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Somebody once told me the world is gonna roll me

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I ain't the sharpest tool in the shed

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She was looking kind of dumb with her finger and her thumb

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In the shape of an L on her forehead

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Well, the years started coming and they don't stop coming

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Fed to the rules and I hit the ground running

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Didn't make sense not to live for fun

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Your brain gets smart, but your head gets dumb.

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So much to do, so much to see.

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So what's wrong with taking the back streets?

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You'll never know if you don't go.

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You'll never shine if you don't glow.

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Hey now, you're an awesome...

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Woo! We are back.

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Episode 43, True North.

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We have got a great show for you tonight.

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And I'm going to be hosting.

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Jeff is in the building.

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for some reason. He was adulting today or something and asked me to do it. I guess he

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kind of assumes since I have no job that I got nothing else to do. Kind of rude, to be honest.

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But we also have Tim Kotzman. We got Mike. We got Dan in the house. We've got a great agenda for you.

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we are going to be covering uh s&p ratings uh whether they're good bad or indifferent we got

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labor we got layoffs we got macro tailwinds we got the four-year cycle fallacy we got the five

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pillars of bitcoin treasury companies uh but we will go ahead and kick it off with leverage as per

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usual and then get into underwriting bitcoin risk probably so jeff is already sharing so take it away

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Let's get into it. Yes. Episode 43. Thanks for kicking us off, Soleil. As usual, we start

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off with the leverage update and we jump into the amount of Bitcoin held. Actually, before

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that, let's kick it over to Tim for not financial advice.

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I almost interrupted. I was going to interrupt and say, Jeff, can you really talk about leverage

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without saying, ladies and gentlemen, what you're about to hear might be interesting,

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but it's not financial advice.

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The host working for free is overpaid, apparently.

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It's for entertainment and informational purposes only.

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Back to you, Jeff.

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Thanks, Tim.

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Okay, and for those that are new here,

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this is True North, the investment grade Bitcoin podcast.

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We're here talking about strategy.

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We're talking about Bitcoin treasury companies.

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We're talking about securitization of Bitcoin,

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how this market space is evolving.

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We talk about digital credit.

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We talk about leverage.

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We talk about business models, architecture of markets, macro, and we try to hit everything under the sun.

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Obviously, there's so many things going on here.

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We could talk for hours on each one of these individual topics.

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So we're just trying to hit the high level stuff as quickly as possible and get into some deep thoughts on the market space here.

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So we kick off every week with the financial leverage.

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So looking at strategies to leverage, how it's changed over time, and to really showcase the

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strength of the balance sheet here. So the strategy holds 640,808 Bitcoin. I think they

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added somewhere around 300 Bitcoin this last week, purely from perpetual preferred equity issuance.

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The price of Bitcoin as I made this was about 110,400. It looks like it's still about there.

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My strategy price is $275. Bitcoin assets held on balance sheet. So they've got $70.8 billion

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of assets held on balance sheet, $8.2 billion of debt. Notional preferred equity around $6.6 billion.

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So their net capital, their assets minus the debt is about $62 billion. Annual dividend liability

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is around $643 million. So the years of dividend coverage that they've got on their balance sheet

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is about 110 years of dividend coverage, just taking the net capital divided by the annual

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dividend liability. So really this is financial strength. Liability to asset leverage,

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liability to asset ratio, thinking about total leverage, they're around 21%. Again,

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I think strategy is now calling this amplification because the preferred equity on their balance

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sheet is equity. It's not debt. There's not a maturity. So it can be treated a little bit

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differently when you're thinking about leverage. The total debt coverage multiple is about 4.8.

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Looking on an as-if basis, if you pull the debt that's trading as equity off the balance sheet,

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you're looking at a 16.8% amplification ratio and a debt coverage multiple ratio of 6.0.

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So when thinking about what would the price of Bitcoin need to go down to for this business

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model to start to become a little bit concerning, the Bitcoin price would need to be less than $23,207

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for the assets to be worth less than the notional debt and the preferred equity on the balance sheet.

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So again, that's pretty far away. We haven't seen a price of $23,000 since November of 2023.

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What was that? November of 2022. Actually, it's been quite a while. Actually, about December of

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2022. So yeah, I think that the balance sheet looks incredibly strong here. And this is balance

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sheet finance. It's blowing people's brains a little bit, trying to wrap their head around

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utilizing this collateral for cash flow, I think they're doing this very efficiently and they're

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growing that model into the future using digital credit, which we'll dive into a bit more.

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When you think about the ability to withstand shocks on the balance sheet, the balance sheet

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is actually still very strong. If the price of Bitcoin were to drop 50% here, strategy would have

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$35 billion of assets on the balance sheet and not changing any of the debt or preferred equity

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figures, they would then have 55 years of dividend coverage. So when you're thinking about downside

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risk of the perpetual preferred equity, these things look incredibly strong from an over

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collateralization perspective, when you're looking at the ability to pay dividends, not necessarily

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notional repayment, but the ability to pay dividends. We can get into the S&P perspective

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there, but maybe I'll kick it back to you, Soleil. Yeah. I mean, I think the leverage

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There's been some comments like, oh, we talk about the leverage every time and it doesn't matter.

