baggage
wastewater
tied
I'm much obliged to such a pleasant stay.
But now it's time for me to go.
The autumn moon lights my way.
But now I smell the rain and with it pain and it's heading my way.
Oh, sometimes I grow so tired.
But I know I'm not one thing I got to do.
I rap it all.
Now you're down, but tell me now, sing my song.
I'm going round the world, I gotta find my girl on my way.
I've been this way, take years to the day.
I rap it all.
I've got the queen of all my dreams.
I've got no time to sing.
Woo!
Here we go.
getting the lead out. We are back. True North, episode 33, the investment grade Bitcoin podcast.
We are going to get after it. We're going to have some fun today. We've got a fun agenda
and some of the original crew is back. We've got Ben Workman is back today,
Adrian Morris, Dan Hillary, and we are going to cook. We've got a lot of fun information to go
through and it is going to be a really good time. So appreciate you all for joining. And for those
that are, for those of you that are new here, True North, the investment grade Bitcoin podcast,
we talk about, we, we have shows every week on Wednesday, same time, 7.00 PM, 7.00 PM Pacific,
10.00 PM Eastern. And we aim to talk about what's happening in the Bitcoin treasury landscape.
What's at the cutting edge. And it's primarily about strategy, right? So strategy is at the
cutting edge, they have a magnitude greater than any of these other Bitcoin treasury companies,
and they're effectively creating the playbook for all of these other future Bitcoin treasury
companies to evolve and grow into. So we are talking about the biggest story in all of finance,
which is Bitcoin taking over the corporate balance sheet and companies adopting Bitcoin as a reserve
asset and what that means from a collateral perspective and what optionality that provides
you into the future. This is a transformational asset and the world is just now starting to
realize how to use it and leverage it with a corporate balance sheet. So we get into the
nitty gritty. We show some Excel spreadsheets. We talk about stocks. We talk about equities. We talk
about fixed income stuff that could be boring to a lot of people. And we try to get some education
out. We talk about financial backgrounds and we go through it. Everybody here has got a different
background. The team's a bit bigger than this. And we kind of rotate people out over time. So
So without further ado, I'm going to kick it over to Tim real quick.
Ladies and gentlemen, what you're about to hear may be amazing, but it is not financial
advice.
It's for informational and educational purposes only.
Jeff, back to you.
Okay.
This is not financial advice.
And here we go.
The agenda for today, we are going to talk about MSTR leverage update, Q3 update, a general
lay of the land.
What's happening here?
going to zoom out and just talk about what's happening because this is the biggest story in
all of finance. We want to just lay the land of what's going on. Earnings comps and estimates. So
Q3, what's happening on the horizon? Q2 earnings call is expected at the end of July. We'll talk
through that a little bit. Convertible and preferreds. Dan Hillary's got a bunch of data
and analysis. We're going to talk about spreads, volume, delta. Dan's going to get into it as he
usually does every week. He's been absolutely obsessed with the preferred equities and the
of bonds recently. And if you don't follow Dan, follow Dan, he's a big thought leader on the
preferred equity space. Get into S&P 500 debate and projections. Maybe we'll get into some moon
math. We'll talk about what is the spectrum of probabilities and possibilities here.
And before we dive into the leverage update and those things, I'm going to start with a quick
clip from Michael Saylor just to give us a landscape of what's going on here. Because many
these other corporations that are in the world are surrendering their capital to their shareholders
via dividends or via stock buybacks and i i think it's a good way to set the lay of the land here
so i'm going to start with michael and then we'll kick into conversation the conventional financial
playbook is strip the volatility which strips the liquidity which you know surrender the capital
Every Mag seven company brags about buying the stock back and upping the dividend.
And I just watched on CNBC, a parade of every bank, every major bank in the country.
We upped our dividend.
We upped our buyback.
We upped our dividend.
And I'm looking on with horror because they think it's a good idea.
These are the 20 best and brightest corporate financiers in the world, presumably trained
at Princeton or Wharton or Stanford or Harvard and this and the best practice of the CFO of every one
of these great companies is to surrender to the capital buy back the stock destroying the
optionality destroying the volatility destroying the liquidity and we are doing the opposite and
it's working and there's a little virus a fire that's spreading and at some point people are
thinking, well, wait a minute, I'm a zombie and my life is hopeless. Or I inject Bitcoin,
liquidity comes back to my stock, volatility comes back to my stock, a capital gets attracted to me.
The world is not so hopeless anymore. And for the 40,000 publicly traded companies that are not
NVIDIA and not JP Morgan, what hope do they have, guy? I'm giving them hope. Bitcoin is giving them
hope and your choice is you're going to get ground into the dirt by the boot of a trillion dollar
company that guy's electric electric totally electric explaining what what's happening so
smooth right you've got everybody with this traditional financial framework you know they
go get the cfa they are you know trained in finance over time via a textbook and this is
the textbook if you have excess capital you return to your shareholders and you know everybody's been
ingrained to think like this and now there's an alternative which has never existed before
but like a viable alternative that's never existed before and you know it's a virus and
it's spreading like wildfire so i want to get your thoughts on on it well like what do we think of
that that was incredible i mean it he's highlighting the core problem that you've had with nearly
every corporation, right? There's a problem that we have out there today where executives are scared
to innovate because now the markets become so used to one way of operating. And that one way
of operating has been strip the risk, strip the volatility, make things safe, hit the analyst
estimates, right? Keep everything in order so nobody has to guess anymore. And when you take
all the guesswork out you know you're taking all the surprises out he's right there's no there's no
life there because there's nothing exciting that's happening if you always know what the outcome is
going to be within a small degree of error you know it does it takes all the excitement out of
putting capital into those types of investments and giving the the market something that is so
counter to that right you're taking everything that they've learned everything all these cfos
have learned, you're throwing it out the window and you're saying, no, we're going to take that
volatility and we are going to ride that to the bank. That's what's going to make this entire
thing work. That one thing you're afraid of, that's our identity now. We're the volatility play.
And that's what we're going to be in the market. We're not the safe play. We're not where you come
and park capital that you want to climb at a very small predictable percentage every year. This is
where the excitement's going to happen. And if you want to participate in an ecosystem where
innovation's happening, where people are going to think in ways that you are wildly uncomfortable
with, where we're going to take the playbook and we're going to find the ways to maximize value
through channels and using assets that you wouldn't even consider to touch,
this is the asset for you, right? He's sending that message so loudly and now it's just catching
on at such a pace which is incredible you know we were talking about this you know i mean go back a
year when we started talking about all this and it was just such a weird conversation to even be
having you know the market thought that we were all insane it looked like this would never work
you know there's only one company doing it well now there's only two companies doing it well look
how many companies are doing it now look at all the institutional investment capital that's coming
into these deals. Why is that? Well, it's because the volatility is here. This is where the energy
is, right? That volatility is the energy and that energy is here. It's in this ecosystem. It's in
strategy. It's in all these companies that are out there in the Bitcoin treasury space right now.
Bitcoin is the lifeblood of the markets at the moment. There's nothing else that's as exciting.
And because of that, it's just absorbing all the capital from all these other plays right now.
And for people that think that we are, you know, I keep hearing that we're saturated,
right? There's too many of these now. So you don't realize how small this is. Yeah, it feels that way
because you're seeing the announcements coming out. You're seeing all the new companies entering
the market. They've all got plans to acquire Bitcoin. It sounds like a lot, but then, you know,
go out to one of these websites that's tracking all these treasuries, take the total and back
strategy out of it. And let me know how big this market is and whether we're saturated. We're not
even close. And so as these companies start to achieve more and more scale, and we see more of
them, you know, breaking into that 5,000, 10,000, 20,000, 30,000 Bitcoin, and they start launching
more innovative structured products, this is just going to pick up steam. I mean, this thing's going
to be full bore ahead. It was what was on the clip art, right? Nothing stops this train. And the train
is getting loaded and there's more and more energy behind it now and i think it's just going to keep
accelerating yeah i agree i don't think we're anywhere near saturated there's what over 50 000
companies traded globally and 40 or 50 yeah and there's just over 120 150 bitcoin treasury companies
so that's 0.002 yeah or something ridiculous like that 0.3 basis points there you go
we're nowhere even remotely close to saturated. And to Ben's point, this is, and I think Ben,
we talked about this when we were on with Swan, the announcements that keep coming out,
I think it's throwing people, and that's what makes them think it's saturated. But I don't
think we're in a bubble right now. I don't think that we are in risk of having a, you know,
unforeseen Black Swan event with these companies blowing up. I think what we're seeing right now
is the cheesy adage, this is an idea whose time has come with Bitcoin, right? And that's what
Saylor is trying to put across. Get on with this, get on the adoption curve, enjoy this,
what he refers to as a gold rush that we're seeing right now. We're in the accumulation phase,
right? Every company is focused on accumulation. Every company is focusing on maximizing MNAV,
maximizing Bitcoin per share, maximizing Bitcoin yield. But that's going to shift,
And then the focus is going to be on NAV, in my opinion.
And strategy already has the biggest boat when it comes to NAV.
They're going to have the most Bitcoin.
No one's catching them.
Right now it's a race to number two.
And then it's going to be a race to number three.
And we're going to see the preferreds grow.
We're going to see that the market is going to grow.
We're going to see that the strategy economy becomes like a centerpiece of a new Bitcoin-driven economy right in the heart of traditional finance.
and to say that we're saturated,
I quite frankly think that by the time 2028 comes around,
we might see that there's a thousand companies doing this.
Oh yeah, maybe more.
Maybe more, right?
And we still won't be at a saturation point
because at that point,
if we take the 50,000, 45,000, whatever number,
that's 145th or 150th of the market.
Pick your poison.
That's not saturation.
That's an adoption curve, right?
That's expansion of a new model.
and I think that the market needs to get wise to this thing
and the companies that are able to adopt
and they're able to adapt will scale
because just like what Saylor said with like NVIDIA,
if you're not NVIDIA, if you're not Apple,
if you're not Meta, what are you really going to do?
You don't have a lot of options.
If you want to scale, if you want to grow,
I think that Bitcoin needs to be at the core
of your balance sheet
and you need to look at the different offerings,
you need to look at the different ways
you can scale that thing
and try to innovate in those ways
but saturation, no, we are right at the beginning of this thing.
And I think it's just going to really, really explore from here,
even with market corrections.
I still don't see the 80% drawdown coming.
I still don't think that we're going to see a massive bear market.
You know, if war breaks out or something like that, that's, that's how I
would, that's not something we can predict, but what sailor said, right?
Said, winner's not coming back.
Wait, winner's not coming back.
Yeah.
And he posted that he said, winner's not coming back.
And it's very, very true because even if there is downward pressure in the market, the equities are going to absorb it, not Bitcoin.
There's no rotation out of Bitcoin.
It's just a reflexive rotation back in.
And the companies are disincentivized to sell.
So the capital is not going to fly out of the market in the ways it has in previous cycles.
And we're doing this without stimulus.
We're doing this with higher interest rates.
We're doing this with tariff uncertainty.
We're doing this with Iran.
we're doing this with palestine we're doing this with israel we're doing this in ukraine we're doing
this with russia there's all kinds of global macro headwinds that should be slowing this thing down
it's just not so when when we really do get some stimulus when our interest rates come down this
thing's going to run you know when a guy like sailor makes a statement like that right a
definitive one where he says you know winner's not coming back you got to ask yourself if you're one
of the viewing audience you know what might this guy know what's he know right what does that guy
know yeah he's the guy that every person on earth that's thinking about putting bitcoin on their
balance sheet is calling you can only make definitive statements like that so confidently
when you are very comfortable in that structural bid that's building here right when you can see
the capital that's coming when you can see all the regional plays spinning up across the world
and you realize that this is no longer just going to be a US market centric approach This is now a worldwide movement for corporations and the capital from all these different economies is going to start funneling into Bitcoin And you see the buying happening
and you're starting to see the absorption of this new Bitcoin supply that comes into the market,
how quickly it gets bid up. With a lot of the news that came out over the last just several days or
weeks, all the things you were mentioning, Adrian, that used to be a death blow. We would all have to
We'll go over a few weeks and lick our wounds and just be miserable for a little bit and grind it out.
And now Bitcoin kind of shrugs and it goes, that was fun.
And it just starts going back up.
Right.
The bid's relentless out there.
There's so many people buying.
And it's incredible when you have this asset where this is happening that has that completely inelastic supply to the demand for it.
