We are always running for the three little bit, three little bit, always pushing up the
the hill searching for the thrill of it all along we are calling out not again never looking down
i'm just an aura what's in front of me
i can feel
Woo! We are back. True North, episode 28, Striding Towards BTC Fixed Income. Here we go. We are back. We've got the crew here. We've got myself, Mason, Dan Hillary, and Soleil, the man, the myth, the legend, Soleil. I think Ben may join us a little bit later today.
So episode 28, the agenda for today, we have MSTR update and leverage tracking.
Going to dive in deep dive. We're just going to get right into it. We're going to talk about STRD,
STRF, STRK, MSTR, the capital stack, the creation of the capital stack, how it all fits together,
the bits and bobs and the pieces. We'll look at some comps, some other things that sit in the
market and just try to really wrap our heads around what is really happening right here.
and the quadruple threat ATM and how that fits into where MSTR may go into the future.
Then we're going to talk a little bit about the Bitcoin conference. We'll chat through that. We'll
keep it to a maximum 15 minutes and we'll get through that pretty quickly. Then we'll talk
about the BTC treasury revolution, get into merger ARB a little bit and some of these structures,
because I know this is something that is a hot topic everybody's really interested in these days.
There's a lot of speculation going on throughout the market. We'll get into that. And then we'll
talk about, if we have any extra time, we'll get into moat. We'll talk about cycle theory.
We'll play around with it. Talk about S&P 500, BTC lending products, get into equity versus debt.
We'll talk about maybe Tesla and Elon and all the crazy stuff that's going on there.
And yeah, we'll see how we go. So without further ado, I forgot to put the video in of Tim Kotzman.
And while this may be very interesting and exciting and very fun information, none of
this is financial advice.
And we are here to talk about what's going on in the Bitcoin treasury landscape.
We are here to give our opinions and thoughts about what is happening in the market and
put some education out there to the community because we're following this trade.
We're following all of these trades.
following what's going on in the Bitcoin equity space and want to stay at the cutting edge of
what's going on here. So with that, maybe I'll jump into the leverage update. And I've got that
up on my screen here. We will share a screen and we've got chat cooking. Where has Ben? NSTY is
upside protection. Bingo. We've got the chat cooking. And let's get into this. Okay. So leverage
update. Every week we talk about this. We talk about the leverage of the MSTR balance sheet,
where it fits in, how the capital stack looks, the health of the capital stack, how it's evolved
over time, and how things are changing and moving. So these two columns here, AQ and AR, you can see
as of 6-4-2025, MSTR holds 580,955 Bitcoin. The current price is around $105,000. So they've got
$61 billion in assets held on balance sheet. Got about $8.2 billion in debt, $1.9 billion in
preferred equity that's out issued to the market. So net capital on balance sheet about $50.8 billion.
$50.8 billion, this would be around the 200th largest publicly traded company just on a net
capital basis. If you're a look, just to compare that net capital to the market cap of the largest
U.S. companies, that is a very powerful, strong balance sheet with $50 billion in net capital.
Liability asset ratio, 13.5% and debt coverage multiple of 7.4 times. And you'll see this is
really the Bitcoin rating, the BTC rating, an over collateralized balance sheet. You've got so much
capital, so many assets on balance sheet relative to the debt held on balance sheet. So the Bitcoin
price in order for the assets to be worth less than the liabilities, the Bitcoin price would have
to be somewhere around $14,000 or less and it'd have to stay there for an extended period of time.
Now on a pro forma basis column AR, this is outlining the debt net of the convertible bond
debt that's currently trading in the money like equity. So there's about three billion dollars
of convertible debt that is trading as equity and it can be closed at some point in time in the
future which would be we estimate this is probably completely hedged out so if you look at the balance
sheet and the health of the balance sheet there somewhere around 8.2 leverage ratio or 12.2 times
debt coverage multiple so incredibly healthy balance sheet there's a reason we're showing this
you know over time if you look at the last couple of years at the beginning of january 2024 they had
5.7 billion dollars of net capital held on the balance sheet if you look at the beginning of
of 2025, they had $34 billion of net capital held in the balance sheet. So significant healthy
growth here into the future. Anybody else have anything to add there?
Yeah. Would you say that they have the ability to take on a lot more leverage?
Yeah. This looks under levered to me. And I think that's the reason they're coming out with all of
these products is they're looking to tap these different capital pools to add, inject leverage
onto the balance sheet. Yeah, that's my exact thought. And people are constantly asking me,
like, where's the implied vol? Why is the implied vol so low? And to me, this just looks like the
very definition of a coiled spring. Like they have the ability to add leverage and now they're adding
tools so that they can just add leverage anytime they want. They don't have to wait for a perfect
convertible bond market. You know, if those opportunities arise, they can slam into them
as well, but they can just add leverage anytime they want. And it just seems like the spring is
ready to just spring. I absolutely completely agree. And, you know, let's let's dive into this
a little bit further. So CJ at strategy put together this post here. This is 365 million
raised cumulative through strike and strike, strike and strife ATMs. So as of this week,
in the last week, $75 million of capital was raised in the last week on the two preferred
instruments. Zero MSTR ATM was used over the last week. And you could see the split between
strike and strife ATMs is around 50-50. So now we've got multiple instruments that can be used
ATM to tap these different capital pools, depending on the demand that's coming into the market.
on any one of these individual instruments. And so this is just showing how it's changed and expanded
over time, which I think this is incredibly bullish, right? Looking at just the trajectory
of these orange bars and the orange and green bar combined. This is, you know, in the last three
months, these products are incredibly new to the market. These ATMs are incredibly new to the
market. The liquidity is expanding in this marketplace. And as the market begins to digest
these and understand what's going on, this capacity to utilize these ATM products is going to increase
drastically over time.
Can't wait.
Yeah, that's really the holy grail, right? Everyone's been saying they've been selling
their MSTR to buy MSTY because Saylor has been hitting the ATM. And now what we're seeing is
as Bitcoin yield that is generated without common stock ATM. And that's a really scary thing for
shorts. So I think it's pretty exciting just all around. And then we'll talk about later how that
really is a defense mechanism against a short attack and why it generates what Mason calls
perpetual Bitcoin yield into the future, regardless of the market condition, regardless of the demand
for the common stock. Absolutely. You want to jump right into it? Let's jump into STRD. Dan,
you want to you want to lead us off and we can jump into the presentation afterwards yeah can
we do maybe mason's can we leave with mason's questions yeah well dan let's let's let's go through
yeah because that's i think that's important context okay cool let's do um i'll share my screen
and we can do it so i did a post today on what stride is um essentially and where it's positioned
the capital stack and this is oh wait that's my screen no we can keep that up jeff yeah yeah let's
keep that up it's bigger okay so this is the most important photo for stride right you have to
understand how we're positioned within this pyramid scheme so you've got the bitcoin which underpins
the entire entire structure i really like the um the rectangle sometimes they use the rectangle as
showing the bitcoin collateral and they section off the different priorities in the capital stack
but regardless the point being is the converts are senior in capital stacks in the case of liquidation
they get paid out first they get the senior claim over the bitcoin and below that is strf which
they've considered the crown jewel of the capital structure so their highest in priority they get
the 10 yield and or well it's originally a 10 yield but this is their investment grade
preferred product. And so the difference between Strife and Stride is that with Strife, if a
coupon payment, a quarterly dividend payment is missed, there is a huge list of governance
features, which essentially force strategy to pay that dividend. So the dividend starts
compounding against strategy and they owe more every quarter to the shareholders. As the dividend
payments are missed, if they are missed, then the liquidation preference goes up by 10% a quarter.
So the holders of Strife get an increased claim to the Bitcoin assets.
And then finally, if four quarters in a row of Strife payments are missed, then the Strife
holders are able to vote a Strife preferred board member onto the strategy board to make
sure these dividend payments get paid.
So they have a lot of protections surrounding that Strife payment.
And I thought, yeah, go ahead.
Let's back up for a second here.
Let's just look at this pyramid as it's outlined, right?
The pyramid as it's outlined is the order of the capital stack.
This is what's most senior is at the very top and what's most junior is at the very bottom.
So you've got the convertible bonds are the most senior.
So if there were a liquidation event or bankruptcy at some point, the convertible bond holders are the ones that get paid out first, basically.
And then it works its way down.
right? So then you've got the SDRF holders, then you've got the SDRK holders, then you've got the
SDRD holders, and then you've got MSTR common stock shareholders. In the event of, you know,
bankruptcies or liquidations at, you know, on any of these other companies out in the market,
generally, if there's a bankruptcy or liquidation, the stock is generally worthless and the debt,
the holders are the ones that get any money at the very end. So you think about this as just a
risk a risk pyramid right so you've got uh the least risky is the convertible bonds uh the second
least risky is the strf you know strike stride and mstr so there's risk return trade-offs for each
one of these individual instruments the least risky have less risk and less return and as you
work your way down you've got higher risk high return metrics as you work your way down that's
That's a really good way to put it, yeah.
So I think what you're getting at here, Dan,
is investment grade, right?
Like let's talk through this concept of investment grade,
where you're thinking of STRF,
and I think this presentation outlines it well.
And Mason, if you wanna pull up your slide at any point,
let's go through it here.
But it's this concept of collateralization, right?
And so STRF, if you look at this, this slide was really great by Saylor here, right? If you look at assuming $105,000 Bitcoin price, 50% BTC volatility, and actually let's go to a 30% BTC ARR.
So if you're a Bitcoin maximalist and you think Bitcoin is going up 30% compound annually into perpetuity, you look down here at STRF, which is the most senior preferred equity instrument.
All of the convertible bonds pay out first.
And then you look at STRF.
STRF would be 6.7 times over collateralized.
That means they have 6.7 times the amount of assets that they do on the balance sheet than the preferred stock that is that is trading within the market.
So incredibly over collateralized, meaning it's the likelihood, the probability that the strife holders don't get paid out their principal is incredibly low.
So that gives you some framework, some risk architecture and some framework of what is the risk of these instruments?
Well, the risk of the instruments is that Bitcoin volatility is really high and the price of Bitcoin falls drastically and they're not able to pay out the liquidation preferences.
That's the risk.
That's the risk. And when you start to compare this to other instruments in the market,
I would much prefer digital risk than any sort of physical risk that's likely paying
significantly less yield. The risk return trade-off on other instruments is significantly worse.
And I think one of the other points that was made on this slide, which I think is fantastic,
is that I don't think there's any other instrument in the entire high yield market that is like
three, even three times over collateralized. I think it was on one of these slides here.
I don't know exactly where it's at.
Yeah. Effectively, there's just a slide in the...
What's that?
Yeah, I think you're right. They have like a high yield slide.
Yeah So you know when you look at the probabilities here right if you got something I think that five X or or 6x over collateralized and you got Bitcoin volatility up here on the x you can look at the probability that being under collateralized during a single one horizon
it's incredibly small. So I think that the strategy team, as they've referenced here,
are on this crusade talking to the rating agencies to give some guidance on how to begin to rate
these things, how to think about a Bitcoin backed fixed income instrument. What is the risk? How,
how does it compare to other things in the market? How do you
start to frame and understand the risk profile of these different instruments?
Right. And if you're a fixed income investor, you're looking at, as I understand it, you're
looking at both exactly what Jeff's saying, the credit worthiness of the security, how
over collateralized is my principle and then how likely am I to continue getting this dividend? And
that's kind of where the difference between Stripe and Strike comes into play. But that's effectively
the same thing. Like to Jeff's point, the over collateralization of the preferred equity
is the same in saying, how likely am I to continue receiving this perpetual dividend
from this company? It's all creditworthiness of the security.