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We just want to talk about when number go up.

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But this is going to become very important when we talk about, when you talk about underwriting Bitcoin risk,

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but then also like the JP Morgan thing that we'll discuss later.

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So, I mean, if we don't have anything more to talk about leverage now, you want to just move on to underwriting Bitcoin?

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Yeah. So there's a couple of, maybe we start with S&P.

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Okay. Ratings.

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Maybe we start with S&P, the ratings. And we'll start there because then we'll get into underwriting Bitcoin. We'll get into underwriting the other instruments.

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But right. So strategy, let me just stop sharing my screen. Here we go. We got Tim front and center. This is great.

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so strategy was just rated they got an issuer credit rating of b minus recently uh earlier this

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week and the irony here is strategy got a b minus issuer credit rating within days after jp morgan

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said that they have they're accepting bitcoin as collateral total irony the irony is the smp

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when they put out their ratings framework, gave zero credit for the Bitcoin capital held on their

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balance sheet. Zero. So the $70 billion that we just walked through, the assets held on balance

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sheet, they gave zero credit. Yet the largest bank in the world, JP Morgan, is now accepting

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Bitcoin as collateral for loans. So there's just a disconnect between the S&P and what some larger

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banking institutions are starting to see. Now, I think this is some really, really downstream

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implications. I think the reason that they were, and I'm totally speculating, I think one of the

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reasons that strategy was given a B minus rating was because the yield that they have on the

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instruments that they're offering to the market is in line with other B minus entities. So if they

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were to give strategy a rating higher than that, you then have to question the ratings framework,

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the entire ratings framework. Why is this product that's paying a 12% effective yield

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have an issuer credit rating higher than all of the other high yield instruments in the market,

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yet the yields are the same? It starts to break the perspective of all of the other instruments

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in the market. And then you start to look at the other maybe investment grade products in the

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market that are paying, you know, six, seven, 8% effective yields. And they're not super over

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collateralized. Basically, the only way that the S&P was able to really back into the B minus credit

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rating was giving 0% credit to the Bitcoin as capital on the balance sheet. I think we all agree

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that the amount of credit that Bitcoin should be given is greater than zero. And if you give

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greater than zero credit, the rating goes higher, right? Like the rating absolutely goes higher.

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Just to put this into perspective, real estate when held on balance sheet is given 89% credit as

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capital. Bitcoin gets zero credit, real estate gets 89% credit. Big difference. So the fascinating

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part here is just doing some research. Like global real estate, I think average daily volume

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of global real estate is like $2 billion-ish, maybe a little bit higher. Average daily volume

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of Bitcoin is $50 billion. So if you think about liquidity profile, which is a better form of

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capital, probably the more liquid one. And then you think about real estate again, real estate is

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just regionally liquid and Bitcoin is globally liquid. You can pick it up and you can move it

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anywhere. Okay. So you now got two better check marks for Bitcoin over real estate. How often,

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how many days a week, like can you liquidate real estate at 12 o'clock PM at night? No.

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So you've got some discrepancies that I think are really hard to ignore

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when you're looking at how to rate these particular companies.

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Yeah, and I know some people are annoyed every time we say we're still early.

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It's like the battle cry.

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But if players this large are still fighting about whether Bitcoin is worth anything,

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that's not like late S-curve adoption.

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That's got to be early S-curve if there's still a battle about this thing.

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Yeah.

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Yeah. The other, I think reading the filing from the S&P is really fascinating too. The other thing

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that was interesting is that the convertible debt maturities did weigh on the rating,

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not necessarily the preferred equity, but the convertible debt in particular. And it was the

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verbiage around it. I think it was the convertible debt has more liquidity risk and the preferred

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equity has some liquidity risk. So just emphasizing that there's a different perspective

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of having this maturity at a future point in time on your balance sheet, as opposed to not having a

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maturity on your balance sheet as a future point in time. So you've got a whole different liquidity

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profile in the future. Clearly, the cash held on balance sheet and cash flow, like technical cash

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flow, I think has been a constraint, which I think is pretty clear with how this is written.

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But the fact that they give zero credit for the actual capital that they're sitting on the

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balance sheet, it seems insane because really the Bitcoin is the backstop for any of these

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instruments. Like, will they sell their Bitcoin? The preference would be not to sell the Bitcoin.

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You do everything in your power to pay the dividend or pay a maturity before you would sell the Bitcoin.

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Whether that's, you know, take out a different type of loan or sell covered calls, utilize it in collateral in different form, try to post it as collateral and get a yield in a different location.