People really discount what that means.
I don't think a lot of people actually grasp what that means because it just doesn't seem like a real concept.
I mean, there is no more of this that's going to enter the market at a certain point, right?
Yeah.
There's 21 million.
It's all there's ever going to be.
A bunch of it's already lost, you know, so there's way less than 21 million that are ever going to be out there.
One company has more than 600,000 of them.
And now you've got hundreds of these other companies coming in.
They're siphoning capital out of the fixed income markets.
They're just hitting the point where they're going to start innovating in that space and start bringing products that these fixed income buyers can't ignore.
And you're one credit rating away from such a massive wave of capital coming in here.
I mean, you go through these periods where, you know, you think you're bullish and then you start really looking at everything that's happening.
And, you know, for me, it's been incredibly eye opening, right?
When you get behind the curtain a little bit and, you know, you look at, you know, our core
businesses, Bitcoin.
So we're seeing it from the retail investors and the small businesses.
But, you know, now we're, you know, working with these companies like Saquon's where they're,
you know, standing up their treasuries.
And so you're having those conversations.
And now you're starting to get the calls from all these other companies.
So I'm just starting to see, you know, the small peak of what's happening here.
and it's already blowing my mind i mean it's hard to comprehend how much capital is out there
and the types of deals that are getting structured and when you start thinking right when you look at
them in isolation none of them seem like a big deal but then when you start looking weekly and
you see you know now there's 10 companies buying at least 100 bitcoin a week it seems like you know
and then you got strategy popping in and they're good for 4 000 to 15 000 just depends on what's
going on that week, that's going to add up fast. And this Bitcoin is going to be coming off the
market. And I don't know who's selling it on the other end, but it doesn't matter.
Pockets are not as deep as what's coming here. Yeah. So, you know, I'm just, I just keep getting
more and more bullish on this entire space. And, you know, I think that's what makes sailor, right?
I'm not sure winter is coming back. And so sorry to cut you off, Jeff, but someone in the chat said
no asset could fundamentally go up forever. That's true in a fiat model, but when you have
mathematically derived model that is finite it can mathematically go up forever that's the fun of
bitcoin and that's the fun of the way this thing is going to operate just look at any any stocks
over time i mean any anything that's been around for a long time has pretty much gone up forever
in perpetuity you zoom out and you look at it well that looks like pretty much forever to me
correct you're right and i think the only 21 million are ever coming out yeah if the denominator
is the us dollar yeah it's going up forever the dollar is programmed and managed to go down forever
yeah at a rate of a minimum of two percent per year but it's more like six and the thing about
it is is that and we can even rewind this back further i know i like to talk about uncle larry
a lot but larry fink did not get into this to weather a 80 drawdown right and if we take a look
at what happens the second ibid got approved we've been we chopped in 70 to 80 then we chopped from
80 to 90 then we chopped from 90 to 100 now it looks like we're chopping 110 to 120 and it's
just been kind of plotting along on the way in an upward trajectory and even going back to last year
when the yen carry trade unwind right happened right bitcoin dropped down and it dropped and it
went right back up within a matter of three days it was already turning back up germany sold 50 000
bitcoin on the 4th of july probably the most the least liquid day in the entire year and the price
dropped and then came back up rebounded within a month yeah it's being bid up and i what i'm
trying to explain to people like whenever i talk to them because i got demons you guys get dms we
all get dms about this stuff daily what is happening is that the institutions have fundamentally
change the dynamics of this cycle and people are really underestimating what that means
if institutions come are doing what we think they're doing and they're just bidding this thing
up right we have the we have the corporations we have the institutions we have etfs all that fun
stuff okay great what that means is retail is very very quickly going to be bit out if people don't
start getting on and start understanding what's really happening here because retail has not
arrived yet i i don't hear anything they may not they may not arrive that's that's what i'm getting
they may not they actually take the other side i'll say retail has arrived they just arrived
in their via equity equities yeah yeah there you go yeah they're doing it via the the bitcoin
treasury companies yeah yeah i mean there's no doubt that you know the barrier to entry
is really low when you can just use your brokerage account to go gain exposure and a lot of people
are going to do that. What you hope is that as they manage to outperform Bitcoin, that they
remember that what you're ultimately trying to do is end up with more Bitcoin. If it's the asset
that works for all these companies, it's an asset that you should be holding yourself.
And you do hope that people don't skip past that, right? Because I think that's an important message
out there. For me, that's how it's always been. I know we've talked about this a million times, but
Bitcoin is the foundation that makes all of this work. And so I want to hold Bitcoin myself. It's
It's one of those few sovereign assets you can truly hold.
And there's a huge amount of power in that.
But it's a heck of a lot of fun to play in the equities market and really get deep in one industry and start really digging into the nuances between these companies and get to know the management teams and see how they're executing the strategy and see what the market responds to and what they don't.
I mean, that's a huge amount of fun.
So just that we even have the opportunity to try to outperform Bitcoin, there's no better time to be an investor right now.
This is as fun as it gets.
But Dan, this is something that you're probably going to want to talk about.
I'm hearing more and more and more talk about the preferreds and the interest in them is growing rather significantly.
To the point where guys that I'm talking to are saying, should I just go all in on strike?
Should I just go all in on strike?
Should I have a 50-50 allocation of Mr. Strike?
And that happened in the course of three months?
Oh, yeah.
We're in infancy with the preferred equity instruments.
And that is only going to expand and grow, especially with success, right?
Success brings more success.
And I mean, right now, already, the strategy preferred equity instruments are the most
successful preferred instruments ever in history.
Most liquid, most successful.
and that's only going to continue. I think real quick, I wanted to rewind to what Saylor was
talking about in that clip. And most companies are stripping out the volatility of their stock.
They're giving dividends, they're surrendering capital and giving dividends and buying the stock
back and getting rid of the volatility on the balance sheet. Just to put this into perspective,
There are five companies over the last two years that have bought $670 billion of stock back.
Five companies.
So that's Apple, Google, Microsoft, NVIDIA, and Meta.
So that's $670 billion where those companies said, we don't know what to do with this capital
anymore.
We are going to give it back to you via stock buyback or via dividend.
The alternative was if they were to keep that capital on their balance sheet, if they kept
it in dollars, it's declining rapidly over time. You have an opportunity to invest that into R&D
and grow your business. So effectively, what that is signaling to the market is we are mature.
We are a mature company and we don't know what to do with this capital. So we are going to give
it back to you either via dividend or via buyback. Whereas if they were to keep that capital in a
digitally 24-7 liquid 365 asset that's appreciating at 20%, 30%, 40%, 50% compound
annual growth rate, that's power, right? $670 billion of power that's growing at 20% to 30%,
40% GAGR. What can you do with that? That's optionality. That's financial leverage. That's
financial strength. That's collateral. That could be $670 billion of collateral that was kept in the
corporate wrapper to benefit the company into the future by the ability to continue growing
their business. Instead, they said, we don't know what to do with this. We're giving it back to you.
And that's what Saylor's saying. They're stripping out 100% of the volatility. Meanwhile,
strategy is leaning into that volatility saying, we will buy this asset and add it to our balance
sheet and shove volatility into our equity because that's giving us more financial strength to offer
more products or go use different financial instruments that haven't existed before.
And that optionality is what's adding significant value here to the balance sheet.
It's the optionality of the most powerful collateral the world's ever seen.
And that is continuing to grow incredibly rapidly.
Well, do you remember the article I wrote last year, or is it two years ago now?
The stock buybacks and speculative attacks article where I was talking about the fact
that all the stock buybacks that happened in the last 25 years is probably over like
close to $2 trillion.
I wouldn't be surprised.
It is absolutely mind boggling to think that a solid percentage of the market right now has been fueled by stock buybacks just because it had nothing else to do with it.
Now, let's flip that.
if people are saying that we're too, if people are saying that we're too bullish and whatnot,
what happens when that money that usually is done, done in via stock buybacks and that volatility is
sucked away and that optionality is sucked away. What happens when maybe 20% of that
starts going into Bitcoin on a yearly basis? Right. Right. And I just mentioned the top
five companies that did stock buybacks, right? I mean, I was doing some analysis on Intuit the
other day. Intuit last year had $2 billion in stock buybacks. Intuit, it's like, yeah, I do my taxes
on Intuit, but it's not a sexy company, right? Is anybody ever going to buy Intuit for its ability
to go from $2 billion to $3 billion stock buyback? I mean, maybe, but there are other things that are
far more sexy, that are growing incredibly rapidly that I would rather buy, and that's the market
response. Now, the alternative that they have is they could not do the stock buyback and then add
an asset to their balance sheet, which could give them future financial leverage to be more AI
resistant, AI proof and leaning into this new capital environment. So there's a lot of companies
like that, right? There are 40,000 publicly traded companies in the world. I don't know how many on
the US, probably 10,000 publicly traded companies in the United States and 9,993 of them are crappy.
underperform the S&P 500. So there's a lot of opportunity out there. And yeah, I think that's
where we're headed. Dan, anything to add before we jump into some numbers here?
Yeah, I think someone mentioned this idea of corporate balance sheet strength. And I think
ultimately that's kind of something that Chano's has been talking about a little bit too, is the
difference between an asset on a balance sheet underpinning the equity and the future-looking
expectation of the equities market. And that's something he hasn't been able to understand
necessarily within the case of MSTR. And something I've been thinking about is, and I apologize,
this is a bit unrelated, but Strife, the 10% yielding senior preferred equity is almost like
the expression of Chanos's trade of long the underlying and short the premium. Because if
you're short the premium, you're short the future expectations of Bitcoin yield, but you're long
the underlying asset and you're trying to capture a weird little arbitrage there of the premium
collapsing. If you're long Strife, you're short by short, meaning you don't own the actual operating
business of MSTR or the Bitcoin yielding functions. But you're long the credibility of the assets and
the underlying assets and you're getting that small 10% yield as a result. And you're not
directly long either asset. You're long the $10 coupon. So I've been thinking about that a lot.
strife is almost it's like the arbitrage that chanos is trying to collapse and yield for himself
is almost is spit out into the market uh in the form of strife product to uh to holders so i think
it's kind of interesting it's not perfect but it's kind of interesting comparison yeah he would be
much better off just buying strife right and strife wouldn't perform so the maximum upside
on his trade if he's not levered is about 50 percent and obviously strife has performed that
well uh since inception uh without and obviously the trade hasn't performed uh well it did perform
when he put it on a 2 3m nav but now you know he's probably about up unless he's levered you know 10
10 or so which is annual dividends worth of strife uh risk-free so i don't know kind of interesting
to think about it was also interesting to find out that chanis's position was five percent of
his portfolio which is so funny because everybody i'm not going to speak for everybody but most of
the people probably here are 99 in bitcoin something something bitcoin related or uh
you know bitcoin forward so it's it's just an interesting perspective thinking that you know
he's talking about this trade so much but it represents you know five percent of his portfolio
on a basis trade right that that has unlimited loss potential yeah and not at no point in the
conversation was bitcoin yield brought up which is uh it sort of was it was glazed over but like
bitcoin yield in my opinion is the fundamental underpinning of a forward-looking expectation of
increased bitcoin per share and why a premium is kind of justified over a long period of time
so i think that's part of the story and i would love to you know there's a concrete reason why
that premium exists other than forward expectations of bitcoin price like as long as you see them
continuing to acquire bitcoin per share it's it's a viable premium well and you gotta yeah go ahead
yeah and leveraging the capital stack that wasn't brought up either and those are the two most
fundamental things i think for a bitcoin a leverage bitcoin equity is like we were talking
talking about this like years ago right we were talking about strategy has leveraged capital
structure and it's paid for by the operating business which you get for free at 1M now so
like that the point things are different now obviously and as things become different you have to look at Bitcoin yield and the actual different capital markets levers which they can pull And so it changed But regardless those two points don get hit on enough I think
Yeah, the prefs didn't come up much or the leverage didn't come up much. Acquiring Bitcoin today for a future liability. That was a clear miss in that conversation with Pierre.
Yeah. And the last thing is, I remember what interests me about strategy was I did all the
calculations and I said the leverage in their capital structure, if Bitcoin goes to 200,000,
1.3M NAV is justified because the debt melts away because it's USD and the Bitcoin NAV increases.
And so your effective leverage premium on strategy's capital structure with an increasing
Bitcoin price was 1.3 nav. And now how forward looking is that expectation into the future?