Yeah. And there's a good question on the screen right here. And the question is, why would you
buy... What's that? Can we keep that slide up? I love that two rectangle slide. Which one? This one?
Yeah, exactly. Yeah. So why would an investor buy Stride rather than Strife? And I just don't
understand the benefit to the Stride investor. Well, there's two things that are at play here,
right? So they've set out this capital structure in the market. So they've got these three different
instruments right you've got strf strk and strd and the difference between strf and strd actually
maybe i think it has it outlined maybe let's go that slide and we'll explain it
where is it at
primary difference is
this one okay right let's compare the non-convertible prefs so these do not have a
conversion. So they're very similar. STRD and STRF are very similar. They both have a 10%
fixed dividend at par. So really it's a $10 fixed dividend and the price of the instrument can change
relative to its risk profile. So what we've seen, I think when STRF launched, it was priced at
something, I think it was around $80. I think as of today, it's trading at $107. So if you would
have bought the IPO at $80, you would have had, I don't know what that is, maybe a 12% technical
yield by buying the IPO. And now the market has responded and said that yield is actually really
high. This is not a very risky instrument. So the price of the preferred equity itself has gone up
and the relative yield, that $10 per share yield has gone down. So that's the market saying
that we think that this is a less risky instrument for the market. Okay. Both of these convertible
preps are perpetual non-callable for life. So they do not have an expiration. They do not have
a duration. They are in perpetuity. STRF is senior. STRD, so stride, is junior. So you can
see the effective yields there and then the cumulative dividend. And this is something I
think Dan hit on at the very beginning. STRF has a cumulative dividend, meaning if the dividend
isn't paid in any one quarter, the dividend accumulates. So the dividend can stack up over
time. STRD, if strategy elected to not pay the dividend, they can elect to not pay the dividend
on any one quarter if they didn't have the ability to raise capital, which I think is a low probability
based on the existing structure. But those dividends don't add up. And so in any circumstance
where the dividends didn't add up or accumulate, the relative price of STRD would probably
drop pretty significantly. And the relative rate that they would pay, the high yield rate would
increase as the price would drop, because that would be indicative that this is a more risky
instrument. So why somebody would buy this at the current prices, the spread, right? If you're
looking at 9.6% and whatever the IPO is on STRD, which is probably maybe 10 to 12%.
I personally, if I had the option between the two and I wanted a fixed income investment,
I would be buying Strife all day right now because I don't think the spread between the two
is priced appropriately.
Exactly.
Strife is going to go,
either the principle of strife is going to increase
and the yield is going to decrease a lot
when strides introduced to the market
or the yield on stride will go up a lot relative to strife.
Say that one more time
because I think it's an important point.
Either strife, it's what Jeff said.
He used the word credit spread,
the credit spread, which is the correct term.
But the way I think about it is just something's mispriced here.
If Stride is introduced to the market with a 10% dividend, whereas Stride is trading with a 10% dividend, based on the different positions in the capital stack and cumulative clause, either Stride should have a much higher yield or Stride should have a much lower yield based on their credit worthiness and their position in the stack.
Right.
And one thing that is, I think, helpful to think about here is the size of the ATMs that they have outstanding on these instruments.
And because STRK, actually, I think it's outlined here.
Yeah, right.
So I think this is outlined really well.
You've got STRF, which is the crown jewel, right?
This is your investment grade fixed income product, Bitcoin backed.
What are other fixed income investment grade products paying in the market?
maybe the risk-free rate plus 100 basis points. Maybe it's 5.5% yield. So if it's 5.5% yield,
maybe the price of STRF should be more like 200 or 180 to be reflective of a yield that is
investment grade. So thinking that there's likely some potential price appreciation if you do hold
strife at a you know at this juncture um ben's in here dropping knowledge bombs in the in the threads
and he's just critiquing us from yeah of course he is uh marking up our paper the the second thing
the second thing i point out here so strf has got a 2.1 billion dollar atm so in total i think about
three billion dollars of capital should sit in this fixed income product relative to the rest
of the products now you look at the strk atm and the potential size about 22 billion dollars of
capital to be raised from strk that's that's the plan so why is that important well if you think
there's going if you think they're going to raise about 22 billion dollars of capital from strk
that actually pushes STRD closer to risk. Let's just say as of today, and maybe it's helpful to
look at the leverage. As of today, they've got, what is that? $10.1 billion of debt.
And if this number goes to, let's see, 25, you're now looking at a leverage ratio
significantly higher, right? You're looking at like a 41% leverage ratio. So that would mean
that STRD is less collateralized. The BTC rating on STRD would be significantly less.
And that means it would be higher risk, at which point, more investors would probably be coming
into buy STRD because there would be a higher yield associated with it because it's higher risk.
Now, most Bitcoin investors like myself and probably Mason and Dan would look at these instruments at a high yield in a potential bear market if they've got a relatively high yield.
That might be extremely attractive to myself or Mason or somebody else because I think the probability of Bitcoin going to zero is basically zero.
And this is now a really attractive, like high yield savings account for me that I could hold capital in to weather a storm because I don't think MSTR is going away, but it's maybe a good instrument to weather market turbulence.
Yeah, I like that. I mean, what Dylan LeClaire said, strife is the crown jewel. It's the investment grade and STRD stride is the junk bond.
And I think this fundamentally comes back to the point that people have different preferences.
People have different risk appetites and different wants and needs.
And Saylor is trying to fill that junk bond appetite for people who maybe have a fundamental belief in Bitcoin.
And it's really interesting that you say, you know, cash account.
I know when Stride first came out, Ben was like, yeah, this is my new cash count.
But maybe Stride takes that place now if you're willing to take the risk.
And I think right now the market for all of this is very nascent.
The market's kind of figuring it out.
And I think over time we will see these, the market will kind of chew on it
and price these appropriately. So that will be exciting to follow.
Yeah, absolutely. And I think what might be valuable to look at here is this,
the relative seniority relative to the volatility as well. So if you're looking,
let's theoretically, right? If we experience a situation where we think MSTR is in a blow off top
circumstance, you may be in a position to peel off some capital and park it in STRF if you wanted to
have some stability for a period of time to weather market turbulence. And it would be less
volatile. And then maybe at a future period in time, when you think the tide's turning a little
bit, maybe you throw it into SDRD to get a little bit of a higher yield for a shorter period of time.
And there's going to be so much trading between all of these instruments. These are going to be
the most liquid preferred stocks in history, because there are so many things that you can
do with them that we don't even, we can't even conceptualize yet. Honestly, there will be, um,
algo trading companies that are going to be designed literally to just trade these and other
preferred equity instruments in the market and just ARB between, you know, how capital is moving
between all these different instruments. Yeah, there's still a lot of, um, bewilderment in the
chat. So I'm going to give you all the 80 IQ version. So I was sitting in the airport, uh,
two and a half hours early because I was in the Navy and we don't miss
movement.
And,
um,
I saw the announcement come through and I,
I read it like three times and I was just so confused.
And,
um,
I'm like,
it's the same as strife,
but they just might not pay the dividend.
I was like,
this doesn't make any sense.
And I was like,
Oh,
STRD stands for stratarded.
Like,
this is just no way.
And,
um,
but then I realized it was like,
wait a minute,
it's not supposed to be better than strife.
Okay.
that would be like rug pulling the crown jewel if you if you you know you had your crown jewel
of strife and then you you know it'd be like when they did trump coin and then it came out with
melania it was like okay it's the same shit like they just kind of rug pulled themselves and um
you know mason might hate me for this one but it reminded me of tesla so when tesla came out
they didn't come out with like the 25k car first they came out with an expensive vehicle that they
could give, you know, put out there to high net worth individuals. And once they got the production
lines going, then they started producing, you know, cheaper cars. And eventually they're going
to have cyber cabs. And this just screams that to me, you know, they came out with Strife.
It's the crown jewel. And, you know, now that this is rolling and the market is like in,
is building, they can build these other products. And the reason that you would buy Stride
is because it's going to be cheaper. Like it's that. So that's, that's a great way to say it.
It's going to be cheaper. Yeah. So you're willing to take the risk of not getting paid one day. If
some catastrophic event happens, you're going to pay less for the shares and you're still going to
get the 10% discount. Other people are going to be like, no way in hell. Maybe their fund
requires that it be the senior super safe asset. And they're going to be willing to pay more for it
to be higher up in the liquidation stack. Yeah, absolutely. And somebody asked,
why would somebody buy STRD if it's nominally not very different? The answer is insurance companies,
banks, any pension funds, anybody with liabilities that have a specific duration,
or they've got to asset match the liabilities to the assets. The way modern portfolio theory works,
there's a risk return curve and different portfolio constructions of different risk return metrics
can give you a more efficient portfolio with a lower risk and higher return. And that's how
like 99% of these asset allocators have to operate and they have mandates that they got to stay within.
So I suspect there's going to be a point in time in the future where STRF is rated as investment
grade and maybe STRD is not. And maybe it's, you know, double B or even C rated or, you know,
whatever it may be, maybe junk bond status. And those asset allocators can only contribute a
a certain amount of their portfolio to any one of these individual instruments.
Additionally, there are other bonds, there are funds out there in the market,
and now might be a good time to go to this before we jump into your stuff, Dan.
There are other funds out in the market that
all they do is buy high yield junk bonds,
which is just, which is totally crazy.
Maybe let's jump to it because I think it's funny.
Yeah, Jeff, I just want to jump in here.
The total outstanding value of the global corporate high yield bond market is in the order of roughly $2 trillion, right?
So that Bitcoin market cap right there So this is just once again it a product tailored to a certain risk appetite And it a market that you know maybe as as retail investors we not familiar with
but it's very real. And there's a ton of capital there to be tapped.
100%. And let's jump into this. This is so I just I pulled this fund here is USHY,
which is outlined here in the presentation, you can look at the STRD market comparisons. So
there's all these preferred equity tickers and all of these equity tickers, one of these is the
iShares, which is the BlackRock. This is the $14 billion one. This is all preferred equity
instruments. It's yielding 7%, it's got a 12% volatility, and it's got a 46 basis point fee.
Another benefit of all of the MSTR preferred equities is that they have no fees
and relatively high yields compared to these other instruments. And I looked at the high yield bonds.
So there's this ticker USHY, which is the iShares BlackRock. It's got $23 billion in net assets.
And all this ticker does is invest in high yield bonds. So just think junk bonds. And so I pulled
the holdings just to get some perspective on what this looked like. And maybe we'll hide this so we
see everything and here's here's some of the top holdings in this fund and i i just i highlighted
some because some of the names are familiar and uh you could look at like quick reit holdings so
think of like the concrete company has 64 this blackrock fund holds 64 million dollars of quick
REIT USD high yield corporate bonds. And this bond in particular is paying 6.38% coupon and has a
maturity of 2032, which is just outrageous relative to what STRD and STRF and STRK are paying in the
market relative to these other instruments. And the other one that was publicly traded is
Echo Star Corp. This is a satellite telecom company. BlackRock in this fund holds $90 million
of this fixed income debt, USD high yield debt with a maturity of 2029. It's got a coupon of 10.75%.
Now I looked more into this company. This company has a $4 billion market cap
and they've got $40 million of debt and $60 million of assets. So their debt coverage
multiple is 1.5X. And you look at STRD, right? As announced today, I think it's got a debt
coverage multiple of like six and a half X. So BTC rating of six and a half X. So six times
over collateralized relative to this other comparable debt instrument from a $4 billion
company that makes up the largest weight in this high yield corporate bond ETF. So again,
you have these funds where their mandate is all they have to do is buy high yield corporate bonds
and this would fit into those potential instruments.