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You would explore every option on the planet before you'd sell your Bitcoin to do that.

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So it's like Bitcoin is really the backstop of this whole thing.

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And really, they're chopping off the excess risk and they're chopping off the excess return and delivering this product to different pools of capital that want it.

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So I think we're still incredibly, I think we're just still incredibly early, right?

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Strategies has the same issuer credit rating as Chuck E. Cheese and JetBlue.

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Like I just, you can't make it up, right?

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Like that's, that's insane, right?

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You've got $70 billion of capital and you're getting the same rating as Chuck E. Cheese.

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And didn't, didn't the language on it kind of insinuate that they understand that he's

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going to keep stacking forever.

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And it was almost kind of like, we're going to continue to give you nothing the more you

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stack.

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So it's almost like, are they kind of giving an ultimatum or trying to, uh, I don't know,

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insinuate that they should sell the Bitcoin or do something to generate capital? Or am I reading

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too much into that language? Well, let's pull it up. Because they did give guidance, right? They

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said if they retired the convertible debt, that could result in an increased rating. Basically,

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they're not expecting a rating within the next 12 months, which I think is common, right? The

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rating agencies don't want to be seen as changing ratings significantly in any one direction. They

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did give them a stable rating, so I don't think there's going to be a downgrade at any point in

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time. But really, this is a big educational process for everybody, right? We're talking,

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I think a lot to retail here during this podcast and what we talk about, but there's a huge educational process that needs to happen globally to capital providers, different rating agencies, thinking about risk.

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You need to define risk.

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You need to shape risk.

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You need to calculate risk.

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You need to show the math and walk through it.

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Yeah, it's early days.

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Let me pull it up.

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I'm going to frame this a little bit differently.

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If your job is to give a rating to traditional bonds based upon real estate and some structure that's been in place for whatever, for 50 or 70 years, and then strategy comes along and does this with Bitcoin, and it's been around for 16 years.

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If you give it a really good rating because of all the goodness that we just talked about, but the problem is you then have to compare it to the other ratings that you have.

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Can you liquidate a billion dollars worth of real estate over the weekend?

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No.

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Can you transport real estate across the world?

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No.

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So when you do that comparison, any logical assumption is you have to then downgrade what

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you have on the other side in the physical world with something that's over here.

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So I think that the takeaway for this is that I don't think it's that we're early.

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I don't think they're allowed to make those changes, even if they could, because the $300

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trillion dollar bond market would rate down if you rate Bitcoin up. That's part of the problem,

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is that they're just not willing to do that yet. Now, you could assume, you could say,

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they're just stupid and don't get it. Or you could say they're smart enough to get it and

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they're just not allowed to do it. Or I think that there's a combination that's going on there.

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I hate using the word stupid, but there comes a point where it's like, you have to see this.

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Jeff, I wanted to go on a quick tangent here. When Blockbuster went out of business because

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Netflix put them out of business, we all knew that streaming was going to put Blockbuster out

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of business, except for Blockbuster. Blockbuster had $1 billion worth of bonds and it was

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collateralized with DVDs and leaseholds. I am not a good enough salesman to sell a billion,

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$1 billion worth of bonds backed up with DVDs. Having DVDs in inventory is like having a billion

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dollars worth of bananas. If you can't sell it in two weeks, they're all worthless. And that's the

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same thing with the DVD. Once you watch a DVD, it went from being worth $20 to a dollar at a flea

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market. How you could convince somebody, even if it's rated junk, to buy DVDs in a bond,

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breaks reality in 2010. This is not like old days. And so I think that that's part of the

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problem is that they were able to sell junk because it had a rating on it. And so when this

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happens, I think that when strategy got a rating of B minus, and finally when their prefs get a

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rating, it's pretty much going to rock it up. The only question that exists is how long does that

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take? Does that take three months, six months or a year? That's the only question.

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So are you saying that if they gave them a higher rating, that would be like an indictment on the

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rest of the bond market? It would have to be.

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Like a rug pull on just everyone else?

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It would be a rug pull because then you would admit that real estate is not fungible. Real

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estate cannot be liquidated over a weekend. Look, if you do a real estate transaction,

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the best that you could do it if you pay all cash in California is approximately 14 days.

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Because you have to go through all the paperwork to go do it. But you could sell a billion dollars

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worth of Bitcoin in what, 10 minutes? You could do it in 10 seconds, and then it takes 10 seconds

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for the blocks to confirm it. And it's 24 by seven. You would have to ascribe some value to

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that, which we all know. So I think that's the takeaway that I'm talking about. Why wouldn't they

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have to take a hit on the rest of the collateral.

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Everything would have to get repriced.

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Everything would have to get repriced.

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So is it just more?

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Yeah, go ahead, Tim.

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Just one, like, I think this is a huge point.

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Anytime I got a B minus, I was pretty excited.