Yeah. You start to think how forward looking, how much Bitcoin is strategy going to acquire
and what is the price at that point in time? What is the terminal value of that? If they're
going to continue to do this over time and they don't blow up, the probability of that is
incredibly low. And what's the value of Bitcoin at that point in time in the future? Is it 2 million
Bitcoin at 21 million dollars per Bitcoin. Right. I don't know what I don't know what that number is.
And you start to think about, OK, if all equities are forward looking, why isn't strategy forward
looking about how much Bitcoin they're going to accumulate and what the price of that Bitcoin is
going to be at that future point in time? And that's something I'd like to think about a lot
is this relative valuation between other equities and how are other equities compared? How are other
equities valued and why is there those valuations on those equities like what is what is underpinning
the valuation of those specific equities well i think yeah and i think oh i i think we are um
and i don't want to derail the conversation i think we're underestimating the the power of how
just high the multiple can go and i say that because uh strategy success is also going to be
a direct function of bitcoin adoption and as bitcoin becomes more of a staple in the global
marketplace that by itself will justify a premium regardless of the um necessarily under the necessary
underlying dynamics of bitcoin yields bitcoin per share and whatnot i think strategies nav
in the future is what's going to justify their a high m nav because when bitcoin reaches an escape
velocity of adoption i think the multiple can go much higher than people are anticipating even
even at a higher market cap because with all these preferreds with all of these um other
offerings that they're they're inevitably going to have if you think about it they become
a passive exposure vehicle for both fiat exposure for fiat gain and for passive bitcoin gain because
the share price is going to represent the gain in the bitcoin price right so i think that the
multiple is being underestimated because i think everyone is trying to pigeonhole it into a trad
fi model that they can then project into the future but from from my perspective i think the
the power of sentiment and adoption is being grossly underestimated and just how high this
can go 100 i'm going to bring fong onto the screen with a quick video clip because i think this is
very uh this hit this hits perfectly so i'm going to bring fong in for his perspective and then
look over there so this is not unique to bitcoin first of all the idea of a multiple than that
asset value and so so people call it alchemy i call it valuation there's a time when the models
the traditional models don't work and you have to come up with a different way to value a company
our belief is a good way to value the company is take the bitcoin yield and then take the bitcoin
gain which is a function of bitcoin yield it's a dollar gain and take take a multiple on that we've
projected right that this year our bitcoin dollar gain is going to be in the 25 billion dollar range
and if we do that and you take a typical ebitda multiple or an earnings multiple and you say what's
the company worth if they had produced 25 billion dollars in a bitcoin dollar gain perhaps you'll
put a 20x multiple on that but what if what if that number is growing 50 a year should you put
a 30x multiple on it 40x multiple it's not unreasonable and you would value strategy that
then somewhere between 500 billion dollars and a trillion dollars and then you can go back and say
well that versus our net asset value of 60 right maybe we should be a 10 you know 10x nav or 20x nav
it's not alchemy it's this has been happening since the beginning of corporate finance and
equity valuations is there's got to be a different way of looking at the enterprise value of a company
than just looking at a straight you know what is the asset value that it's worth
There you go.
From the man himself.
And someone in the comments is saying that market psychology has rewarded slower growth
scale as slower growth of scale increases CMAG7 increasing PE ratios.
Again, there's a fundamental difference.
You have a fundamentally scarce depreciating issuance asset at the basis of this entire
trade.
just compare it to a mag seven on a fiat driven model when bitcoin is a scarce asset that can go
up in perpetuity that changes the dynamic that that and that dynamic sentiment can continue to
rise and sentiment can continue to demand a higher multiple as adoption increases and as market cap
increases yeah and you start to think like if the value of a company is the value of its assets plus
you know some future expectation of cash flow even if the cash flow doesn't you know hit the
income statement, it's happening on the balance sheet in a tax advantaged way. It doesn't mean
it's not cash flow, right? That cash flow is happening on a tax advantaged basis on the
balance sheet as opposed to on the income statement. People don't really recognize that
and they're missing that component. This is value that's being added to the balance sheet in a
unique way that hasn't existed before. And so when you think about the value of the company being
the value of its assets plus some future expectation on cash flow. Well, you've got to
also take into consideration, as Fong said, that those assets are appreciating a 50% annual,
you know, compound annual growth rate. So what's the value of the company four years from now?
What's the value of the Bitcoin four years from now, 50% CAGR every year, plus what they're able
to yield at that point in time down the road. And you start to compare the results from
what's going to happen here at the end of Q2, at the end of July, when strategy posts their Q2
financials, you're going to see a significant earnings report. And that's going to start to
be compared to these other companies. And there's going to be questions on like, how do I value this?
This value conversation, while everybody in the comments and everybody on Twitter has been fighting
about this for the last 18 months, this value conversation hasn't even started. We're in year
one, basically, of this, how do you value this company? And we're going to be doing this for
the next decade during the gold rush of the Bitcoin gold rush. I really think that part of
what the market's going to struggle with for a while is, you know, they're going to see the
massive earnings that comes out this quarter, right? That's going to be the first eye-opener
to this. But the response is going to be, well, it's not sustainable earnings, right? It's volatile
earnings. It could be down next quarter. But I think where that starts to shift is when you see
several years in a row of quarter after quarter after quarter of performance. And I think that
that time is coming because with all the capital flowing into Bitcoin, I think you're hitting that
point where that structural bid underneath Bitcoin is going to keep pushing it higher.
And these companies that are holding it on the balance sheet are going to keep showing more and
more profits quarter after quarter after quarter. And eventually you can't say, well, that was a
fluke. You have to actually look at it structurally and go, what's happening in the world that's
making this effective? What's going on? What am I missing? And what you're missing is the
denominator currency. And you have to look at the debasement effect and the fact that some companies
are smart enough to get out in front of that and capitalize on it and generate value for their
corporations and for their shareholders, they're not going to be penalized forever.
And we've been very myopic in the way that we're willing to value organizations. For so long,
we've only really valued them on the basis of what they do on the income statement.
And that income statement needed to result from the investment that you're putting into these
operations and the market starts to see that as sustainable earnings because you're building a
model that can generate sustainable earnings we think this becomes repeatable quarter after quarter
and it's really just now that it feels like bitcoin's really hitting that adoption moment
where you're starting to look at it and go you know it might not be as erratic moving up but
it's starting to feel like this thing's going to grind higher for a very long time and when that
happens and when those earnings start flowing through to those income statements and they have
have to digest it and make excuses quarter after quarter, that becomes a harder question to answer.
Because if the US dollar is going to continue to devalue or pick your currency, right, whichever
jurisdiction these companies are in, if all these fiat currencies are going to keep grinding lower
and lower in value forever by design, because we've got a consumption-based world, right,
all these economies are really based on incentivizing the consumers to spend. And in order to incentivize
consumers to spend. You have to devalue the currencies that they're holding and make sure
that they are intimately aware that if they decide to hold onto this cash and wait until next year,
it's going to buy them less than it would buy them right now. So right now you better spend it.
So, you know, when that starts to get out and people realize that that's the model,
right? That's what we're taking advantage of. You're mismanagement. We're betting on the only
sure thing in the universe. The only thing that we can really bet on is that you're going to have
to play games with the currency and you're going to have to devalue it. And that's your only way out.
And we found a solution and these corporations found a solution and they're pressing this trade
as hard as they possibly can. And they're going to continue to do this into the future.
And we're going to use whatever fiat debt instruments you'll offer because we know that
that currency is devaluing and we've got the one with the completely fixed supply where all the
demand in the world can show up at the doorstep and we can't create any more of it. That's the
bet we're going to make. And that's a pretty good bet in my mind. So I think it's just a matter of
time here before people move out of the excuse making realm and they start confronting reality
of what they've been watching for years and they've known, but it's just felt like a foregone
conclusion that they just have to accept. But it doesn't have to be accepted anymore and it's not
being accepted anymore. And companies are now getting creative about ways to take advantage of
that and it's going to accelerate at a massive pace. These preferreds, we've hardly scratched
the surface. People look and they think strategy's already won the preferred game and it's over and
no one needs to launch anymore. Look at how many duplicates there are for any of the corporate bond
products that are out there. All these corporate fixed income products, right? They copy each other
all the time. People have this propensity for diversifying and they'll pick up products that
could be the same product, but a different profile, a different underlying operating company. There's
so much room to siphon the capital out of that you know 300 trillion dollar market that we're just
getting rolling here yeah i'm gonna jump i'm gonna jump to some data but go ahead jump in there adrian
while i pull this up yeah because the best point is not just going to be strategy that's doing these
preferreds right so strategy got out the gate first metaplanet's probably going to do them
sellers already whispering about doing them smarter web i just um interviewed andrew webley he's said
that he had a conversation with sailor and they were talking preferreds just imagine a world where
you have strategy being the preferred of choice for bitcoin exposure in the us meta planet in
japan smarter web in the uk maybe blockchain group for the broader european market a secondary
option could be similar in the us scale that over time and just imagine how much money they can
siphon away from the markets just with just with the first absolutely and and that's not including
everything else so it to ben's point this this is the nascent state of this we are in the gold rush
the adoption the adoption curve the accumulation phase whatever euphemisms we want to use that's
where we are right now and um in four years time it's going to look very different and in four
years time i think that's when nation states started to get involved as well and then all
hell's gonna break loose so yeah by the way we're 45 minutes into this and we haven't even acknowledged
that today was the second highest close ever all-time high market cap it was all-time high
i thought you said it was the first or is it not no it's the second all-time high market cap it's
the second highest all-time high close oh close nobody's talking about it right that's how
just normal and you know people are now chasing all these super pumps right now and you know but
strategy is just quietly doing what you knew it would start doing and it's going to start grinding
up and we're not that far i mean the highest close ever is what 473.83 473 yeah so less than
twenty dollars a share away i mean it's on the move yeah absolutely okay i want i want to hit
on this this is earnings estimate this is a pro forma from q2 we've hit on this uh quite a bit
recently. So as of Q2, the Bitcoin price closed at $107,778. So the gain that strategy held on
their balance sheet from Q2 alone was $14 billion. The estimate net income from that gain is $11.1
billion. So this equates to about $39.50 earnings per share. And Ben, I brought this up to hit on
your point earlier. It's like there's going to be this commentary of, oh, but those earnings are
volatile and that might go down and then it's going to go back up.
Then it's going to go down.
And I mentioned I was doing some analysis on Intuit earlier and Intuit.
If you look at the last four years of their net income, the last four years of their net income is $8 million,
$9 million or not $9 billion.
Strategies has made $14 billion in Q2.
And you look at you look at Q3, where we're at with Q3,
And they're already sitting on a $6.4 billion gain and a net income estimate about $5 billion.
So you add that together, you're looking at $15 billion net income so far in Q2, Q3,
not accounting for the gain that was added to retained earnings in 2024.
So you start to look at some relativities here and you're like, okay, do I care that
it volatile if I going to outperform the last seven years of this other equity And you start to look at the size of Intuit right Intuit got a billion market cap It is the
78th largest publicly traded company
in the United States, I think in the in the world,
this is including foreign companies, it's the 78th, the largest publicly traded
company in the world.
Where the hell is Lind?
Oh, that's a UK company.
Yeah, it's including foreign companies as well.
So this is largest, largest assets on the planet.
So you start to think about the relativity there.
It's like, do I care about the volatility if it's that big?
Right. Like the yeah, if it falls, you know, 50% cut it in half
and it's still outperforming.
All of the, you know, the net income of all of these other companies.
So I start to not care if I'm taking a
Bitcoin is also transforming this view of quarter over quarter results.
And you start to think about the world a little bit longer.
Right.
You've got a year over year results and four years over four year results.
Thinking about Bitcoin cycles and it really changes that dimension
of how you view time and results.
And if you're looking over a longer time horizon,
that could be more valuable than looking over a shorter time horizon.
And while we're here on the spreadsheet, we'll talk about leverage because we hit on this every week.
So as of today, 7-16-2025, Bitcoin held on balance sheet $601,550.
They purchased another 4,500 Bitcoin over the last week.
The Bitcoin price when I started this was $118,750.
So strategy is holding $71 billion worth of Bitcoin on their balance sheet,
which again, that seems like it's hard to wrap your head around $71 billion.
That's $100 million, 710 times. Think about how big a million is. Think about how big 100 million
is. And now think about 100 million, 710 times. That's what they're holding on their balance sheet.