And I think they're going to be
the highest performing instruments
in this entire group of high yield corporate bonds.
So I think it's just illuminating
when you start to look at what else is out there in the market.
And you can see like you've got Nissan,
these Nissan fixed income instruments are paying 4.34%, 4.81%, which is pretty low,
but Japan interest rates are practically zero. So that kind of makes sense. We got DirecTV paying
5.88%, DISH Network paying 11.75%, Quikrete paying 6.38%. And yeah, it starts to make all
these other instruments look really good. These are dying companies, right? Like DirecTV,
Dish, these are dying companies and it's just insane that they're even considered.
Yeah, 100%. I think these are companies within companies now. I think DirecTV is owned by
AT&T or something, but they still have to issue debt. They got to go raise capital and
this is how they do it, which is just wild to think that these exist in the market and
trading and people buy them like what like what is the what is the risk what is the risk profile of
direct tv fixed income product yeah look at all these categories somebody was asking like how many
of these products are they going to come out with and i hate to bring up tesla again but it just
reminds me of that because they're gonna they're gonna come out with one product in every single
category and it's going to be a category killer they're just going to have the best product in
every single category and they're just going to dominate that market so the strike holders want
the conversion option strife wants to be at the top of the um the debt structure stride is going
to be like okay yeah i actually some emperor was asking why would anybody buy stride he still
doesn't get it i would i would i would buy stride over strife personally because i have like 0.00001
percent chance that they just won't pay the dividend so i'll pay cheaper for it i'll get
i'll get the same 10 interest and i'll pay less so i'm i'm your uh i guess i'm in your demographic
stride i'm you're i'm talking to me well yeah i mean you you believe in mstr you believe in what
they're creating you believe in the bitcoin safety you may be more interested in taking on
on what probably to you is nominally like zero risk, right?
Like, theoretically to you, you're like, I think the risk difference between Strife and Stride is zero,
but that's not what an insurance company thinks.
So that's not what like a pension fund or a bank thinks that has to allocate to these different types of instruments, right?
They're seeing these as materially different because they're scared of Bitcoin.
right so they just they think they think differently like the whole market thinks differently
yeah it's weird times hey ben you look uh you look pretty bright these days
oh you guys have no idea what type of brightness i can turn on in here now
i've got these insane lights but you know on these streams i've got to reset
that bring myself back into the darkness again because uh it's intense man it's intense when
it's on you all day yeah well when you're getting interviewed by cnbc you kind of need uh you need
more lights i guess yeah on my last episode of between two lamps i uh i had to really light
myself up for that one that was one of my favorite jokes that started circulating about that between
two lamps yeah but anyways on to the interesting stuff yeah like what they're building out here is
really fascinating and i think it's going to take forever for people to figure this out
yeah totally and what they're also not figuring out is that if you own strife you're rooting for
them to launch as many of these below you as possible it just keeps over collateralizing your
position yours just gets stronger and stronger and stronger same thing for strike you're rooting
for stride because it's bringing in more capital it's putting in more assets that are over
collateralizing your positions there i mean what they're doing is fascinating and i think what we
need to add to uh that spreadsheet that you do jeff is i think every week we should actually track
the credit spreads of all of these to see how they're moving because earlier today i was looking
at the credit spreads on strife and strike and the credit spread on strike was you know significantly
lower than it was on strife so i think it would be interesting to start keeping an eye on that
and see how the market starts to normalize these products and watch as those spreads start to
compress over time i think that's going to be really really interesting yeah my first thought
was like why would they do this because you know strife is just going to push strides price down
and i was like no wait a minute i have it backwards stride is going to buoy strife's price up and then
i started trying to gain theory how high could it go and i was like well if strife gets to 200 a share
then i think the interest rate is approximately the same as u.s treasuries so i was like at least
that high yeah i mean it's just going to keep making it more and more valuable i was talking
to people today who were you know wondering are the prices of these going to get driven down
and you know of course anything can happen in the markets here but i don't see a lot of reason
for these to go back to trading below 100 i think that was kind of an anomaly
and people were watching that and they thought that the fair market value on these was going to
be in the you know low 90 range and all of a sudden like with all those products that you
were just highlighting there jeff with all these junk bonds you're realizing once you actually
understand what strategy is and you realize that you've got real-time access to track the
collateral position over top of your preferred equity positions that you're buying this puts you
one of the most secure and monitorable positions you could possibly be in. You can monitor these
in real time and you can make adjustments in your portfolio because you've got a highly liquid
market here where if you started getting uncomfortable, if all of a sudden you only
had a BTC rating on top of these of 1.7 and you started getting nervous, you can start making
changes. Whereas with all these other companies, like you said, who knows what's sitting behind
those? You don't know. Once you buy them, I mean, how many people do you know who are buying bonds
and then going and tracking the positions of the companies and figuring out where they're at in the
capital structure? And, you know, like it's just not happening. But with these strategy offerings,
you can do exactly that. And that's going to be huge because there's going to really be no reason
to sit in any of those underperforming junk bonds when you can come over to these and buy these
preferred equities that are much higher quality, where you can track in real time how much over
collateralization you have against your positions and you can collect higher yields. Why wouldn't
you do that? And for things like strife, it's the easiest one right now. Because, you know,
when you think about that, everything that gets launched here is probably going to be underneath
strife, that collateral position is only going to continue to grow. And so now you've got this
good yield. I mean, the yield is still what, nine, nine and a half, something like that.
And so you've still got this really good yield on this massively over collateralized position.
And even if they do suspend the dividends, those dividends get applied to your liquidation
preference. So now your liquidation preference just starts growing. So in the event that something
happened to strategy, your claim is significantly higher because all those dividends keep getting
added on top of it where they don't with strd it's so if you're sitting and you're just a retail
investor that's holding any of these junk bonds because you wanted the high coupon payments
you have almost no reason not to come over to these they're just much better products and it's
going to take a little bit for the market to you know actually catch up to this but when it does
they're going to be able to move a lot of these products through the atms i think there's going
to be a lot of demand. And the more they build out this capital structure and they kind of align it
to the different tiers that people are familiar with, and that's how they keep describing them,
like STRD is kind of their alignment to the junk bond market, and that's kind of their
competitive product. That makes it understandable for a lot of the bond investors out there, but
these are going to take off and you're going to start seeing those spreads come down
in a pretty big way over time here. But people are asleep at the wheel, but there's a lot of
portfolio rebalancing that's on the way.
I think there's one of two things, right?
Either the entire fixed income market is underpriced,
like should be priced higher,
or the entire strategy catalog of products is underpriced.
And there's going to be a market equilibrium
of all these physical risks, crappy, trash,
high yield instruments that are going to be
rushing for the door to go buy higher quality instruments in significant fashion. I think
there's going to be this landslide of capital that finds equilibrium and comes in the door here. I
think there's going to be a ton of demand for these products once the market starts to figure
out what these are. If there's a credit rating on any one of these individual products, I mean,
we're off to the races. I know somebody asked about credit spreads. There's a couple of ways
you could calculate it. You may want to look at the credit spreads relative to each other,
right? You might want to look at the, what is the credit spread between SDRK, SDRF, and SDRD,
but you could also look at what is the spread between, let's say the risk-free interest rate,
which might be US 10-year treasury or US 30-year treasury or the Fed funds rate,
and look at that relativity and how that changes over time. Because I think we will see those
spreads relative to the risk-free rate come down probably pretty drastically. I do personally think
there will be a point in time where STRF will flip the US 30-year treasury, where the yield
on STRF will be less than the US 30-year treasury, right? You compare the two risk profiles. You look
at the US government, which got 800% under collateralized, right? They've got eight times
the amount of debt than they do the assets. And you look at strategies, balance sheet, and STRF,
and you're like, this is six times over collateralized. The risk profiles are drastically
different. So I think it's redefining what is risk in this new digital capital environment and
rethinking like Bitcoin as the hurdle rate. Like what is your hurdle rate for investment? What is
your opportunity cost of capital? How do you think of opportunity cost of capital? And the entire
market is going to have to start rejiggering how they think about the world with these new financial
instruments in the market i'm i'm all bowled up this is this is huge right this is absolutely huge
is strategy letting these products run and letting that price expand in the market i think that's
the beauty of these products they don't have to right because these are all driven by these yields
and so as long as these yields remained undervalued relative to all the other products
out there in the market the demand is going to keep coming in it's going to keep driving the price up
and so they're probably using the atm constantly like i'm expecting to see atm on these pretty
much every week at least on strike and strike where they have the atm right now and so they're
probably selling these into the market but my hunch is the demand is enough to eat it up and they just can drip out enough of it right now because they don have quite enough liquidity in the market for them to sell it in huge chunks yet but it scaling up
and they're starting to do that quickly so i don't think we're far away from you know seeing 100
million plus in each product coming out per week and that'll be you know when this all really picks
up and when you look back to that torque measurement right these are the products that make a big
difference in that Bitcoin yield metric, and they're going to want to hammer that as hard as
they can. So, you know, these being self-correcting, self-healing products, right? They use the ATM.
You drive the price down, the yield goes up, new buyers come into the market trying to get the high
yields. It drives that price right back up. They can go right back to the well with the ATM on
these. So these are perfect products to have in the arsenal for any type of market condition. But
Just imagine these when market conditions are bad, when you don't want to use any of the common stock equity, when the market's not there for converts.
You can lean on any one of these, whichever one's going to get you the highest value for your shareholders and Bitcoin per share.
They can go hit that no matter what the market conditions are, because there's always a demand for yield.
And we can talk about rebalance.
Yeah.
When November happens again, that's my dry powder.
Stride is going to be my dry powder.
I'm moving right into it.
that's it's a no-brainer i'm not sitting in cash that's doesn't make any sense silly yeah that's
how i've been using them like strife or strike have always been my that's where my trades end
up settling to right if i'm sitting on anything that i'm not deploying and i just want to sit
that's where i park it now for a while and uh absolutely worked out quite well
yeah i think he's go ahead mace no no no sorry i i just think we should get to to uh defending
one m nav with uh strd and well i think dan dan killed it so dad do you want to talk on that
uh yeah i mean i think it kind of stemmed from josh's idea like josh had been kind of putting
a lot of info out there saying shorts are attacking the stock and i know sailors aware of what josh
has been saying and what um and just you know there's been a lot of short pressure on the equity
itself.
And so that's very nerve wracking considering like, okay, so let's say the shorts really
take hold.
They start shorting strategy MSTR class A down to a lower multiple.
And then, you know, if they're trading at a 1-3 multiple or a 1M NAV, they can't generate
yield in the form of common stock issuance.
Right.
And so that's a really tricky situation.
Let's say it's a bear market.
Everyone's bearish on Bitcoin strategies trading at 1M NAV say, and they can't generate Bitcoin
yield.
It's a really bleak circumstance.
They're by no means over leveraged.
There's nothing wrong, but it's just their Bitcoin yield will fall.
And so what do you do to jack up the Bitcoin yield to get the premium juiced again?
You need Bitcoin yield to justify the premium.
Obviously, the leverage justifies the premium if you're bullish on Bitcoin in the long term, but that Bitcoin yield helps.
So what they can do now is they can issue stride and buy back their shares at a sub 1M NAV price, which creates Bitcoin yield.