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Like anytime I got a B minus, I was like through the roof.

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Yeah, yeah.

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That's actually pretty good.

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Did you ever get a triple B minus?

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I have to think back.

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Yeah, I did a little grok-foo.

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And yeah, I mean, nobody's got...

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Yeah, go ahead.

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I want to chime in here.

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This guy, Mike Placid, I get what you just said.

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You can't rate something you never sold.

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Think about the negative feedback loop here is.

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If Saylor sold, right?

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Let's say he sold, he sold whatever,

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$100 million worth of Bitcoin just to spite the S&P

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and say, look, what you can check the price on

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in anywhere around the world in 24 by seven

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to prove to you it's real,

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I have to sell it and potentially trigger a taxable gain

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to prove it to you it's real.

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And you know what I say to those people?

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They could kiss my ass.

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And you know why they could do that?

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I'm going to be clear about this.

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It's because I make money by holding Bitcoin

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or Bitcoin derivatives.

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And then when I have to live, I sell some of that.

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And then I pay taxes.

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IRS has no problem with that And then I have to check off the question on the top Did you sell any digital assets this year Yes The IRS has no problem with that at all but I got to convince the S 500 that this is real because I triggered a taxable event

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just to show you that it's real. They could kiss my ass. Yeah. Be on the lookout if strategy

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changes their IRS withholdings to last in, last out. They can just put the orange dot on,

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take the orange dot off, put it right back on the next week. Right. That's like saying,

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oh, my house has a value. Let me tell you how preposterous what Mike Placid is saying. I'm

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going to beat up on him because if, by the way, if somebody ever wants to do a space with me,

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DM me, we'll do a space. We'll have a thousand people on the call and you can answer questions.

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If I have a house and I live in it for 30 years and it appreciates, right?

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It doesn't have any value until I sell it, but it'd be better for me to give it to my kids

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after I die because they get the step up value in it. Everybody knows this, but I should sell it

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first to prove that it had value, me trigger the taxable event and then give the cash to my kids.

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Now, that's not what anybody does. And it's not financial advice, but people don't do that.

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That's the whole idea behind- Buy, borrow, die.

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With the step up value, you don't sell it and trigger the taxable event.

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Yeah. Buy, borrow, die. It's like the strategy of rich people.

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right and you do that and you hand it off and by the way they have no problem doing the step-up

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value and evaluating and you look it up in zillow there's the value of a house that's your step-up

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value and there you move on with your life so yeah i keep coming back to this like real estate

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perspective of like you've got this every i saw it on linkedin which is just the the classic place

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to see some stupid stuff. They were saying, well, Bitcoin doesn't have any yield. And they're like,

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real estate has yield. Well, real estate on its own does not have yield. If you just hold it and

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you don't do anything to it, it doesn't have any yield. You have to put energy into it.

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You've got to plant seeds and harvest the seeds and sell your produce.

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Jeff, I'm going to be a little bit more specific on this. Your real estate has no yield, no income

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yield if it's your primary residence. If your real estate is rented out, then it has a yield.

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A typical cap rate in California is less than 5%. All you have to do is ask any real estate guy,

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what's your cap rate? And it's typically always going to be under 10%.

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And now that assumes that the person on the top floor doesn't break the toilet and have it flood

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that one below and then you got to pay to fix all this and have an insurance claim real estate and

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you have to make sure the people pay you so the idea behind this and we're we can get into the

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prefs if i've got stretch and it's paying me a 10 and a quarter percent coupon every year and it's

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return of capital and i don't pay taxes on it right but i got a five percent cap rate on a piece of

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real estate and it's taxable that doesn't sound like a lot of fun it sounds like a lot of work

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to make a little bit of money am i missing something no no no not at all you kind of

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shifted shifted to the other to their side of the table there but i guess really what i was getting

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at is right bitcoin on its own real estate on its own doesn't have any yield if if it's not doing

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anything if you're not putting energy into it to get output out of it bitcoin on its own it doesn't

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have any yield if you're not putting any energy into it to get any output out of it okay now you've

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got a corporate structure corporate balance sheet structure and you've got all of this bitcoin held

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on your balance sheet and they're putting energy into it, risk management, and they're generating

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a yield off of it by selling securities. They are harnessing the yield of the Bitcoin

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by selling securities. And that is like the same concept as putting energy into real estate,

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hiring somebody to rent it out and manage it and take care of it. Same concept. They're just doing

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it with risk management and designing and creating and selling a security.

