong about that.

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And that's something we're seeing

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in a lot of Bitcoin treasury companies

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is this idea that you can continue exponential accretion

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of Bitcoin per share as market cap continues to expand.

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And the one thing we've learned from strategy

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is that you can't.

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As the market cap continues to expand

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and as it gets larger and larger

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and the equity is bigger and bigger, you can't just issue equity and buy Bitcoin and have

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the same effect on Bitcoin yield and have the market still demand that equity over a

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long period of time.

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So you can't just project out historical looking Bitcoin yield forever into the future.

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Yeah, there's like an economies of scale thing.

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Yeah, base effect math, whatever you call it.

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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.

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Yeah, exactly. And ATM, the ability to ATM and do a creative dilution is a function of

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demand for the equity. And as the equity becomes larger and larger, and the yield has to drop

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because of the assets being larger on the balance sheet, the demand for the equity will potentially

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slow, especially during periods of low sentiment, like Adrian's saying. So there's just a lot of

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factors and independent variables at play here. For me, the most important thing is sentiment.

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I think everything is downstream from sentiment in terms of the price, because that's going to

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drive most of the multiple. It's all about perception and subjective market psychology,

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really, with a lot of the demand that comes to equity.

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Well, maybe on some of the smaller, you know, less well-known ones, right? And you got to think

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about everybody that's on X following all this stuff right now. Like all of these seem well-known,

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right? Smarter Web Company, AltBG, Metaplanet. Go talk to anybody about, like, go walk into your

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grocery store and ask anybody if they've seen what, you know, the price of SmarterWeb did today.

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like you know so nobody's going to get it but i think on a on a larger scale you have more people

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that are paying attention to this because it has a bigger impact on the other components that are

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in their portfolio that you know like qqq or um any of these other things i i played golf this

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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

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about bitcoin a little bit and he's like oh have you heard this company strategy i'm like yeah i

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know it. I know that company. And, but yeah, and so, you know, that's, that's the first company

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that comes to mind, right? It's not, it's not any of these other companies. And I think that

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because of strategy size and scale, they will continue to be that kind of household name.

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And they, they will be, they will be the one that everybody knows of. And these other companies

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will be a little bit smaller. So Adrian, what I'm getting at here is that sentiment

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that retail sentiment will probably drive valuation of the smaller ones a lot more than

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some of the much bigger ones. People think that, why is the stock going down? It's because a bunch

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of people are mad on Twitter. No, that's not the reason. We're talking about a stock that has

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billions and billions and billions of dollars that are traded every day. That's not retail.

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Those are computers. Those are computers that are trading back and forth consistently.

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I completely agree. And the other thing I think that's really important is this idea

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that like when we got involved in strategy or when I got involved in strategy and MSTR,

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I looked at it as a leveraged Bitcoin equity. The key point being that there's leverage

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in the capital stack. Because strategy at the time wasn't ATM-ing that much. There was

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very little ATM. They had a lot of outstanding convertible debt. They had senior secured

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debt. And what that created was a leveraged balance sheet that created that kind of exposure

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and leveraged exposure to Bitcoin. And now everything is just BTC yield over a short

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period of time because of equity issuance. So I think people have kind of conflated those two

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things and having leverage in the balance sheet is one thing. And then having Bitcoin yields,

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another thing. And obviously they're kind of similar, but they're also different. And it's

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interesting to think. That's an important clarification. Yeah, right. There's this

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component of leverage that's important in insurance. And again, a lot of similarities

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here to Bitcoin treasury companies and insurance companies. There's this concept of, well, it's

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called combined ratio, right? So if you take premium in the door and you pay out claims

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throughout the year, and at the end of the year, you get judged on how much loss you

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have relative to the premium, how much premium you have. And so your loss ratio or combined

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ratio, let's just say it's a 70%. It means 70% of 70 cents on the dollar of every dollar you brought

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in the door, you had loss, but you've got a 30% profit for the year. Most people would think that

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looks really good. But if you were a seasoned professional in the insurance industry, you would

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say you left money on the table. You should have taken on more risk. And you should have levered

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your balance sheet more and taken more premium in and taken more leverage on, taking more risk on.

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So that's kind of a concept of leverage is helpful in some capacity in a competitive marketplace.

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Yeah, well, Metaplanet changed the landscape, right?

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Well, first, I think it was the 42 plan for MSTR.

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Because that was a departure from what we had seen in the traditional very low ATM issuance,

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high convertible debt leverage ratio in the capital stack.

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covering the convertible debt coupons via actual business free cash flow.

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That was the structure we had seen prior to the 42 plan.

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Then the 42 plan came and we saw the equity issuance.

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We saw obviously it transitioned into fixed income issuance, preferred issuance.

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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

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equity demand. But strategy wasn't like that. It was all about leverage in the capital structure

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at the beginning. And so I think people are forgetting that that's how this all played out.

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It's all about leverage. It's all about Bitcoin leverage.

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Intelligent leverage, managing your leverage with foresight of volatility.

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Yeah, exactly. Yep, exactly. Especially in the case of strategy. And that's the other part

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people are forgetting. It's like all their debt was covered by their free cashflow from their

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operating business nine months ago, nine months ago. That was not long. And so now we're talking

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about press. We're talking about arbing CAGRs for Bitcoin. Nine months ago, we didn't even know

219
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what the Bitcoin CAGRs. People thought it was going to a million in like five minutes.

220
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So people weren't even talking about CAGR, right? So now we're talking about arbing the CAGRs,

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preferred stock. So everything's changed. It's very interesting to be part of.

222
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Yeah. Landscape. Landscape is changing. It's evolving for sure. Very fast. You know,

223
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we were talking about it today. It's like a year in Bitcoin or crypto is like dog years.

224
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It might even be longer than that. Right. It's like you go one year here. It's like seven years.

225
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Everything happens so fast. It's pretty crazy. Okay. So let's just look at who is closest here.

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597,000 minus 446,000. All right. So 150,000 Bitcoin added on the balance sheet in the first

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six months and let's see where we're at that was estimates over here and so when they started

228
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um btc msdr holdings as of 12 31 24 is 446 000 and basically we're halfway there we're uh if you

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add 150 000 to what they got right now if they just did exactly what they did in h1 dan i think

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you're you might be the closest here yeah i don't think we're gonna get there you don't think we're

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gonna get there it's gonna piss me off of new york ross which it gets the gets that because it wasn't

232
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he's just a commenter like it's just a comment he's just like threw one out there yeah he just

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nails it like right on the nose and we're all yeah well dan let's think about it we've seen

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all it depends how much how significant the demand for strike is in my opinion it all comes down to

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the strike atm because i think strategy knows they can't use the common atm in the same way they have

236
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in the past because of the introduction of other leveraged bitcoin equities in the market and

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because they understand now so think about this this is a really important there's something i've

238
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been thinking about a lot i'm not sure if uh you guys will think it's correct but let's say so like

239
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uh buffett famously said he'll issue shares when the company's trading above the the um what he

240
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believes to be the fair value of the company, right? He'll sell equity at above the fair value.

241
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Well, if now strategy is a Bitcoin refinery and they have these operations that are the USD premium

242
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versus the Bitcoin premium and are issuing preferred equity, then the value of the company can't be one

243
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MNAV. It has to be one MNAV plus the value of these operations. So I think it would actually

244
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be in strategy's best interest to not sell equity at anything below maybe two MNAV or 2.5 or three,

245
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whatever they believe to be the fair value of those Bitcoin treasury operations.

246
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So I think they will have to actually slow down the ATM issuance of the common and use the press.

247
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And the press, I think, will still take time to ramp up. And I don't think we'll get to those

248
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crazy Bitcoin price targets that I predicted at the beginning of the year.

249
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Well, so I've got two, I've got a couple of perspectives on this or theories.

250
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I think you're going to be surprised, Dan. I'm hoping. It's not just hoping. I do think the S&P

251
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500 catalyst can provide some significant energy into the MSDR stock, which could provide significant

252
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ability to capitalize via ATM. And you think back to where we were in November, right? And I know we

253
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talked about this a little bit earlier, and maybe we disagree on this, but there was a catalyst in

254
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November where strategy raised $17 billion in 45 days, right? $17 billion in 45 days. There are two

255
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things that happened. You had a presidential election and you had QQQ front running. In my

256
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opinion, there was a, there was a period of time in mid-October where strategy passed the threshold

257
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of $40 billion to be potentially included in QQQ. And, and it became evident that there was very

258
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highly likely that they'd be included in QQQ. So I think we saw front running in pretty much

259
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all of November and they had the instruments in play, the capital plan in play in order to

260
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capitalize on that capital that's coming in the door. Agree with all those points. Yeah. Thank you,

261
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Dan. So, you know, there's two things, right? A lot of people say, oh, it was the presidential

262
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election. Well, it's like, yeah, it's the presidential election, but the presidential

263
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election doesn't cause $17 billion to come in the door on a single stock, right? I think there was

264
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some component of that. I would argue a large portion of that, probably 80%, that was a function

265
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of QQQ, this capital that's coming in the door. And 100%, 100%. So I guess the real question is,

266
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has S&P 500 already been front run? Was it front run back in February of last year,

267
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when they passed the threshold of $14 billion to potentially be included, but we knew that the

268
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earnings weren't going to be there until they adopted FASB fair value accounting in

269
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2025. I don't know. I don't know.

270
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Yeah. And I think it's a function of market fair value, right? I don't know. I just think about

271
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the incentives of the people in play and the thing that's nerve wracking for me, not nerve

272
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wracking, but I'll just be, I'm not a bear here, but I'll think about it. If the MF rips to three

273
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or four, and we start getting these massive billion dollar, 2 billion, 3 billion, 4 billion

274
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dollar weekly ATM sales, I think strategy perfectly capitalized on this new opportunity,

275
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which they were able to see in the market that never had happened before.

276
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The amount of demand for their stock, the NASDAQ front running, all of that.

277
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And they capitalized it and captured the gain in Bitcoin per share.

278
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But I don't think that opportunity will present itself in the future because the market is

279
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now aware of the implications of such behavior in the short term but i think it makes it a little

280
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difficult moving forward and they'll have to be more diplomatic with the way they issue that that

281
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common equity at right yeah it's it's i mean who knows right it's tricky right every every dollar

282
00:22:09,332 --> 00:22:15,412
that they bring in the door on mstr let's just say there's a ton of energy if they're doing a

283
00:22:15,412 --> 00:22:22,932
t-wop v-wop sort of situation and they're able to t-wop v-wop t-wop yeah they just fetty wop the

284
00:22:22,932 --> 00:22:28,532
atm the mstr atm in there and uh if they're in a situation where they have the opportunity to

285
00:22:28,532 --> 00:22:37,492
raise i mean what you've got 18 billion dollars left on the atm uh here on mstr they raised 17

286
00:22:37,492 --> 00:22:43,332
billion in 45 days and i think over like 20 25 billion in uh 100 days something like that so

287
00:22:43,332 --> 00:22:51,112
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.

288
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It could happen.

289
00:22:52,912 --> 00:22:56,272
There could be a significant amount of capital and energy that's coming into the stock really quickly.

290
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And you'd want to capitalize on that because that gives you so much more power to issue more prefs.

291
00:23:02,332 --> 00:23:02,732
Right?

292
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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.

293
00:23:12,272 --> 00:23:18,312
So instantly, this is what they, all of these instruments are so synergistic, right?

294
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Like you use the MSDR ATM.

295
00:23:19,712 --> 00:23:20,112
It's like, great.

296
00:23:20,192 --> 00:23:23,832
Now I could go issue more of these because the technical theoretical credit rating should

297
00:23:23,832 --> 00:23:24,632
be improving, right?

298
00:23:24,652 --> 00:23:28,572
If, if they're using the MSDR ATM and they're buying Bitcoin, buying Bitcoin, buying Bitcoin,

299
00:23:29,052 --> 00:23:30,072
strife should rock it.

300
00:23:32,412 --> 00:23:34,632
Yes, I completely agree with that wholeheartedly.

301
00:23:34,912 --> 00:23:36,172
Strife should rock it, right?

302
00:23:36,192 --> 00:23:39,892
Like, because it's just, yeah, but you can't tell them that strife.

303
00:23:39,892 --> 00:23:41,452
What do you want to own?

304
00:23:42,272 --> 00:23:47,552
strike and stride. All of them, all of them, the credit ratings.

305
00:23:47,552 --> 00:23:52,152
You want to own it all. I think you want to own it all. If you're long MSTR, you don't want to,

306
00:23:52,352 --> 00:23:55,392
I think there, a lot of people say like, oh, but all of these benefit the common.

307
00:23:55,832 --> 00:23:58,752
It's like anything. You've got a great company that's overpriced. You can have a,

308
00:23:58,752 --> 00:24:02,492
you know, a shit company that's underpriced and, you know, you may make money in one scenario,

309
00:24:02,592 --> 00:24:08,112
maybe money in another. In this case, I think the press are still underpriced relative to where

310
00:24:08,112 --> 00:24:12,252
they could go. So I think if you want to be long in STR, it's really cool to own every

311
00:24:12,252 --> 00:24:16,992
part of the capital structure because they all shine in different kind of periods of

312
00:24:16,992 --> 00:24:19,872
time. Completely agree with every bone in my body.

313
00:24:19,872 --> 00:24:31,112
Oh, same wavelength here. Yeah. Adrian, so late. Can we talk about this idea of strife

314
00:24:31,112 --> 00:24:37,912
approaching the risk-free rate as press convert? Because I think that's like huge for understanding

315
00:24:37,912 --> 00:24:43,592
capital stack and where it will be in the next strike or strife yeah right yeah let's lead it

316
00:24:43,592 --> 00:24:48,472
off unless so late adrian you guys have anything else to add on that um on that topic here we're

317
00:24:48,472 --> 00:24:56,792
talking leverage we're talking uh you know prefs and the dynamics at play and the rest of h h2 2025

318
00:24:57,672 --> 00:25:05,512
now we can move on to um to preferreds all right go ahead go ahead dan so they kick us off

319
00:25:05,512 --> 00:25:12,552
yeah let me um well so i did so like we refresh where we were how the capital stack yeah yeah do

320
00:25:12,552 --> 00:25:20,232
that no will you do that i need to remind sorry you want me to refresh what how the different

321
00:25:20,232 --> 00:25:24,792
layers of the capital stacks just so everyone remembers oh sure how it's so you know strife

322
00:25:24,792 --> 00:25:30,392
is going to be at the top um they're they're basically guaranteed to be made whole first right

323
00:25:30,392 --> 00:25:38,032
And then we got strike right below them. And at the very bottom, I guess the junk bond version

324
00:25:38,032 --> 00:25:47,292
is STRD. And so that's the most risky and should trade at a lower price and potentially provide the

325
00:25:47,292 --> 00:25:53,532
most dividend. Anything I missed there that you wanted to cover?

326
00:25:54,812 --> 00:25:59,772
Creates a yield curve. MSTR, the common stock equity is the most risky. So it sits at the

327
00:25:59,772 --> 00:26:05,592
bottom. So in the event of a liquidation, the whole reason this works is because the way that

328
00:26:05,592 --> 00:26:12,272
these are contractually designed is that they add more risk into each instrument. So Strife being

329
00:26:12,272 --> 00:26:18,132
the most senior, Strike being the second most senior, Stride being the least senior, and MSTR

330
00:26:18,132 --> 00:26:24,152
being at the very bottom. Basically, in the event of a liquidation, MSTR shareholders get money last

331
00:26:24,152 --> 00:26:25,352
if there's any money left over.

332
00:26:26,552 --> 00:26:27,352
It's just theoretical.

333
00:26:27,352 --> 00:26:28,632
It's theoretical risk.

334
00:26:29,992 --> 00:26:31,272
Yeah, I forgot to mention, which is the

335
00:26:31,272 --> 00:26:33,592
I forgot to mention the common shareholders at the bottom.

336
00:26:33,592 --> 00:26:33,872
Yeah.

337
00:26:35,312 --> 00:26:36,032
No, that's not.

338
00:26:36,032 --> 00:26:36,832
They just sound fair.

339
00:26:36,832 --> 00:26:37,832
Yeah.

340
00:26:37,832 --> 00:26:41,832
Well, the convert stood above strike, strike and strike, don't they?

341
00:26:42,272 --> 00:26:42,952
Correct.

342
00:26:42,952 --> 00:26:43,912
Very top.

343
00:26:43,912 --> 00:26:45,312
Yeah, but we're not doing that anymore.

344
00:26:45,792 --> 00:26:46,392
Yeah, get those.

345
00:26:46,392 --> 00:26:47,912
Get those out of here.

346
00:26:49,872 --> 00:26:50,672
Yeah.

347
00:26:50,672 --> 00:26:52,352
Well, Jeff, do you know the actual

348
00:26:52,352 --> 00:26:58,052
Well, can they call those early for conversion, but it creates bad blood with the convertible

349
00:26:58,052 --> 00:27:00,352
investors so they're incentivized not to do that?

350
00:27:00,352 --> 00:27:07,632
And it's actually disadvantageous to MSCR because there's a provision that essentially

351
00:27:07,632 --> 00:27:09,532
converts more shares to the convertible.