That's power. You look at the debt held on balance sheet, they've got $8.2 billion of debt,
$3.5 billion of preferred stock. So the net capital that they hold on their balance sheet is
$59.6 billion. You look at the leverage ratio, 16.4%. So if anybody tells you that strategy is
over levered, you could point them directly to the numbers. You could point them to the strategy
website where they show their debt coverage ratio. They show you all the statistics updated 24,
7, 365. So you can understand the financial strength of the company every single day.
something that's never existed before. And so what would it take in order for
strategy to start to even be concerned? The price of Bitcoin would need to go down to $19,500
and stay there for an extended period of time for the assets to be worth less than the liabilities
held on the balance sheet. So as I've said in the past, if the price of Bitcoin goes down to $19,500,
dollars, everybody in our team, everybody that is in the Bitcoin treasury space is doing,
they're selling everything that they could touch in order to buy the Bitcoin, buy all the Bitcoin.
So I think the likelihood of that is incredibly low. And yeah, you've got this fundamental asset,
Bitcoin, being different than any of these other altcoins, these altcoin treasuries. This is an
asset without an issue or that the SEC is effectively deemed a commodity that you can
capitalize your balance sheet on, as opposed to some of these other altcoins that have marketing
teams or CEOs or infrastructure that is fundamentally different to a decentralized system like Bitcoin.
Okay, I'll pause there. Anybody else?
You know, every time we look at this stuff, and I just popped over to the strategy website because
I've been a little busy, so I've not been able to go through because I know they put out all this cool information out there.
But when you think about just how different these companies are than a lot of them, our junk bond competitor is 6.1 times over collateralized.
That's our junk bond competitor, right?
Stride.
That's how unique these preferred products are that these companies are putting out.
And you don't have any other companies out there in the market that are this focused on credit quality.
I mean, that is hugely over collateralized and it makes that product so strong relative to what it's supposed to compete against.
Right. You're supposed to compete against the bonds that have really high risk and they're in shaky companies and they've got to offer you high payments because they're not a credit worthy business and you don't know if they're going to survive.
Here you've got one that has the assets, right?
It's effectively asset back credit.
they're going to pay you $10 a share and they're 6.1 times over collateralized. And that's what's
competing with junk bonds. That's unique. That's incredibly unique. The market is not digesting
this at all. And it might've been you, Dan, that was talking about the fact that like stride,
you're just baffled by how it's trading below par at the moment. And I think that's right. It is
crazy when you think about it. You look at the credit quality of our lowest credit
preferred instrument and the spreads on that, and there's a mispricing. So you got to ask yourself,
are we wrong with all the transparency, with all the data, knowing the asset, being able to watch
the asset in real time, or is the market just closing its eyes and plugging its ears and saying,
don't tell us about anything new. That's not how we do it here. But that's what creates opportunity.
If you're not willing to go out and spend a lick of time understanding the products you're looking at, you deserve to underperform.
These are available and these are powerful products, all of them that are getting launched.
And there's just going to be more of them that are coming into the market.
And these other companies are going to take advantage of those regional jurisdiction arbitrages and the tax inefficiencies of different jurisdictions.
I mean, this is about to get way more creative.
Saylor put out the foundational ones that are recognizable and familiar to all the major
capital in the market.
And that was huge because he's the first player of scale that's going to be out there.
He's going to be the first onboarding place for a lot of this institutional capital out
of the fixed income market.
But there is so much opportunity for these other companies to come in and target different
pockets of that capital pool.
And if they all focus on maintaining really strong credit quality like this, these things are going to be unstoppable.
I mean, this is real-time data.
It's real-time monitoring of the risk position in your portfolio.
It's liquid markets you can get in and out of.
This is a dream to hold in a portfolio.
And you can structure portfolios now, and most of us have, just around these Bitcoin companies and the products that they're offering.
Yeah.
You only have to be an expert in one.
And you don't even have to be an expert in one area.
You need to be able to go to the company's website that has implemented radical transparency
and just review the numbers for yourself and ask yourself, how risky is this product to
me?
If I put this in my portfolio, what risk am I taking on?
And then if you go look and if you're holding a junk bond ETF and you can confidently look
me in the eyes and say, I understand all the risks associated with this basket of junk
bonds that are paying me six and a half or seven percent, you know, Godspeed, you know, good idea.
I don't believe you.
Yeah, the and I'll tell you, now that I'm also behind the curtain, I'm having conversations with
people in suits that have managed capital for a very long time and they do not know what's going
on here. They have significant experience with preferred equities or convertible bonds,
and they had not even heard of the instruments that strategy has in the market.
And that blew me away. These are professionals. These are professionals doing,
you know, managing capital. Now you've got this company that's, you know, going on this
meteoric rise and we think it's, you know, I personally think this is the biggest story in
all finance, but it's also just very misunderstood and also not getting a lot of attention. So from
that perspective, I think we're still incredibly early. And, you know, Dan, just, just because we
have 26,000 viewers on right now, I think it could be helpful just to give a lay of the land of the
preferreds. Like, what are the preferreds? How do they work? And some basic understanding of the
preferred instruments? Because I think, I don't think we can explain it enough because it takes
a long time for these instruments to click for people. And I know for me, it took a couple of
months for Dan it took a couple of months it just everybody is learning this at a different pace
and I think it's helpful to explain if you want to give it a run yeah uh am I lagged am I good
you guys hear me you're good I could hear you um yeah yeah I think okay later Adrian Adrian good to
see you the key difference is the diff is the dividend clause in strife and strike versus stride
and that's the what are what are the instruments start with what are the instruments full overview
Yeah, full overview.
Well, strategy has a bunch of Bitcoin on their balance sheet, and I like to think of it as
a rectangle.
Hey, Soleil.
I like to think of the strategy's capital stack as a rectangle, and that way you can
prioritize different instruments.
So you've got a 60 plus billion dollar rectangle, and at the top of that stack are these convertible
notes.
They're unsecured senior convertible notes, but in the case of liquidation, they have first
claim over the assets of the corporation, that strategy, and they're fixed.
That liability is outstanding and fixed.
It doesn't move.
Below that sits Strife, which is the crown jewel.
There's a $2.1 billion ATM authorized for that instrument, and it pays a $10 dividend
at par.
If those dividends are ever missed, then there's clauses in the actual preferred equity offering
that make it such that strategy has to pay those dividends or else Strife holders can
appoint a board member and make sure those dividends are paid.
dividends will compound against the corporation in the case that they're not paid so there's a lot
of legal protections for strife holders sitting below that is the convertible preferred strike
again that's just a lower coupon payment cumulative dividends which means dividends must get paid and
there's protections for shareholders and they have the convertible option and then junior to that so
again converts strife strike stride the difference between stride and strife and strike are the
the cumulative dividend clause. Those dividends are non-cumulative. So if strategy happens to
miss one of those dividend payments, they are not obligated to pay it back in full with a certain
amount of interest to those STRD holders. And this makes it the credit worthiness of that security
different and allows them to add more leverage with the security without jeopardizing the credit
quality of the corporation. And finally, there's a really important clause about the liquidation
preference or the actual outstanding liability, which is kind of too technical to get into,
but that's how it sits in the capital stack. So in short, they have collateralized their
Bitcoin held on balance sheet by offering three publicly traded preferred equity instruments
that have various different risk return metrics that are publicly tradable and senior to the
common stock, MSTR common stock. So each one of those instruments has reduced upside,
but also reduced downside. They've used contractual terms to adjust the risk profile
of these different instruments, effectively collateralized by the corporate balance sheet,
which is all of the Bitcoin.
So.
In doing that,
any additional any excess risk
that each one of these instruments
has any excess risk and any excess upside
is delivered to the MSTR common stock shareholders.
That is where you get this Bitcoin yield, right?
Any excess risk is getting delivered
to the MSTR common stock shareholder via excess
Bitcoin. That's why Bitcoin per share for MSDR is continuing to grow. And you think about these
instruments are far more accretive than ATMing. ATM is a stock issuance on MSDR. They're far more
accretive. The ATM on each one of these individual preferred instruments is far more accretive
because the liability is paid out over time into the future. And the interest rates that they've
got to pay on those instruments, because the price of the stock is traded up, the interest rates are
going down means the amount of capital that they're able to raise relative to the liabilities
and increasing over time. Good work. Good work. And it's underrated the idea that like,
so they're highly accretive as on a Bitcoin per share basis for common equity holders.
Yes. They also are highly beneficial to common equity holders because it takes
the atm pressure off the common for a sustained bitcoin yield and it's not that necessarily the
atm issuance is terrible in in the sense that it's dilution right moving strike warrants for other
sorts of different jurisdictions are dilution as well the thing about atm issuance is it can be used
in a predatory way by shorts whether that be convertible note holders that are shorting the
stock or just shorts that are looking to short the stock and then buy with the atm mechanism
and so when the atm is not being used on the common it's beneficial to us and price action
and kind of sentiment rise and and have expansion so all that's really really good news
speaking of the convertible bonds i don't i feel like we've really talked about those in forever
because there's so many other things going on and i think people are sleeping a little bit on the
fact that there's about 3.2 billion dollars worth of those bonds that are basically equity right now
where they are already eligible to convert.
So if those holders decide that they want to convert
and the stock price stays high
and they've got no way to trade around it
and they're just locked in that equity position,
you could see $3.2 billion coming out of the highest level
of the capital stack,
which makes the credit quality of all the preferreds
that much better.
In my mind, what it also does is free up capacity
in the event that he's cooking up a new preferred.
If all of a sudden you've got $3.2 billion available,
you could launch another product, get another ATM out there. And I wouldn't put it against him.
Right. He said that he's targeting products that can be applied internationally. Who knows? I don't
know what the product's going to look like. He's over there slamming the ATM or the, not the ATM,
the AI until it gives him the right answer. Yeah. He's, you can be sure he's out there on that boat
somewhere just screaming at chat GPT until he gets it right. What about this? What about this?
But you take $3.2 billion out of the highest level of the capital structure and you start shifting into the preferreds instead of re-upping the convertible bonds, that becomes pretty powerful.
And that's kind of where I think that he's going here.
You're seeing them start to put a lot more focus on scaling up the preferreds.
through the ATMs, getting more liquidity out into those markets.
And if they want a bigger boost to the yield numbers, I could see them launching another
preferred.
And if they're taking the longer term view where they're looking at this and saying,
maybe we don't need the convertible bond right now to get our leverage ratio back up higher
at this stage because of how accretive all these new products we're putting into the market are,
maybe we can afford to lever up a little slower.
right it's going to take us a little more time to scale these preferred products but it's going to
be so much more creative to the metrics than us launching a new convertible bond is that you might
not see that 3.2 billion get replaced through another convert you might just see it roll into
a new preferred product or maybe they just go faster on scaling the ones that they have but
that's a lot of capacity that's a lot of leverage capacity that has the potential to come off the
books at any time right it's been convertible for a long time already so if those holders now that
that we're at the second highest close ever.
You know, if the price sticks up here,
I'm not gonna be surprised to see those fall off the books
and the credit quality on every product just got better.
And that 6.1 on our junk bond equivalent
is gonna be quite a bit higher from there.
So, you know, there's a lot of maneuverability here.
And that multiple on Strife
or the senior credit instrument only increases
with the converts being wiped off the balance sheet.
So I was just doing a little bit of looking
there's about 1.05 billion of strife outstanding. And there's 8.2 billion total notional value of
converts above strife in the capital structure. So there's 70 billion worth of Bitcoin,
subtract out the 8 billion. You have 1 billion of senior strife. That's almost 60 times over
collateralized as it sits now. If you were to wipe out the converts from the top of that capital
stack, now you're sitting at a 70x over collateralized instrument until the rest of the
ATMs offered. But those numbers, again, the credit worthiness of all those preferred instruments
just increase and increase as those converts are cleared off the balance sheet. And it seems like
strategy wants Strife to sit superior in the capital structure. So it seems like that will be
at the top. So what credit rating would you give Strife at that point then, Dan?
you're sitting in the agency how are you rating strife yeah yeah if i was in the agency i'd
probably say it's a rat poison and it may go to zero well then you got to ask who are the rats
yeah exactly i don't know who's it poisoning traditional financial system let's talk about
these converts a little bit more because i think this is a good topic actually before we get on
that somebody asked about moving liquidation on strike and strife. Moving liquidation was a
technical solution to a technical problem. If you think about why any liquidation would exist,
that means there is some sort of bankruptcy that would exist. There's some sort of bankruptcy that
means the financial strength of the Bitcoin has fallen so drastically to a point in time that
they are unable to pay the liabilities into the future. That means the liquidation preference
would effectively fall to the liquidation floor of $100. So I think it was a technical solution
to a technical problem, I think relating somewhat to tax or the infrastructure of how the ATM was
designed relative to the preferred stock. So I don't think it's anything to necessarily
freak out about. It's more of just a conceptual, technical change to the dynamic
of how the preferreds are offered. I'm going to jump into convertible debt because I think this
is interesting since we hit on this. And if you go on strategy's website, strategy.com,
you can look at the debt, you can look at all the convertible bonds, you can look at the maturities.