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I agree with that. I mean, it ultimately comes down to this idea of like BTC USD arbitrage,

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CAGR arbitrage. If you think USD is ever declining in terms of Bitcoin, or if you think the

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inflation rates higher than that, you know, stated by core CPI, then that relative to Bitcoin's

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price appreciation is ever declining. So then the logical kind of coordination or interaction

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between a Bitcoin security and a USD security is that the USD security is melting relative to the

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Bitcoin forever. So I think that's the big idea. But I mean, to subscribe to that ideology,

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I mean, you have to believe in Bitcoin. If you're saying Bitcoin is going to have a significantly

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higher than 10% CAGR into perpetuity, you're essentially saying it's going to be the top

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performing asset over the next 20 years guaranteed. And that's a crazy statement for like a normie

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to wrap their heads around. You're saying it's going to smash the S&P. You're saying it's going

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to smash the NASDAQ. And I think most credit agencies and just individuals in general aren't

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willing to accept that fact. But I think the really important and the best way to sell these

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sorts of pref securities to a potential investor is kind of what you say, Jeff. It's like, oh,

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they have a hundred years of dividend payments. So even if the CAGR arbitrage doesn't come to

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fruition, an investor may still want to purchase these securities because they're going to get the

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yield for the remainder of their lifetime likely. And if that arbitrage CAGR doesn't in fact

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manifest, doesn't work out, then the issuing corporation is taking that hit, that arbitrage

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hit. So I think it's a cool, you know, strategy takes on the risk. So they get leverage on the BTC,

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the investor that buys the preferred securities get the over collateralization threshold.

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Like think about it, right? When a bank gets reserves, they go lend them out 10 to one.

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Whatever the reserve ratio is, it's about 10% for a bank. Whereas strategies completely flip.

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They're lending out, for example, or they're issuing credit against 20% of their stack.

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So it's extremely, extremely safe for the credit purchaser.

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And then, you know, strategies taking on the directional risk of the Bitcoin.

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So it's a good setup if you're a Bitcoin bull.

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Yeah, it's hard to wrap your head around if you're a normie, for sure.

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For sure.

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Yeah, and it just seems like a crazy bet that they're making because Bitcoin doesn't seem productive, right?

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Like in a lot of people's minds.

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I mean, I find myself falling into the same trap, and I think a lot of people do.

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Like the allure of 1% return per quarter, right?

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From real estate, 2% per quarter in terms of rent in real estate.

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It feels like it's productive, right?

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Whereas Bitcoin's up and down and chopping and doing nothing.

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And it's brutal and everyone TAs and you feel like-

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But it's directionally, you know, what am I doing this right?

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You know, it's directionally that way.

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Exactly.

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And so if that's the case, then it feels a lot worse.

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but you're actually getting a much higher return than you would be with any of those stable

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sort of yielding products. So that's why it's hard for people to wrap their mind around.

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And the really fascinating part with the real estate comparison too is

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most people, I mean, people hold real estate for yield, but the wealthy people hold real estate for

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the store of value, right? They're holding it for the store of value. Like if you're holding

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large pieces of real estate or large blots of land or, you know, they're holding it for the

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store of value and the capital appreciation, like the leveraged capital appreciation.

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The yield is a much smaller component of that. They're holding it to store their value for a

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long time horizon, right? Like that's, there's a reason a lot of the real estate, like prime

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real estate doesn't turn over. It's very illiquid. They're holding prime real estate

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to store their value there.

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so what is it gonna yeah go ahead mike yeah i'm gonna chime in on this um from from where i live

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there there's a very large tower that's probably 40 years old and i took a picture of in december

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and then i took another picture of it just recently put the two pictures side by side

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um and and i told it what the dates were in both pictures and i said assume that all of the if the

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blinds are drawn in both pictures nine months apart then that means nobody was in that apartment

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in nine months? Because just statistically, how could that happen? And so in San Francisco,

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and this is in, that building's in Pack Heights. I'm not going to say where I live. That building

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is a prime piece of land at the top of a hill with a view of everything. And 40% of the building

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is empty. 40% of the blinds have not opened in nine months. Now, why do people buy something

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that they would never live in it? And of course, they'll probably be somebody,

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oh well san francisco is terrible well they bought it as a store of value but the problem is it's a

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40 year old building and the ho fees are probably pretty high on it now so that became a store of

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value that nobody lived in it it may be hard to sell so while it was probably a good idea when it

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was brand new and and dan you're now down down you know in miami there's a lot of condos that were

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bought as stores of value from people out of the country people buy real estate because they think

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at some point in the future they could sell it for a higher price and if you buy a marquee building

354
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you're probably in good shape but that marquee building 40 years later is a 40 year old building

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it decays it needs new elevators it needs a new roof it needs a new pool and so that not to mention

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grin like the all the systems in place to to borrow uh from banks to purchase the real estate

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itself right like for you you want to sell your equity holdings but you want to start

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transferring them into a real estate asset. You can take a mortgage out and start paying it down

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over time, harvest tax losses, you know, do whatever you need to do. So yeah, to your point.