352
00:27:09,532 --> 00:27:10,532
Yeah.

353
00:27:10,532 --> 00:27:13,792
It's less advantageous depending on the price of the underlying common stock.

354
00:27:13,792 --> 00:27:18,852
So as the price of the common stock goes further and further out, it gets closer to this, I

355
00:27:18,852 --> 00:27:23,332
guess you'd call it like a parody of like how many how many shares it should be represented of

356
00:27:23,332 --> 00:27:28,052
so if you call it early it there's just more shares associated with it and you know

357
00:27:30,052 --> 00:27:36,692
i'm not 100 sure exactly how that like how much energy is being stuck into you know trading and

358
00:27:36,692 --> 00:27:40,452
arbing mstr relative to the converts that are deep in the money i think it's got to be a very

359
00:27:40,452 --> 00:27:48,692
low proportion but um yeah i'm not 100 sure yeah no that makes sense

360
00:27:48,852 --> 00:27:55,292
But it seems like from everything we've gathered that the converts are on their way out.

361
00:27:55,292 --> 00:28:05,792
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.

362
00:28:06,052 --> 00:28:12,092
And that's extremely important because in the, in the prospectus of strife, sorry, I said strike.

363
00:28:12,192 --> 00:28:12,632
I apologize.

364
00:28:12,812 --> 00:28:13,412
I mean, strife.

365
00:28:13,652 --> 00:28:14,272
It's crown jewel.

366
00:28:14,272 --> 00:28:30,232
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.

367
00:28:30,772 --> 00:28:38,272
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.

368
00:28:38,272 --> 00:28:43,752
instruments. And once those have been taken out of the capital stack, Strife will be, right now,

369
00:28:43,852 --> 00:28:48,512
it's roughly, I think, 10x over collateralized, not quite, it's like 7x over collateralized.

370
00:28:49,072 --> 00:28:54,892
If today we're sitting at the top of the capital structure, it would be 66x over collateralized

371
00:28:54,892 --> 00:28:59,712
by the Bitcoin and strategies balance sheet. And so when we talk about approaching the risk-free

372
00:28:59,712 --> 00:29:06,192
rate, this is what we mean. And when any amount of Bitcoin is bought via any other equity capital

373
00:29:06,192 --> 00:29:11,052
raised, it will directly benefit the credit worthiness of strife. So if you think of it as

374
00:29:11,052 --> 00:29:17,192
a limit, the limit of strife or the credit spread of strife will tighten as it approaches the risk

375
00:29:17,192 --> 00:29:23,372
free rate of the US dollar. And that's ultimately the terminal coupon of strife is the risk free

376
00:29:23,372 --> 00:29:27,072
rate of the US dollar. If you believe Bitcoin's money, good. That's a super important distinction

377
00:29:27,072 --> 00:29:32,872
that when those convertible bonds roll off, STRF is literally at the top now and their credit

378
00:29:32,872 --> 00:29:38,572
worthiness just goes through the roof. Through the roof. What's the difference between a 7x

379
00:29:38,572 --> 00:29:43,592
over collateralized preferred equity instrument and a 66x over collateralized equity instrument

380
00:29:43,592 --> 00:29:47,832
in a highly volatile environment? It's night and day. It's absolutely massive.

381
00:29:48,812 --> 00:29:54,132
Huge. Real quick, we got some feedback in the comments and I got to play a video real quick.

382
00:29:55,132 --> 00:30:01,732
Ladies and gentlemen, what you're about to hear may be amazing, but it is not financial advice.

383
00:30:01,732 --> 00:30:05,032
It's for informational and educational purposes only.

384
00:30:05,032 --> 00:30:06,032
Jeff, there we go.

385
00:30:06,032 --> 00:30:07,032
There we go.

386
00:30:07,032 --> 00:30:08,032
Just had to get that in there.

387
00:30:08,032 --> 00:30:09,032
Thanks, Tim.

388
00:30:09,032 --> 00:30:10,032
This is not financial advice.

389
00:30:10,032 --> 00:30:11,032
Thank you, Tim.

390
00:30:11,032 --> 00:30:12,032
And I forgot to do that at the very beginning.

391
00:30:12,032 --> 00:30:15,032
30 minutes in and we'll put it at the beginning in the YouTube.

392
00:30:15,032 --> 00:30:17,032
Everything before this was financial advice.

393
00:30:17,032 --> 00:30:18,032
I guess so.

394
00:30:18,032 --> 00:30:19,032
Just kidding.

395
00:30:19,032 --> 00:30:20,032
Yeah.

396
00:30:20,032 --> 00:30:21,032
Yeah.

397
00:30:21,032 --> 00:30:25,032
Yeah, no, that was fantastic.

398
00:30:25,032 --> 00:30:28,032
Thanks, Dan.

399
00:30:28,032 --> 00:30:29,032
You hit the nail on the head, right?

400
00:30:29,032 --> 00:30:33,992
the the collateralization level of this the the difference between 7x and like 65x over

401
00:30:33,992 --> 00:30:40,552
collateralization is vastly vastly vastly different um and i you know i think it might make sense to

402
00:30:40,552 --> 00:30:48,152
jump into this uh this image that i put out on x what was it yesterday and go through this because

403
00:30:48,152 --> 00:30:53,512
i think this is what this is what's happening with um all of these instruments and i think it

404
00:30:53,512 --> 00:30:55,312
it could be worth going over it.

405
00:30:57,892 --> 00:31:01,392
So unless you guys want to take this any other direction,

406
00:31:02,252 --> 00:31:03,552
you know, go for it.

407
00:31:03,952 --> 00:31:04,852
No, that's not good.

408
00:31:04,852 --> 00:31:05,892
And we should hop into it.

409
00:31:05,892 --> 00:31:09,092
And someone asked what the risk free rate was for a perpetual,

410
00:31:09,312 --> 00:31:11,352
for a perpetual instrument of perpetuity.

411
00:31:11,672 --> 00:31:25,824
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

412
00:31:25,824 --> 00:31:33,424
the credit spread. So like what's Strife trading at today? It's got to be, it was like 8%, 7%?

413
00:31:33,424 --> 00:31:46,544
yeah so uh so strife set strife set eight uh then it the the credit spread is you know 400 basis

414
00:31:46,544 --> 00:31:51,984
points so it's the relative risk like how risky is this instrument relative to the risk-free rate and

415
00:31:51,984 --> 00:31:58,624
it's still at an eight percent risk-free rate is is is treated as if it's distressed debt it's like

416
00:31:58,624 --> 00:32:05,424
still so far mispriced and it's got opportunity to continue to grow because of the relative risk

417
00:32:05,424 --> 00:32:11,264
relative to the risk-free rate in my opinion so and you know if we focus on the left hand side of

418
00:32:11,264 --> 00:32:17,984
this uh this image here then we could kind of go through why what's going on with the prefs and

419
00:32:17,984 --> 00:32:24,464
this applies to all of them strf strk and strd when these instruments were priced by the market

420
00:32:24,464 --> 00:32:32,344
at IPO. Let's start with STRK, Strike. Strike was priced by the market. Nothing like this had ever

421
00:32:32,344 --> 00:32:37,184
come to market before. It was the first of its kind. I think it was priced at either $80 or $85

422
00:32:37,184 --> 00:32:44,744
to par. Par was $100. So that means they're offering $8 per share, which would be 8% at par,

423
00:32:45,184 --> 00:32:51,004
but it was priced at $80, meaning it was offering 10% per share, and it was still convertible into

424
00:32:51,004 --> 00:32:57,404
common stock equity into the future. So as the market was digesting this, the credit spread when

425
00:32:57,404 --> 00:33:02,284
this thing was issued was like 600 basis points. There was nothing else in the market trading like

426
00:33:02,284 --> 00:33:05,724
it. You could look at like any of the other preferred stock instruments. You could look at

427
00:33:05,724 --> 00:33:11,404
Boeing, you could look at PG&E, which I brought up ad nauseum, and you could look up GE, Apple,

428
00:33:11,404 --> 00:33:16,604
Microsoft. You could look up even the crappiest companies you've ever heard of. And Macy's. Yeah.

429
00:33:16,604 --> 00:33:18,844
Yeah, JC Penney.

430
00:33:18,844 --> 00:33:19,844
JC Penney.

431
00:33:19,844 --> 00:33:21,844
Those companies, I don't even know if those companies still exist.

432
00:33:21,844 --> 00:33:23,604
Macy's even still exist.

433
00:33:23,604 --> 00:33:24,604
But you can...

434
00:33:24,604 --> 00:33:27,444
Yeah, that trades at about a 250 basis point credit spread.

435
00:33:27,444 --> 00:33:29,964
250 basis point credit spread.

436
00:33:29,964 --> 00:33:34,844
With senior secured notes above the unsecured debt, which I'm talking about.

437
00:33:34,844 --> 00:33:35,844
And that's really important.

438
00:33:35,844 --> 00:33:36,844
We should get into it later.

439
00:33:36,844 --> 00:33:37,844
Right.

440
00:33:37,844 --> 00:33:39,604
So you think about the relativities here, right?

441
00:33:39,604 --> 00:33:45,324
And you're talking about this preferred equity being priced at a 400 credit spread relative

442
00:33:45,324 --> 00:33:47,644
to a Macy's senior convert or senior debt.

443
00:33:48,284 --> 00:33:53,204
And that means, in my opinion, that this was significantly mispriced.

444
00:33:53,884 --> 00:33:58,444
So as the market recognizes what this product is, which takes time,

445
00:33:58,924 --> 00:34:03,044
the you see this, the price of the convertible,

446
00:34:03,044 --> 00:34:05,204
we're going to call this instead of calling it convertible bond,

447
00:34:05,204 --> 00:34:09,004
the price of the preferred equity is going from point A to point B

448
00:34:09,484 --> 00:34:13,364
on the pricing curve because the market is recognizing

449
00:34:13,364 --> 00:34:28,324
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.

450
00:34:28,984 --> 00:34:37,824
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.

451
00:34:37,824 --> 00:34:44,524
that's why we've seen the price go up drastically in a short period of time because the market is

452
00:34:44,524 --> 00:34:50,744
beginning to recognize that these aren't as risky as they originally thought and you know if you're

453
00:34:50,744 --> 00:34:54,344
going to go raise a billion dollars of capital and doing these weird new instruments that have

454
00:34:54,344 --> 00:34:58,904
never existed you need to make it attractive in order to do it so the early capital that came in

455
00:34:58,904 --> 00:35:03,584
the door they're they're taking on you know technically more risk because these instruments

456
00:35:03,584 --> 00:35:10,524
haven't existed before. Maybe it's reputation risk, not just credit risk. And that pricing

457
00:35:10,524 --> 00:35:14,704
was reflected as such. I don't think that will happen again. I don't think there will be

458
00:35:15,264 --> 00:35:21,044
situations where these deals get priced as low as they do, but I could be wrong. Who knows?

459
00:35:23,084 --> 00:35:28,364
So what we are seeing here, so if just thinking about strike being the convertible preferred,

460
00:35:28,664 --> 00:35:32,044
so again, ignore this convertible bond, just call this convertible preferred price.

461
00:35:32,044 --> 00:35:36,244
we're going from point A to point B. In my opinion, I think we're still in this distressed,

462
00:35:36,484 --> 00:35:43,704
this technical distressed zone. So there's still opportunity for the price of strike to increase

463
00:35:43,704 --> 00:35:49,344
upwards relative to its credit risk. So it starts trading a little bit more like a bond.

464
00:35:49,824 --> 00:35:55,184
Now, when you look at this image in total here, you see this dotted line up and to the right.

465
00:35:55,184 --> 00:35:59,684
This is equity. Just if you assume the equity share price is going this direction

466
00:35:59,684 --> 00:36:05,084
and it's going in a linear fashion, this red line is how the preferred equity would price

467
00:36:05,084 --> 00:36:10,424
relative to the underlying price of the equity. So what you could see in this situation here is

468
00:36:10,424 --> 00:36:15,904
that even if the price of MSDR is going up from, let's just say right here, 0.0 to this line over

469
00:36:15,904 --> 00:36:22,704
here in the distressed column, you'll see that the equity moves up linearly, but the convertible

470
00:36:22,704 --> 00:36:27,384
bond is moving up kind of exponentially because the market is re-rating this. Now there may be a

471
00:36:27,384 --> 00:36:37,304
point in time where once the relative price of STRK from a risk perspective is start to reflect

472
00:36:37,304 --> 00:36:45,664
a more accurate risk assessment, STRK may underperform the underlying common stock equity.

473
00:36:45,804 --> 00:36:50,684
And you can see that here with the red line flatlining a little bit while the equity line

474
00:36:50,684 --> 00:36:57,364
is still going up vertically. Now, will that happen? I'm not 100% sure because nothing is

475
00:36:57,364 --> 00:37:02,484
ever been in the market like this before and i think we could see a situation where instead

476
00:37:03,124 --> 00:37:10,644
the price of the of the convertible preferred looks a little bit more like this um where where's my

477
00:37:12,324 --> 00:37:22,564
you guys see this yeah so we may see a situation where uh the the convert the price of the

478
00:37:22,564 --> 00:37:27,924
underlying SDRK moves a little bit differently because it's such a unique instrument and MSDR

479
00:37:27,924 --> 00:37:33,524
is the underlying equity that underlies how this thing is priced. So it may move a little bit more

480
00:37:33,524 --> 00:37:39,124
linearly, which Dan, I think is probably part of your underlying thesis here that...

481
00:37:39,124 --> 00:37:41,764
Dan Hennig It's super weird. It's super weird,

482
00:37:41,764 --> 00:37:48,884
right? Because there exists an arbitrage between strike and MSTR at all points in time.

483
00:37:48,884 --> 00:37:54,804
And so it's like, and then you have the ATM working on right now only on one of those instruments.

484
00:37:54,804 --> 00:37:59,524
And so there's all kinds of weird pricing discrepancies like at every second of the day.

485
00:37:59,524 --> 00:38:06,484
Right. And this is just the strike instrument, right? If you think about STRF and STRD,

486
00:38:07,124 --> 00:38:12,244
again, those are not convertible into underlying common stock equity. So it will only have its

487
00:38:12,244 --> 00:38:18,484
relative risk pricing. So it will be priced relative to other credit risk within the market.

488
00:38:18,884 --> 00:38:23,444
It won't have any, it shouldn't have much,

489
00:38:23,444 --> 00:38:26,684
if any correlation to the underlying MSDR price.

490
00:38:26,684 --> 00:38:27,884
It should be more of a correlation

491
00:38:27,884 --> 00:38:29,624
to how much capital is held on balance sheet,

492
00:38:29,624 --> 00:38:31,704
the value of the assets relative to the debt held

493
00:38:31,704 --> 00:38:33,744
on balance sheet and it's over collateralization

494
00:38:33,744 --> 00:38:37,244
or the BTC rating and how it compares relative

495
00:38:37,244 --> 00:38:39,044
to underlying interest rates.

496
00:38:39,044 --> 00:38:42,864
And you've got two components

497
00:38:42,864 --> 00:38:44,804
that control pricing with strike, right?

498
00:38:44,804 --> 00:38:47,084
You've got interest rates,

499
00:38:47,084 --> 00:38:48,864
like what is the interest rate that it's paying?

500
00:38:48,884 --> 00:38:51,124
And what is the underlying convertibility?

501
00:38:51,984 --> 00:38:55,604
And those both have different weights at different points in time.

502
00:38:55,604 --> 00:39:14,244
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.

503
00:39:14,244 --> 00:39:37,304
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.

504
00:39:37,304 --> 00:39:42,584
Yeah. And we'll talk about, I did a video on Macy's balance sheet as well, and I'll talk about

505
00:39:42,584 --> 00:39:48,844
that later. But for reference, their free cashflow last quarter was actually 38 million. And so in

506
00:39:48,844 --> 00:39:55,324
their assets, they only have about 6 billion worth of real estate assets, a portion of which is

507
00:39:55,324 --> 00:39:59,744
actually secured by their senior security instrument. So there are nuances in these

508
00:39:59,744 --> 00:40:03,964
different companies. And I think all the points made in the comment are correct. And that strategy

509
00:40:03,964 --> 00:40:08,044
doesn't have the same amount of free cash flow to cover the debt obligations. So yes, it's a

510
00:40:08,044 --> 00:40:12,584
different framework for understanding the risk associated with these instruments, but you have

511
00:40:12,584 --> 00:40:16,944
to also understand the perpetuity of the instrument and the liquidation preference makes such that

512
00:40:16,944 --> 00:40:21,084
strategy in a worst case scenario, we'll have to issue equity to pay the dividend, even if it's

513
00:40:21,084 --> 00:40:25,664
trading below par. So that's all part of the kind of prospectus framework at play here.

514
00:40:26,484 --> 00:40:32,704
Bingo. Bingo. Yeah. You got something to add to it, Adrian?

515
00:40:33,964 --> 00:40:36,684
You have anything to add here?

516
00:40:37,584 --> 00:40:38,584
This all makes sense.