But I think the things that are valuable here are the notional value. So you look at the 3 billion
2029 and the 2 billion 2030B, and you look at the conversion price of these two instruments.
So these were both issued, like one was right in November, like at the peak, what was it?
1121.
And another one was in February, 221.
So $5 billion within the last seven-ish months have been issued.
And that makes up five part of eight.
A majority, what was that?
66%, a majority of the outstanding convertible debt that's out on the balance sheet.
Now, if you look at, why do I look at conversion price?
because if you look at all of them, with the exception of these two, the, uh, the 2029,
$3 billion one, a $672 conversion price, the 2032 billion is a $433 conversion price.
Now, if you think back to how these convertible bonds work, like these convertible bond arbitrage
are hedging consistently. Like when the value of the bond is near the conversion price,
there's a lot of opportunity to hedge the value of the bond relative to the value of the equity.
And I'm going to come back to this image that I drew here a while back after a conversation with
Richard Byworth, where if you look at the conversion price being this yellow line right
in the middle and this green line being the convertible bond price and this blue line being
the price of the equity, you can see that as the value of the bond is near conversion, if you look
this green highlighted zone here above the red line being the bond floor there's a significant
gap of ability to hedge back and forth between the value of the bond and the value of the equity
and so this is called the high gamma zone when there's a lot of discrepancy between the value
of the bond about the value of the equity and as you see the value of the bond get further out of
them or in get further in the money effectively go higher up on the curve here you could see the gap
between the convertible bond price and the price of the equity gets much smaller. So your ability to
hedge is reduced drastically. So that's why we talk about these convertible bonds being in the
money, because if you look at them, all of them, with the exception of these two, $183 conversion
price, $149 conversion price, $232 conversion price, $204 conversion price. And this is what
Ben is alluding to here, that these are so deep in the money, they're likely going to be retired
at some point here in the near future and effectively removed from the balance sheet.
And right then you would have, what, $3 billion of capital that can no longer
effectively hedge across the discrepancy between the price of the bond and the price of the equity.
It's moving very similar to the equity. Now, these two instruments, as we get further out
of the money here, what do we close at? $4.55 today. This is starting to get further and further
in the money. And there starts to be a lot less hedging pressure from these two instruments.
You've got basically $3 billion hedging all the way up to $672 and above. And you've got $2 billion
that's hedging around 433, while the rest of this is likely fully hedged out and effectively trading
their equity. So as you get further up the curve here, you've got less people that are going to be
trying to arb the delta between the value of the bond and the value of the underlying equity.
And if you flip back to your chart, Chad, there, Jeff, if you still have it up.
So most of those are kind of up in that top right portion of this. So you can see that green,
the arb trade in there where there's very little room to be trading. That's what we mean
when we say they're effectively equity, right? There's really no trading left to be done there.
they either need the price to draw way down so that it comes back down closer to that conversion
price where it opens up more capability for them to trade that. And then even the two, that one
that's got a 433 conversion price, if you look, you'd be just to the right of the conversion price
in there. So there's still a lot of room there for trading. So there's no incentive to convert.
And they couldn't convert right now either. The rule on that is it's got to trade at 130%
of the conversion price for 20 days out of a 30-day rolling period. So that hasn't happened yet
on the one with a $433 strike price. So that one's not eligible to convert right now anyways.
So there's $5 billion that's ineligible to convert that's still in the zone where these
guys can trade this and make money on it. But the rest of them are much higher up to the right there
where there's very little room for them to trade these. They're effectively equity.
There's carrying costs associated with holding the short positions that they had and eventually
you convert and you wipe out your short position with the equity that gets delivered to you.
So that's where we're at on the $3.2 billion of the bonds. That's why I'm saying that those are,
at some point here, if the price stays high, are likely to end up converting here at some stage.
The other ones still have time, right? The price still needs to go much higher before those are
convertible. Right. And I think that's why we saw a lot of the juice squeezed out of the
MSTR to IBIT relativity over the last five months is because you had $5 billion of ARB
that was happening in the 200s and 300s underneath the conversion price from the $670 convertible
bond and the $433 convertible bond. So there was just a lot of activity here happening
from the vol junkies, the convertible ARB traders. And as that begins to get hedged out
further and further and there's less ability to have an ARB trade, there's more pressure on the
stock going upwards because there's less people selling the stock artificially via an ARB trade
over time. And they've been shorting, right, to hedge that out. So once those roll off,
those short positions will get released. Yes. Go ahead, Ben.
Yeah, I was just going to say it doesn't quite work like that, but they'll get released. They'll
get wiped off the books with the shares that get delivered to them, right? So it'll net out at
their broker when the shares from converting the bonds get delivered. It'll net out that short
position. So a lot of people are always thinking that one, those shares are going to get delivered
and there's a huge amount of selling pressure that's going to enter the market, right? That's
always the FUD that happens when you hear about any of these converting. They're getting a lot
shares delivered to them now they're going to sell them into the market the reality is that's
not what's happening right those shares are coming into their broker and they're holding a negative
share position right they've sold short and the shares they receive net out that short position
and it washes to zero so there's no big you know share dumping event that happens but that's what
pops up every single time but it really becomes bookkeeping at the broker level yeah so most of
their sell pressure has already happened it's not most of the cell pressure happens immediately when
these bonds are issued so we've talked a lot about the uh the hedging period right or the pricing
period yeah and during that pricing period effectively you know 50 we'll call it round
numbers about half of the shares that are associated with the bond that they're issuing
during that you know three four hour window where they're pricing the bonds will be sold short so
So about half of those shares typically get sold the first day when they're pricing that bond.
And then the rest of them get sold incrementally as the price of MicroStrategy goes higher.
They put on more and more short positions to match that delta.
So, yeah, it's fascinating.
And I feel like we haven't talked about this stuff in a long time.
We covered it for a very long time early on.
These were the only products we were interested in.
And now he's tossed some new things out that's got Dan off and working here.
Dan's got to be pretty close to becoming the smartest guy on these preferred products that's out there.
I remember having these conversations in September, October.
The converts were all there was to talk about.
In October, yeah, we were wrapping our head around this.
We were like, wow.
It shows how small-brained we were, right?
We weren't killers out here working with AI, designing new products,
and we're just trying to catch up on the ones that he's issued a bunch of for years.
We weren't thinking very creatively at the time.
So now we can data dump all that information, right?
We don't need it for the test anymore.
Bingo.
Just get rid of it.
What I think is helpful to think about is which one of those instruments are better for the
common stock shareholder, convertible bond or the preferred equity?
I think that's good to like a good exercise to think about when you're, you know, I've
seen a lot of people saying, you know, sailor needs to add more leverage.
And it's like, well, okay, well, what type of leverage?
And Ben, as you alluded to here,
if you've got a convertible bond
and they're shorting 50% of their issuance
right away on day one,
or 70% of the issuance right away on day one,
that's 70% dilution on day one,
70 cents on the dollar dilution for that $3 billion.
So they're effectively, you know,
you get $5 billion issued in the last seven months,
you effectively got $4 billion of stock
that was sold on the market
in a very short period of time.
So those shares are effectively floating around.
That's liquidity.
That's a pool of liquidity of shares that's floating around within the market.
Whereas the preferred equity, when that capital is issued, they're able to buy Bitcoin day one.
And that dividend isn't payable until the next quarter.
And then these are quarterly dividends paid into the future.
but there's generally probably far less shorting that's going on maybe maybe not on strike maybe
there's some arb opportunity on strike people are arving back and forth there yeah i'm so curious to
hear to see how that plays out yeah i gotta talk to some more people i'm gonna make some phone calls
um but yeah that dilution is happening over time and it's not getting arbed out consistently right
there's it's a completely different buyer that's buying the convertible bond than that's buying the
preferred instruments and they have different behavior and they have different behavior in the
market and they operate differently. I think just something to be aware of. Yeah. I was one of those
people that was like, had my fingers crossed, hoping we'd see a bunch of convertible bond deals.
I wanted like rapid fire. I wanted that leverage ratio to just pump back up to like 20% or
something. Because my theory is that the implied vol is dependent on a higher leverage ratio.
but um you know i came around once i started realizing that that the bond traders aren't
necessarily like on our side like you said they're hedging immediately um and shorting out most of
that position and then they're incentivized to do it again and again and again every time the the
price pumps so um yeah i've i've kind of reversed on that on that idea yeah i think that in in the
early days, there was some utility around the convertible bonds and building that liquidity
profile under the equity, right? Because now you know you have people that are trading around your
share price movement So if you trying to build liquidity in your equity I think that they serve the utility But I think most companies now are going to skip convertible bonds entirely I think that they seeing how much more creative
it is to go into these preferred products. And the fact that these preferred products build a
resilient business model in a bear market, and they give you a product that has more value because
of that yield, where the market's still going to have a demand for yield, even if we're in a Bitcoin
bear market, I think that you're going to see most of these companies now going from building scale
initially with equity offerings, whether it's pipes or pipes plus ATMs or however they do it.
And then they're going to start moving straight into the preferred market because you can now
maximize for shareholder accretion now that this market's proven out and you can start running the
math. And what's really interesting with the preferred products, particularly the perpetual
preferreds, and I know Sailor said this a bunch of times, is that you can only do this with a
permanent asset, right? The fact that Bitcoin can live forever is the only reason they can make
these perpetual. And I think a lot of these companies now, you know, they're not going to
go in with massive scale right out of the bat, right off the bat, because I think it's important
to show the market that you're being thoughtful about how you're deploying these. And strategy
just happened to deploy them when they were, you know, what, an $80 billion market cap,
maybe when the first one came out, right?
They had massive scale and relative to their scale and the liquidity around their equity,
it was very trivial for them to launch these.
But I do think that you need some level of scale first before the market's going to trust
it so that you've got that credit quality around the product, right?
So you can maintain something like an eight to one Bitcoin rating, right?
Or over collateralization on the product.
So I think companies are going to be very thoughtful in terms of how they start to issue these products into the market and how they choose to scale them up.
But I think as a result, you might actually see some weird things happen, like for a while, maybe the premiums in the convertible bond market just to get these companies to issue them.
Because keep in mind, these are goldmine products for these convertible arm traders.
right? Once you get a taste of, you know, doing your delta hedging on an instrument that has,
you know, 70 to 90 vol and now you got to go back and you got to try to get convertible bonds of
something with, you know, 20 to 30. Like imagine the letdown, right? They were pulling forward
profits and returns years because they could trade it so frequently. Whereas when you get into these
other equities where their executives are stripping out volatility and stripping out the risk and
and there's nothing exciting happening,
and the equity does never move,
they can't do that much trading.
So you could get this weird scenario
where there's pockets of companies that decide
that maybe for a while they're gonna specialize
in the convertible bond market
because there's a void there, right?
Strategy, if they leave and they take billions of dollars
that were coming into their products
and they just never replace them,
you know, there's a vacuum in that market
that somebody is gonna fill.
And maybe that means that you start seeing those premiums
that they're able to raise the capital going up to,
know, 60, 70, 80 percent so that they can get access to the volatility profile of these
Bitcoin treasury company equities. I mean, you could see weird things happen. So I'm very interested
to watch how these markets play out because there's just a lot of directions this can go.