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Right. So they built this whole ecosystem around real estate. Basically, that was a decision

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right after World War II to have families buy homes. The government made that. How did the

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government subsidize real estate? They made your primary residence, their mortgage interest

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deductible. They put a cap on it, you know. But anyway, with that said, they made it so people

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can go buy homes. But, you know, if you look at it as a rental market compared to buying a virtual

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asset, those are two completely different beasts. And for some reason, something that we see is

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simple. Other people see it as difficult. It's crazy to me that even with all of the tax

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benefits, mortgage interest deduction, 1031 exchange, holding Bitcoin and these Bitcoin

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yielding instruments are still outperforming any real estate holdings, which I think is

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pretty fascinating. But one thing I think I kind of want to shift to here is talking about just

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labor markets a little bit, right? Amazon just announced they're laying off 30,000 jobs. And I

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think those are corporate jobs. Amazon's got like 1.5 million employees, but 350,000 of those

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employees are corporate employees. So I think it's nearly like eight or 9% of their corporate

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employees are getting laid off across different sectors within the business that seem susceptible

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to AI. Now, granted, some of this is probably from overhiring during like COVID era, but it's

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it's pretty hard to ignore getting rid of 30,000 productive corporate white collar employees.

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And a lot of people have provided the feedback for strategy that they should acquire a cash

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flowing business. They've got to focus on their cash flow. And Mike, we'll roll into return to

378
00:32:47,418 --> 00:32:57,978
capital here. But what cash flows are safe 10 years from now? People are expensive, right?

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People are incredibly expensive.

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You've got to have health insurance for them.

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You've got to buy liability insurance.

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They're moving around.

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They're inefficient.

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You've got AI that's taking over jobs and moving around these days.

385
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So really, what cash flows are safe?

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Yeah, Jeff, I wanted to talk about that for a second because we had talked about this earlier in the week.

387
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So for the people that don't know, we have a prep call on this.

388
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So before we do these calls on Wednesday nights, we talk about this.

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And so I do talk to Jeff.

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And so basically what happened is Elon Musk did a tweet about Grokipedia.

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Grokipedia is an AI-enabled Wikipedia.

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So I basically tweeted about this, that basically the value of Wikipedia dropped 50% from one tweet.

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And I put that in the chat, GPT, and it said, you can't make that claim.

394
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And I said, no, you're not understanding what happened here.

395
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I said, if you're a, Wikipedia relies on an army of people, volunteers to manually go in and update everything over the course of 15 years or 20 years, however long they've been doing this.

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If that's been automated by a robot and you weren't getting paid for it and you know the robot can do it a thousand X faster than you and everything can be replicated through AI.

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The guy, Jimmy Wales, that's running Wikipedia, they asked him about this.

398
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It's literally the blockbuster playbook.

399
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Oh, we don't think that movies are going to be delivered over the internet.

400
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How does the internet work?

401
00:34:30,178 --> 00:34:33,438
You know, people drive in and go get their VCR, their DVD.

402
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And he doesn't think this is a threat.

403
00:34:36,858 --> 00:34:41,538
So one of the things by me being a tech guy out here in Silicon Valley is a term creative

404
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destruction.

405
00:34:42,938 --> 00:34:45,458
For the creator, right?

406
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Grokipedia by Elon Musk.

407
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That's the creative part.

408
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What did it destroy?

409
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Wikipedia.

410
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Jeff, when I talked about this with you, what was your, you're like, did this feel like,

411
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you know, the old days of the internet bubble?

412
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That's what you said to me, because I'm the old guy.

413
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I get it.

414
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I said, and then you're like, and then you told me a story about how you used to do your

415
00:35:04,198 --> 00:35:04,918
book reports.

416
00:35:05,078 --> 00:35:06,338
How did you do your book reports?

417
00:35:06,398 --> 00:35:10,418
I had the Encarta, like the CD-ROMs that I plug into my computer.

418
00:35:11,358 --> 00:35:15,838
And now, you know, it's Wikipedia is on the internet.

419
00:35:15,978 --> 00:35:17,698
And then Grokipedia just eviscerates.

420
00:35:18,598 --> 00:35:18,998
Right.

421
00:35:18,998 --> 00:35:23,318
right and just i went in and i typed in christopher columbus and it's like you know

422
00:35:24,038 --> 00:35:29,318
everything you could ever so right so this is where we get to the cash flowing businesses

423
00:35:29,318 --> 00:35:34,918
so they used to print encyclopedias i i saw those my parents bought one when i was probably five

424
00:35:34,918 --> 00:35:41,318
years old they were printed versions of it then it went to cds and dvds and then it went to

425
00:35:41,318 --> 00:35:46,998
wikipedia online and now you guys are going to watch in a business you know when we talk about

426
00:35:46,998 --> 00:35:52,278
the old days there used to be sears there used to be these massive stores it was an anchor tenant

427
00:35:52,278 --> 00:35:58,598
of real estate sears would be there amazon put them out of business done you guys are going to