517
00:40:38,644 --> 00:40:39,904
I've just been listening to it very intently.

518
00:40:40,124 --> 00:40:41,504
I think everything you're saying makes sense.

519
00:40:43,044 --> 00:40:48,584
Yeah, so I was doing a little grok-foo with the potential ceilings for these.

520
00:40:49,444 --> 00:40:52,764
And we're talking about strike first, which is the most complex one.

521
00:40:52,824 --> 00:40:55,264
That one's the one that makes my brain hurt a little bit.

522
00:40:56,264 --> 00:41:01,424
But if we take the risk-free rate, at the time I was doing the math, I was using about 4.5%.

523
00:41:01,424 --> 00:41:21,984
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.

524
00:41:23,264 --> 00:41:26,784
But here's the weird part.

525
00:41:26,784 --> 00:41:29,444
So it's got the perpetual call option, right?

526
00:41:29,944 --> 00:41:32,404
At $1,000 from par.

527
00:41:33,324 --> 00:41:35,964
And if you go out a couple of years,

528
00:41:36,164 --> 00:41:43,544
$1,000 strike call option is going to be about a little over $4,000.

529
00:41:45,084 --> 00:41:50,124
And since it's a 10 to 1 conversion, you can add about 10% of that.

530
00:41:50,264 --> 00:41:52,644
So basically $4 per share,

531
00:41:52,644 --> 00:41:55,444
which only brings us up to

532
00:41:55,444 --> 00:41:56,904
no

533
00:41:56,904 --> 00:41:57,844
isn't that

534
00:41:57,844 --> 00:42:00,964
we'll get there

535
00:42:00,964 --> 00:42:03,024
but so the

536
00:42:03,024 --> 00:42:04,764
option contract is going to be

537
00:42:04,764 --> 00:42:07,444
$40 per contract

538
00:42:07,444 --> 00:42:09,344
but since strike is 10 to 1 conversion

539
00:42:09,344 --> 00:42:10,564
you're only going to get $4

540
00:42:10,564 --> 00:42:13,044
so that brings us to

541
00:42:13,044 --> 00:42:15,284
182.41 including

542
00:42:15,284 --> 00:42:16,184
the call option

543
00:42:16,184 --> 00:42:19,364
but I'm going to let you

544
00:42:19,364 --> 00:42:21,424
I'm going to let you guys tell me why that's

545
00:42:21,424 --> 00:42:25,984
bearish and then i'm i'm gonna save my my bullish pitch for the end

546
00:42:29,264 --> 00:42:31,664
i feel like it's not bearish no

547
00:42:34,944 --> 00:42:40,384
yeah isn't it four hundred dollars so it's four thousand dollars represents a claim over a hundred

548
00:42:40,384 --> 00:42:48,704
shares of mstr so it'd be a thousand shares of strike it'd be a thousand shares of strike right

549
00:42:48,704 --> 00:42:56,784
okay okay cool math all right so here's the weird thing so the reason why call prices

550
00:42:57,744 --> 00:43:03,744
aren't even more expensive than they are is because they have an expiration date right so

551
00:43:03,744 --> 00:43:09,664
if you if you drove a drove a car off the lot it depreciates but what if it didn't what if the price

552
00:43:09,664 --> 00:43:17,024
of that car could only ever go up how much would you pay for it right yeah it wouldn't matter yeah

553
00:43:17,024 --> 00:43:18,484
Yeah, there is no number, right?

554
00:43:18,684 --> 00:43:21,124
I could, yeah, if I could pay $100,000 for the car

555
00:43:21,124 --> 00:43:21,964
and I'm never, you know,

556
00:43:22,004 --> 00:43:24,104
I would just be able to sell it for 100,000 or more

557
00:43:24,104 --> 00:43:24,764
in the future.

558
00:43:25,504 --> 00:43:29,124
So it's really hard to figure out

559
00:43:29,124 --> 00:43:32,264
what the real price of that call option is

560
00:43:32,264 --> 00:43:34,024
that never decays.

561
00:43:34,844 --> 00:43:38,084
So that's usually the problem with buying a call

562
00:43:38,084 --> 00:43:40,104
is you have to give yourself enough time to be right,

563
00:43:40,464 --> 00:43:43,384
but you have forever to be right.

564
00:43:43,384 --> 00:43:55,724
So this estimate for how much the call option improves the price of strike is very hard to kind of imagine.

565
00:43:56,984 --> 00:44:01,444
And if you look at the Kelly Criterion formula, which basically tells a gambler,

566
00:44:02,064 --> 00:44:07,584
based on the ratio of the likelihood of winning a bet,

567
00:44:07,584 --> 00:44:11,764
like how much you can bet per occurrence to never go broke,

568
00:44:11,764 --> 00:44:17,664
if you plug in a bet that you can never lose and only win,

569
00:44:18,144 --> 00:44:21,524
Kelly Criterion will tell you to put in 100% of your portfolio,

570
00:44:22,124 --> 00:44:25,264
like as much money as you can possibly get,

571
00:44:26,044 --> 00:44:30,004
which I'm not necessarily recommending anyone to do,

572
00:44:30,364 --> 00:44:34,624
but I'm just saying that's what the math says to do.

573
00:44:36,164 --> 00:44:39,364
So it's just kind of a weird thing.

574
00:44:39,364 --> 00:44:53,584
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.

575
00:44:53,584 --> 00:45:02,784
however if you if you say that it's a very very small chance of it happening but we have infinite

576
00:45:02,784 --> 00:45:09,164
time like no matter how improbable something is given an infinite time frame it's inevitable

577
00:45:09,164 --> 00:45:17,704
so like winning that call option is an inevitability at some point so it's just

578
00:45:17,704 --> 00:45:24,164
it's extremely valuable because you can never lose and only win. And it's, it's kind of hard

579
00:45:24,164 --> 00:45:30,124
to imagine what kind of premium would be added to strike's price to pay for that.

580
00:45:32,064 --> 00:45:33,844
Absolutely. I think you said that really well.

581
00:45:35,764 --> 00:45:37,404
Well, then think about the convertibility.

582
00:45:39,224 --> 00:45:43,544
Yeah, every bone, but think about the convertibility as it exists, right? If you could convert,

583
00:45:43,544 --> 00:45:47,064
So I just add this to this mental framework.

584
00:45:47,064 --> 00:45:52,304
If you can convert strike to MSTR today, which you can't below a thousand bucks a share,

585
00:45:52,384 --> 00:45:54,344
but in theory you could a thousand bucks a share.

586
00:45:54,664 --> 00:46:01,564
If you were just to convert your strike into MSTR right now, you'd have $41 of MSTR per

587
00:46:01,564 --> 00:46:02,464
strike share, right?

588
00:46:02,484 --> 00:46:03,864
That's the 10 to one conversion.

589
00:46:04,364 --> 00:46:08,204
So you can think about it as an indefinite call option, like Soleil's thinking about

590
00:46:08,204 --> 00:46:13,184
it, or you can think about it as just a conversion rate, which represents an exact delta percentage

591
00:46:13,184 --> 00:46:19,944
relative to MSTR. So it's a 40 delta, a little less than that, 35 delta instrument as it sits now.

592
00:46:20,664 --> 00:46:23,304
Should we talk about why somebody would convert?

593
00:46:26,284 --> 00:46:26,964
Let's hear it.

594
00:46:27,284 --> 00:46:30,464
Well, I think it's a fun, it's an interesting conversation, right? Like,

595
00:46:30,464 --> 00:46:33,524
why would you convert? Like, why would you convert strike ever?

596
00:46:35,144 --> 00:46:42,864
Why ever? If there was paying a 0.0000001% coupon, it would be, I think, irrational to convert.

597
00:46:43,184 --> 00:46:49,184
It would be even so. So you think that there's no incentive ever to convert?

598
00:46:49,184 --> 00:47:00,116
No not zero You sell it You sell it On the open market it would be worth 0 more

599
00:47:01,996 --> 00:47:03,696
But what if it's not liquid?

600
00:47:03,876 --> 00:47:05,236
Why would anybody be buying it?

601
00:47:07,656 --> 00:47:11,676
Because they want MSCR with a conversion preference and a dividend.

602
00:47:13,676 --> 00:47:14,916
What's MSCR worth?

603
00:47:15,296 --> 00:47:15,736
What's the difference?

604
00:47:15,736 --> 00:47:29,016
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?

605
00:47:29,756 --> 00:47:31,696
I mean, are dollars good?

606
00:47:33,676 --> 00:47:44,596
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.

607
00:47:44,596 --> 00:47:47,916
You just buy as much strike as you possibly could,

608
00:47:47,956 --> 00:47:49,216
and you would just immediately convert.

609
00:47:49,936 --> 00:47:51,976
And if strategy was trading at 1,100

610
00:47:51,976 --> 00:47:55,136
and strike was trading at 10 or 100,

611
00:47:55,556 --> 00:47:58,276
you would just buy as much strike as humanly possible,

612
00:47:58,336 --> 00:47:59,236
and you would immediately convert,

613
00:47:59,356 --> 00:48:02,316
and you'd just be making 10% as fast as you could do it.

614
00:48:03,916 --> 00:48:05,436
So strike will always trade at a premium.

615
00:48:05,616 --> 00:48:09,416
But I feel like you would convert for a few reasons.

616
00:48:09,536 --> 00:48:12,976
One, if there's an instrument that's issued more senior to you,

617
00:48:12,976 --> 00:48:18,496
right so something could be more something could be issued in between strike and strife

618
00:48:18,496 --> 00:48:24,396
totally yeah so let's say you get to a situation where to you're like you're talking about dan

619
00:48:24,396 --> 00:48:31,016
where the yield is 0.001 and there's another instrument that gets issued more senior to you

620
00:48:31,016 --> 00:48:35,296
and now the conversion premium is higher let's just say it's two thousand dollars a share or

621
00:48:35,296 --> 00:48:40,796
three thousand four thousand dollars a share what yes strike 2.0 like that right you've got now

622
00:48:40,796 --> 00:48:44,916
you've got one more senior that's trading at, or that's got a conversion of $4,000, but it's back

623
00:48:44,916 --> 00:48:53,196
to paying you $8 a yield, $8 per share yield. So you've got two options. You can now be less,

624
00:48:53,456 --> 00:49:01,756
because you're effectively shifting further out. You're more like equity. You can go shift. You

625
00:49:01,756 --> 00:49:09,336
can convert into MSTR and sell, or I guess into, and buy into the new instrument that's issued in

626
00:49:09,336 --> 00:49:10,336
between potentially.

627
00:49:12,196 --> 00:49:13,176
That's a really good point.

628
00:49:13,656 --> 00:49:17,256
But I completely agree with you, you might want to shift into that new instrument.

629
00:49:17,776 --> 00:49:22,136
But I disagree with the idea that you would sell, that you would convert into MSDR and

630
00:49:22,136 --> 00:49:26,396
sell MSDR, because I think there would still be a market for STRK at that point.

631
00:49:26,616 --> 00:49:28,356
And you just sell STRK and buy the new instrument.

632
00:49:29,216 --> 00:49:29,796
Interesting.

633
00:49:30,756 --> 00:49:35,456
But if it's, let's just say it's, what if it says that, what if the BTC rating is like

634
00:49:35,736 --> 00:49:36,196
20?

635
00:49:36,196 --> 00:49:38,996
On strike.

636
00:49:38,996 --> 00:49:39,416
On what?

637
00:49:41,356 --> 00:49:42,816
That only adds to its value in my opinion.

638
00:49:42,876 --> 00:49:44,476
It's just like crazy over collateralized.

639
00:49:44,536 --> 00:49:46,436
And you're like, okay, well, the risk of this thing is like zero.

640
00:49:49,276 --> 00:49:51,816
Yeah, well, I'd much rather hold the thing with the liquidation preference

641
00:49:51,816 --> 00:49:52,616
than the thing with the liquidation preference.

642
00:49:52,616 --> 00:49:55,136
I guess you got voting rights is another thing.

643
00:49:56,356 --> 00:49:56,896
Oh, voting rights.

644
00:49:57,016 --> 00:49:58,416
You brought that up in our chat.

645
00:49:58,776 --> 00:49:59,676
What is that valued at?

646
00:49:59,816 --> 00:50:01,336
None of the press have voting rights.

647
00:50:01,736 --> 00:50:02,516
That's a reason to convert.

648
00:50:02,976 --> 00:50:04,576
I think that's a super valid reason to convert.

649
00:50:04,576 --> 00:50:06,296
You want shareholder voting rights.

650
00:50:06,896 --> 00:50:07,056
Yeah.

651
00:50:07,136 --> 00:50:07,356
Totally.

652
00:50:08,656 --> 00:50:11,456
And yeah, it's really interesting.

653
00:50:12,616 --> 00:50:16,296
But I want liquidation preference, especially now the liquidation preference moves.

654
00:50:16,756 --> 00:50:19,156
So before the liquidation preference was static.

655
00:50:19,276 --> 00:50:20,156
So it was fixed at $100.

656
00:50:20,556 --> 00:50:27,216
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.

657
00:50:27,216 --> 00:50:33,196
dollars. If the liquidation preference is a hundred, strike still has slightly more value

658
00:50:33,196 --> 00:50:40,076
in that case, but not that much more value than MSTR common, right? Because $3,900 is

659
00:50:40,076 --> 00:50:46,876
not protected by the liquidation preference details. But now that the liquidation moves

660
00:50:46,876 --> 00:50:51,156
up with the price of strike, I think it actually adds significantly more value to that security.

661
00:50:51,156 --> 00:50:59,276
right but then again like if there was a scenario in which this is the other part there's a scenario

662
00:50:59,276 --> 00:51:04,856
a liquidation scenario mstr would trade down to zero or trade down to nab mstr would trade down

663
00:51:04,856 --> 00:51:10,996
to nab in a liquidation scenario then strike would also trade down uh to match the arbitrage

664
00:51:10,996 --> 00:51:14,876
between the mstr price and strike price which would lower the liquidation preference so there

665
00:51:14,876 --> 00:51:18,736
could be arguments made that actually the increasing liquidation preference doesn't even matter

666
00:51:18,736 --> 00:51:22,176
because in any scenario which liquidation preference would help you,

667
00:51:22,456 --> 00:51:27,116
the common trades down so low that strike would follow the decline in MSTR.

668
00:51:28,236 --> 00:51:30,016
The liquidation preference would trade down as well.

669
00:51:30,916 --> 00:51:32,016
We're starting to get comments.

670
00:51:32,136 --> 00:51:34,456
This is sounding like Adrian's talk about quantum entanglement.

671
00:51:36,836 --> 00:51:43,436
I think it's interesting to think of where it could go in a 1M NAV scenario.

672
00:51:44,276 --> 00:51:47,176
What if they had these products when you were buying, Jeff?

673
00:51:47,176 --> 00:51:56,556
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?

674
00:51:58,876 --> 00:51:59,816
Say that again.

675
00:52:01,036 --> 00:52:10,836
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?

676
00:52:10,836 --> 00:52:11,256
Yeah, right.

677
00:52:11,256 --> 00:52:11,676
Right.

678
00:52:12,576 --> 00:52:26,696
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.

679
00:52:27,696 --> 00:52:39,196
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.

680
00:52:39,196 --> 00:52:42,036
So, yeah, it's crazy weird things that happen with those in those.

681
00:52:42,036 --> 00:52:43,796
I think it's helpful, right?

682
00:52:43,796 --> 00:52:50,596
You got to think about tail scenarios and how this all plays out in all of these instruments,

683
00:52:50,596 --> 00:52:51,596
right?

684
00:52:51,596 --> 00:52:56,396
Because they factor into the risk assessment of how this whole thing works, especially

685
00:52:56,396 --> 00:52:58,196
we're going to see other companies start to issue these things.

686
00:52:58,196 --> 00:53:00,196
It's going to get trickier and trickier, right?

687
00:53:00,196 --> 00:53:05,396
Everybody's going to be experts on how these things work.

688
00:53:05,396 --> 00:53:10,156
But then, you know, Seminar is going to issue these and you're going to see a dozen other companies issue these.

689
00:53:10,156 --> 00:53:13,276
And the equation is just getting harder and harder.

690
00:53:14,936 --> 00:53:19,536
So hard. And think about it. Think about it with something like a Bitcoin treasury with a secured note.

691
00:53:19,656 --> 00:53:28,216
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.

692
00:53:28,596 --> 00:53:30,916
If that were the case, Strife would be worth nothing.

693
00:53:31,476 --> 00:53:33,536
Like Strife wouldn't be worth anything.

694
00:53:33,536 --> 00:53:38,896
it would be or it wouldn't be worth nothing but it would be worth very little so these things like

695
00:53:38,896 --> 00:53:44,096
small nuances like the secured or unsecured provisions of these um convertible notes or

696
00:53:44,096 --> 00:53:47,856
senior capital structure like matters like night and day for how these things will trade

697
00:53:48,896 --> 00:53:53,616
for me i try to because like because like think about it like for inaka's case right they have

698
00:53:53,616 --> 00:54:00,816
like 750 million with bitcoin they have a 250 million um secured uh convertible note that sits

699
00:54:00,816 --> 00:54:05,216
senior in the capital structure. Let's say they issued a strife junior to that senior secured

700
00:54:05,216 --> 00:54:11,456
note and they have a 2X margin call provision on the secured note. If Bitcoin were to drop 60%,

701
00:54:13,216 --> 00:54:19,936
the NACA secured holder could call the Bitcoin, the margin call provision and take the Bitcoin.