It's the inverse of selling shares at a 1,5M NAV and capturing that spread.
If the shares are trading at a discount to the Bitcoin and you sell an asset that represents a claim over the Bitcoin to purchase the shares, to buy back the shares, you're essentially selling.
you're selling Bitcoin at one and buying it for 0.7 by buying back the MSDR common equity.
So it's a defense mechanism and it disincentivizes the shorts from taking a hostile short position
down below one MNAV. But the really key thing, I think, with STRD here is like, for example,
let's say strategy levers up to a 25% leverage ratio of converts, strike and strife relative
to their Bitcoin holdings. In this hypothetical scenario, likely Bitcoin would have fallen by 50%.
So now the leverage ratio is up closer to 50% of their total equity stack, right?
So it would be actually, it would be irresponsible for them to go out and issue strife to buy
back their shares if they're trading at a discount because it would jeopardize the
credit worthiness of strife.
Correct.
But when they do this with STRD, they're increasing the credit worthiness of strife
and strike while also being able to buy back shares and keeping that classified as a jump
bond.
So the stride is the only feasible mechanism with which they can sell preferred equity and buy back their shares at a discount.
They couldn't do that in good faith with strife or strike realistically.
And because it's a high yield, because it's a high risk, high yield junk bond, the yield would reflect that as well.
Exactly.
So it is reflective of being that higher risk position.
right and if that if that were if that were to be the case right if the m nav were to fall
the there would be more risk associated with strd than the than the other products and so it would
demand a higher yield yeah i think i think you outlined it perfectly yeah and i think it it
satisfies one of my remaining like legit bear cases because we were we were talking at um dinner
and it was just beer for dinner, but we'll just call it dinner.
And, you know, people were saying, what's your legit bear case?
Like what would get you to sell strategy?
And one of the only things that I could really come up with is in a bear market,
if they were trading below 1x MNAV and they don't buy the stock back,
because that would increase your Bitcoin per share, right?
You're not going to sell into the common ATM to buy more Bitcoin.
That wouldn't make any sense below 1xMNAV.
But they've painted themselves into a corner to a certain extent because you never sell your Bitcoin enough times, like you just can't do it.
Even though that would make mathematical sense below 1xMNAV.
And so my response to the question was, if they don't sell the preferreds into the ATM and buy their stock back with it, I would have to think about moving off the stock.
Because you have to.
I would even consider it like their fiduciary responsibility to do so.
And so with this stride coming out, I was like, they nailed it.
Like that was one of the last remaining bear cases that I could actually steal, man.
And I was like, you know what?
Sailor's bugging the entire casino because he's just like listening to our conversations.
And then like, yeah, I got something for your ass.
It's just you wait.
And like a week later, he's like, here, I got something for you.
Yeah, building out the entire yield curve.
Okay, so we've been steel manning this thing.
Can we talk about the bull scenario, which is cool too?
Like, you know, we've hit on all these bear scenarios.
What if interest rates drop, right?
If interest rates drop, all of the prices of these instruments rise, all of them.
And so that means that the amount of capital that they raise is going to be that much more accretive.
they're going to be able to raise that much more Bitcoin with less leverage and less dilution on
the stock, which is incredibly powerful. You've got the quadruple threat ATM. You've got all of
these products that could all be operating simultaneously, generating capital from all
of these different pools when there's surges of demand in any circumstance. If we see another
surge of demand from uh you know potential s p 500 inclusion mstr atm if you see interest rates drop
and maybe uh the the strf gets an investment grade uh rating boom you've got an instant atm you're
able to tap it and get that capital it's going to be is that an instant is that an instant reprice
if they get a high rating on the preferred like they just immediately become more valuable i i
think so yeah if they get an investment grade rating i think that would be a like slingshot
reprice uh in this in the stock i mean it would instantly drop to like a six percent yield and
what is it what is it today like 9.6 so yeah i mean it might go to 180 like 200.
i i would i would think right the market would have to reprice it if it goes to investment grade
i mean any any anybody in their mother that has an investment grade fixed income portfolio would
would be buying buying the hell out of it yeah the most bullish thing for me about this is like
just the threat of stride being used or being able to be used to buy back the stock that's like a
shot across the bow to all the shorts like i double dog dare you because you know just the
threat of it like you'd only have to do it once i think because you're just going to pump the the
stock price back up and there's no way that the shorts would be able to to cover at that point
and then you've just got that threat forever yeah the forever threat if you can ever get it down to
that low again guess what we're gonna do and it's just like they got the guns ready and and and the
reason the reason this works is because you have a you have an instrument you have bitcoin which is
a fixed supply and you're shoving all of that capital that you're getting in the door you're
shoving that into the network with a fixed supply. And you know that the supply curve of that is
decreasing at an increasing rate over time. So that's what makes this concept possible
is because you can't make any more Bitcoin, right? The network is going to get stronger and
stronger. You couldn't do this with gold, right? Because gold supply is technically infinite,
right like you'd find gold on different asteroids or different planets and or somebody can make it
chemically or you know whatever that may be um you know the the supply is increasing over time
mason you want to walk through this spreadsheet yeah yeah so can i add one more thing out there
on the yeah go ahead move on to something else i mean there's there's one piece that
doesn't get compared enough to like bond coupons which is that these preferreds are qualified
dividends oh and that's really massive because you know for a qualified dividend to get the
qualified rate you typically have to hold it for like a 60-day period within 121 day window around
the dividend the ex-dividend date but when you do you get taxed at a lower rate whereas your bond
coupon payments will come in at your ordinary income tax rate. So there's also a tax advantage
to holding these versus the bonds. So I think that one's really important as people start to
figure this out. The other thing is I just went and started modeling Strife to figure out what
the price of Strife would need to be for it to be in the range of a AA rating, right? Which the
credit spread on that would be like 60 to 85 basis points. And it would be trading at $180 a share.
Yeah, that sounds about right.
To be double A rating. So you can see, you know, how far we are from where fair market probably is
on these. So while people are watching these drift up from 100 to 107 and thinking that that's as far
as they can go. Once people realize the credit quality of these, they can go much, much higher.
So you might not even be buying these for capital appreciation and it might just happen anyways.
us. So, you know, it's kind of a fascinating phenomenon because we're in this weird spot
where people don't understand the collateral that's backing these and don't understand,
you know, all the different qualities that these products hold that are superior to their bond
portfolios. But man, when they do and you wake up and Strife is, you know, $150 to $175 a share,
and all of a sudden you got massive capital appreciation on something you bought for a
nine and a half percent yield one day. It's a pretty good surprise.
The end. And if the, if interest rates drop, it goes even higher, right?
If interest rates go to zero, it goes to, it goes to 250.
And rates are going to come down over time. Right? I mean,
that's going to be unavoidable,
particularly given everything you're seeing happening out there in the macro
environment, like they're going to come down and when they do, yeah,
those cash flows get more valuable.
And so that's going to push the prices up as well. So, okay.
just a really interesting setup and people are incredibly sleeping on these products. I've had a
lot of people ask me, why would I be holding these when I could hold several other equities in the
space? And I go, well, it's the stable part of my portfolio that I still think has capital
appreciation. Plus it throws off really good cash flow. Why wouldn't I hold some of these?
You've already got your foundational Bitcoin allocation out there. You've got your MSTR that
you're going and trying to outperform on. There's no shame in holding these products because these
are useful products. This is changing the way people can structure their portfolios to enhance
their lives. I think that's really important. If you look back in time where being a two-income
household used to be a very abnormal thing, there used to be all the jokes about it and everyone
was rolling in money. Now, you have to be a two-income household basically just to survive
at status quo. So products like these where you can park capital and generate meaningful income,
you know, is going to give people a fighting chance if they want to go back to what that old
model looked like. And I think that's, you know, a really underrated part of these products. And
it's why you see so much demand for all the income products, I think, right now, because we just have
this massive societal issue going on that, you know, doesn't seem to have a fix anywhere in the
future here it just seems like it's going to get worse you know the money is going to keep getting
devalued they're going to keep spending like crazy like you have to opt out of that at some point
you've got to find products that are able to augment or at least stabilize your life and
these are those types of products that give you that option with very limited downside to it
because you can see the collateral position and they're really really powerful right these are
easier to understand than you know like a misty or an imstr for a lot of people so
So even if it's just 10%, right, that's huge for a lot of people.
So, you know, these are going to be popular.
Got a prediction.
Interest rates drop, strife rises.
At some point, the government will have to raise interest rates again in a cycle.
And that's when the flipping will happen.
Like the price of strife might just stay high and the yield might just stay there, even if interest rates change.
I mean, the next four years of watching this stuff is going to be so fun.
I mean, these products, the use cases here are going to be fascinating to see how these
products are used as collateral, right?
Like, you know, we talk about Bitcoin as collateral.
These products can be used as collateral, right?
I mean, Dan, you've got strike on margin, right?
100%, baby.
100%.
I just found my margin rate lower to match strikes, interest payment today.
I call it fidelity, but I needed to match guys.
Make it happen for me or else I'm going on.
be the same. So you got a free call option, basically, you've got fidelity on margin,
and you got a free call option because you're holding, but none of this is financial advice.
But Stripe is going to be the blue chip of these products in the market,
right? Like, I really believe that that is going to be the standard bearer for the fixed income
market, just because of the scale they're achieving and that every single action they're taking just
makes that one stronger. So eventually, you're going to be very hard pressed to go find anything
that provides anything remotely close to the characteristics that strife is providing with the
same over collateralization that it has it's going to be very hard to find in the market so that's
going to become that benchmark over time that all these other products are going to have to compare
against and i mean bonds in that as well not just other preferred equities that are going to come
from other bitcoin treasury companies because those are going to come too and people can structure
them in different ways to try to lure in investors but right now when you start talking about moats
this product has a massive moat right now huge huge and the volume that they could bring in like
the capacity that they could bring in on these instruments is just like enormous relative to
even if the next closest bitcoin treasury company launched this today all of these products today
they're they're only be able to pull in one tenth of the capacity and the entire market would be
looking at strategy still, they would be looking at strategy in a better light because of its
collateralized nature, the scale of the collateral and how big it is, right? This is the blue chip.
MSTR is the investment grade Bitcoin security company.
Pull up my slideshow. Perfect setup. Perfect setup. I mean,
Yeah, here you go. Okay.
Yeah, so Dan and I, I mean, we sat down and so the conference, I think we'll talk about the conference a little later.
Everyone's talking about different Bitcoin treasury companies.
And a lot of them are extremely interesting.
Some of them are not.
I think everyone should do their own research and come to their own conclusions.
But we kind of sat down and we said, all right, what makes a Bitcoin treasury company investment grade?
And long story short, strategy, you know, ticks all these boxes because of course it does.
But we boil it down to three things.
And the first one's trust and reputation.
Strategy has been doing this since 2020.
It prioritizes Bitcoin yield and it holds.
and it never sells and it's earned market confidence, right? That's number one. And
you could say all of these are reinforcing their moat. So I think that's another thing to think
about. The second thing, Jeff, you've been pounding on this lately is the scale of the
Bitcoin collateral, right? There's no second best. It's the largest Bitcoin treasury reserve.
And because of that, they can issue these fully liquid collateral instruments at a scale and at a pace that other treasury companies haven't been able to achieve quite yet.
The third thing is, and this came to me today because of Stride and what Dan was saying about defending the 1MNAV, perpetual Bitcoin yield, premium agnostic.
So even if they go below 1MNAV, they can sell Stride, buy back the shares, and it's Bitcoin accretive, right?