428
00:35:58,598 --> 00:36:05,878
watch elon musk eviscerate wikipedia and they're not even going to be aware of it my question to

429
00:36:05,878 --> 00:36:11,558
you is if you can if you if you can use google or ai to look up something on the internet which

430
00:36:11,558 --> 00:36:17,878
do you guys prefer to use right now i don't even use google anymore i don't i i instantly i go to

431
00:36:17,878 --> 00:36:26,518
perplexity or i go to chat gpt and it's just i let it do the googling for me yeah it's just like

432
00:36:26,518 --> 00:36:32,758
totally insane it's so efficient so jeff going back to your cash flowing business this is where

433
00:36:32,758 --> 00:36:38,438
saylor said you know back in the old days in 2020 they had whatever 400 million dollars in cash

434
00:36:38,438 --> 00:36:42,758
they're like well we could have bought we had treasuries we could buy gold that didn't seem to

435
00:36:42,758 --> 00:36:48,038
be going anywhere they could have bought real estate but that was during covid so basically

436
00:36:49,158 --> 00:36:54,438
all real estate was repriced down to being worthless because everybody can now who effectively

437
00:36:54,438 --> 00:37:00,678
can work remotely so commercial real estate got crushed so it's like what does he put his money

438
00:37:00,678 --> 00:37:06,118
into and that was the aha moment for him was bitcoin and then the path that he's on so i

439
00:37:06,118 --> 00:37:11,798
think that what we've seen here is that go buy a cash flowing business that's a lot easier said

440
00:37:11,798 --> 00:37:16,998
than done for something that's going to have some staying power yeah there's only a handful of

441
00:37:16,998 --> 00:37:24,838
companies that have uh net incomes that are going up into the right in bitcoin terms as well everything

442
00:37:24,838 --> 00:37:33,638
else is going down into the right in bitcoin terms so what's what's more efficient also crazy uh

443
00:37:33,638 --> 00:37:36,518
crazy news today nvidia is now a five trillion dollar company

444
00:37:38,358 --> 00:37:44,598
four four four months ago it was a four trillion dollar company it was the first four trillion

445
00:37:44,598 --> 00:37:50,918
dollar company so yeah i mean this stuff this stuff is take nvidia is one of the companies with

446
00:37:50,918 --> 00:37:55,878
cash flowing business that is performing bitcoin it's actually going up into the right in bitcoin

447
00:37:55,878 --> 00:38:00,598
terms but it's one of the few yeah it's pretty nuts when you look at the broader market there

448
00:38:00,598 --> 00:38:01,838
There was a Kobe Essie letter today,

449
00:38:01,958 --> 00:38:03,458
Grant and I were talking about it earlier today,

450
00:38:03,798 --> 00:38:10,638
on the outperformance of the MAG-7 recently compared to the S&P 500, 493.

451
00:38:11,538 --> 00:38:15,718
And it's at the widest spread it's been in almost 40 years.

452
00:38:16,418 --> 00:38:19,058
So what that tells you is pretty much all the other companies aren't performing.

453
00:38:19,058 --> 00:38:21,358
If you look at all the macroeconomic indicators,

454
00:38:21,538 --> 00:38:23,298
the services and manufacturing PMIs,

455
00:38:23,978 --> 00:38:27,178
and just general performance of the Russell 2000,

456
00:38:27,498 --> 00:38:28,758
which I think is about to break out,

457
00:38:28,758 --> 00:38:32,378
But, you know, it's just a story of underperformance.

458
00:38:32,838 --> 00:38:40,198
So I think when you look across the broader landscape of like what to invest in, you've got Mag7, which have been doing quite well.

459
00:38:40,418 --> 00:38:42,538
Then you have Bitcoin, which has also been doing quite well.

460
00:38:42,558 --> 00:38:43,118
And you've got gold.

461
00:38:43,678 --> 00:38:50,738
So there's like debasement and there's productivity in a very select pocket of the economy that's generating shareholder value.

462
00:38:50,878 --> 00:38:53,078
And that is AI, right?

463
00:38:53,078 --> 00:38:59,418
So I think that story continues to become deflationary pressures across the equities market.

464
00:38:59,558 --> 00:39:01,318
So you got to pick the winners in the equities market.

465
00:39:01,538 --> 00:39:02,178
You got to pick the winners.

466
00:39:02,478 --> 00:39:03,458
You have to pick the winners.

467
00:39:03,658 --> 00:39:06,338
And like right now, obviously, you can buy the semiconductor ETF.

468
00:39:06,498 --> 00:39:10,738
There's a lot of different winners related to AI that you may be able to pick in the short term.

469
00:39:11,078 --> 00:39:15,558
But in the long term, I think picking those winners is going to be like extremely, extremely difficult.

470
00:39:16,198 --> 00:39:19,198
So you're going to probably want to be on the debasement trade.