702
00:54:19,936 --> 00:54:21,856
And the strife holder would be left with nothing.

703
00:54:21,856 --> 00:54:22,736
Yeah, you've got nothing.

704
00:54:22,736 --> 00:54:26,976
In the case of a level of the banking scenario. So what's the credit worthiness of that?

705
00:54:26,976 --> 00:54:32,016
basically basically if you have a secured note that's it senior this the the probability that

706
00:54:32,016 --> 00:54:40,416
you if you prefs is like zero until they're unsecured exactly and they'll just and until you

707
00:54:40,416 --> 00:54:47,376
wipe that note off your sheet they'll just yield like 13 yeah yeah yeah well it's gonna probably

708
00:54:47,376 --> 00:54:53,136
more right like you'll probably yield higher than that probably i mean it should yield higher than

709
00:54:53,136 --> 00:54:58,336
whatever strides training at now 12 12 yeah it should be it should be higher than that huh

710
00:54:59,216 --> 00:55:05,376
interesting yeah i mean all these i try to still it down to make the decision as simple as possible

711
00:55:06,016 --> 00:55:12,256
and for me it's one i'm getting a dividend two i'm getting some of the upside potential with

712
00:55:12,256 --> 00:55:18,656
reduced volatility to the downside and three is six senior in the capital stack and four

713
00:55:18,656 --> 00:55:22,736
theoretically there's potential for even outperformance at times as we've seen in the last

714
00:55:23,136 --> 00:55:24,196
a couple months.

715
00:55:24,896 --> 00:55:27,736
So I think that all of the points you're ranging

716
00:55:27,736 --> 00:55:30,176
are very, very valid, and I've considered them.

717
00:55:30,356 --> 00:55:32,236
But when it comes time to pull the trigger

718
00:55:32,236 --> 00:55:34,056
on how much strike I'm going to have,

719
00:55:34,476 --> 00:55:40,896
I have more confidence in having more strike today

720
00:55:40,896 --> 00:55:43,236
than I did when I was buying it

721
00:55:43,236 --> 00:55:44,636
when it first rolled out.

722
00:55:45,416 --> 00:55:46,556
And I think that's played out well

723
00:55:46,556 --> 00:55:47,556
for all of us that have done it.

724
00:55:48,076 --> 00:55:52,076
So there are too many moving parts

725
00:55:52,076 --> 00:55:57,036
get an accurate read on it um so for me i tried to steal it down to the most likely outcomes

726
00:55:57,036 --> 00:56:00,716
when i'm making the decision and it's worked out well strike and strike

727
00:56:02,956 --> 00:56:05,836
that's what's so fascinating about him right they're like outpacing the common

728
00:56:07,916 --> 00:56:12,956
it could be and it's just a marketer location yeah but it could be back to what i was saying

729
00:56:12,956 --> 00:56:19,836
um or rather this what sailor creating this economy what he's doing is he's attracting

730
00:56:19,836 --> 00:56:25,196
different players to to the um strategy ecosystem and they're going to have different entirely

731
00:56:25,196 --> 00:56:29,756
different use cases for these these these um offerings i've been talking to people that said

732
00:56:29,756 --> 00:56:35,756
that they don't want to buy msdr but they want to buy strike that's wasted i mean like makes

733
00:56:36,556 --> 00:56:42,636
for like 90. you're 90 99.9 of people right like you you're you're not gonna

734
00:56:44,876 --> 00:56:48,716
it's the best risk you're gonna manage if you're managing hundreds of millions of dollars of

735
00:56:48,716 --> 00:56:52,156
of billions of dollars of capital and you're just worried about like making sure that your

736
00:56:52,156 --> 00:56:58,796
paycheck doesn't disappear you're not going to get fired if you buy this no exactly and if you

737
00:56:58,796 --> 00:57:06,396
have if you're not 100 in mstr it makes sense to buy yeah absolutely you just take the 10 coupon

738
00:57:06,396 --> 00:57:11,996
that's attached to the mstr exposure plus liquidation right now you're protected you've you've got so

739
00:57:11,996 --> 00:57:17,036
much down downside protection well if you think about it let's say that i had a quarter million

740
00:57:17,036 --> 00:57:21,356
dollars right now and i want to get into the market right or rather have a quarter million

741
00:57:21,356 --> 00:57:27,196
dollar allocation i want to put put into the market and i have to choose between strike strife stride

742
00:57:27,196 --> 00:57:33,116
or mstr at a very very simple sense which one's going to give me the most upside with the least

743
00:57:33,116 --> 00:57:39,996
downside and which one is going to be relatively easier for me to understand do i need to understand

744
00:57:39,996 --> 00:57:44,956
mstr to understand strike or do i just need as an investor to understand i'm going to get a dividend

745
00:57:44,956 --> 00:57:48,476
on it is going to be less volatile, but I'm still going to have upside potential.

746
00:57:49,056 --> 00:57:51,276
I think for a lot of people, that's all they need to hear.

747
00:57:52,516 --> 00:57:58,376
So we're going into a lot of the detail because we've been in this for God knows how long

748
00:57:58,376 --> 00:58:00,496
right now, and we're weirdos that like this stuff, right?

749
00:58:00,896 --> 00:58:05,676
But for an investor that's looking to allocate capital that wants exposure to this, that

750
00:58:05,676 --> 00:58:10,096
perhaps doesn't understand all the different nuances, I think that's why Strike and Strife

751
00:58:10,096 --> 00:58:10,916
have been outperforming.

752
00:58:10,916 --> 00:58:15,116
they're getting into the play without needing to fully understand the play.

753
00:58:15,776 --> 00:58:16,576
Yeah, yeah, yeah.

754
00:58:17,116 --> 00:58:17,336
Yeah.

755
00:58:17,876 --> 00:58:18,216
Okay.

756
00:58:18,296 --> 00:58:23,456
This company has $66 billion of Bitcoin and they have $8 billion of debt.

757
00:58:23,456 --> 00:58:26,956
So the Bitcoin would need to go to this in order for this to blow up.

758
00:58:27,156 --> 00:58:30,676
And you get paid 10% and Bob's your uncle and see you later.

759
00:58:30,856 --> 00:58:31,576
Like you're good.

760
00:58:31,716 --> 00:58:31,976
Essentially.

761
00:58:32,396 --> 00:58:34,196
It's a much easier sell.

762
00:58:34,596 --> 00:58:37,636
I mean, the really cool part about this compared to the convertible bonds, right?

763
00:58:37,636 --> 00:58:43,076
the convertible bond market you it's just a bunch of vol junkies that are out are being uh convertible

764
00:58:43,076 --> 00:58:46,916
bonds trading in the otc market relative to the underlying stock and just playing with data and

765
00:58:46,916 --> 00:58:53,636
numbers and computers and now like these these preferred buyers is a completely different cohort

766
00:58:53,636 --> 00:58:59,716
of people which is so cool because the people that are buying this this is like this is saving this

767
00:58:59,716 --> 00:59:07,796
this is this is solving the retirement issue in america in the world right like these bitcoin

768
00:59:07,796 --> 00:59:14,996
backed instruments could truly save the world and their ability to like it could save the retirement

769
00:59:14,996 --> 00:59:20,596
problem like social security everybody on the screen is not never going to touch social security

770
00:59:20,596 --> 00:59:26,916
but that's an issue right that's a bit that's a big issue um insurance companies right if we

771
00:59:26,916 --> 00:59:33,236
reach a hyperinflation situation uh all of the liabilities on insurance company balance sheets

772
00:59:33,236 --> 00:59:40,516
can get just blow up and these insurance companies get taken over by the state and everybody that

773
00:59:40,516 --> 00:59:46,596
worked at the insurance company loses their job and you've got jobs that are lost and

774
00:59:47,956 --> 00:59:52,676
like these products can help solve those potential future problems which is which is just really cool

775
00:59:52,676 --> 00:59:57,956
like they're different cohort of buyer and it solves an issue whereas the convertible bonds

776
00:59:57,956 --> 01:00:03,156
were a little bit more of like just need leverage need capital let's hit it with the vol junkies and

777
01:00:03,716 --> 01:00:10,596
yeah it's a it's just super neat like if you think about also um the the most

778
01:00:12,596 --> 01:00:17,156
and i want to be very careful what i say here i know strategy probably doesn't want to directly

779
01:00:17,156 --> 01:00:22,276
compete with with misty and imus with a monthly but i think it would make sense for them to do it

780
01:00:22,676 --> 01:00:27,496
because it attracts yet another investor base to this ecosystem.

781
01:00:28,676 --> 01:00:37,276
And the pitch can be our monthly div may not be as juicy as Misty or Imus in certain months,

782
01:00:37,316 --> 01:00:41,036
but if you look over the course of time, that dividend they've paid out has wavered, right?

783
01:00:41,036 --> 01:00:45,436
But we're going to offer you a set payment every month that you can count on,

784
01:00:45,616 --> 01:00:49,196
just like they're going to give you a set payment every quarter that you can count on with Strike and Strike.

785
01:00:49,196 --> 01:00:54,996
right. So the likelihood of this growing in terms of offerings, and I think we talked about this

786
01:00:54,996 --> 01:00:58,676
about like three weeks ago, Jeff, what kind of different offerings they can come up with.

787
01:00:59,176 --> 01:01:04,236
I think that is the most common sense one I would do. And I think you have the perfect

788
01:01:04,236 --> 01:01:10,736
four offering model that they can scale in perpetuity or perhaps just into next cycle

789
01:01:10,736 --> 01:01:15,976
until they see what they're really interested in doing. But just coming back to my point about

790
01:01:15,976 --> 01:01:20,376
simplicity all people want to know about they're not us right all they're going to want to know

791
01:01:20,376 --> 01:01:26,376
about is okay how much did how much of a dividend do i get yeah for x amount of shares that's all

792
01:01:26,376 --> 01:01:32,216
that's all they care about that's all the misty bro is it going to go away and exactly that's all

793
01:01:32,216 --> 01:01:37,096
the misty bros care about right they say i didn't buy a house i bought x amount of misty shares and

794
01:01:37,096 --> 01:01:41,656
it's giving me this amount of much of money every month that i'm living off of it right so if you

795
01:01:41,656 --> 01:01:45,296
if you think about what they're doing with strike and strike and stride, if they did it with a

796
01:01:45,296 --> 01:01:53,556
third, a fourth offering, call it STRE, stream, income stream or something, you can easily say

797
01:01:53,556 --> 01:01:57,976
to the market, we're going to give you a fixed monthly dividend. There's going to be no, it's

798
01:01:57,976 --> 01:02:02,516
not going to be as high as Misty could be potentially certain months, but it's going to

799
01:02:02,516 --> 01:02:08,396
be a steady cash flow that you can count on. I think that also goes to the point of these

800
01:02:08,396 --> 01:02:12,316
instruments are very easy for the market to understand perhaps our stride but i think strike

801
01:02:12,316 --> 01:02:15,676
and strife are because i've had a lot of people talking to me they understand striking strife but

802
01:02:15,676 --> 01:02:19,436
they still don't understand mstr they still understand mnav they still don't understand

803
01:02:19,996 --> 01:02:23,996
the leverage ratio even though that's the simplest part about it they have a lot of trouble

804
01:02:23,996 --> 01:02:28,796
understanding a lot of these different aspects with the common which is why the preferreds i think

805
01:02:28,796 --> 01:02:34,556
have been outperforming you're getting a lot of players in institutional and retail that understand

806
01:02:34,608 --> 01:02:40,048
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

807
01:02:40,048 --> 01:02:46,208
y and that's and i think that's um part of the massive appeal so i think holding strike and

808
01:02:46,208 --> 01:02:52,768
strife holds massive appeal long term i i personally think the strike strife stride are

809
01:02:52,768 --> 01:02:58,928
going to have a s curve adoption right like it's going to be you know holy you know

810
01:02:59,728 --> 01:03:02,448
people are going to recognize this it's just going to take a little bit of time right like

811
01:03:02,448 --> 01:03:10,728
Like education, Dan, it took you four months to figure out like for strike to just click

812
01:03:10,728 --> 01:03:12,468
and you're like, oh my God, wait, actually, hold on.

813
01:03:12,488 --> 01:03:13,188
There's a lot here.

814
01:03:13,308 --> 01:03:13,988
How does this work?

815
01:03:14,108 --> 01:03:15,068
And, you know, how does it work?

816
01:03:15,468 --> 01:03:18,848
Well, I didn't understand the implications of strife until, you know, a couple months

817
01:03:18,848 --> 01:03:19,128
ago.

818
01:03:19,128 --> 01:03:19,148
Yeah.

819
01:03:19,148 --> 01:03:23,088
And that's you who's paying attention to this all day.

820
01:03:23,228 --> 01:03:24,388
You don't have a job.

821
01:03:24,568 --> 01:03:27,148
You're literally, all you're looking at is all this stuff.

822
01:03:27,928 --> 01:03:31,848
And now you've got to go communicate this to people and sailors got to go communicate

823
01:03:31,848 --> 01:03:35,928
to people and the people that we communicate this to have to go communicate it to people

824
01:03:35,928 --> 01:03:42,008
and it just takes time for that to kind of proliferate in the market and yeah it's uh it's

825
01:03:42,008 --> 01:03:49,448
it's evolving jeff do you mind if i bring up this uh it needs to have the surfboard though

826
01:03:54,248 --> 01:03:58,568
i think it's wicked relevant uh because like when we talk about all this stuff we're talking about

827
01:03:58,568 --> 01:04:02,008
you know, Stripe sitting at the top of the capital stack and you've got all this Bitcoin

828
01:04:02,008 --> 01:04:07,688
being added to the balance sheet, the Bitcoin's growing. So every single instrument in strategy

829
01:04:07,688 --> 01:04:16,488
capital stack is increasing the collateral factor of Stripe. And Stripe is limited in its issuance

830
01:04:16,488 --> 01:04:21,848
because it needs to be so over collateralized. And the other products have to be over collateralized

831
01:04:21,848 --> 01:04:27,768
as well that are junior to it. But as you can see, as the risk-free rate approaches one or zero or

832
01:04:27,768 --> 01:04:32,568
any sort of lower pause then go go over this explain what this is explain what people are

833
01:04:32,568 --> 01:04:43,048
looking at okay um this is a price of it's a model that prices strike sorry strife again the crown

834
01:04:43,048 --> 01:04:48,568
jewel of the theoretical value of strife relative to the risk-free rate which is the three-month t

835
01:04:48,568 --> 01:04:54,328
bill rate of u.s treasuries and the credit spread and again credit spread is just a super fancy word

836
01:04:54,328 --> 01:04:55,628
It seems unapproachable.

837
01:04:55,948 --> 01:05:01,688
It just means the risk premium associated with the coupon payments of strife.

838
01:05:01,948 --> 01:05:07,808
So if strife were risk-free, it would trade at the same coupon payment as the three-month

839
01:05:07,808 --> 01:05:10,128
treasury bill issued by the United States government.

840
01:05:10,488 --> 01:05:11,928
That would be a zero credit spread.

841
01:05:12,588 --> 01:05:18,128
And you can see the limit as both these things approach zero because it's a perpetuity.

842
01:05:18,128 --> 01:05:26,128
So since a perpetuity or a perpetual dividend yielding product, the face value of that product

843
01:05:26,128 --> 01:05:33,428
is the integral of all the future coupon payments discounted based on the risk-free rate.

844
01:05:33,948 --> 01:05:38,948
So as the risk-free rate approaches zero, the value of that perpetuity approaches infinity.

845
01:05:40,028 --> 01:05:46,088
The point being is as the risk-free rate decreases and the risk of strife decreases,

846
01:05:46,088 --> 01:05:52,288
the yield will continue to decrease which will push the principal up higher and higher and that's

847
01:05:52,288 --> 01:05:57,448
what this little corner represents so if you believe in bitcoin and you believe the usd

848
01:05:57,448 --> 01:06:02,088
and you pick a risk-free rate in your head long term you can kind of model out strife's price

849
01:06:02,088 --> 01:06:07,428
over a long period of time as it goes to the risk-free rate right because it's most senior

850
01:06:07,428 --> 01:06:13,828
in the capital stack and you think about what's the probability that the bitcoin effectively goes

851
01:06:13,828 --> 01:06:19,268
to zero and it's incredibly low. So it should approach a 0% credit spread over time.

852
01:06:20,908 --> 01:06:26,508
Exactly. And if Bitcoin's CAGR is 20%, 30%, 30%, and they're yielding Bitcoin per share,

853
01:06:26,948 --> 01:06:31,008
there will be a point in which strife, well, it depends how they manage that leverage ratio,

854
01:06:31,008 --> 01:06:37,568
but it could be 100%, 200%, 300% over collateralized based on a buy a 20 CAGR asset.