But if you look at incentives of who it is that's managing these capital, they need returns,
right? That's how they're judged. And they've had really good returns if they've been getting
allocations to the micro strategy convertible bonds. And if that dries up and they're back to
just the regular trading, you might see those returns start dropping off quickly. And they're
going to be knocking on every Bitcoin treasury company's door, asking them or begging them to
issue convertible bonds. And maybe the terms loosen. Maybe the market softens because we have
seen the market harden pretty drastically. If you look at some of the Bitcoin treasury companies
have taken on convertible debt, they're secured by the Bitcoin over collateralized, and there's
technical margin calls. Whereas that's fundamentally different than strategies convertible bond that
doesn't have, it's not encumbered by the Bitcoin, or the Bitcoin isn't encumbered at all. So there's
completely separate and those are contractual terms that if the market softens on those,
that might start to be a lot more attractive to the market, right?
I think one thing for people to be aware of when they're watching all these deals happen
is the capital that's available for new companies in particular coming out,
that expands and contracts really quickly. And it's almost entirely driven by whether the last
deal that was made in the market was successful or not. And you saw this happen when DJT came out,
when True Social did their raise and that did not perform for those pipe investors at all.
And the capital dried up. People weren't looking at that investment because you see one of those
that really doesn't perform and then they go, maybe it's over. Maybe there's not the excitement
around these. Maybe investors aren't flocking to these Bitcoin treasury companies that are
raising capital and getting ready to acquire Bitcoin anymore. And maybe this isn't where to
deploy. But when you see a bunch of them come into the market and they perform really, really well,
that access to capital expands and there's more capital available at better terms.
But when they don't perform, you see the terms tighten up, you see less favorable terms in the
market. It's harder to get access to that capital. And so you're going to see these expansion and
contraction phases for companies entering the market. And it's all going to depend on what
stage we're at. If the most recent deal was a blockbuster home run and these investors were
making a bunch of money they're going to want to re-up and redeploy it into the next deal but if
they don't perform then the companies are going to have to get creative how they raise capital
that's so true and so you're going to you're going to have this bitcoin volatility and that's going
to be that's going to be a wave that's happening over time and then you're going to have traditional
financial capital market uh peaks and troughs of capital coming in the door at different times
and those might be opportunistic depending on certain times in bitcoin's volatility
And, oh, wow.
Yeah.
The market's evolving.
Yeah.
Holy moly.
Quickly.
Yeah.
Now you're going to have a lot more people that want those deals.
Right?
I mean, 12 months ago, there was one company that wanted that product.
And that was strategy.
And now you've got, you know, 20, 30 that want that product and that could buy that product.
but maybe they don't unless the terms, unless everybody, you know, holds out on terms.
Wow. Yeah. That's a really interesting point. That market is going to evolve
because the vol junkies are greedy and they will definitely drop terms to come to the table there.
Wow. Good point. Huh?
Any chances strategy takes on a non-convertible bond, just straight debt, like signature loan type stuff?
I don't think so.
Yeah, he said he would take it on as a secondary measure if they couldn't raise preferred equities.
Because if it was the same interest rate as the preferreds, I don't see what the difference would be.
Or maybe there's unknown negatives.
Duration and a liability to pay back at a specific point in time.
So let's just say you did an eight year deal and I don't know, $5 billion at 6% interest.
they give you that $5 billion, you got to pay them that $5 billion at that future point in time.
So maybe it makes sense at a certain point in time, depending on the liquidity and different
capital markets and their ability to use capital in different ways, but probably less attractive.
Because the reason the preferred equities are so attractive is that they're perpetual.
They're forever.
And even that kind of deal would have to go above strife, right?
And you're saying they probably don't want that to happen.
It would change the credit quality.
It would change.
Exactly.
And it'd be an uncertainty for like strife holders.
I think it would be a pretty bad look.
That's a good point.
Yeah, that's a really good point.
One question that's come up a bit is in the chat is the, when are these going to get rated?
It's an unknown when these preferred equity instruments are going to get rated.
I know that team is working pretty, pretty diligently and trying to get these instruments rated, but that the market needs to be a little bit more.
The market needs to evolve.
There needs to be more people offering these products in the market.
There needs to be a history of dividends paid at a future point in time.
There needs to be a history of Bitcoin's performance, probably a little bit more global and U.S. adoption from equity markets.
Maybe the S&P 500, right?
The S&P 500 is going to have to review what's going on here with strategy.
and it's going to become very apparent very quickly
that they need to determine their view on Bitcoin.
And I don't think they've got it yet.
Obviously Coinbase and Tesla are in the S&P 500,
but I don't think that's an implicit acceptance
of Bitcoin held on the balance sheet.
So yeah, I think this is going to evolve over time,
but it just takes time.
It takes other people in the market.
And it takes success over a significant period of time
for people to understand, you know,
what is the risk profile here?
Although I think that's where there's significant opportunity
in these products is you see, you think about what are the,
what is the risk profile of these instruments
relative to everything else that I could get in the market.
You know, all of these other dividend paying stocks,
Chevron, PG&E, Boeing, your Home Depot,
whatever that may be relative
to what I can get over here with this instrument
with no physical risk,
everything starts to look a lot better.
So Dan, I know you prepared some data on the preps.
Do you wanna go through that real quick?
Maybe 10 minutes on it?
Yeah, definitely.
I have that weekly,
it's kind of turned into a weekly volume update.
Yeah, yeah, yeah, let's check that out.
Share that, cool.
Let me share my screen.
I also love all the comments that are showing up saying that Dan's room smells of rich mahogany.
Can you see this?
Yeah, let me throw it up there.
Sorry, I'll monitor the chat.
This is just my weekly kind of overview of...
Yeah, can you make it a little, just a tad bigger?
Let's see.
Oh, no, that's fine.
That's fine.
I want to keep the column headers in there.
Yes, there you go.
That's fine.
Yep.
Yeah.
So there's three weeks of update since we last ripped here.
And obviously at the quarter end, we saw no ATM issuance.
So most importantly, we've got the strike volume in dollars, strife volume in dollars,
so strike then strife, ATM then percent ATM.
And this is really key, I think, for understanding how these things are being issued into the
market.
And it's a lot different than common.
So let's use last week as an example. And we saw 29, and these numbers are rough, but 29% of the weekly traded volume of strike was issued as ATM, 24% of strife.
those are overestimating a bit but the point being is you know you can see this theme go
go back into history here with 26 36 20 11 when we were doing our rigorous analysis on the atm
issuance in october november really not october but november december strategy rarely issued more
than seven percent of weekly traded volume as atm and if they did so it was like a monster week
So they're able to somehow maintain the price of these securities while issuing massive amounts relative to the trade volume.
And I think the one that's really interesting to watch is Strike, because as Ben and you, Jeff, and Soleil have already mentioned, there's going to be cool ARB opportunities, convertible hedging opportunities that arise with Strike.
So I see the volume of Strike increasing dramatically as the price of MSCR approaches that conversion price.
So I think it'll be really interesting to watch what they're able to do here in terms of issuance relative to weekly volume.
Yeah, it's really unique because it's one of those few instances where you can go really hard on the ATM and not damage the market.
Self-healing.
It's the self-healing products, right?
If you drive the price down, the yield goes up, you find more buyers.
and that's just a huge advantage that strategy has right now that none of the other companies
do because they don't have these products in market is when you have that they can be aggressive
you know 20 to 30 percent of weekly traded volume is massive for an atm it's insane absolutely it's
crazy yeah and as you're you know that starts to compound on itself right you know because the next
week now you've added 25 you know more out there and now they're hitting that another 25 it just
keeps going and going and going so these products are going to scale we're just in the very early
days right now but you know and maybe dad one of these one of these weeks when you're poking
through the numbers that'd be fun to do is to project it out and just say if they just keep
hitting 20 a week on this atm how much are they raising three months from now because i think the
numbers get pretty staggering pretty fast and you know where it's going to come right it's going to
end up in in strike because that's where they've got the massive atm open they're telling you where
they're effectively planning to raise right strife has what 2.1 billion and strike has 21 and stride
as what they open there 4.2 or something 4.2 something like that yep so you can see where
they're going to be focusing and to your point dan you know when the price of msdr starts running up
there's probably going to be a lot of demand for strike and they're going to be able to issue a ton
of that so i'm expecting to see that ramp up really really quickly it's good the arbitrage
is going to be like insane right when you think about that and that's the thing i keep coming back
to you like let's say mstr gets to 650 a share then you're sitting at you know 50 out of the
money strike on strike for lack of a better term that's similar to any of the converts issued and
And if you look at the kind of value of strike relative to a convert at that point in time, like strike will be massively, massively valuable at that MSTR price.
But then they're also going to be ATMing a lot of it.
So the harder the ATM, the better the value buy of strike is.
So the more incentivized people will come in to be long strike and short MSTR for, again, they probably won't be short MSTR.
But every time they they ATM strike strike becomes more attractive relative to MSTR at these higher MSTR prices So it like tough to understand the money is going to start pouring into it Yeah It so reflexive right The whole thing
everything benefits everything. And I don't know if it's better to hold strike or MSTR there.
That's really the question. I'm trying to figure out myself.
But this is what leads me to believe that they have no intention of replacing these convertible
bonds, right? When you start looking at that volume that they're pushing on the ATMs here,
and the scale when that starts to compound it's not going to take them that long to get to billions
of dollars in capital raised yeah when they do it's just going to be that much more powerful
with every weekly raise that they do so you know i think that this is the path now i think it's
going to be pretty much all prefs you know the convert market's always there for him
and if he does need that injection if he feels really under levered and they've got just massive
capacity out there and huge over collateralization you know of course they could always lean back to
that if they needed to. But this is clearly the path. This is where he's going to focus. And I
think we're going to see this ramp up in a big way. But doing those projections to look at,
you know, compounding, how long does it take them to get through the $21 billion strike issuance?
I'm guessing it's a lot shorter than people think. Oh, yeah. If you just look at this rate,
right? I mean, they raised $141 million last week on a product that's five months old.
right and or an instrument class that is five months old never existed before and they're
they're raising 141 million dollars in a week you're like oh my god this is the rate of change
here is just massive yeah so like i just took that 141 and ran it out and i think it was
no i forgot how many it was but call it 14 weeks before they were raising a billion dollars a week
if it just keeps going at that same percentage of volume and the volume keeps scaling.
That's massive.
A billion a week.
Oh my God.
That's massive.
Oh my God.
And then they're going to issue that.
And again, if they're doing that, everyone owning, like if the arbitrage is great enough,
then anyone owning MSTR, like if they're ATMing hard enough, the arbitrage exists such that
Anyone owning MSTR is incentivized to switch over to strike, which only makes the buy pressure
on strike that much more.
It's really crazy.
Which also makes MSTR more valuable.
Exactly.
Right?
Because it's just, it's shoving more capital on the balance.
I mean, you know that they're going to be taking that new capital and just buying more
Bitcoin, which is going to shoot Bitcoin rocket higher.
Yeah, exactly.
Exactly.
I really think Strikes the main story in terms of their ATM.
Like, Strikes, they got out the door.
It's like, whatever.
Like, they're going to issue the whole ATM.
People love it.
The credit rating, the credit spread will continue to drop.
Like, whatever.
It'll become investment grade, and then there'll be $3 billion.
Yeah, that would be good.
It's just whatever.
Like, okay, that's going to happen.
Strikes, they've essentially signaled to the market, yeah, we'll use it in times of distress,
and we'll try to issue it, whatever.
But, like, the main story on the press is Strikes.
and that and i think it real things really get interesting between 500 mstr and 700 mstr
and then mstr yeah it's it's that uh it's that this period exactly yeah where the bond where
the bond the price of the convertible preferred equity may not move as fast as mstr is moving
but anybody that holds mstr they may find arb opportunities where they're like oh all the
yields high over here and it's underpriced, I might move from here to there.
Exactly. And I think that's going to be a vortex of capital.
And so, and then the ATM it, the ATM that new capital going from here to there.
I kind of wish they didn't sometimes.
And then they buy more Bitcoin, which creates more excess return, excess volatility on the balance
sheet. In which case, maybe it looks more attractive to come back to MSDR.
Exactly.
I don't know if this week that we had with the dividend reinvestments when the prices all went crazy on these prefs, you know, part of me, I was thinking, you know, maybe they were just asleep at the wheel and they didn't really contemplate how much of that would try to get reinvested.
And so they weren't ready to capitalize with enough new shares to issue out there to absorb it.
The other part of me thinks they knew exactly what was going to happen and it pushes it up and it makes it that much more creative when you think that you're raising more and more capital.
and the dividend obligations are less at those higher prices relative to the amount of capital
you're raising. So it just made every one of those, it kind of repriced them, which I know
isn't actually great for fixed income investors, right? The institutional fixed income investors,
that type of volatility is not great. But for strategy raising capital, while most of these
fixed income investors can't allocate to it anyways, because it doesn't have a rating yet,
and they're a little draconian in their measures over there,
it just made it all that much more creative for them
to really keep hitting these preferred products
because now they're not issuing them at par anymore.