And yeah, we just had two different options for how they could or how a Bitcoin treasury company could potentially create perpetual Bitcoin yield either through their operating business or creating something like Stride or a different unsecuritized credit-worthy instrument.
So yeah, that's basically what we came to.
This would represent a AAA caliber investment grade. You've got trust and reputation,
enormous pile of capital, right? And just a pile of capital that you can't compete with. And then
the ability, the instruments to generate perpetual Bitcoin yield, depending on any market condition.
If things are roaring, awesome. They're generating tons of Bitcoin yield and they're,
you know pumping it into bitcoin the price of bitcoin is going higher collateral is getting
safer and if the conditions are bad they they still have instruments that they can use because
the market always wants yield there's always going to be demand for any of these instruments
instruments which would protect the more investment grade or convertible bonds that they
hold on their on their balance sheet yeah i'm so glad you did this because i've been racking my
brain around um you know every cycle we have shit coiners and when i'm talking to them i usually say
you know when someone mentions whatever they're into and i don't attack their coin directly i'll
usually just say well look if a coin has any of these red flags of a scam coin then i avoid it
And for me, those red flags are, you know, did they have a pre-mine?
Are they centralized?
And is it proof of stake?
If it's got any of those red flags, I'm like, okay, that's a scam coin.
And this is giving me the ammo that I need to discuss what a legit Bitcoin treasury company
looks like.
You know, if they're not the real deal, if they don't have the trust, if they don't have
the scale, and if they don't have the perpetual yield.
So it's just the perfect talking points when you're talking to somebody and they want to know what's a legit Bitcoin treasury company.
Apparently we're getting audio problems, but I hear you just fine.
I hear you guys a little bit.
Yeah, I think we'll just keep cooking.
Can you see someone in the comments?
And this is a mature investment grade, AAA caliber treasury company.
That doesn't mean there couldn't be another treasury company that's well on their way to become such a corporation.
But this is once it's mature, like what are the necessary ingredients and what should a Bitcoin treasury company strive to generate for themselves?
And that other clause operating business that covers liabilities and sweeps free cash flow into Bitcoin in a meaningful Bitcoin yield manner.
that's really important because I think there's going to be a world in which not every company has
to create a full financialized Bitcoin stack of fixed income products like strategy. You can just
be a company making money and having a Bitcoin treasury strategy, but that will satisfy these
criterion if you do it effectively with your free cash flows. So there's two ways to do it. Either
you have to have this comprehensive structure, that strategy, or at least strive to have this
comprehensive structure like strategy, or you just have to be very diligent in creating Bitcoin yield
your operating business and you can't become over leveraged essentially like that
i think different different markets um provide different opportunities right metaplan space
out of japan i think they have a mo in or or they're they have a regional moat right that
strategy uh may have a hard time attacking or or another company so i think i think there there's
honestly more to this, but I was just trying to come down to fundamentals of what should you be
looking for? Or at least me personally, this is investment advice, this is what I look for.
Yeah. And I mean, to your point, you can have technical investment grade over collateralization
of a balance sheet, but it just may not be the same scale. You can have a $4 billion company that
that offers an investment grade product,
but the scale that they're going to be able to do that at
is very different than a hundred billion dollar company
that's offering these instruments to the market.
And that scale is pretty important.
But also I think another important part here
is this operating business perspective, right?
Like if you had a company like Nike,
it's just got massive cash flows coming in the door.
And if they decided to adopt a Bitcoin treasury strategy
and they're just pumping all of their cash flows into Bitcoin.
That's going to be a different type of company than, you know,
a company like Strategy that's designed based on, you know,
its financial strength and all the products are a function of the financial
strength and how that operates within the market.
And I mean, finance is getting redesigned, right?
Like that's the whole takeaway of this whole thing is like finance is getting
redesigned. People have to think differently because the world's moving faster.
It's digital. There's digital capital available.
risks in the physical market are probably mispriced. Risks in the digital market are
mispriced. There's going to be an equilibrium redefining how companies work and operate with
all of these different forms of ways to store your value. Really good. Yeah, it might've been
a little harsh. You don't have to do all of these. You can just buy Bitcoin and you're a good company.
Right. But if you want this triple A investment grade, I don't know, I guess extra Bitcoin premium
you might have to adopt some of these.
So I think that's a great point
because not every company that buys Bitcoin
is going to be a Bitcoin treasury company.
There's going to be companies who buy Bitcoin
and put it on their balance sheet,
put it in their treasury,
but they're not necessarily running the strategy playbook.
I actually don't think, you know,
not every company can do what strategy has done.
um it just wouldn't make sense we would we would quickly go to a a hyper bitcoinized world so
there's going to be companies that are somewhere in between right on somebody there were a couple
of people bringing up proof of reserves and i know that was a big topic at the the bitcoin
conference and you know i i think a lot of the market misconstrued sailors comments is you know
not showing proof of reserves was a security risk to, was a Bitcoin security risk. And I think that
was just totally misconstrued. And the risk with, you know, having public addresses is not Bitcoin
risk, it's human risk, right? It's social engineering risk. The fact that those wallets
exist, you can potentially attack or go find who the custodian is. You could go find who manages
the custody you could try to attack or get away into uh some of the keys you kidnap somebody you
ransom somebody all of a sudden you have issues that you didn't want to to have uh you know on
your on your corporate balance sheet that being said i know arkham funds has already they've
already mapped what they think to be like 95 of msdr's bitcoin holdings there's so many nuances to
how this works right like you've got i think they've got thousands of different wallets uh
the way like some of these insurance programs are designed on these individual wallets each each
wallet may only be insured up to 100 million dollars so if the price of bitcoin rises and
you have more than 100 million dollars in a wallet there needs to be a rebalancing so you may be in
a situation where you've got that you know a couple hundred wallets that are rebalancing and moving
capital so they can stay within the guidelines of what the insurance policy may be and that could
cause a big stir within the market of you know all strategies selling all their bitcoin because it
moved. You know, we've seen this with people talking about the US government, but maybe they
just did a rebalance. And there's all of these things that may happen or occur that are just
risks of having these out in the market. Do I think it would be ideal if strategies showed
proof of reserves? Absolutely. Like that would be awesome. But also, I don't think that they
don't have the Bitcoin. I don't think the price of Bitcoin would be where it's at today if they
have the bitcoin i don't think capital group would have a heavy position in their company if
they didn't have the bitcoin the big four like all of their executives in c-suite would go to jail
if they lied on their annual audit about how much bitcoin they had like the auditors would go to
jail i don't think anybody wants to go to jail over this whole scenario and that's like a very
serious consequence of you know lying on those on those annual audits so it's also acknowledged that
this proof of reserves thing is very much a retail investor gripe at the moment none of the
institutional guys are asking for this right they know that an audit is effectively proof of reserves
right that's what that is and you know i i personally don't see it as this big issue i get
it that it's you know something you can do with bitcoin and it's very cool but i don't think it's
necessary for a company like strategy that's in the u.s trade on the u.s stock exchange big four
auditors that are going in doing audits every single quarter on the largest asset holding
that they have like i just you know this is going to be noisy in the retail community it's not going
to be noisy anywhere else right so the vast majority of their shareholders are not demanding
this from them and i don't think that they're going to make that move so the other thing that
I like is there's been a lot of conversation around whether the market's too saturated
with these types of companies. And what makes me laugh is that you go and you look at, you know,
like the Bitcoin Treasuries website, and you just pull up every company that has over a thousand
Bitcoin and count how many of them are actively pursuing the strategy playbook. And it's like four.
so for us to think that this market is saturated at this point is is hilarious because we've hardly
started what there's like a million strategy has such a runaway advantage at the moment because of
the scale they've achieved but you know you got strategy you know you can count 21 even though
they're not fully rolling yet because that's back all still has to settle and all the companies have
to merge together. So then you've got MetaPlanet, you've got Semmler, keep going down the list.
Fold has done a little bit of it, but not a ton. And that's kind of it. So no, we're not saturated
in this market. There's a lot of room for people to come in and run the Sailor playbook. And there's
a lot of room for people to customize that playbook and do it their own way based on what
fits their business which I think is going to be one of the coolest things to watch emerge But like everyone was saying you don even have to run the playbook if you don want to Just accumulating Bitcoin through your cash flows
is likely to get rewarded by the market as well, because the market's seeing the power of just
having a Bitcoin treasury. And when you watch all the news coming out, you see all these massive
spending bills coming out, and you see that truly nothing stops this train, you're going to want the
companies that have the hard asset balance sheet, right? That's what you're going to want. You're
going to want that digital capital war chest. And that's what investors are going to be looking for.
So I think the biggest cohort we see over the next 12 to 18 months is just going to be exactly that.
Just companies making the move to convert treasuries and converting excess cash flow into
Bitcoin. And I think even those companies are going to get rewarded. It's not quite as active
as some of these other ones for us high octane junkies out here. You know, that's not going to,
probably not going to do it for a lot of our investing needs, but you know, for a lot of people,
it's going to be a big stabilizing factor in a lot of these companies that would otherwise see their
equity prices start to get ground down over time as that asset value erodes. So I think we got a
big wave coming of the more organic style of the Bitcoin treasuries. And my hunch is we still get
another 10 to 20 of these strategy style playbooks that come into the market. So I don't think we're
anywhere near finished seeing capital flow into this. And I think the easy answer with what you're
talking about, Ben, and how proof of reserves applies to that is just put it in your valuation
model. So if you want to compare strategy's price to another Bitcoin treasury's price,
and if you think 400 a share is fair valuation for strategy, but then there's a 1% chance they
don't have the Bitcoin and the price of strategy crashes to 200, okay, there's a 1% chance of a
$200 loss, which is $2. So now your fair valuation model has dropped from 400 to 398 because of proof of reserve risk.
So just stick it in the valuation model and then buy whichever company you think is the most valuable.
Well, and some companies are going to do the proof of reserves, right?
And for the people that are cheering for the proof of reserves, then that's the asset for you to invest in.
Right. I mean, that's the beauty of differentiation in the market is if you don't like the way that strategy does it, you've got other options.
Right. MetaPlanet does proof of reserves. Go invest in MetaPlanet.
Like there's a flavor for everybody. And if that's the level that you need to have to be comfortable making an investment, then you've got choices for that in this space.
So, you know, you don't need to pick a fight with all the other companies that are doing it a different way.
You just vote with your capital and you move your capital to the one that supports your belief system.
and that's great there you go i don't have any issue with people doing proof of reserves i just
personally don't think it's necessary if you've been a part of a big four audit you know you'd
know you'd rather have a spinal tap than go through one of those right so i i just you know
there's proof of reserves happening every quarter i'm not concerned about that but even so if that's
something that's a big sticking point for you you move on to one of the other companies that's doing
that there's a flavor for everybody out there now there you go
Jeff, do you mind if we get into, I have a little document prepared of preferred non-cumulative
equities. Yeah. Preferred non-cumulative preferred stocks. So exactly what STRD
represents for strategy. And they tend to be from banks and utility companies, financial
institutions and utility companies. And the point I'm trying to illustrate here is that it's very
unlikely that strategy will defer on any of these payments and there is like a historical precedent
for that. So General Electric offers a 5% fixed, this one's a little weird, but it was a fixed 5%
between 2016 and 2021. And then it switched to a 300 basis point spread over the LIBOR,
which I don't know what that interest rate is set to. Do you know Ben or Jeff?
That's LIBOR. Yeah.