855
01:06:39,168 --> 01:06:41,988
And at that point, what is the risk on that?

856
01:06:41,988 --> 01:06:43,048
Relative to the US government.

857
01:06:43,828 --> 01:06:48,828
Yeah, relative to the US government, right. And so I don't think it actually trades through the US.

858
01:06:48,828 --> 01:06:55,828
Exactly. I don't think it trades through the risk free rate in a scenario that's not

859
01:06:55,828 --> 01:07:00,828
predatory towards MSTR. Not the three month T-bill rate.

860
01:07:00,828 --> 01:07:06,828
Yeah. Not the three month T-bill. Yeah, right. That's fair. Maybe 10 or 30.

861
01:07:06,828 --> 01:07:13,708
30 or something like that yeah exactly yeah right yeah it's an interesting interesting question

862
01:07:13,708 --> 01:07:20,428
interesting equation um oh there was a there was a comment on here it keeps popping up that uh

863
01:07:21,708 --> 01:07:26,428
i kind of want to address it's like uh serious people will always be hesitant of these preferreds

864
01:07:26,428 --> 01:07:32,748
as long as they're funded through more of themselves and i think this is an interesting

865
01:07:32,748 --> 01:07:39,548
comment here and it's not um people like obviously people jump to this ponzi scene

866
01:07:39,548 --> 01:07:48,588
ponzi scheme concept but what's really happening here is financial strength this is like uh this is

867
01:07:50,028 --> 01:07:55,388
that's the word i'm looking for um like refinancing every moment every moment that they they raise

868
01:07:55,388 --> 01:08:00,508
capital just you could think of it as like a refinancing like they're adding more capital as

869
01:08:00,508 --> 01:08:05,628
a function of their capital strength. Just like the same concept of, you know, the value of your

870
01:08:05,628 --> 01:08:11,068
home goes up and you could go refinance it, go get a mortgage to go redo your bathrooms and your

871
01:08:11,068 --> 01:08:17,628
kitchen or something like that. It's a function of your financial strength. And as the value of

872
01:08:17,628 --> 01:08:24,828
this underlying Bitcoin asset continues to grow, people are like, they look at the relative risk

873
01:08:24,828 --> 01:08:30,988
and the amount of capital that's sitting there and it's an underwriting equation like do i trust

874
01:08:31,708 --> 01:08:38,828
that they can pay this out as a function of underwriting the financial strength of the

875
01:08:38,828 --> 01:08:47,148
balance sheet so it's like a continuous underwriting that's going on so yeah and i think

876
01:08:47,148 --> 01:08:51,868
that ponzi question was that or what did he say he said it's like the press yeah the press as long

877
01:08:51,868 --> 01:09:00,588
as there's what as long as they're funded for it if you're worried about that yeah but really it's

878
01:09:00,588 --> 01:09:05,628
the bitcoin it's the bitcoin it's bitcoin that pays for it bitcoin going up forever

879
01:09:07,148 --> 01:09:16,348
and the mscr commons a layer three product on top right right yeah and i mean and people are also

880
01:09:16,348 --> 01:09:21,388
sleeping on the software business right like the software business is that for a while the software

881
01:09:21,388 --> 01:09:27,228
business is actually it's pretty cool right they've got like an a a bi an ai for bi that can

882
01:09:27,228 --> 01:09:33,108
apply to any ai instrument so anybody that uses it can hold on to their own data which is pretty

883
01:09:33,108 --> 01:09:40,588
fucking valuable like anybody any company that's using an ai platform any any words or anything

884
01:09:40,588 --> 01:09:47,248
that your employees are typing into an ai program that data isn't the companies that data is the ai's

885
01:09:47,248 --> 01:09:51,288
the AI companies. So strategies providing an,

886
01:09:51,288 --> 01:09:55,568
a product that can apply to any of these different AI instruments where they can

887
01:09:55,568 --> 01:09:59,608
keep and maintain their data, which is really cool. Uh,

888
01:09:59,668 --> 01:10:03,568
and there's a, there's a, I think that could,

889
01:10:04,228 --> 01:10:07,448
I think it's got some legs and I think the ability to continue to generate

890
01:10:07,448 --> 01:10:10,208
significant revenue into the future is pretty, pretty significant.

891
01:10:10,828 --> 01:10:14,668
They can definitely scale the BI business and the AI and the AI side of the house.

892
01:10:14,668 --> 01:10:17,528
That's one of the things I've been talking about for so long.

893
01:10:17,728 --> 01:10:22,708
And I'm glad that they're still pushing and they're still trying to innovate there.

894
01:10:22,808 --> 01:10:26,928
Because I really think that that is going to catch the market off guard if they're able to scale it.

895
01:10:27,328 --> 01:10:28,408
Even moderately.

896
01:10:28,628 --> 01:10:30,428
And they don't need to scale to the level of Microsoft.

897
01:10:30,668 --> 01:10:35,448
They just need to scale it 5x in the next decade.

898
01:10:35,868 --> 01:10:36,268
Right.

899
01:10:36,368 --> 01:10:36,828
It's funny.

900
01:10:37,948 --> 01:10:38,848
Oh, go ahead.

901
01:10:39,708 --> 01:10:42,268
Yeah, they just need to scale it 5x in the next decade.

902
01:10:42,268 --> 01:10:45,768
and that makes a significant difference

903
01:10:45,768 --> 01:10:47,608
in the way this entire thing plays out

904
01:10:47,608 --> 01:10:51,088
in terms of, one, the preferreds,

905
01:10:52,348 --> 01:10:54,408
the kind of multiple they can demand from the market,

906
01:10:55,308 --> 01:10:59,468
the ability to ratchet up their Bitcoin purchases

907
01:10:59,468 --> 01:11:01,668
as Bitcoin's price goes higher.

908
01:11:02,088 --> 01:11:04,028
There are a lot of different ways that this can play out

909
01:11:04,028 --> 01:11:05,628
with regards to the software business.

910
01:11:05,808 --> 01:11:07,568
I'm really glad that they haven't forgotten about it.

911
01:11:07,668 --> 01:11:10,588
I think that that should be part and parcel

912
01:11:10,588 --> 01:11:11,948
of anything that they do going forward.

913
01:11:12,268 --> 01:11:15,868
yeah for anybody that went to strategy world or even if you didn't if you're listening to this

914
01:11:15,868 --> 01:11:21,468
right now and you didn't go to strategy world about why did you say 15 of the people were there

915
01:11:21,468 --> 01:11:27,788
for the bitcoin about 85 of the people were there for the software yeah and like you walked into the

916
01:11:27,788 --> 01:11:32,908
main room and they did presentations on software and all there there were a bunch of employees

917
01:11:32,908 --> 01:11:39,068
there that they're like yeah i like bitcoin because i you know the value of my equity package

918
01:11:39,068 --> 01:11:44,988
is going up but i i really don't really understand what's going on and they're there for the software

919
01:11:44,988 --> 01:11:50,588
side of the business there were software sales um booths and things there and there's a big focus on

920
01:11:50,588 --> 01:11:56,428
that software side i mean it makes up what 95 of their employees they've got 1500 employees and

921
01:11:57,708 --> 01:12:03,548
you know i'm a tenner on the capital team and as they grow they can attract more talent they can

922
01:12:03,548 --> 01:12:06,948
can attract better talent that can go into the software and BI side.

923
01:12:06,948 --> 01:12:07,368
Reflexive.

924
01:12:08,108 --> 01:12:08,508
Exactly.

925
01:12:08,848 --> 01:12:08,968
Yeah.

926
01:12:09,288 --> 01:12:14,048
So like people that are sleeping on the BI side of the business, I think that's a mistake.

927
01:12:14,628 --> 01:12:17,608
Because I've been saying for a while, when it comes to data, that's what I do day to day.

928
01:12:17,608 --> 01:12:25,208
The need for strong database tools, platforms, and middleware solutions is so extreme that

929
01:12:25,208 --> 01:12:30,688
there are guys that I know right now that are juggling five and six clients at once because

930
01:12:30,688 --> 01:12:31,248
of the demand.

931
01:12:31,248 --> 01:12:35,328
that they have a they do have a moat that they can build out there.

932
01:12:35,328 --> 01:12:37,448
And I think it's with small and midsize business.

933
01:12:37,448 --> 01:12:39,788
They don't need to go after who is Microsoft's going after.

934
01:12:40,088 --> 01:12:42,288
They're not looking to get

935
01:12:42,288 --> 01:12:45,288
strategy software on every on every laptop in the world.

936
01:12:45,588 --> 01:12:47,488
They just need to carve out a niche.

937
01:12:47,488 --> 01:12:49,128
Yeah, I think just scale into that niche.

938
01:12:49,128 --> 01:12:52,408
And that can give them five X from here with the software business.

939
01:12:52,828 --> 01:12:56,248
What's really cool is that the product itself is like leaning

940
01:12:56,248 --> 01:13:00,808
into the Bitcoin ethos of like decentralized nature of data.

941
01:13:01,248 --> 01:13:08,488
via AI, which was super cool. So that underlying ethos of Bitcoin is playing out into the software

942
01:13:08,488 --> 01:13:15,808
business. Yeah, it's, I mean, Adrian, your point on the reflexivity of hiring talent that cannot

943
01:13:15,808 --> 01:13:25,428
be understated because it's so valuable, right? Everybody in the world is eventually going to

944
01:13:25,428 --> 01:13:30,468
want to work for strategy because the equity package is going to look lucrative, right? The

945
01:13:30,468 --> 01:13:37,568
equity, the amount of value. If you understand, if you're a software guy and you understand what's

946
01:13:37,568 --> 01:13:43,868
going on with Bitcoin, you'd be interested in getting a job there doing anything. Most of the

947
01:13:43,868 --> 01:13:54,128
guys I know that know about Bitcoin do what I do. Right. What? Just, yeah, exactly. Cool. All right.

948
01:13:54,128 --> 01:13:58,728
What other, what other topics do we have here? Actually, I mean, to answer that person's question

949
01:13:58,728 --> 01:14:07,348
directly. I think every entrepreneur looks for areas that have high margins and then they attack

950
01:14:07,348 --> 01:14:14,948
that margin because they're delivering value. So what do we have here? We have people who want

951
01:14:14,948 --> 01:14:20,888
fixed income products and the only thing that they have available to them are the crappy ones

952
01:14:20,888 --> 01:14:28,628
that strategy is absolutely demolishing with their products. They can't get access to

953
01:14:28,628 --> 01:14:35,848
Bitcoin's CAGR. So they're more than happy to get, you know, trade their money for a better product

954
01:14:35,848 --> 01:14:42,208
than what they have now. So there's a, you know, there's a value that's being delivered.

955
01:14:42,628 --> 01:14:48,828
And I'm not worried about that market drying up until Bitcoin's market cap is bigger than the

956
01:14:48,828 --> 01:14:55,068
bond market. When that happens, like maybe we'll have to figure something else out. But until then,

957
01:14:55,068 --> 01:14:58,628
And I'm not really worried about the preferreds having to pay for themselves.

958
01:15:01,588 --> 01:15:02,348
Yeah, I agree.

959
01:15:02,468 --> 01:15:03,608
It's a massive arbitrage.

960
01:15:03,768 --> 01:15:05,208
That's the only way to look at it, in my opinion.

961
01:15:05,448 --> 01:15:09,008
Because none of this works if Bitcoin has a negative real growth rate.

962
01:15:09,088 --> 01:15:09,668
None of it works.

963
01:15:09,748 --> 01:15:10,788
It's all a complete fugazi.

964
01:15:11,028 --> 01:15:11,708
It'll go to zero.

965
01:15:11,708 --> 01:15:19,548
But if Bitcoin has a real compound annual growth rate indefinitely into the future, it will work.

966
01:15:19,548 --> 01:15:39,872
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

967
01:15:39,872 --> 01:15:45,472
until the end of time if that ever ceases to be true strategy will be on its way to insolvent

968
01:15:46,832 --> 01:15:53,072
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

969
01:15:53,072 --> 01:15:58,912
got the big beautiful bill and it's entirely all or nothing yeah yeah we got the big beautiful bill

970
01:16:00,112 --> 01:16:06,432
and the cuts don't don't come in until the next uh the next term right so which means never so i

971
01:16:06,432 --> 01:16:09,552
don't think there's any any risk and that we're going to stop printing anytime soon

972
01:16:11,152 --> 01:16:15,872
no exactly but the crazy thing is like if strategy is going to exist in 40 years

973
01:16:16,672 --> 01:16:22,672
the terminal rate of bitcoin growth still has to be greater than risk-free rate because we have no

974
01:16:22,672 --> 01:16:29,952
way of wiping strife off the balance sheet no way zero strife will still exist unless they buy it

975
01:16:29,952 --> 01:16:37,392
back and if strategy were to buy back strife from the shareholders its value would go through the

976
01:16:37,392 --> 01:16:42,592
roof and that would be so there's so many crazy like edge case scenarios there i think bitcoin

977
01:16:42,592 --> 01:16:46,592
will have a terminal growth rate higher than that of the u.s risk-free rate so i think we're good

978
01:16:46,592 --> 01:16:53,632
all right guys i got to drop all right adrian final thoughts and well oh yeah higher higher

979
01:16:53,632 --> 01:16:58,512
all right man take the dog out enjoy yeah and before we move on i know i was hyping up strike

980
01:16:58,512 --> 01:17:07,072
but full disclosure i'm still a full common shares mstr dgen 100 i haven't moved anything over to

981
01:17:07,072 --> 01:17:13,792
strike um so yeah still irresponsibly long and all that good that's so funny people are like oh

982
01:17:13,792 --> 01:17:20,752
oh why'd you sell all your mstr to strike they don't know that I'm in options yeah it's like

983
01:17:20,752 --> 01:17:28,852
couldn't be more wrong actually uh yeah but yeah it's a weird commentary on the Twitter sphere these

984
01:17:28,852 --> 01:17:38,812
days 100 um I think right strike at certain prices makes it hard to justify common but

985
01:17:38,812 --> 01:17:43,252
we're starting to get to the point where common's becoming attractive again yeah and ivy's so low

986
01:17:43,792 --> 01:17:55,872
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.

987
01:17:57,872 --> 01:18:01,352
But I mean, you still got $4 billion in MSTY.

988
01:18:01,472 --> 01:18:04,412
People are still obsessed with income and not fully risk on.

989
01:18:04,512 --> 01:18:12,452
They think that they're going to take the MSTY dividends and reinvest into MSTY and that's going to outperform MSTY.

990
01:18:12,452 --> 01:18:14,372
I don't know. I feel a little skeptical on that.

991
01:18:15,872 --> 01:18:20,652
The only thing it's going to outperform is like TSLY.

992
01:18:21,292 --> 01:18:26,132
Yeah, it's just a little bit, it's more inefficient, right?

993
01:18:26,152 --> 01:18:27,852
Especially if it's not a tax advantage account.

994
01:18:28,052 --> 01:18:32,252
If it's in a tax advantage account, maybe it makes it more sense if you're in retirement age,

995
01:18:32,272 --> 01:18:37,012
but there are less DGENs in the retirement age probably looking through that process.

996
01:18:37,332 --> 01:18:39,432
I don't know. It seems like a lot of work if you're going to go through that.

997
01:18:39,432 --> 01:18:48,512
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.

998
01:18:48,772 --> 01:18:49,092
I don't know.

999
01:18:50,832 --> 01:18:50,972
Yeah.

1000
01:18:51,052 --> 01:18:52,292
And there's a lot of slippage, right?

1001
01:18:52,312 --> 01:18:56,752
Like I've run a lot of back tests about selling weekly covered calls, rolling them a certain specific.

1002
01:18:56,912 --> 01:19:03,252
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.

1003
01:19:03,252 --> 01:19:06,312
you have to figure out, like, let's say you're selling, but like, for example, let's say you

1004
01:19:06,312 --> 01:19:10,992
sold an at the money call for a month and MSTR went up, you'd have to sell some of your shares

1005
01:19:10,992 --> 01:19:15,452
and I had less shares. And then you go and sell an at the money call and it goes down. Now you

1006
01:19:15,452 --> 01:19:20,652
have less shares, you collect that income, but you have less shares to sell at a depressed price

1007
01:19:20,652 --> 01:19:25,992
again. And that's like the slippage. If MSTR is going up, down, up, down, up, down every month,

1008
01:19:25,992 --> 01:19:33,652
you slowly lose money. And that's kind of how MSTY works is you're collecting all this income,

1009
01:19:33,652 --> 01:19:39,212
but you're sacrificing all this principal stability and it ultimately decays, especially

1010
01:19:39,212 --> 01:19:46,692
in a falling IV environment. And IV will decline over the next five, 10 years. So thinking you're

1011
01:19:46,692 --> 01:19:51,012
going to have a fixed dividend payout while you experience an avarotion is like, I don't know,

1012
01:19:51,012 --> 01:19:57,252
to suicide and a completely different risk profile to any of the preferred instruments

1013
01:19:57,252 --> 01:20:03,172
people are like why would i buy you know strike strifer stride when i could buy misty it's like

1014
01:20:03,172 --> 01:20:10,692
well completely different instruments like like you've got one monetizing the volatility via the

1015
01:20:10,692 --> 01:20:14,132
derivatives market and you have one that's a function of the credit quality of the balance

1016
01:20:16,132 --> 01:20:20,532
exactly that's these are these are so different you're betting on like three smelly quants

1017
01:20:21,012 --> 01:20:25,552
in some office in New York versus Bitcoin as the collateral.