Now they're issuing them when they were $120, $130, right?
20, 30% above par.
And so the amount of capital they're collecting
relative to the obligation of the dividends
became that much more favorable.
So you might see that they might shut these things down
every time dividends are getting reinvested.
layoffs maybe it's a blackout period maybe that's just how they align maybe it just happened to be
a blackout period because there's information coming out who knows i don't have the answer to
that but it was fascinating to watch what happened because i do think that's what happened i think
that an astounding amount of people one were reinvesting or two realized they didn't turn on
dividend reinvestment so they were self-reinvesting during that period and you just had a ton of demand
with not that much supply the market wasn't that liquid yet there's just not that much of it trading
and the people that are holding it are just holding it because we were buying it at 85 right it's been
a great investment so and i mean and i mean the price was running even before that dividend hit
the accounts too so i think really that the the difference or the move from etm 30 of the volume
to atming none of the volume really hit the market hard goes to show you the crazy like the demand for
these things and then if you look at the after hours trading like on most days especially during
that week you see the price just bump up after hours which is kind of weird to see it super
illiquid after hours but but you know now they are hitting the atm and it really hasn't dragged them
down all that much so it's it's pretty impressive i mean they they repriced higher they haven't come
back down i think a lot of people were expecting it i was expecting that they'd come down further
than they have but uh you know this is highly accretive to raise through these channels right
now and i think that that's the reason why they're gonna take the patience route and not go take on
any more debt they don't need to they're gonna stick the course with these preferreds they're
gonna keep scaling and building these markets and we're just gonna watch those volumes climb and
climb and climb yeah most of those holders of strike but we're probably and actually probably
strife too they're not living off the dividends like you know they might be in 30 or 40 years but
they're probably all in a drip because they just don't need the money oh absolutely yeah and a lot
of them like you had to be aware of these products to even be in them now right so a lot of the people
that got them were in that ipo you know they were buying them through their brokerage accounts when
they were offered at these massive discounts and you know you still even at that time it takes a
a little bit to really digest these products because they were so new to figure out just how
valuable they were. And now you look back and go, oh my God, those were so mispriced. Like you should
have just thrown everything in them because you could just see the writing on the wall. Like there's
no way an over collateralized product that's, you know, this credit quality should be anywhere near
this pricing, right? The market just didn't know what was going on. And so they got priced at a
discount. And so far being involved in any of the launches on these has been an amazing trade.
for a fixed income product, right?
Who would have thought you'd be getting, you know, 30, 40%
on a fixed income product in, you know, a couple months.
It's pretty wild.
Yeah, going from distressed to like normal bond.
They were priced as if they were distressed
and now they're in this like normal bond price.
Yeah, and stride is below par, right?
Yeah.
Still?
So like once they pay their first dividend,
maybe it never trades below par again.
Once they prove that they're actually going to pay it,
yeah i kind of think that when it becomes real yeah yeah yeah i think you could see something
very similar right because that first dividend payments you know it's going to be higher than
the uh 250 a share right because there's a little extra time on it because of when it launched so
it's going to be more like what the strife one was and you know that's a good dividend so you'll
probably get people you know buying it up leading into that to get the dividend because you know
these are unique products you got to remember it's not like when a stock pays a dividend and that
you know, cash is gone. That's not how these are valued. So it doesn't detract from the price of
the holding. So people are definitely going to be bringing capital into these right before the
dividends pay, because it doesn't adjust down the same amount as the dividend it pays out.
Bingo. We're at hour 42 in. I've got some moon math and some conceptualization of S&P 500
inclusion, just capital structure, just things to think about and what this might look like.
There's a lot of questions on if it's priced in. That's a good question. I have no idea. I don't
think so personally, because I don't think there's enough information in the market right now. There's
no specific financial report that's come out to market saying that strategy does qualify. It's
just technical speculation at this point, even though people that are following this closely
understand that the change in financial accounting rules should result in a very large Q2 earnings
release. So with that preface, this is not financial advice, just thinking about what this
could look like, I think is valuable. And I know I've shared this in the past on some past episodes,
but let's get into it. And this is, I'll try to explain this quickly. And I've shown this in the
past. So strategy was included in QQQ in November of last year. In my opinion, it was pretty clear
that it was front run just looking at the amount of capital that came in the door in November.
Obviously, there was a huge election that happened in November as well. So I think the question of
which event caused more capital to come in the door, I would say it's probably QQQ,
but there was some additional energy as there were in all stocks when it was very clear that
Trump was going to win in the election. So I think QQQ probably weighed a bit heavier
for MSTR relative to some other stocks because it was just the same timing, just how it worked.
So there's about $500 billion of capital that's following QQQ. This information is from
ChatGPT. And at the time, the allocation that strategy got to the QQQ was 0.35%. So that would
result in roughly $1.75 billion of buy side volume that's coming in on the stock.
As you may recall, or people may remember, they raised about $17 billion in 45 days from 1111 to 12 to 16. So effectively, the multiple on the capital that was raised is about 10. So which means that it's a function of liquidity, right? There's only a certain number of shares that's tradable in the market that are liquid at any one point, because a lot of people are just holding the stock and just sitting back. And so as that capital comes in the door, that pushes market cap higher, which results in less shares being purchased and the price of the stock going up.
So they raised $17 billion on $1.75 billion of capital flow coming in the door.
And so we think about, okay, what does this look like for the potential of the S&P 500?
So there's about 10x the amount of capital that's falling to S&P 500 relative to QQQ.
So if you think about going from, it's an order of magnitude, going from 500 billion to 5 trillion.
And I've plugged in an allocation of 0.34%.
This would be roughly equivalent to Qualcomm, which is about the 56th largest publicly traded
company. Right now, strategy's ranked about 80th. So I could put in a smaller relative valuation
here with lows or something smaller, but a 0.34% allocation can result in roughly $17 billion of
capital flow coming into the stock. Now, this is likely going to happen in dark pools, going to
happen in different transactions. And we may not see it. It may not cause the stock to move at all.
But I think that there's potential for a significant volume to come into the stock here
and front run inclusion as it becomes apparent that they technically qualify from an earnings
perspective. So I think there's a lot of potential capital coming in the door, very similar to how
the inclusion happened with Tesla back in 2021, where a lot of capital came in the door and the
stock mooned as soon as their earnings report was released. And it showed that they had three
positive earnings periods in a row. And it looked like the fourth was going to be positive based on
the communication to the market at that time. At that point in time, the market cap of Tesla went
from about 300 billion, I think about $150 billion up to a trillion dollars in six months,
seven months. And this is all before Tesla was included in the S&P 500. There was a lot of
speculation. This was a huge controversial event. Go back and look at the market cap. It was front
run. Everybody, this capital came in the door early. And with that capital coming in the door
early, that pushes the market cap higher, which makes the inclusion relativity even more dynamic.
And with the valuation being so high already, it resulted in this kind of reflexive amount of
capital that was coming in the door for Tesla. And I think we're in a similar type situation
potentially with MSTR. And when you think about the incentives here and why this was important
for Tesla relative to other companies that can include in the S&P 500, there's very little
incentive to sell to passive strength here. If this is a long-term decade plus 20-year hold,
there's very little incentive to sell to passive index funds that are coming in the door.
If you think that Bitcoin's going higher, you think that MSTR is likely going higher.
If you think they're going to continue to raise capital and everything right here that we've
talked about for the last hour and a half is bullish, then there's incentive to hold for the
long term. Whereas you think about other companies that get included in the S&P 500, they all get
front run, like Lululemon. Go back and look at Lululemon. It was front run. I've seen included
in the S&P 500, the price tanked because institutional capital is smart. They saw it.
They front run passive index funds and then that capital left to look for better opportunity costs of capital So what can that multiple look like here in the future If they looking at getting billion in the door there going to be a significant ability to potentially monetize
that capital that's coming in the door on the MSTR ATM and buy a significant amount of Bitcoin
and potentially a very short time horizon, similar to what happened in November last year,
where they capitalized on the ATM because they saw all this energy coming in the stock.
And that ultimately put them in position to be able to offer these high leverage, high torque preferred instruments into the market.
So there's like a very, very important event that happened.
And there's significant potential.
If you just keep the same multiple here, the market cap could could double.
It could double in a short period of time.
Not saying it is, but there is potential for significant energy to come into the stock, significant Bitcoin to be purchased.
and if significant Bitcoin is being purchased, we're probably going to price into new all-time
high territory. So yeah, I think this is a really exciting time. I think it's an exciting time to be
following what's going on here. It's exciting time to know, have some asymmetric information or feel
like you know you have some asymmetric information because not a lot of people are paying attention
to this. And you look at these Q2 earnings estimate of potential $10 to $11 billion of net
income coming in the door, being posted as a gain, you start to comp that to other stocks.
And I posted this the other day. I think it was really funny. You compare this to a company like
Palantir, which I like to laugh at. It's an interesting one. It's another cult-like stock.
Palantir is another cult-like stock. There's a very significant retail base that loves Palantir.
But you sit back and you look at the financials of the company and you can't help but compare them.
They're different companies, different infrastructure, different, you know, doing different things.
But Palantir's revenue in the trailing 12 months is $3.1 billion. You compare that to the amount
of capital that Strategies raised in the last 12 months, which is $34.5 billion. That's an order
of magnitude different. The net income. So Palantir made $571 million of net income in the last 12
months. And MSTR, you look at the last 12 months, they made $18.5 billion. So strategies made $17.9
billion more net income than Palantir over the last 12 months. And you look at the market caps
and these look mispriced, right? Palantir $351 billion and MSTR $128 billion as of today.
Boom. So a $223 billion delta. You look at PE ratio. So the price of the stock relative to the
earnings PE ratio for Palantir is about 617 PE ratio for MSTR is about seven.
MNAV multiple on net asset value for Palantir 60, MNAV for MSTR two.
And Palantir doesn't hold any Bitcoin. So
it seems kind of obvious to me, but I mean, what do you, what do you guys think?
And the last, the last thing I'm going to show here, this is a screen capture from Bloomberg,
which I have a Bloomberg terminal. So watch out. We've got some more data.
We had some more data coming to the door.
It's going to be good.
Yeah, we're going to have some more data coming.
It's going to be really good.
And this is MSTR earnings per share Q2 25
earnings per share estimate six, six tenths of a cent.
Asleep at the wheel.
Six tenths of a cent.
That's insane.
And they're going to they're going to post a 30, 36 to 40 billion,
$36 to $40 earnings per share and the analyst estimate.
And this is across four estimates was six tenths of a cent.
Talk about a miss, right?
How are people how are people not seeing this?
That's crazy.
I don't know.
Do you guys talk to other people about this?
I can't talk to other people about this anymore.
I'm like, I'm too I'm too far.
I got to stay in my circle so people think I'm crazy.
But like, what are you guys seeing?
Is anybody else seeing this?
I mean, you're talking to 37,000 people about it right now.
So in our weird little circle here, luckily our circle's gotten bigger and bigger as time has gone on.
So we feel a little less crazy than when it was just, you know, a couple of guys screaming in the darkness of night about this.
But yeah, I mean, there's definitely mispricings all over.
And you look at that comparison with Palantir, and I think that's a good one.
You know, one, you got all these people investing in what's probably going to build Skynet one day.
But, you know, it's such a murky business model.
You can't possibly wrap your head around it.
There's no transparency into where those revenues are coming from, what the government contracts are, what they're actually doing.
You don't know.
You have no idea.
But people are willing to give that a 617 times multiple or whatever it was.
Yeah.
And then you've got strategy building the most rock solid balance sheet on sovereign digital capital that's going to go up forever relative to its nemesis fiat currencies.
So it's going to continue to be profitable year after year after year.
And people shrug it off.
But this is why we're here, right?
These are the types of mispricings that you look at and, you know, you go, what's crazier?
617 times multiple on a company you couldn't possibly explain the business model of and somehow
convincing me that that's a better bet than me knowing exactly the value of the assets that the
company i'm investing in holds knowing exactly how they execute the strategy knowing what tools they
have in the market seeing exactly how much they're accumulating or yielding to my shares
I've got full transparency. I'm eyes wide open into what I'm investing in.