LIBOR. Yeah. Okay. So that's been the interest rate on this preferred non-cumulative equity
since 2021. So that's been trading since 2016. Bank of America offers a 7.25%
non-cumulative perpetual convertible preferred stock, perpetual convertible. So this is
essentially strike, but it's different in the non-cumulative clause. That's been trading,
x-rated from 2008 to 2017 17 years never missed a payment same with general electric never missed a
payment although the clauses are both non-cumulative like stride and then finally georgia power
utility company they have a 6.5 preferred stock non-cumulative par value of 100 pretty much
exactly the same as strd and it was announced in 2007 and it was redeemed in 2017 10 years
and there was no record of a missed dividend payment. So in all these instances,
it's in the company's best interest to continue paying that dividend while the company stands
in good credit. It's really like a survival feature, right? Like if all hell breaks loose
and for a year, I could not pay the dividend for a year, the price of that instrument is going to
get hammered and the yield is going to rock it the technical yield is going to rock it
but it's a it's a survival feature it's like okay we're going to last another year and figure out
what's going on here so i'm sure it's coming to play on some of these instruments that have gone
bankrupt at a a point in time but you know maybe with your with your research it didn't show up
I looked at the longest standing ones.
So I didn't look at distressed companies.
I just looked at companies that were still in good standing.
So I think the underlying assumption is if you think MSDR will be in good standing in
five, 10 years, you can assume yes to RG dividends will be paid out.
Yeah.
I think one more thing to hit on is the dividend itself, right?
Because you've seen a lot of people running around like, what is the dividend come from?
You know, it's mainly just OG Bitcoiners that don't understand what's going on or don't
understand capital strength or refinancing or how this whole thing is working. But they put a great
slide on this in the presentation as well. The equity ATM uses. So I really like the statistic
that they had here at the bottom, the annual fixed obligations as of today. So their total annual
obligation is $235 million, which is laughable based on how much capital they raised. Because
the year to date this year, the strategy has raised $9.1 billion year to date, primarily through the
MSTR ATM, but through the other instruments as well. So you look at the annual fixed obligations
as a percent of the daily traded volume, the daily traded volume being 5.6 billion. So the annual,
the fixed obligation for the entire year is 4.2% of what the daily traded volume is. So this is
generally not an issue based on how much capital is coming the door and how much stock is being
traded day to day. And as a percentage of the equity raised, it's 0.9%. And as a percentage of
the traded volume, it's 0.02%. So it's the last 12 months traded volume, 0.02%.
So how's the dividend getting paid? It's getting funded by any of the different instruments or the
capital raises that they're utilizing any of the atm instruments any of the convertible debt
instruments and the the ability to raise this raise capital has been very apparent for mstr
as these instruments grow that may be more of a concern at a future point in time but looking at
just the statistics that are available today it is a fraction of you know the capital that they've
raised in a very short time horizon. Cool. All right. So we shift gears. We want to talk about
the Bitcoin conference. I think we've hit these over the head. Yeah. Let's talk about the conference.
Let me take my screen off. Who wants to go first? Takeaways, thoughts, ideas?
You got to get to one of these things. It was the first one that I had ever been to
and just hanging out and arguing about proof of reserves and op return and
store of value versus medium of exchange and just all of the nerd shit that you want to
talk about with people that you just can't and they're just everywhere and you know people that
you you just all you've seen is their profile pic on x or whatever and then they're just across the
table from you. It was, it was, it was freaking amazing. Yeah. What there's supposedly 35,000
people there and went for, it went for three days. It was pretty electric. I mean, there were,
there were tons of people there. Uh, the expo was kind of interesting, uh, you know, walking through
the expo territory. I think there were, I don't know, but probably a hundred companies there,
uh, a bunch of them brand new or, you know, doing weird things, mining, lending, a lot of mining,
model and a lot of mining, a lot of lending and custody solutions were pretty hard in my
opinion to kind of like pick through them and kind of understand what was going on there.
But yeah, it was a, you definitely felt like a real person.
You could talk to anybody, right?
And you would be able to speak the same language, which, you know, if I walked to the coffee
shop over here and talk to them about, you know, strategies, Bitcoin or like cut my custody.
oh i ran into this custody uh you know just trying to figure out my multi-sig you know so they'd be
like what the hell are you talking about and you do feel like a normal person as a bitcoin are
going to these things right and maybe that becomes a little bit more normal uh as these things
continue to grow but yeah it's pretty you got to get doc stacks um comment on the screen about us
getting kicked out of the bar oh yeah we did get kicked out of the bar oh yeah oh my god we had too
many people there. We had a true north, uh, we had a true north meetup and I think we, we posted
about it for, I don't know, a few hours beforehand. And yeah, we got kicked out. There were too many
people that showed up. I think you're a hundred to 150 people showed up at this yard house bar
and they, they just didn't like money. They didn't like money apparently. And they were like, you
got to get out of here. There's people are complaining in the booths and they didn't have
space for us. They told us to sit down and we're like, we're not sitting down. Ended up going to a,
an Irish bar a few places down that had like blackjack flipping.
And it was a ton of fun.
I loved meeting everybody that came through.
Thank you to everybody that came through and had a beer with us and chatted and
took pictures and stuff.
It was just electric running into people.
And it was a little bit more, I guess,
kind of retail focused than what strategy world was a few weeks prior.
So it was a fantastic, phenomenal time.
Yeah.
Yeah, that was like 100% definitely the highlight of the whole conference is meeting other people who are interested in these subjects and who are passionate and engaged because, you know, I feel the same way.
And yeah, it's great to connect with people because, again, like sometimes this could be very isolating when in your real life you don't have people to talk to.
But my biggest takeaway from the conference generally is Bitcoin treasuries were the talk of the town. At least it felt like that to me. It was, in my opinion, by far the largest kind of all-consuming topic within this niche space that is Bitcoin.
and it makes sense i mean sailor has made a splash and you know nakamoto sponsored the thing
and there was just a lot of buzz around it i have to say uh jeff and ben your panel with grain was
you know i'm biased but it was like by far the most interesting electric panel of the
whole conference and and you know they're standing room only they needed a bigger room
um it was like a football field line out the door apparently yeah yeah there's there's a line out the
door but i that's on youtube right not yet no not yet no okay well they need to get it up yeah we
reached out about it today we'll hopefully get it out there yeah i didn't realize they were actually
that they shut the doors and people couldn't get into it i didn't realize that part of it that was
kind of crazy. But in our panel, because we're an internet group, we can just have more fun with it.
I think you go to these conferences and everyone gets up on stage and they try to be really serious
and take themselves super serious while they're discussing this. And then here's our True North
group up there just having a blast, happy to be here. It was a ton of fun. And Richard's an
awesome guy. Before we got on stage, I'm back there pitching him like, you know, you're doing
cool things but what would be really cool is if you were in true north we're just telling him i'm
trying to get the group i mean so we're just having fun i mean it was it was a blast even
you know before we went up there we were all just chatting having a great time so i think people
pick up on that and you know because this is such a community focused show they get to kind of be
involved right because it's one of those things where they followed along with us i mean this is
what episode 28 which actually always surprises me that it's that low because it feels like we've
been doing this forever already but people have gotten to know us they've gotten to know our
personalities already i mean we talk enough that this is just who we are in real life too so
conversations come easy with everyone because we're so interested in all the same things i mean
it's just a blast i showed up at the the happy hour jeff had already called it tonight or he was
trying to you know double up his stack on the craps table or something by that time but i showed up at
11 i don't know 11 15 11 30 something like that and there was still yeah we were there people in
there still i mean some people are still going man and uh it's just so cool when you've got that type
of a of a community built up out there where everyone's just out having a blast you know you
get these few times a year where people can really get together and get to know each other and talk
and that's what makes these events fun.
I think it's as much about the things
that happen outside of the event as the event itself.
I mean, you just get so much quality interaction
in a space that we're all diehards in,
but most of the world just shrugs
and has no idea what we're talking about.
Like when you're in a place with 35,000 people there
for the same thing, you're not the weird one anymore.
We're the only normal ones in town.
And I say that loosely because I was walking back
from the bar and I was following a crowd
dressed up like wizards.
So, you know, they were the Bitcoin people from one of the parties going on.
And I can only imagine what that looks like to everyone else.
But to me, it hardly even registered.
So I guess that shows where we at in the cycle Here how your panel that you guys did with Richard Byworth there was a panel right before that that was also about running the MSTR playbook
but in other countries.
And they had a guy from India, a guy from France, a guy from China.
And I'm like, you know what, I'm going to go to that
and see what they talk about compared to what you guys talk about.
But also because I wanted to get a seat.
I wanted to get a good seat.
so i'm standing in the back and i'm waiting after that one ended and i'm waiting for everybody to
get up and leave so i could take a seat and fucking almost nobody got up to leave and i was
like they all had the same idea they were just getting there early for your guys's panel and i
was like holy crap nobody got up to leave i was so mad i had like squeeze in real quick i saw an
empty spot and i snuck in and got a seat yeah it was wild people were like sitting on the floor
Yeah, it was like crisscross.
They were lined up.
It's like totally nuts.
Yeah.
And Ben, to your comment, it's so funny.
I mean, one of the comments that almost everybody led with was, I feel like I know you, but you don't know me.
And it's like almost everybody led with that, which is just so funny.
It's like you're meeting all of these people.
It's a very, very humbling experience.
You know, we just talk about Bitcoin finance.
This is the biggest story in all of finance, to be fair.
So, you know, I get that there's a lot of attention on it.
But it does feel like Bitcoin market is evolving, right?
I mean, at the Bitcoin conference, it was very clear that big finance was there, right?
Like in the backstage whale area, you know, capital providers everywhere.
You know, I ran into people that were in all of the pipe deals for the Bitcoin treasury companies.
I ran into CFOs. I ran into convertible bond arb traders. I ran into CEOs of custody companies.
It was very clear that there were like bankers, right? Bankers were there. And it was very clear
that this is evolving into a new system that includes the traditional financial market landscape.
and all of these people are seeing opportunity in this market.
And there's capital coming in the door from that perspective.
It's going to get bigger, right?
There's thousands, believe it or not,
there are thousands of very smart people
in the traditional financial world
that have not figured out Bitcoin yet.
And when they do figure out Bitcoin,
they're going to be here
and they're going to be putting their foot on the gas
because they're going to have access to capital
and they're going to be doing the same stuff.
And this is going to get so much bigger because success breeds more success and people will follow success.
And we're seeing it now with strategy, right?
And I think that's why we're seeing Bitcoin treasury companies pop up.
We see a couple of these companies like Nakamoto and ASST, Strive, raising, you know, $700 million in a couple of weeks, which is just crazy.
That's just a crazy amount of money to be able to raise in a very small time period, right?
If you were like a startup biotech and you wanted to go raise $700 million, it might take you years.
And that just shows you the scale of the opportunity of people that are trying to dive into this landscape right now.
So a lot of opportunity.
The landscape is evolving.
It's becoming very different than I think it was in the past.
a little bit less crypto anarchist and shifting into portfolio managers and bankers and people
chasing TradFi opportunities. I did also appreciate that there were some people that
said we shouldn't be there because, you know, we cover MSTR and not Bitcoin. That made me laugh.
I love that we have all sides of the coin, you know, it's fun. Yeah, but this is important,
right? This is super important, right? We're talking about the single largest buyer
of Bitcoin in the entire market and how they're restructuring the capital environment.
We have a yield curve on Bitcoin now, like a capital yield curve on Bitcoin.