1018
01:20:25,552 --> 01:20:28,852
I'll take the Bitcoin as collateral in the three smelly quants.

1019
01:20:32,952 --> 01:20:34,272
That's a good way to put it.

1020
01:20:34,272 --> 01:20:36,472
Yeah, I mean, that's a really good way to put it.

1021
01:20:38,292 --> 01:20:41,312
Three smelly quants and a bunch of T-bills on leverage.

1022
01:20:41,312 --> 01:20:43,392
Yeah, yeah, that's ball-sweely.

1023
01:20:43,392 --> 01:20:44,892
That's ball-sweely collateral.

1024
01:20:44,892 --> 01:20:45,392
But it is.

1025
01:20:45,392 --> 01:20:45,972
I don't know.

1026
01:20:45,972 --> 01:20:46,512
Four billion.

1027
01:20:46,512 --> 01:20:50,712
Three smelly quants, that's a good hedge fund name or a punk rock band.

1028
01:20:50,712 --> 01:20:58,632
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

1029
01:20:58,632 --> 01:21:03,512
it's a good enough deal that we keep on it's a good year to underperform mstr with dividends

1030
01:21:03,512 --> 01:21:08,312
good work if you can get it think about that you want a ponzi scheme that's a ponzi scheme

1031
01:21:10,712 --> 01:21:15,352
yeah well hey people are buying it um you know if you've got a shorter horizon

1032
01:21:15,352 --> 01:21:21,672
Yeah, it's not that bad. It's like whatever. I'm just exaggerating. It's like, it's cool.

1033
01:21:21,672 --> 01:21:26,312
You got fat dividends. It outperforms during certain time periods, so whatever.

1034
01:21:26,312 --> 01:21:29,352
Yeah. It's just interesting.

1035
01:21:32,072 --> 01:21:32,952
Just theoretically.

1036
01:21:32,952 --> 01:21:38,152
Yeah. Well, especially now that the other instruments exist, right? You can hold the

1037
01:21:38,152 --> 01:21:42,532
dividend paying stocks with lower risk.

1038
01:21:43,492 --> 01:21:46,372
I haven't done this yet and probably should,

1039
01:21:46,452 --> 01:21:49,712
but look at like efficient and frontier with all of those instruments and try to

1040
01:21:49,712 --> 01:21:52,472
like model out some assumptions into the future four years down the road.

1041
01:21:53,032 --> 01:21:57,352
And I bet some combination of strike,

1042
01:21:57,452 --> 01:21:58,312
strife and stride,

1043
01:21:59,152 --> 01:22:03,572
probably strike and stride and MSTR and MSTR calls.

1044
01:22:05,652 --> 01:22:07,252
You probably wouldn't even allocate,

1045
01:22:07,252 --> 01:22:11,152
you probably allocate zero to MSDY, I would assume, like on the efficient frontier.

1046
01:22:11,332 --> 01:22:13,832
I'm assuming it's like not even on the efficient frontier.

1047
01:22:13,992 --> 01:22:16,012
Like you wouldn't even, it doesn't help.

1048
01:22:16,952 --> 01:22:19,152
When you said MSDR calls, you mean long or short?

1049
01:22:19,332 --> 01:22:20,232
Long, long calls.

1050
01:22:20,932 --> 01:22:24,352
And if you held common, maybe you go short, depending on certain situations.

1051
01:22:24,472 --> 01:22:24,852
I don't know.

1052
01:22:24,852 --> 01:22:29,492
I think there's 10 million ways to skin this cat.

1053
01:22:30,812 --> 01:22:36,532
And you can do it efficiently and inefficiently.

1054
01:22:37,252 --> 01:22:41,672
And if you're going to care that much, you may want to put more effort into doing it yourself.

1055
01:22:41,812 --> 01:22:42,172
I don't know.

1056
01:22:43,252 --> 01:22:43,572
That's tough.

1057
01:22:43,712 --> 01:22:44,332
Yeah, I think...

1058
01:22:44,332 --> 01:22:45,912
Yeah, leverage.

1059
01:22:46,232 --> 01:22:51,312
And we don't talk about that because we're not professional capital allocators or degenerate hedge funds.

1060
01:22:51,312 --> 01:22:54,012
But I think we've talked about it a bit before, guys.

1061
01:22:54,152 --> 01:22:54,852
But I don't know.

1062
01:22:54,992 --> 01:23:07,232
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.

1063
01:23:07,252 --> 01:23:12,652
STR calls in common because of like the downside protection and provisions in the perspective.

1064
01:23:12,652 --> 01:23:16,812
So it's like kind of crazy to think like what you can create in a leverage portfolio using

1065
01:23:16,812 --> 01:23:18,372
these, um, Oh yeah.

1066
01:23:18,372 --> 01:23:20,292
Secure these products.

1067
01:23:20,572 --> 01:23:25,992
Is that only because going back to Jeff's chart, we're kind of in that distressed exponential

1068
01:23:25,992 --> 01:23:32,772
phase, like at some point, if it levels off, does, does that, do we lose that advantage?

1069
01:23:32,832 --> 01:23:36,152
I mean, I guess, is it the early, the early adopters?

1070
01:23:36,152 --> 01:23:37,752
Are they the ones that are getting that advantage?

1071
01:23:39,512 --> 01:23:41,532
It's when you're sitting at this kind of...

1072
01:23:41,532 --> 01:23:42,672
Yeah, down here.

1073
01:23:43,432 --> 01:23:43,692
Yeah.

1074
01:23:44,552 --> 01:23:45,552
That makes sense.

1075
01:23:47,492 --> 01:23:48,412
Ryan's dropping...

1076
01:23:48,412 --> 01:23:50,552
Because at that point, if...

1077
01:23:51,272 --> 01:23:53,032
That's so funny.

1078
01:23:53,572 --> 01:24:01,972
At that point, if you were to get leverage from your margin account at 8% and Strike is paying 10%,

1079
01:24:01,972 --> 01:24:06,692
And you're like, why wouldn't I lever up as much as humanly possible and buy Strike?

1080
01:24:06,792 --> 01:24:09,032
Because I feel like the security of this is great.

1081
01:24:09,152 --> 01:24:10,172
The upside is fantastic.

1082
01:24:10,732 --> 01:24:13,592
If anything improves here, all is gravy.

1083
01:24:14,132 --> 01:24:18,812
And it's going to cover my margin cost.

1084
01:24:20,952 --> 01:24:30,732
That was the crazy arbitrage, the interactive brokers margin rates and the strife 11% coupon payment for a little bit.

1085
01:24:31,972 --> 01:24:41,652
free money free money guys i'll pick it up whoa we'll get it that's awesome that's awesome all

1086
01:24:41,652 --> 01:24:46,592
right and even if you're not paying margin dividends i mean the the strike drip dividend

1087
01:24:46,592 --> 01:24:55,632
into more strike is like a a perpetual call option buying like self-replicating and buying

1088
01:24:55,632 --> 01:25:02,852
more perpetual call options of itself. Yeah. Which is a weird, which is so cool. I love your,

1089
01:25:03,332 --> 01:25:07,892
it's so cool. And, and MSTR because they have the ATMs on all of them, they have the ability to

1090
01:25:07,892 --> 01:25:11,792
capture that volume coming in the door so they can send out the dividend. And if they have,

1091
01:25:11,912 --> 01:25:17,352
if everybody's got this like ATM, if everybody's got automatic drip selected for their dividend

1092
01:25:17,352 --> 01:25:20,972
paying stocks, you've got all this capital coming back in the door and you're like, Oh, cool. Great.

1093
01:25:20,972 --> 01:25:26,472
high volume day. Let me, let me T, T wop some ATM in there, bring some of that capital back out

1094
01:25:26,472 --> 01:25:32,072
and go buy more Bitcoin with it. And so it's just a super cool design of all the instruments.

1095
01:25:32,632 --> 01:25:38,872
Fantastic. Totally great. So now this is the part of the show where we talk about coins.

1096
01:25:39,112 --> 01:25:44,132
Should we start debating each other about coincilium and smarter web company and

1097
01:25:44,132 --> 01:25:48,172
and all of these others.

1098
01:25:48,172 --> 01:25:49,372
I don't know.

1099
01:25:49,372 --> 01:25:54,172
I do. I do think I do think, as you pointed out earlier, Dan,

1100
01:25:56,252 --> 01:25:59,772
I mean, I think scale is just scale is incredibly important here.

1101
01:25:59,772 --> 01:26:05,212
And like at some point there's there's going to be so many competitors in the space.

1102
01:26:05,412 --> 01:26:09,132
If you're not a household name, like it's going to be tricky to.

1103
01:26:10,332 --> 01:26:11,572
Continue to outperform.

1104
01:26:11,572 --> 01:26:14,192
It's like this isn't going to exist forever.

1105
01:26:14,412 --> 01:26:21,552
Like we are in a very unique point in time where there's a lot of strong, wealthy people,

1106
01:26:21,952 --> 01:26:25,332
retail investors that are investing in some of these smaller companies and are able to

1107
01:26:25,332 --> 01:26:28,052
move them quickly with a relatively small amount of capital.

1108
01:26:28,712 --> 01:26:34,672
But I mean, what happens when somebody like, I don't know, like pretty damn big comes into

1109
01:26:34,672 --> 01:26:36,552
the market with just a huge amount of capital?

1110
01:26:37,152 --> 01:26:37,532
I don't know.

1111
01:26:37,572 --> 01:26:40,492
I'm just throwing out a name, DraftKings, right?

1112
01:26:40,492 --> 01:26:44,072
draft kings comes into the space they adopt a bitcoin treasury strategy and they hire

1113
01:26:44,072 --> 01:26:50,532
i don't know maybe they go steal dylan leclair from uh meta planet it's like okay well what

1114
01:26:50,532 --> 01:26:55,532
happens there right you've got real potential competitors that are going to come into the space

1115
01:26:55,532 --> 01:27:01,172
there are despite what a lot of people think there are a ton of really really really smart

1116
01:27:01,172 --> 01:27:05,952
people out in the world and if a ton of people are making money more smart people are going to

1117
01:27:05,952 --> 01:27:11,112
come into the space and they're going to find opportunities and make opportunities that,

1118
01:27:11,112 --> 01:27:17,392
you know, don't currently exist. So I think there's a decent amount of risk out in the

1119
01:27:17,392 --> 01:27:22,452
marketplace for some of those smaller entities. It's just something to be aware of. You know,

1120
01:27:22,512 --> 01:27:27,792
I'm not saying there's outsized opportunities in some of these, but timing and sizing is just

1121
01:27:27,792 --> 01:27:33,932
incredibly important. And I'll continue to bound that drum. You've got jurisdiction risk that is

1122
01:27:33,932 --> 01:27:41,592
unknown, you have known and unknown risk variables, right? You've got your known risk is you've got

1123
01:27:41,592 --> 01:27:47,712
copycat risk, you've got collateralization risk, you've got, you know, operational risk,

1124
01:27:47,712 --> 01:27:52,252
you've got leverage risk, you've got volatility risk, but you also have these unknown variables,

1125
01:27:52,372 --> 01:27:55,572
which are, which are, I can't even, I can't say what they are because they're unknown unknowns.

1126
01:27:56,352 --> 01:28:02,692
And because this space is so new and doesn't, it hasn't existed before. So I think that

1127
01:28:03,572 --> 01:28:09,172
there's some more volatility on the horizon in both directions and just be wary and cautious

1128
01:28:09,172 --> 01:28:15,092
with sizing because uh this is very similar to people you know investing in altcoins and losing

1129
01:28:15,092 --> 01:28:20,532
their stack and uh they came in with 100 bitcoin they come out the door with 50 bitcoin and

1130
01:28:21,172 --> 01:28:36,936
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

1131
01:28:36,936 --> 01:28:43,176
been very profitable so i endorse um degenerate behavior at times but you have to be very um

1132
01:28:43,176 --> 01:28:50,376
conscientious of extrapolating forward past regressions of bitcoin per share acquisition

1133
01:28:50,376 --> 01:28:56,376
we talked about this earlier, you can't just look at an exponential Bitcoin yield and assume that

1134
01:28:56,376 --> 01:29:02,536
will happen forever. And that's what I did. When MSTR was hamming ATM in November, I was like,

1135
01:29:02,536 --> 01:29:05,736
oh, this would just be exponential, whatever. The man tries out.

1136
01:29:05,736 --> 01:29:08,376
Well, let's talk about that a little bit, because I think that's really important too.

1137
01:29:10,136 --> 01:29:13,336
Everybody thinks that these trajectories are going to be exactly the same as MSTR.

1138
01:29:14,296 --> 01:29:18,856
The reality is it's not going to happen. And there are different components here.

1139
01:29:20,376 --> 01:29:24,556
And part of this, in my opinion, is a function of the architecture and the design of the stock market.

1140
01:29:25,256 --> 01:29:31,596
Right. Like you've got MSTR was included in the MSCI total world index, but then it was also included in the Russell.

1141
01:29:31,956 --> 01:29:35,716
It was previously in the Russell 2000, which is only for U.S. companies.

1142
01:29:36,536 --> 01:29:39,836
The Russell 2000, which is a very large index, is only for U.S. companies.

1143
01:29:39,836 --> 01:29:47,216
Russell 1000, only U.S. companies. QQQ, which is the NASDAQ 100, is only for NASDAQ listed companies.

1144
01:29:47,396 --> 01:29:49,536
It's global companies, but you have to be NASDAQ listed.

1145
01:29:49,536 --> 01:29:52,616
If you're NASDAQ listed, you're subject to different short rules.

1146
01:29:53,176 --> 01:29:56,836
So people can short your stock more consistently, like what's happened to MSTR.

1147
01:29:57,336 --> 01:30:00,356
And then if you want to be included in SPY, you have to be a US listed stock.

1148
01:30:01,276 --> 01:30:06,396
So we're talking about like systemically the five to seven largest index funds in the world

1149
01:30:06,396 --> 01:30:13,136
and mutual funds that are only for US companies, right?

1150
01:30:13,176 --> 01:30:17,696
So if you're thinking about what are catalysts where you can see a significant amount of capital

1151
01:30:17,696 --> 01:30:22,476
coming in the door that maybe didn't exist before. Well, you have to have these things on the horizon.

1152
01:30:23,916 --> 01:30:29,056
Right. So again, when I look back and I look back at November, I look back at March. If I go look

1153
01:30:29,056 --> 01:30:37,456
back at March of 24, and Ryan will remember this very, very, very vividly. They were included in

1154
01:30:37,456 --> 01:30:43,276
the MSCI Total World Index and they got revalued in the Russell 2000. And the stock went up from

1155
01:30:43,276 --> 01:30:46,976
February to March. And I think there was some front running going on and there was capital

1156
01:30:46,976 --> 01:30:50,456
coming in the door. There's a significant amount of capital that brought the price up to, you know,

1157
01:30:50,456 --> 01:31:00,376
from $400 up to $2,000 in 40 days. That happened in 40 days. And the same thing happened in November,

1158
01:31:00,516 --> 01:31:04,676
right? You saw a significant run up in capital. You had $17 billion that they were able to bring

1159
01:31:04,676 --> 01:31:09,456
in the door and capitalize that and put it on the balance sheet. And I truly believe that this is

1160
01:31:09,456 --> 01:31:15,616
passive money as a reflection of these index funds and the inclusion in these funds. And

1161
01:31:15,616 --> 01:31:21,816
that capital comes in in waves and it can only happen if you hit the criteria and meet the

1162
01:31:21,816 --> 01:31:28,816
criteria. And some of these international companies are not able to be included in some of these

1163
01:31:28,816 --> 01:31:34,176
funds. So they can be included in other funds, but the size and scale is just drastically different.

1164
01:31:34,756 --> 01:31:41,696
So if you're thinking that XYZ company is going to have a situation where they're seeing this huge

1165
01:31:41,696 --> 01:31:45,356
run up in stock price and get $17 billion in the door like strategy did in November,

1166
01:31:46,296 --> 01:31:52,456
it's just probably not going to be the same situation. And it might take a lot longer from

1167
01:31:52,456 --> 01:31:56,136
a time perspective. And you think about, well, what is the price of Bitcoin when that happens?