People that are over in Palantir are guessing and hoping and, you know, funding their overlords one day, I guess.
I mean, it's wild when you get into these and you start pricing these. You just you can't make sense of it.
And that's part of the reason that I know that we're still early and this market is not saturated.
and there's going to be a huge amount of opportunity because the rest of the capital
is going to continue to melt away and people are going to chase into, you know,
I feel like capital keeps concentrating now.
Like it's concentrating more and more into these fan favorite stocks,
you know, like Palantir and Tesla.
And you're just, you know, it's a bet on innovation,
but for a lot of them, you don't even know what you're betting on.
But more capital is moving in there because, you know,
those are accepted by the market as high growth potential one day. But you're giving them this
multiple as if that growth has been here for five decades already. Meanwhile, strategy holds the most
digital capital of any company in the world. It's probably going up 20 to 30% a year. It's going to
keep yielding gains to the shareholders. They're going to keep transacting and siphoning fiat
capital out of the system and onboarding it into bitcoin i still like the analogy of the loading
dock right they're the loading dock for all the capital to come and move into the bitcoin network
i'll take that bet because i know what i'm investing in i'm not investing in hopes and
dreams and what could be i know what i hold i know what the company i'm investing in holds i
know what their strategy is i hear from their executives all the time you know that's where
where I want to put capital. I can trust that. I can't trust shadow shadowy business models.
And trust me, bros, that doesn't work. Trust me, bro. I have a contract with the CIA. Trust me.
The most ridiculous number on that chart you shared was the zero Bitcoin.
That's their one opportunity to have infinite Bitcoin per share yield. And then it's downhill
from there. But once you're on zero, you know, while you're still on zero, you're just
getting you know getting ready to get left behind the thousand iq move here is for palantir to open
up a trillion dollar atm and arb that premium and buy bitcoin that's what they should be doing
a trillion dollar atm yeah i mean heck why not the other one nvidia is now a four trillion
dollar company which is crazy first four trillion dollar company ever the world's ever seen
and they did a $50 billion buyback last year.
They're probably going to do another one.
Golf clap.
And it's going to go to $5 trillion faster than people realize.
Like we're going to see a $5 trillion company.
We might see a $5 trillion company this year.
It's possible.
And people are going to have to wrap their head around that.
What is a $5 trillion company?
How do we get here?
How do we get a $5 trillion?
Like what is this thing worth?
Why do I hold it?
why does it work like that? And that's the conversation I'm here for, right? You're
comparing these historically sexy business models to something that is, to a finance business model,
which is a bit harder to wrap your head around, probably technically less sexy. If you ask me,
I think this is the coolest story of all time, but it's not like they're not making, the product is
a financial product. They're not shooting stuff up into space that generates internet
for everybody on the planet. It's different. They're creating these financial instruments
that are actually really good to benefit all of humanity. It solves the retirement problem,
solves the retirement crisis. These are actually really valuable products that insurance companies
should hold pension funds should hold banks should hold and it could it could save jobs even right
people that manage pensions or insurance companies right if your insurance company goes out of
business because you didn't manage your liabilities appropriately because you didn't have any bitcoin
exposure boom you incinerate jobs like the insurance company goes away jobs are incinerated
at my old job i literally had companies that were on the verge they went out of business because they
they couldn't meet their liabilities they couldn't afford the reinsurance they couldn't do the whole
thing. But if they would have Bitcoin, I think they would have survived, which is just a crazy
dynamic. Like all of those jobs, that community, the people that work there in that small town
now have to go find other things to do. And these products are going to be really instrumental in
how like the world is shaped in the future. Like this, this company is going to be so
useful. The total addressable market is the entire world, which is not a professional services
company right now with how rapidly ai is evolving i'm standing up a balance sheet strategy here
pretty quick yeah yeah right just just look at what you can do with these ai tools it's unbelievable
and that's going to disrupt that i mean i used to be in management consulting
do you know how easy it would have been to do that job with the tools that are available today
you know you're doing it you know these people are going in and you do a three-month assessment
and you're paying millions of dollars for it for a strategy.
And in an afternoon, I could have 50 different strategies created for me
with all the input variables, with access to all the data.
I mean, it's incredible what can be done now.
And I think that you're going to have more companies that,
whether they know it or not, they need a balance sheet strategy
to protect themselves so they have a future
because their future is eroding around them at warp speed right now.
And a lot of them just don't see it or they have to pretend they don't see it.
Right. You've got to keep up the the illusion that you think that what you're doing is the most valuable thing in the market and other corporations are going to be willing to continue to pay for it.
But companies are going to become very cost conscious to these things when they realize the power and when they get a handful of people that can effectively weaponize AI for maximum productivity.
So you've got to start finding ways to buy optionality for your future before that future
gets rug pulled from under you and it's gone. And that's going to happen quick.
Yep. Somebody else asked here, July 31st is earnings. I believe that's correct. That's what
it shows in the Bloomberg terminal. I think it was July 31st. That's going to be a party. Is
that a Wednesday? You and your Bloomberg terminal. I'm over here at my Bloomberg terminal.
Honestly, it's so hard.
It's so hard.
It's just a whole new ecosystem.
I got to learn how to use it.
It's got to watch some YouTube videos and slam chat GPT.
The 31st is a Thursday, so maybe we'll have to do a
True North now or watch it live or talk about it afterwards.
The 30th, but they just have the call the 31st.
I think it's the same day.
I think it comes out the same day that they have the call.
Yeah.
Does it?
Okay.
yeah i think so my platform had a different date so i definitely need to double check that that's
what i yeah i don't think it's been announced technically and when they've announced it usually
sailors posted it and fongs reposted it and it's come out um they'll say when they're going to do
it yeah i think it's going to be hard to miss yeah um yeah ryan's thinking august 5th it's
it's going to be somewhere in there it might be you know it's going to be in that week they make
it on a wednesday that'd be cool the following wednesday that'd be fun do it at true north
on top of it. We've done that a couple of times. What else? I'm going to go back to screen share.
We'll talk moon math because this is always fun. And people have asked me to update this
spreadsheet and here we go. So I've got 601,550 Bitcoin owned Bitcoin price, 118,000 assets,
$71 billion liabilities, 11.57. I think that might be a little light. That's probably,
yeah, that might be a little bit light. $59 billion of net assets, 281 E6 is the float.
MSTR share price 455.90 at close. So the market cap about $128 billion.
So looking at the MNAV that strategy traded back in November was an MNAV of four. We heard from
Fong earlier in the show, we could conceptualize a 10X MNAV, a 20X MNAV, if you start thinking about
a stock being publicly traded, forward looking, and the amount of capital that the Bitcoin gain
and the Bitcoin dollar gain, Bitcoin yield and Bitcoin dollar gain, if you start applying a
multiple of that towards a PE ratio, you could see an MNAV of much higher than that, maybe 10,
maybe 20. Is it going there? I don't know. Who knows where it goes, right? The market will
determine what happens here. But you think about how crazy this can get and a price of $150,000
Bitcoin and a 10X nav multiple, you're looking at a $2,799 share price, which is probably
a $750 billion company at that point, about $3,000 share price. I think it's about a $750
billion company, which forward looking, if you're looking at a company that's making $25 billion
dollars this year or 25 billion dollars a year from the instruments that they're offering and the
value of bitcoin going up into perpetuity that could be reasonable I think you can make a valuation
argument around it right you start to compare it to palantir valued at 300 billion dollars trading
at a 670 PE multiple and people still buying it the stock's still going up like there's still a story
there so
May this go beyond rationality or technical rationality of what, you know, all the 1x MNav
Ponzi bears think? Yeah. Can it go higher? Can the MNav go higher? Yes. How or why? Because it can,
like it just, it literally can. It's all forward future expectations. So yeah, some of these numbers
get pretty nutty, right? Like you think about holding the stock for 10 years and Bitcoin going
to a price of, you know, a million dollars per Bitcoin and thinking at 10x multiple on that,
which might be egregious. I have no idea. These numbers start to get pretty ridiculous pretty
quickly. So always fun to look at what the dynamics are. I know Ryan and I, when we talked
about can MSDR hit $10,000, that's split adjusted $1,000. That's potentially right around the corner.
Right? MNAV is six at today's price. It'd be $1,200. So MNAV of four at $150,000. That's
$10,000 split adjusted. And that, you know, happened in a year and a half. Here we are.
So exciting times. Yeah. And earnings is the 31st. It's on Strategies website. So.
Oh, it's official. The 31st. 31st. Thursday the 31st. Bingo. All right. Well, we're at two hours
and five minutes. Should we go do final thoughts? Pass it around. We'll go to you, Dan, from the
from the room of mahogany.
Yeah, yeah.
Great combo tonight, guys.
Thanks for watching, everyone.
And prefs seem to be ramping up Life good Figure out the prefs If you don get them figure them out Watch Dan Hillary consistently
Follow Dan.
Okay, over to you, Soleil.
How many people we got on the stream tonight?
38,638.
That's a big day.
Good number.
The reason I ask is Balaji Srivanasthan did an interview recently,
And he's got this theory about the network state.
There's going to be people who have virtual ties to certain things.
Some of them might be something like, oh, I don't know, Bitcoin, strategy, even True
North.
And those people may start to coalesce into actual physical locations and create like
pockets of communities.
Yeah. So start searching the real estate findings for an abandoned mining town for our true north community. I'll see you there in 10 years.
We'll take over some like really cool old mining town in Montana with like it's currently inhabited by grizzly bears and we take it over turn into a Bitcoin town. That would be cool.
Exactly. Every home with a dark basement.
Dark basement.
That's right. That would be fun.
Yeah. And on that topic, go to your local Bitcoin meetup, go to your local Bitcoin conference.
There is Bitcoin for Everyone is happening on August 1st, which is two weeks from now.
And a lot of the True North folks are going to be there Myself I will be there Dan Hillary will be there Soleil will be there Mason will be there Jesse Kobernick will be there And it in Portland Oregon
It's going to be a good time.
It's a relatively cheap one, about 200 people, high signal event.
And there even is a field trip to a mining facility on the Columbia River Gorge on Saturday.
So there's some cool stuff popping out there.
And go to your local meetups.
Anyway, over to you, Ben.
Yeah, I'll just say it's good to be back.
I know it's been a little while here.
I've been in a bit of a sprint here for the last two months.
We've had an incredibly busy time over at Swan.
So just incredible things happening.
And I've missed doing this.
I had to re-channel the dark basement.
I didn't quite go back to my old grainy camera, but that's probably coming next.
We're going to just throw this thing all the way back here pretty soon.
But it's nuts.
It's always good to talk to you guys.
Glad to be back.
I'll be back on more regularly now.
So let's get it rolling.
Heck yeah. Thanks, Ben. Also, congratulations.
I mean, the role that Swan's got now with Sequon, that's super exciting.
Seeing behind the scenes is just a whole nother level.
And you've gone and raised the capital.
You've done the whole thing.
So, I mean, that's exciting to see all that work come to fruition.
I mean, I know you've been working really hard.
So that's super exciting.
And I encourage everybody listening, if you're interested in this space,
just start talking about it.
but like your Twitter is your public profile.
If you start talking about these things and getting in the conversation and going to your local meetups your ability to go do these types of things is wide open There a real lack of dearth of talent in this space And everybody
looking to hire people that can communicate and talk about what's going on in these capital markets.
So yeah, there's no formal education for this. This is the education, right? So this is one of
those rare points in time where if this is really a space you're interested in, you know, this is
the time to double down because there is a big talent void out there. People are scrambling to
catch up and there's a lot of opportunities. So if this is a space you want to work in,
now's the time to focus on that. Absolutely. Absolutely. A lot to be happy about right now.
MSDR hitting market cap all-time highs, Bitcoin hitting all-time highs. We got a lot of potential
macro tailwinds, which is nice to say, and potential S&P 500 earnings coming up on the
horizon, the prefs are getting massive adoption. Things are cooking. Everybody's in the market.
You got more corporations buying Bitcoin. I think everything is going higher. We've got a lot more
energy coming into the scene here. And we're going to see more all-time highs. And people don't even
know this is happening yet. People don't even know the strategy products exist. People that have
managed capital for their entire careers don't even know strategy exists. So I think we're going
higher. All right. Thanks everyone. 39,369 people. Wow. That's a good number. And we will catch you
next week. Have a good one.