And you're going to be able to compare that yield curve to other yield curves or the US
treasury yield curve. That's just like totally reframing how the entire market will operate.
and yeah it'll take a while and it'll change but i mean this is this is just going to get so much
crazier well that's the thing with bitcoin right i mean you know bitcoin isn't owned by any one
person it's got released to the world the world gets to decide how bitcoin's utilized so even
though you've got a lot of the purists and you got a lot of the ogs that were there at the beginning
like you can have an idea but the market dynamics are going to win and the people and the people
the capital that are transferring and siphoning that capital into bitcoin are going to ultimately
decide what it looks like i mean that's what markets do so you need all conversations that
are there even the ones that you know people don't like whether that's ours or other ones
right i'm sure there's plenty of conversations that a lot of us you know wouldn't have thought
needed to happen there but you know so what right that's what the ecosystem is it's broad everyone
gets to pick their flavor now figure out how bitcoin becomes a part of your life and what's
important is that Bitcoin does become a part of your life. That's what you need to happen at the
end of the day. So everyone makes that journey their own way. But recently, it seems like a
massive top of funnel for people getting orange filled is coming through the equities market.
And that's a massive service to Bitcoin because that's how people are finding spot Bitcoin
holdings and taking them into self-custody and really going down the rabbit hole. So
it's a different phase of marketing for Bitcoin. It's not just happening. And Reddit,
chats and 4chan and you know the deep corners of the web anymore it's mainstream and people are
making a ton of money in the equities market and then they're going man now i got to figure out
where to put some of this money you know what asset should i be saving this in and then you
go down the bitcoin rabbit hole next thing you know you're buying hardware wallets from every
provider you can find and you're nerding out in your basement and starting nodes and running minors
and doing everything bitcoin has to offer so whether people like it or not bitcoin treasury
companies are here to stay and they're doing a huge amount of orange billing in the retail investor
community and i think that's a net positive for this whole space i went to the dentist today and
they were talking they know that i'm like a a bitcoin influencer and they're like what's going
on with the bitcoin like i still don't get it and i was like just buy strk my financial non-financial
advice to just buy strk you know you got upside and downside protection and uh it was just it was
easy to say that it's like okay here's a ticker right like go to your brokerage account and like
you can access this ticker and uh to your point ben i mean it's just getting you got to meet the
investors where they are right like fixed income investors aren't going to go buy bitcoin bitcoin
was just thought fixed income investors were just going to go buy bitcoin because it's better
well no it's not going to happen right like they can't they like literally can't because they have
liabilities come up coming up on the horizon they like literally couldn't but now i'll just i i use
this analogy a little bit earlier like imagine a fisher a fisherman in the middle of the ocean
going fishing for halibut right halibut live on the bottom like the sea floor right um trying to
get a uh a fixed income investor to buy bitcoin is like having a fish hook like hanging on the top of
the water in the ocean it's like yeah a halibut's never going to come to the top and buy the fish
hook you need to drop the fish hook all the way down to the bottom so you can catch the halibut
and bring it all the way back up to the top and like that's what the fixed income products that
mstr is creating are providing it's like you got to meet the investors where they are you
got to create the products that they can consume in the wrapper that they they are used to in order
to get these people in the door that's ibid that's mstr that's all these bitcoin treasury products
it's strk strd strf right like all of these instruments are created to hit and and meet
the investors where they are and that's the that's the real unlock of what's happening it's like
it's like translating bitcoin right it's it's translating bitcoin into a a language into a risk
framework into the that they that they can understand that's accessible and that feels
comfortable yeah language I had read the the release on STRD three times through
and I'm still like still trying to figure it out and my wife's like well you
know well what do you what are you so you know why so obsessed with this right
now you don't mean I'm like this is our job like we have to we have to figure
this out if I'm if I'm gonna explain this to somebody else I have to
understand it. And so I'm still talking to her about it as we're boarding the plane.
And as I'm talking about how they're offering this dividend, but they can just not pay the
dividend if the board votes in a certain way or whatever, I can visibly see the guy in front of
me getting interested. And he starts like turning around, even though we're going this way, he starts
turning around to face me. And he's like, oh yeah, they do that all the time. All of these dividend
you know offerings they'll just they put that clause in there just in case and you know i was
like man i should really just launch into like my orange killing moment you know at this point but
it was just kind of cool because talking about this type of product this guy was super interested
in and there's no way in hell he's ever has the slightest idea what bitcoin is so it was cool
exactly what you're saying is just attracting uh you know people to the products
Yeah, the chasm is too big, right? You got to shrink the chasm, make it just easy to jump across,
which is just crazy to think about. But I mean, you got to meet the people where they are. And
that's what's evolving in the market. Shall we shift gears and talk about BTC treasury companies
just a little bit more broadly? Because there are a lot hitting the marketplace. And I think a lot
of people are asking questions on how to do these things. We kind of speak broadly on this kind of
merger ARB concept, without going into details on any one of these, because we don't want to get
into any legal ramifications. But there's these opportunities where investors have the ability to
invest in these Bitcoin treasury companies pre-IPO. So these Bitcoin treasury companies,
they're getting access to the publicly traded market and they want access to the publicly
traded market. So they have access to these different capital environments, right? They want
access to the passively traded index fund ETFs. They want access to the convertible bond market.
They want access to an ATM. They want access to create preferred shares, do all of those things.
And the best way to do that is as a publicly traded company, that's highly liquid, right?
If you've got a really highly liquid asset that you're holding on balance sheet, it's great to
have it in a publicly traded wrapper. So you can have a highly liquid publicly traded instrument.
So a lot of these companies are going out to market and raising capital very quickly
to either go like reverse merger or SPAC, special purpose acquisition vehicle,
special purpose acquisition corporation. There it is. And they are able to take these private
companies and make them public in a short timeframe. So that's the reason for a SPAC.
That's a reason for a reverse merger. And the capital that's coming in the door via Pipe,
this is a private investment in a public equity, is accessing or providing capital to these
companies so they can go IPO. And when the companies merge, when there's this private
company merges with the public company, all of the shares and all of that capital is now liquid
in the market. So you've effectively got two companies and generally the company that's
already public is like a very small company. It's just a shell of a company that's small in size,
small in scale. And you have a lot of capital coming from these private companies. And now
you take this really small company and make it a really big company. So what's happening is,
You know, some of the small pieces of these companies, it only represents, you know, maybe one to 5% of what may actually be trading within the market.
Once these deals do close and all of the capital is potentially trading in the market.
Pause there.
Any guys want to add on to that?
Yeah, I would just say with these target companies for reverse takeovers, typically what's happening is you see a lot of this in the medical space where they might have been going through something like clinical trials and then they didn't get through the clinical trials.
So now the business is effectively dead.
But what's really valuable about that is that it's a publicly traded entity.
They have a reporting history with the SEC.
They have shelf filings that are available to them.
And that's what makes it a really expedited way for a private company to get public and
to have access to everything that comes with being a public company.
Going through a SPAC process, usually it takes a little bit longer, probably seven to nine
months, you know, to get that fully closed and to get into the markets and to start opening up all
the products that you need. So that's a little slower. And then an IPO, you know, comes with its
own headaches. So a lot of people are going to RTO right now because it's the faster way
to get into the market. And because of that, you're seeing a huge amount of activity. And
when you're merging into these small companies, you know, they're usually nano caps that people
are looking for. So it's, you know, it could be companies with less than a $10 million market cap,
but they might be already listed on NYSE or NASDAQ or one of the big exchanges, which is a
huge advantage for all of these companies. So when the private company merges in to the public
company, the private company becomes the surviving entity of that merger. Typically, they'll take over
the ticker symbol, they'll take over the corporation, and then the stock will get split up
however they agree to do that merger. It might be that the public entity gets 5% and 95% is
the private company that merged in. But what you're seeing in the Bitcoin space is you're
seeing reverse mergers tied together with pipes, which take a couple of forms. It's usually an
equity deal where private investors are buying equity before this merger happens. And so that
gets done at a predefined price. And then usually there's like a convertible bond that's also
associated with the same transaction. So it's usually like a dual transaction, one parts equity,
one parts debt And a lot of times that convert still converts after the pipe is done in the public or the company public So that what you seeing happen a lot And I just kind of tossed that grenade out there on Twitter the other day and didn realize how
many messages I was going to get about that one. But there's a market for everything and there's
traders around everything. And one of those is merger arbitrage. And what merger arbitrage is
at the simplest of levels is investors come in and they invest in the pipe. So they've got shares
coming to them and they know how many shares are coming to them. You get these announcements in the
market, the stocks skyrocket. And then these guys that have allocations in the pipe will go out and
try to find shares to short so that they can lock in that gain and they'll close out that short when
their shares are delivered to them. So at the most basic level, you can think of that as merger
arbitrage, right? They're taking that difference between the pipe investment and what the market
reaction is to these. And what you've seen is those market reactions can be significant, right?
1,500, 2,000%, pretty good gain. The hard part is you can't always find the shares because there's
low float on the public entity, right? These aren't big companies with a lot of trading volume,
so you can't always get that short leg of the trade through direct short. So you might have to
go to things like total return swaps if you can get them, right? Let someone else go try to source
the shares on your behalf. You might be able to do it through forward sale agreements on the shares
you've got locked up in the pipe. You might be able to do it with derivatives. You might be able
to do it with basket hedges. I mean, there's all kinds of ways that these guys will use to try to
get that short leg exposure on this to lock in their gain. But it's just something to start being
aware of when you're seeing a lot more of these coming into market because it explains some of the
activity that happens out there in the equities. So the same way that we got used to things like
the pricing periods of convertible bonds, and all of a sudden that became an edge because people,
even after a long time of these happenings, still didn't understand that during those pricing
periods, there was a huge amount of shorting that was going on. And so those prices were getting
driven down so you could make short-term trades around the pricing periods that could be pretty
profitable for you. Now you're going to get some of the same things with mergers. And every merger
is going to be different. So they're all going to have different structures. They're going to have
different lockup periods. They're going to have different merger prices. They're going to have
all kinds of different nuance to them. So the intent when I threw that out there was not to,
you know, get people to start panicking about mergers or speculate on my investments because
I'm not trading anything around any of these mergers. So, you know, I'm not in this market,
But it's just something to be aware of because now we've got a new category of investor that's coming in.
And there's a lot of capital that's looking to get into these pipe deals because you're getting pricing effectively before they become public and they get that premium on them.
So there's a huge amount of capital and demand there.
You saw it with the Trump announcement and all the money that they raised.
And now you're seeing a lot of these follow-on investments happening and the size of the capital is just huge.
So with big capital comes big arbitrage opportunities.
And it's just something to start watching.
This retail community is going to have to get smart around these,
start watching the movements, try to figure out what's happening,
watch the short interest as it's opening up.
And these are going to be one of the tools you can use to explain what's going on.
And after we see a few of these,
we might start to see some patterns that become actionable as investments.
So that was the intent of me,
throwing that grenade over the wall and then going to sleep.
And then saying that Dan and Jeff would figure it out later.
You know, that was all I was doing was trying to just make people aware that this is a thing.
Merger arbitrage is very big.
It was kind of dead for a while because there wasn't a lot of mergers happening like this.
But all of a sudden now with all these reverse mergers happening, it's going to be back.
And it's going to be back in a big way.
So it's just a new concept for investors to get smart about.
There's a lot of speculation premium that's slammed into these tiny nano market cap companies right away. And that's the ARB, right? The ARB is this unknown element of what is the company worth. And that's what everybody's trying to figure out. That's what the speculation is trying to figure out.