1168
01:31:56,796 --> 01:32:00,456
And how much Bitcoin do they accumulate at that time? It's also going to be a significantly

1169
01:32:00,456 --> 01:32:08,376
different equation. So, right, like, and I posted this a couple of days ago, when I first invested

1170
01:32:08,376 --> 01:32:14,056
in MSTR in the end of 22 and 23, I was thinking to myself, this is the best risk-additioned trade

1171
01:32:14,056 --> 01:32:21,396
in the entire market because they have a monopoly on the space. They had 10 times more the amount

1172
01:32:21,396 --> 01:32:25,216
of Bitcoin than the next closest holder. And the value of that moat at that point in time was like

1173
01:32:25,216 --> 01:32:28,436
two and a half billion dollars. Basically, it would have cost two and a half billion dollars

1174
01:32:28,436 --> 01:32:34,076
for anybody else to catch them. And now they've actually held that relative moat. So now they have

1175
01:32:34,076 --> 01:32:37,456
an 11 times moat. They have 11 times more Bitcoin than the next closest company.

1176
01:32:38,376 --> 01:32:45,056
So the moat is the same, but the size and scale of it's significantly larger in a closed system.

1177
01:32:45,816 --> 01:32:48,156
Right. There's not going to be more than 21 million Bitcoin.

1178
01:32:48,296 --> 01:32:50,396
So it's OK. OK, you've got even further here.

1179
01:32:50,876 --> 01:32:53,996
You're you're you've just shoved your moat even higher.

1180
01:32:54,276 --> 01:33:02,396
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.

1181
01:33:02,396 --> 01:33:05,296
And that's assuming that doesn't move the price and the price doesn't run away from you.

1182
01:33:05,616 --> 01:33:07,556
So like who can who can do that?

1183
01:33:07,556 --> 01:33:11,156
like who's going to be able to buy that much Bitcoin to capture, capture that,

1184
01:33:11,256 --> 01:33:16,516
uh, to capture that value. And I just, I don't, I don't see it as realistic.

1185
01:33:16,516 --> 01:33:19,916
I don't see it happening. And a lot of people have commented, well,

1186
01:33:20,056 --> 01:33:23,356
mag seven can do it. They can go buy this much Bitcoin and issue prefs and,

1187
01:33:23,356 --> 01:33:26,076
you know, have this exposure, but it's just not the same, right?

1188
01:33:26,076 --> 01:33:27,956
Like you're going to have a different proportion of your company.

1189
01:33:27,956 --> 01:33:31,796
That's a function of, uh, the valuation of any of those individual equities.

1190
01:33:31,796 --> 01:33:35,596
So like if Apple were to go convert a hundred percent of their cash balance

1191
01:33:35,596 --> 01:33:41,216
sheet and then go offer a cash balance sheet to Bitcoin and then go offer these preferred instruments,

1192
01:33:42,096 --> 01:33:46,956
they're not going to move the same. They're a $3 trillion company with cash flows

1193
01:33:46,956 --> 01:33:53,716
and iPhone exposure and technology and AI exposure. It's just going to move differently. It's not

1194
01:33:53,716 --> 01:33:58,696
that direct correlation to Bitcoin. I mean, they might perform incredibly well. I'm sure Apple

1195
01:33:58,696 --> 01:34:04,576
would do really well if they did this, but it's also been very clear to see that via the Microsoft

1196
01:34:04,576 --> 01:34:07,016
shareholder vote and the meta shareholder vote,

1197
01:34:07,236 --> 01:34:09,136
what Microsoft was 99.5%

1198
01:34:09,136 --> 01:34:10,636
of people voted against

1199
01:34:10,636 --> 01:34:13,176
exploring Bitcoin. I think meta was like 96%,

1200
01:34:13,176 --> 01:34:14,136
97%.

1201
01:34:14,136 --> 01:34:16,916
I think the probability that happens is just so low.

1202
01:34:17,016 --> 01:34:18,316
There's no incentive to do that.

1203
01:34:18,816 --> 01:34:19,176
Zero.

1204
01:34:21,076 --> 01:34:22,356
You know, Apple returns

1205
01:34:22,356 --> 01:34:24,636
$112 billion a year.

1206
01:34:24,776 --> 01:34:26,636
Dude, don't get me started on buybacks. Do we want to talk

1207
01:34:26,636 --> 01:34:28,716
buybacks? I've got a whole...

1208
01:34:28,716 --> 01:34:29,896
I've been working on buybacks.

1209
01:34:31,676 --> 01:34:33,376
I've been working on buybacks.

1210
01:34:33,956 --> 01:34:34,516
Check this out.

1211
01:34:34,576 --> 01:34:35,576
This is cool.

1212
01:34:35,576 --> 01:34:39,576
Actually, I wasn't planning on sharing this, but let's go over it.

1213
01:34:39,576 --> 01:34:40,576
Who's this?

1214
01:34:40,576 --> 01:34:48,236
They make like 140 billion in revenue or no, it's 240 in revenue, like 140 and 140 in free

1215
01:34:48,236 --> 01:34:50,236
cash flow and then 112 billion.

1216
01:34:50,236 --> 01:34:53,076
I need to pour some more Lagavulin for this.

1217
01:34:53,076 --> 01:34:54,076
That's a huge fumble.

1218
01:34:54,076 --> 01:34:56,576
I can't think of a bigger fumble.

1219
01:34:56,576 --> 01:35:00,556
Dude, this is going to be the biggest mistake of all time.

1220
01:35:00,556 --> 01:35:04,556
Is the share buybacks from some of these large companies.

1221
01:35:04,556 --> 01:35:06,176
I mean, the shareholders can buy Bitcoin.

1222
01:35:06,356 --> 01:35:09,056
How many S&P 500 companies have Bitcoin right now?

1223
01:35:09,356 --> 01:35:09,616
Two.

1224
01:35:09,976 --> 01:35:10,636
Like two or three?

1225
01:35:10,936 --> 01:35:11,096
Two.

1226
01:35:11,096 --> 01:35:11,256
Two?

1227
01:35:11,576 --> 01:35:13,896
So 498 don't.

1228
01:35:14,376 --> 01:35:16,176
How long before that number is zero?

1229
01:35:17,856 --> 01:35:18,836
Oh, man.

1230
01:35:19,616 --> 01:35:23,936
Because based on Tim's freaking marathon,

1231
01:35:24,316 --> 01:35:29,256
I watched 12 straight hours of Bitcoin treasury companies yesterday.

1232
01:35:30,196 --> 01:35:34,156
And he broke YouTube and just shut off after 12 hours.

1233
01:35:34,556 --> 01:35:36,456
So I still got to go back and watch the rest on X.

1234
01:35:37,336 --> 01:35:40,996
But like there's so many companies coming.

1235
01:35:41,776 --> 01:35:44,316
And some of these, some of them are going to be in the S&P 500.

1236
01:35:44,596 --> 01:35:47,176
And some of these ones that don't adopt Bitcoin are going to be on their way out.

1237
01:35:48,036 --> 01:35:52,056
I mean, some of the S&P 500 companies will adopt Bitcoin and have a chance to stay.

1238
01:35:53,156 --> 01:35:59,176
But how many just don't figure it out and are just jettisoned forever?

1239
01:35:59,736 --> 01:36:00,316
A lot.

1240
01:36:00,476 --> 01:36:01,996
A lot of them are not going to figure it out.

1241
01:36:01,996 --> 01:36:04,836
I mean, it's the.

1242
01:36:04,836 --> 01:36:07,596
This is like this is like a Kodak moment, right?

1243
01:36:09,196 --> 01:36:11,236
You know, just like not adopting, not adapting.

1244
01:36:11,236 --> 01:36:15,876
And they don't they're not going to know until they're already dead.

1245
01:36:17,636 --> 01:36:18,076
Right.

1246
01:36:18,076 --> 01:36:20,956
A lot of these companies are going to they aren't going to know

1247
01:36:21,356 --> 01:36:24,076
that they need to do something until they're already dead.

1248
01:36:24,076 --> 01:36:24,996
Right.

1249
01:36:24,996 --> 01:36:27,636
And I think that's just a painful reality.

1250
01:36:29,956 --> 01:36:31,716
Let's talk, talk through this a little bit.

1251
01:36:31,716 --> 01:36:37,176
and I still could have work on this, but I was looking back at some of the historical large

1252
01:36:37,176 --> 01:36:44,736
stock buybacks since 2023. And to your point, Dan here, 5125, Apple bought back $100 billion

1253
01:36:44,736 --> 01:36:52,716
of stock. 42425, Google bought $70 billion of stock back. Microsoft bought $60 billion

1254
01:36:52,716 --> 01:36:59,536
in September. NVIDIA, $50 billion in August. Apple, the prior year in May, bought $110 billion

1255
01:36:59,536 --> 01:37:04,416
dollars back. Now, and I know Ryan feels really strongly about this, and maybe we'll bring him on

1256
01:37:04,416 --> 01:37:13,156
to talk buybacks here at some point soon. But why do you hold an equity? Why would anybody hold an

1257
01:37:13,156 --> 01:37:19,936
equity? You're holding an equity for some future promise of cash flows, and that can come in

1258
01:37:19,936 --> 01:37:25,856
multiple different ways. That could come in dividend or share buyback. And share buyback

1259
01:37:25,856 --> 01:37:31,616
might be more efficient because of the taxes associated with it and it allows you to make the

1260
01:37:31,616 --> 01:37:38,496
moment in time where you sell the stock and then take the tax hit i was kind of thinking like an

1261
01:37:38,496 --> 01:37:44,976
apple stock apple stock is kind of like a an mstr purpose like yeah yeah well that's why so because

1262
01:37:44,976 --> 01:37:49,616
apple has been so successful and they've they've emphasized doing these really big buybacks that's

1263
01:37:49,616 --> 01:37:55,456
why so many people like when i worked in my last company uh most of the execs in the company when

1264
01:37:55,456 --> 01:37:59,776
I talked to him about stocks and stuff. They're like, all I own is Apple. I just treat Apple as

1265
01:37:59,776 --> 01:38:05,696
my savings account. Like I don't any I don't own anything else. And I was like, I sat back for a

1266
01:38:05,696 --> 01:38:10,736
minute and that really kind of sent me down a rabbit hole. I was like, holy shit. People do

1267
01:38:10,736 --> 01:38:16,416
that. And they literally he's like, OK, I own a couple of American funds, which are capital group,

1268
01:38:17,216 --> 01:38:21,136
and I own Apple as a savings account because they've got these huge stock buybacks. And it's

1269
01:38:21,136 --> 01:38:27,456
like it's not going down iphones are everywhere and right you look you look at it and you're like

1270
01:38:27,456 --> 01:38:31,136
wow i mean they're gonna buy back if they're gonna tell me just the fact that they're telling me

1271
01:38:31,856 --> 01:38:35,376
that they're gonna buy a hundred billion dollars of stock back you're like i'm gonna front run that

1272
01:38:35,376 --> 01:38:38,896
everybody's front running everybody all the time i'm gonna front run that that's awesome

1273
01:38:38,896 --> 01:38:42,496
i want them to buy the stock back and they're gonna do it they're gonna tell me they're gonna

1274
01:38:42,496 --> 01:38:47,856
do it and then they're gonna actually do it i'm gonna buy it beforehand and just hold on to it

1275
01:38:47,856 --> 01:38:50,976
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

1276
01:38:50,976 --> 01:38:57,936
trillion dollar company can you imagine if mstr got a yield on their bitcoin from jp morgan and

1277
01:38:58,656 --> 01:39:04,496
just yeah once they get certain locs from jp morgan old jamie diamond and um all those guys

1278
01:39:04,496 --> 01:39:10,176
yeah that's it's very very possible um that that's not going to go through the absolute moon

1279
01:39:11,696 --> 01:39:17,696
yeah yeah 30 30 000 a share i mean the sailor said he wasn't going to do so let's just

1280
01:39:17,856 --> 01:39:20,556
Maybe let's just hide most of these just to make it simple.

1281
01:39:20,836 --> 01:39:23,356
Actually, I'll keep the Chevron one because that one's awesome.

1282
01:39:24,276 --> 01:39:28,736
But Apple in May, they had $100 billion stock buyback.

1283
01:39:28,816 --> 01:39:31,196
When they did the stock buyback, the Bitcoin price is $97,000.

1284
01:39:31,676 --> 01:39:34,176
Let's just say they allocated 25% of that to Bitcoin.

1285
01:39:34,596 --> 01:39:36,456
So you buy $25 billion worth of Bitcoin.

1286
01:39:36,576 --> 01:39:38,336
That would have purchased 256,000 Bitcoin.

1287
01:39:39,516 --> 01:39:42,256
So today's value of that would be $28 billion.

1288
01:39:42,256 --> 01:39:45,856
So they would have made $3.5 billion in, what is that?

1289
01:39:46,296 --> 01:39:46,856
Three months.

1290
01:39:46,856 --> 01:39:53,116
So the return since they did the buybacks, 14% stock, the stock price has only moved 1% though.

1291
01:39:54,176 --> 01:40:03,216
And where'd that go? And so the market cap of the buyback was 3.1 billion or 3.1 trillion.

1292
01:40:03,216 --> 01:40:09,236
And the market cap today is 3.1 trillion and the market cap change. And I was trying to,

1293
01:40:09,236 --> 01:40:12,836
and that the missing piece here that I'm trying to pull together is like,

1294
01:40:12,836 --> 01:40:16,636
what would the, what would, what should the market cap be?

1295
01:40:18,516 --> 01:40:22,156
You know, what's the as if value of the stock, if they would have purchased Bitcoin,

1296
01:40:22,356 --> 01:40:29,336
that's that missing piece. I'm trying to like back my way into it, uh, around, around it.

1297
01:40:30,176 --> 01:40:34,196
Um, but the, the bigger one here, let's look at Chevron, which is this cool.

1298
01:40:34,916 --> 01:40:42,196
So Chevron in January of 2023, they issued a $75 billion stock buyback. So the price of Bitcoin at

1299
01:40:42,196 --> 01:40:46,316
the time was $23,000. They never would have bought Bitcoin, but it's just fun to walk through this

1300
01:40:46,316 --> 01:40:53,096
because this is going to be the narrative of the future. After the S&P 500, after that clears,

1301
01:40:53,936 --> 01:40:57,896
the prefs are going to continue to be really important. And then all eyes are going to be on

1302
01:40:57,896 --> 01:41:04,816
MAG7, large stock, stock buybacks. That is where this narrative is going to shift.

1303
01:41:05,516 --> 01:41:09,876
And it's going to be like, should these companies do stock buybacks or should they buy Bitcoin?

1304
01:41:09,876 --> 01:41:14,876
And that will be the narrative of like the next five years, I think.

1305
01:41:14,876 --> 01:41:16,716
So you look at Chevron, right?

1306
01:41:16,716 --> 01:41:18,796
You could have bought $75 billion worth.

1307
01:41:18,796 --> 01:41:24,516
Even if you would have allocated 25%, you would have bought $18.7 billion capital to Bitcoin.

1308
01:41:24,516 --> 01:41:41,360
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

1309
01:41:41,360 --> 01:41:46,720
strategy, 40, 50% more the amount of Bitcoin that strategy has right now. The value of that Bitcoin

1310
01:41:46,720 --> 01:41:51,760
today would be $89 billion. The Bitcoin that would have made $70 billion off that Bitcoin purchased.

1311
01:41:51,760 --> 01:41:58,520
the market cap at the buyback was 357 billion. So basically, if they would have spent 25% of that

1312
01:41:58,520 --> 01:42:05,040
buyback on Bitcoin, the value of that Bitcoin, $89 billion, relative to the market cap today,

1313
01:42:05,140 --> 01:42:10,000
$267 billion. It's almost like a third of the market cap of the value today.

1314
01:42:11,440 --> 01:42:18,060
So you'd be much better off buying stock in any one of these situations. Basically, the market cap

1315
01:42:18,060 --> 01:42:24,540
since this buyback has gone down 25 but the price of bitcoin has gone up 378 what like

1316
01:42:24,540 --> 01:42:32,880
chevron would be trading way higher yeah right they would be the largest you know how we

1317
01:42:32,880 --> 01:42:40,180
like regret oh man i should have bought more bitcoin when it was 23 000 yes imagine these guys

1318
01:42:40,180 --> 01:42:44,720
in five or ten years when they're looking at your spreadsheet or you know doing this math

1319
01:42:44,720 --> 01:42:51,680
themselves and thinking man i could have bought 18 billion dollars worth of bitcoin at 23 000.

1320
01:42:52,000 --> 01:42:57,600
yes i mean make it a hundred right kind of regret it just bottomless

1321
01:42:57,600 --> 01:43:04,840
kegs of beer to erase that regret oh man right like if chevron would have purchased a hundred

1322
01:43:04,840 --> 01:43:10,700
percent of that with uh 100 of that towards bitcoin they'd have 3.2 million bitcoin

1323
01:43:10,700 --> 01:43:14,460
and the value of that would be, you know, what is that?

1324
01:43:14,580 --> 01:43:17,380
Like 40% more than their market cap today.

1325
01:43:17,520 --> 01:43:18,620
The value of the Bitcoin alone.

1326
01:43:19,680 --> 01:43:21,320
Yeah, some serious FOMO for sure.

1327
01:43:24,160 --> 01:43:26,900
But it's an interesting narrative and you can, I mean,

1328
01:43:27,100 --> 01:43:32,720
I'm trying to back into how that would impact share price

1329
01:43:32,720 --> 01:43:34,620
or just kind of theoretically, right?

1330
01:43:34,680 --> 01:43:36,380
And I think that's where this is going to go.

1331
01:43:36,380 --> 01:43:40,480
That, you know, maybe it's not the top seven companies

1332
01:43:40,480 --> 01:43:43,320
that start doing this, but maybe it's the smaller companies that do share buybacks.

1333
01:43:43,320 --> 01:43:46,720
Because I know there's, you know, companies within the top 100 that do share buybacks.

1334
01:43:47,260 --> 01:43:48,960
They're just much smaller in scale.

1335
01:43:49,420 --> 01:43:52,380
And the question is going to be, all right, should I do that or should I buy Bitcoin?

1336
01:43:52,500 --> 01:43:52,900
What's better?

1337
01:43:53,000 --> 01:43:54,120
What's better for the shareholder?

1338
01:43:56,340 --> 01:43:56,700
Right.

1339
01:43:57,120 --> 01:43:59,060
What what's better for the shareholder?

1340
01:43:59,160 --> 01:43:59,780
I don't.

1341
01:43:59,900 --> 01:44:04,240
Well, the crazy thing is the shareholders that were presented this at Microsoft and what

1342
01:44:04,240 --> 01:44:05,980
was the other company said no.

1343
01:44:06,520 --> 01:44:09,540
Like, I get it that the that the board is too scared to do it.

1344
01:44:09,540 --> 01:44:15,920
But when it was put up for a vote and the shareholders voted against their own interest, that's the mind numbing part.

1345
01:44:15,920 --> 01:44:18,580
Like that's that just makes you realize how early we still are.

1346
01:44:21,140 --> 01:44:26,900
Yeah, but when they argue that they could just buy Bitcoin with the cash dividend, you let your investors do that.

1347
01:44:28,780 --> 01:44:29,980
Yeah, I don't know.

1348
01:44:29,980 --> 01:44:39,220
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

1349
01:44:39,220 --> 01:44:46,100
capabilities? Absolutely. I think so. But I'm just saying, I think that may be the other argument.

1350
01:44:46,100 --> 01:44:51,660
Yeah. Oh, the argument that they're having. I could buy Bitcoin myself. Just give me the money

1351
01:44:51,660 --> 01:44:57,540
back via the stock. Yeah, exactly. Just return the capital on me. I'm buying my own fucking Bitcoin.

1352
01:44:57,540 --> 01:45:03,900
Well, but you hold dollars on your balance sheet. They're going to zero. Do you want to

1353
01:45:03,900 --> 01:45:10,160
have strength in the capital markets ever? Do you want to be able to go negotiate? When you need a

1354
01:45:10,160 --> 01:45:16,440
loan, what's going to be more powerful when you hold a loan or when you're going to get a loan

1355
01:45:16,440 --> 01:45:20,960
or recapitalize? I don't know. I mean, right now in the past, it was definitely dollars. You hold

1356
01:45:20,960 --> 01:45:24,660
more dollars is definitely more powerful. But in the future, I mean, is that equation change?

1357
01:45:26,240 --> 01:45:27,940
Yeah, I think it's transition, right?

1358
01:45:27,940 --> 01:45:31,840
And even if the stock buybacks start to do 5%, right?

1359
01:45:31,840 --> 01:45:37,640
Like just a negligible amount, 5% of Apple stock buyback.

1360
01:45:37,640 --> 01:45:41,840
You're still talking about a $5 billion buy, right?

1361
01:45:41,840 --> 01:45:43,040
Annually from Apple.

1362
01:45:43,040 --> 01:45:43,640
Yeah.

1363
01:45:43,640 --> 01:45:45,440
That's a convertible bond deal.

1364
01:45:45,440 --> 01:45:53,040
That's both of strategies convertible bond deals in 20, at the end of 24, they did 5

1365
01:45:53,040 --> 01:45:54,840
billion in like, I don't know, a month.

1366
01:45:54,840 --> 01:45:56,840
Yeah.

1367
01:45:56,840 --> 01:45:59,080
That's a ton of Bitcoin being purchased.

1368
01:46:00,300 --> 01:46:05,600
If you take 5% of these stock buybacks in the last two years,

1369
01:46:06,180 --> 01:46:09,480
you're talking $37 billion of buy side volume coming into Bitcoin.

1370
01:46:11,080 --> 01:46:11,560
Enormous.

1371
01:46:13,240 --> 01:46:14,360
Enormous amount of capital.

1372
01:46:16,340 --> 01:46:17,460
So I don't know.

1373
01:46:17,680 --> 01:46:20,200
I think that's where this narrative and conversation goes.

1374
01:46:20,320 --> 01:46:21,080
What's the efficiency?

1375
01:46:21,340 --> 01:46:23,920
Why are companies issuing dividends when they can buy Bitcoin?

1376
01:46:24,180 --> 01:46:26,180
Because it's much more efficient for your stock.

1377
01:46:26,840 --> 01:46:34,120
We'll see. All right. We're hour 40 in. What else did I have? Oh, I did some cool calculations here.

1378
01:46:34,400 --> 01:46:46,640
I think these are fun. So strategy Q2 gain was $14 billion in Q2. There were 62 business days in Q2.

1379
01:46:46,640 --> 01:46:54,900
The gain per employee is $226,000. They have 1,500 employees. So the gain per employee is $147,000.

1380
01:46:54,900 --> 01:46:59,900
The gain per day per employee was $147,866.

1381
01:47:01,160 --> 01:47:03,540
So that's like how much every single employee

1382
01:47:03,540 --> 01:47:07,100
was technically made from the Bitcoin gain

1383
01:47:07,100 --> 01:47:09,280
every single day, every single employee.

1384
01:47:10,600 --> 01:47:11,640
And you compare that to Nvidia,

1385
01:47:12,320 --> 01:47:14,760
$8,000 per gain per employee.

1386
01:47:14,920 --> 01:47:17,600
You compare that to Apple, $2,000 per gain per employee.

1387
01:47:17,740 --> 01:47:22,780
You compare it to Microsoft, $1,800 per day per employee.

1388
01:47:23,100 --> 01:47:24,360
And if you're talking about efficiency,

1389
01:47:24,360 --> 01:47:26,800
I mean, there's nothing more efficient than what strategy is doing here.

1390
01:47:27,740 --> 01:47:30,780
Like it is, it is the most efficient play in the entire market.

1391
01:47:31,240 --> 01:47:37,040
And I was trying to think of a way to emphasize like how big $14 billion is, because I don't

1392
01:47:37,040 --> 01:47:38,200
think people really get it.

1393
01:47:38,820 --> 01:47:42,720
I've been trying to like emphasize it like over and over and over again.

1394
01:47:43,180 --> 01:47:45,160
$14 billion is so much money.

1395
01:47:45,740 --> 01:47:47,780
It's so, so, so much money.

1396
01:47:48,060 --> 01:47:51,860
Like, was that like your post about the stack and the dollars to the moon?

1397
01:47:51,860 --> 01:47:52,800
The dollars, right?

1398
01:47:52,800 --> 01:47:55,700
So I came up with another one that I wanted to share.

1399
01:47:55,820 --> 01:47:56,920
I think it's helpful.

1400
01:47:58,300 --> 01:48:02,160
Okay, so just hang with me here for a moment.

1401
01:48:02,660 --> 01:48:06,280
Imagine a million-dollar house wherever you live, whatever that looks like.

1402
01:48:06,360 --> 01:48:11,500
And I know it looks different in everyone's locations, but imagine a million-dollar house.

1403
01:48:12,880 --> 01:48:20,560
Now imagine a town with 14,000 people and all of them own a million-dollar house.

1404
01:48:20,560 --> 01:48:28,520
14,000 people all of them own a million dollar house nice neighborhood it's a it's an enormous

1405
01:48:28,520 --> 01:48:33,580
neighborhood it's a big neighborhood and all of them are a million dollars that's how much money

1406
01:48:33,580 --> 01:48:41,240
strategy made last quarter that entire town 14,000 people with million dollar houses like imagine

1407
01:48:41,240 --> 01:48:48,320
owning all of it that's how much money they made last quarter or like you go into a basketball

1408
01:48:48,320 --> 01:48:53,360
stadium. Most basketball stadiums hold what, like 20, 25,000 people. So you think of that like

1409
01:48:53,360 --> 01:48:59,400
three quarters of the way full and you, every single one of them, you own all of their homes

1410
01:48:59,400 --> 01:49:05,220
at a million dollars a piece. You know, it's like, it's just so much money. People can't wrap their

1411
01:49:05,220 --> 01:49:11,760
head around it. It's just a, it's a, it's just a massive amount of capital in a short period of

1412
01:49:11,760 --> 01:49:17,340
time. And that scales, right? Like the scales exponentially as, as Bitcoin continues to rise.

1413
01:49:18,320 --> 01:49:22,800
like the base effect math is on the side of strategy here.

1414
01:49:23,920 --> 01:49:26,040
Like we're going to look back on this and we're going to laugh, right?

1415
01:49:26,080 --> 01:49:32,940
Like five years from now, they're going to make $140 billion in, you know, a quarter.

1416
01:49:34,100 --> 01:49:35,220
And we're going to laugh.

1417
01:49:36,620 --> 01:49:40,760
We're going to come back to this town analogy and just say, instead of 14,000 people, imagine

1418
01:49:40,760 --> 01:49:43,940
140,000 people with a million dollar homes and how big that is.

1419
01:49:43,940 --> 01:49:45,480
Like that's, that's where this is going.

1420
01:49:45,480 --> 01:49:51,020
and people say, well, you know, it's just Wall Street's going to discount the earnings. No,

1421
01:49:51,080 --> 01:49:54,940
they're not. I mean, you have to quantify it with some regard. Yeah, it could be volatile,

1422
01:49:54,940 --> 01:49:57,900
but even if you zoom out and you look at it on a long-term horizon here,

1423
01:49:59,120 --> 01:50:07,700
like if it drops 50% from here, there's still significant positive position moving forward.

1424
01:50:07,700 --> 01:50:13,660
It's just crazy. I mean, it's a crazy valuation framework. Everybody's trying to rethink what

1425
01:50:13,660 --> 01:50:22,300
these things are, what they're worth. And it's tricky. Super tricky. Okay. Well, we're hour 50

1426
01:50:22,300 --> 01:50:31,520
in. I think it's a good time to wrap. We've got how many people? 9,467 people. Cool. All right.

1427
01:50:31,580 --> 01:50:36,280
Thanks for the time, everybody. Investment grade Bitcoin podcast, episode 32. We got final thoughts.

1428
01:50:36,280 --> 01:50:42,260
Maybe Dan, kick it over to you. Final thoughts. I thought it was a really productive episode.

1429
01:50:43,660 --> 01:50:44,460
Diving in.

1430
01:50:44,760 --> 01:50:45,580
Super psyched to be here.

1431
01:50:46,520 --> 01:50:47,580
Soleil, over to you.

1432
01:50:48,780 --> 01:50:54,300
Yeah, so this was another thought I had from watching Tim's Bitcoin Treasury Marathon yesterday.

1433
01:50:54,780 --> 01:50:58,380
There's just so many companies adopting this strategy.

1434
01:50:59,220 --> 01:51:04,740
And it also goes back to the Bitcoin per yield or the Bitcoin yield comments that we had earlier.

1435
01:51:05,780 --> 01:51:09,020
The most important decision is the same as for the rest of it.

1436
01:51:09,020 --> 01:51:18,560
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.

1437
01:51:18,760 --> 01:51:19,980
You used to have zero Bitcoin.

1438
01:51:20,460 --> 01:51:23,120
Now you have more Bitcoin divided by zero.

1439
01:51:23,280 --> 01:51:26,080
So your Bitcoin yield at that moment is infinite.

1440
01:51:27,080 --> 01:51:30,080
And inevitably, it's going to have to decrease from there.

1441
01:51:30,700 --> 01:51:33,940
But it's still an important metric.

1442
01:51:34,660 --> 01:51:38,300
But just getting off zero is the best thing that you can do.

1443
01:51:38,300 --> 01:51:44,820
and just seeing company after company after company coming on his show doing this and it's

1444
01:51:44,820 --> 01:51:51,200
not going to stop it's only going to keep happening just got me super excited yeah there's so much

1445
01:51:51,200 --> 01:51:56,360
capital coming into the space everybody's seeing opportunity here everybody's trying to convert

1446
01:51:56,360 --> 01:52:03,000
their mom dad pop grandma brother sister uncle cousin into you know adopting a bitcoin treasury

1447
01:52:03,000 --> 01:52:07,220
strategy i had a call with my buddy earlier today he runs a grass company i'm like dude you need to

1448
01:52:07,220 --> 01:52:13,400
buy Bitcoin. And that's just kind of where we're at. And he's seriously considering it. He's like,

1449
01:52:13,440 --> 01:52:17,940
yeah, we just hired a new accountant. They're young. And I think we're going to do it. And

1450
01:52:17,940 --> 01:52:23,060
even that is just going from zero to one. And then you get started with it and you keep going.

1451
01:52:23,060 --> 01:52:29,100
And yeah, that process. And I chatted with another guy, Mayblo, oil and gas guy. Traditional guy

1452
01:52:29,100 --> 01:52:33,480
works with these slimy oil and gas guys down in Texas and got oil wells and natural gas things.

1453
01:52:33,480 --> 01:52:40,740
And he's converting profits that he's making on these oil and gas rigs into Bitcoin.

1454
01:52:41,480 --> 01:52:42,820
And it's a private company.

1455
01:52:42,980 --> 01:52:46,600
It's like I have no intentions of going public or doing anything like that.

1456
01:52:46,640 --> 01:52:48,480
I'm just in my niche and I'm just running it.

1457
01:52:48,600 --> 01:52:49,300
I'm buying coin.

1458
01:52:49,700 --> 01:52:50,240
That's what he calls it.

1459
01:52:50,280 --> 01:52:51,160
He's like, I'm buying coin.

1460
01:52:52,380 --> 01:52:55,080
And I'm drilling wells and I'm buying coin.

1461
01:52:55,180 --> 01:52:55,940
There might be up days.

1462
01:52:56,000 --> 01:52:57,560
There might be down days, but it's all good.

1463
01:52:58,880 --> 01:53:01,220
And it's so cool to see.

1464
01:53:01,280 --> 01:53:02,040
And that's going to keep happening.

1465
01:53:03,480 --> 01:53:09,160
it is going to keep happening uh yeah my final thoughts i i there's so much to be positive about

1466
01:53:09,160 --> 01:53:14,040
right now i mean we're we're getting into a really exciting time here in the second half of the year

1467
01:53:14,040 --> 01:53:19,240
potential interest rates coming down you've got uh dollar printing probably on the horizon with

1468
01:53:19,240 --> 01:53:23,800
the big beautiful bill it's like a good good and bad thing right like you kind of feel you almost

1469
01:53:23,800 --> 01:53:27,720
feel bad like this is likely going to lead to more inflation but i think everybody that's here is

1470
01:53:27,720 --> 01:53:36,920
probably positioned really well. Assets are going to soar. And yeah, it's an exciting time to be in

1471
01:53:36,920 --> 01:53:41,740
Bitcoin. I am just so excited to be working in this space now and keep talking about all these

1472
01:53:41,740 --> 01:53:47,660
things. And it's all synergistic. Everything helps everything grow. So I've said this before,

1473
01:53:47,660 --> 01:53:53,160
if you're interested in growing in this space, start talking about it. Your X profile is a resume

1474
01:53:53,160 --> 01:53:55,720
and everybody that's been on the show,

1475
01:53:55,860 --> 01:53:56,960
everybody that's been talking about

1476
01:53:56,960 --> 01:53:58,140
the stuff in the space

1477
01:53:58,140 --> 01:54:00,320
is building a reputation

1478
01:54:00,320 --> 01:54:01,540
and that can,

1479
01:54:01,780 --> 01:54:02,980
if you want to get a Bitcoin job,

1480
01:54:03,100 --> 01:54:04,120
like just do it.

1481
01:54:04,200 --> 01:54:05,200
Like you could just do things

1482
01:54:05,200 --> 01:54:08,300
and it's cliche,

1483
01:54:08,520 --> 01:54:09,380
but you can

1484
01:54:09,380 --> 01:54:10,480
and here we are.

1485
01:54:11,440 --> 01:54:13,260
So I appreciate the time, everyone.

1486
01:54:13,260 --> 01:54:15,920
We will be back next week

1487
01:54:15,920 --> 01:54:17,880
and we'll keep this party,

1488
01:54:18,020 --> 01:54:19,060
keep this party rolling.

1489
01:54:19,200 --> 01:54:20,160
Hopefully we get an all-time high

1490
01:54:20,160 --> 01:54:21,300
and we just start cooking.

1491
01:54:21,360 --> 01:54:22,320
Everything just starts cooking.

1492
01:54:22,600 --> 01:54:23,120
That'd be fun.

1493
01:54:23,160 --> 01:54:24,160
Hell yeah.

1494
01:54:24,160 --> 01:54:25,160
All right.

1495
01:54:25,160 --> 01:54:26,160
Cheers, guys.

1496
01:54:26,160 --> 01:54:27,160
Appreciate it.