And that's what some of the investors are interested in. They're interested in what the valuation is in the marketplace and getting a liquidity on initial investment. I mean, these documents are very long. Go look at some of the SEC. They're all SEC filings. You can go look at all of them. They're incredibly complicated, incredibly in-depth.
there's a reason I haven't spent a ton of time on them is because they are very very complicated
there's a lot of kind of froth that I think happens around them and I prefer to let something
personally I prefer to let something start to trade in the market a little bit more
you know deal once the deal closes once there's more transparency on bitcoin held
things like that in order to you know have an understanding of the valuation of the company
Like for me, I love strategy because of the transparency and understanding what a valuation metric may be based on, you know, the Bitcoin that they hold, that they hold on the balance sheet and the math that sits behind it.
So by far and away, my absolute largest position in the entire, in my entire portfolio.
Cool.
That's kind of, that's kind of all I had on the agenda here.
Should we talk moon math?
I updated my original spreadsheet on MNAVs for MSTR.
Might be something good to end on.
People have asked for it a lot.
Should we hit it?
Yeah.
As long as you don't listen to MNAVs for a three.
I have, we can go through it.
I have MNAV up to 40, just in case anybody wants that
with Bitcoin price up to a million.
So just throwing out some moon math
in case the market just decides to repress.
Kind of bearish, Jeff.
Yeah, MNIV 40, Bitcoin a million.
MNIV 40, Bitcoin a million, MSCR trading at $81,000.
Yeah, that would be pretty crazy.
But, hey, anything's possible.
You look at how frothy some of the MAG-7 valuations are, the PE multiples.
You look at their multiple of book value, and you start to reflect on the comparison.
of the two, right? Like in my opinion, and I've tweeted about this, is like digital capital is the
final frontier, right? Like all of the mag seven companies, where do they store their value?
Right. All the, all the earnings that they have every year, where does it go? Like,
what do they do with it? And the answer is they do stock buybacks or they invest in R and D
or they hold it in cash for a future point in time or they dividend it out.
And now you have another option.
You can buy Bitcoin with it.
And if the market starts to shift to like what, you know, how do you value this company?
Well, it's a function of how much Bitcoin you have and how much Bitcoin you can continue
to have into the future.
And if all of these AI companies that are at the top of the publicly traded leaderboard
start, you know, using Bitcoin as their store of value, then that just makes everything
kind of grow and that puts strategy into this new stratosphere of potential valuation. So
I think anything can happen. And I still think, you know, like I do think the rest of the equity
market is probably mispriced. And I do think that strategy is also undervalued and underpriced.
So is the MNAV of 40 possible? I think there's a probability, there's a probabilistic scenario
greater than zero that it could happen. So that's why I put it out here. But even just looking at,
you know, some people talking about 150,000 to 250,000 Bitcoin price in 2025, or I think Tom Lee
threw out well above 200,000 in 2025 on CNBC the other day. So let's just say 250,000 based on
580,000 Bitcoin held, $10.1 billion in liabilities, about $51 billion in net assets,
trading on a multiple of net assets of around 2.07. The peak in 2021, the MNAV in 2021,
when MSDR was included in the S&P 600 at that point in time, was around a 6X MNAV.
So $250,000 Bitcoin price around a 6X MNAV, you're looking at something around 2,900 per share for
MSDR. And that doesn't contemplate the additional torque of any of these instruments, right? And
And where that would come into play is this publicly available float wouldn't increase
very much, right?
The MSTR publicly available float may stay relatively static and may not grow very much,
but the amount of Bitcoin held on balance sheet may grow drastically.
That's the whole point of this Bitcoin torque is you're getting more Bitcoin in the door
for less shares that are trading out the market.
So you got to love some moon math.
We'll see where it goes.
I mean, $500,000 Bitcoin price, you see these numbers get pretty nutty pretty quickly. And
we haven't seen mania yet, right? You look at any Google search trends, you look at Bitcoin,
you look at MSTR, we're still very quiet. IV on MSTR is still incredibly low. The possibility of
S&P 500 inclusion is decently high with the price of Bitcoin at $105,000. Here's my earnings estimate
that I put through a little bit earlier. I think we talked about this two weeks ago.
with a Bitcoin price today at $105,000, you're still looking at a $12.3 billion gain before taxes
in Q2. That would clear the hurdle by $7 billion of having positive net earnings over the last four
quarters combined. And even if the price of Bitcoin goes down to $96,000, MSTR still has
positive earnings over the last four quarters of $1.7 billion. So we've got a lot of clearance
there. I think there's still some, we've got what, 26 days left until the end of the quarter,
and we'll have more certainty on what that looks like. But if the price of Bitcoin continues to
rise into the end of Q2, this could be a very, very positive result, thinking about speculation
for S&P 500 inclusion and what's on the horizon. So I continue to be very bullish. I continue to
be bullish on these new instruments that are hitting the market, right? Strategies going to
IPO STRD. STRD will generate, I mean, they're seeking $250 million in the IPO. I suspect they'll
probably get anywhere from $250 million to $500 million on this product. And that will probably
be announced in the next week or so. And we've got also ATM happening throughout the week, the
triple threat, quadruple threat on the horizon. So I'm bulled up.
i'm i'm excited here any else final thoughts maybe we'll pass it around over to you i saw someone
post a ticker that was strs and it stood for stress and i think it needs to be like the ultimate junk
bond where live at the end of every quarter they come on and they spin spin a wheel with 10 slots
but only three of them have a yield in it and the rest are zero and so the highest yield is like 20
percent oh my god you could get a live stream on x you know that we can invite them on the show if
they want to come on the show and do this and people have to sit there and be stressed that
they might get zero yield on this all year but they might hit it big one quarter so it's like
the 1080s of preferred yeah exactly you know we'd all hold them just waiting we'd try yeah
the 1080s of perverts your dividend is a 1080 your dividend is 11080 call
dividend out the deepest call option for one month out that you can get out get your hands on I like
it I can't wait till the day when the 1080s are no longer just in the money but it's a conservative
yeah exactly like i'm just buying 1080s yeah well i mean 1080s will exist again after a stock split
instead of my that's true my next ticker was strv starve you get a one percent dividend so
you can eat ramen noodles and then you know you get a 1080 expiring this friday
yeah one each week i gotta go buy that ticker from matt cole if they want it so
you know that's true it's available people are probably out reserving all the str tickers they
can get their hands on right now because it doesn't cost you anything to reserve a ticker so
i just pumped strv it's gonna open up locking those babies up right now
yeah if sailor didn't already lock them all up my hunches he went and did that for himself right away
well he's already he's already used 11 of the letters after str so you know you only got so many
yep it was funny i i posted today it's like i think mstr i think they will announce a one or a
10 sat dividend perpetual preferred perpetual and dylan responded well that's mstr it's just tax
advantaged and you get the bitcoin per share and i was like oh you know it automatically reinvest
the dividend for you yeah yeah it's been saying this it's a drift yeah it's just a bitcoin dividend
that's how you have to view it it's a bitcoin drip and in a tax advantage tax advantage bitcoin drip
yeah it was it was perfect i was like that's a fair response and he's like he's got the sniper
you know sniping me from behind it was yeah it was amazing anyway uh dan final thoughts um
This is really exciting. All this stuff is super exciting. Give us something to look into and I think it reinvigorates our interest in the equity. So yeah, it's awesome.
Did you ever think you'd be a bondman, like a bond trader?
Yeah, it's so interesting. Like, no wonder all the sharpest people are in bonds. This stuff's fascinating, I think.
Oh yeah, the world's changing, right?
They went from 1080s deep out of the money to fixed income maxi.
Yeah. Now I'm levering up on preferred stocks. I'm like, this is great. It's up 1% every day.
Best thing ever.
All right, guys, forget full gamma. What you really need is a fixed dividend payment every month.
Have you ever thought about just getting 8% every year?
Dan and I were actually, we did a model this week of like levering up on Strike.
and it's a pretty cool opportunity.
Maybe we'll share that next episode.
We kinda, like as we were doing it,
Stride came out, so we were like, oh, forget this.
We need to, like literally as we were doing it,
We're like, oh, God damn it.
We have so much to learn.
Let's go learn about junk bonds for the next day and a half.
If you haven't watched the Stride presentation, go watch it.
What is it?
50 minutes.
Watch it on one and a half speed.
Spend the time.
Do it.
If you're here listening to this two-hour thing and you haven't listened to the SDRDD presentation, go do it.
It's fascinating stuff.
Listen to the credit ratings.
listen to how they're thinking about it uh totally illuminating stuff so late final thoughts
yeah i'm gonna double down on that go listen to it and shout out to tim because i think he scooped
it back when he interviewed fong lee and he straight up asked him would you guys consider
you know buying the stock back and he's like yeah we'd have to think about it and look if it made
sense and you know he was just holding his cards like they had to been
developing this all along and to me it was just the checkmate move I was so
psyched once I finally understood what it meant you know for the bear market because I think we were trying to we never got that like the uh you know whether the cycle happens or not and it the most bullish thing that i can imagine
if bitcoin you know continues the four-year cycle but strategy has this lever that they can pull
i i couldn't be more bullish right now bingo yeah i'll i'll hop in there yeah premium agnostic
uh perpetual bitcoin yield like wrap your head around that that's that's what i've been wrestling
with um other than that i think right now it feels really quiet and if you're here like if you got in
during november and you're still here and you're still watching you're still paying attention
good for you because this market is just it's designed to shake people out and only the the
concentrated and dedicated, survive.
So I think we're having a lot of fun.
I'm learning so much every day.
New products come out and it, you know,
expands a whole world of finance
that I'd never even considered to look into.
So I having fun And I think this summer and the rest of the year is gonna be be there going to be some fireworks And if not we just know that the fireworks are coming
It's on the horizon.
There's so much trash, fixed income out there that just needs to be repriced or come into Bitcoin and these alternative products.
Right.
Completely agree.
It's so funny you say that, like, if you've been here since November, you know, good for you.
I was messaging with Gladiator today and he said, it's only a matter of time until it erupts,
but it could end up testing our patients. And it was so funny. It's like, dude, I've been in this
trade since 2023, like late 2022. I even bought it in 2020 and 2021. It's tested my patients the
entire way. I just had a one options trade with 100% of my portfolio for a year and a half.
It's like, yeah, I could wait a few months to see how this stuff plays out and how this evolves.
right like this is a it's the most exciting time to be in this trade and um i think it's going higher
yeah there's a lot of what's he working on because he left mstr then he went to the game he's back
you know who else is back he max margin on preferred equities like dan yeah yeah
i want to say uh shout out to ryan because ryan was at the conference he's been more active online
he just did a uh a thing with anders and brian and just shout out to ryan it's good to see him back
and it's good to you know hear his voice and have his analysis and uh we all love ryan and i know
he's asked for a lot and he's back. He's back. So it's good.
Good to see him out there in Vegas, man.
He's in the zone. He came to the True North meetup event. Yeah, it was great.
It was awesome.
Yeah. Ben, final thoughts?
No, because if I do, I'll go on another rant and none of us will ever get to sleep.
I'm the one that needs to get to sleep here. So I'm good, man. I'm bowled up.
Bowled up.
Good to go.
All right. I think we're all bowled up.
Let's go.
Yeah, there we go.
All right. Appreciate everybody for the time and great to see everybody out in Vegas. Thanks for hanging out and listening to Stride. We'll have more content coming out on the horizon. I think we'll be back next week and a lot of things to be excited about. So let's go higher.
Thanks, guys.
All right. Cheers. See ya.