471
00:39:19,198 --> 00:39:22,598
And I think that's something people are going to have to be OK with Bitcoin moving forward.

472
00:39:23,078 --> 00:39:27,158
is like you know i kind of prescribed like a power law growth trajectory and that's essentially

473
00:39:27,158 --> 00:39:33,878
a 38 kager going down to a 20 kager and 15 to 20 years and those aren't like that's pretty boring

474
00:39:33,878 --> 00:39:40,998
like when you actually get 30 kager like it doesn't go up a lot that's on average what is

475
00:39:40,998 --> 00:39:46,598
that that's like less than a that's like half a percent a week on average so like that's not a lot

476
00:39:46,598 --> 00:39:50,758
and um in terms of like volatility so i think people are gonna have to get start getting used

477
00:39:50,758 --> 00:39:55,878
to that and get back to that kind of long-term thinking um especially moving forward because

478
00:39:55,878 --> 00:40:02,358
clearly the booms and busts aren't behaving the same way they used to hey dan did you see the

479
00:40:02,358 --> 00:40:09,078
non-profit that's going to go out at a trillion dollar valuation insane yeah that's pretty insane

480
00:40:09,078 --> 00:40:16,198
that's a um anything ai is just like well yeah you just touch it with a you touch with a match

481
00:40:16,198 --> 00:40:20,758
it lights on fire i think um someone someone tweeted it was like the bull market's not over

482
00:40:20,758 --> 00:40:26,438
until ai until open ai goes it goes public i guess that's probably keep your levered lungs

483
00:40:26,438 --> 00:40:33,718
in nvidia until it goes public yeah the one thing i i also think about here is like what uh

484
00:40:35,958 --> 00:40:43,158
how do people make if ai is really successful and could you know continues to eviscerate

485
00:40:43,158 --> 00:40:49,118
white collar jobs well like what what do these where do these people go right like

486
00:40:49,118 --> 00:40:54,958
so i was talking to my i was talking to my wife she's a biotech recruiter and she's seeing like

487
00:40:54,958 --> 00:40:59,878
you know a bunch of these people that she's tried to hire and they've like never had a hard time

488
00:40:59,878 --> 00:41:04,258
getting jobs now they've been without jobs for like six months and they're really struggling

489
00:41:04,258 --> 00:41:09,298
to find other places because any of these other companies that have also done layoffs they're

490
00:41:09,298 --> 00:41:12,638
like well i don't i'm not hiring anybody right now i don't i don't need to hire anybody because

491
00:41:12,638 --> 00:41:19,218
I've got all this AI. So you've got all of this productive workforce that might just be sitting,

492
00:41:19,338 --> 00:41:24,178
twiddling their thumbs. There's nobody that wants to hire up. I have a strong theory on that.

493
00:41:24,838 --> 00:41:29,738
Well, one, you've got remarks from Powell today that are essentially saying AI is not the problem

494
00:41:29,738 --> 00:41:45,556
in the labor market He saying the problem in the labor market is that they cautious about inflation So the labor market right where it should be with their monetary easing policy which is complete fucking nonsense It complete nonsense

495
00:41:47,016 --> 00:41:49,896
So that's, you got that on one hand.

496
00:41:49,896 --> 00:41:53,556
We can recap that today a bit.

497
00:41:53,736 --> 00:41:55,136
But so that's complete nonsense.

498
00:41:55,716 --> 00:41:58,456
He was hawkish during the entire meeting today.

499
00:41:59,956 --> 00:42:02,696
You know, cuts are at a 95% probability

500
00:42:02,696 --> 00:42:08,636
of a 25 basis point cut in December. They were before the meeting. And he essentially came out

501
00:42:08,636 --> 00:42:11,616
and said, you know, they're not guaranteed. I think we're still going to get the cuts.

502
00:42:12,356 --> 00:42:18,256
But, you know, he's saying the upside risk to inflation is still there because of tariffs,

503
00:42:18,836 --> 00:42:25,316
right? Because of tariffs. Clearly tariffs are, inflation has been ticking down ever since we

504
00:42:25,316 --> 00:42:32,056
had the tariff pressures. This has been sticky inflation since 2021. But on top of that, you

505
00:42:32,056 --> 00:42:38,736
know, the AI thing is completely real. The jobs market's weak during a booming CapEx spend on AI

506
00:42:38,736 --> 00:42:46,336
because no one's hiring, right? And layoffs haven't. You can look at both the non-farm

507
00:42:46,336 --> 00:42:51,376
payrolls, but you can also look at the Joltz jobs reports, which show the actual layoffs

508
00:42:51,376 --> 00:42:55,856
happening in the economy. What we can see is companies are starting to not hire as quickly

509
00:42:55,856 --> 00:43:01,476
as they have in the past, but they're also not firing yet. So that's why we're in this like weird

510
00:43:01,476 --> 00:43:04,376
little sticky situation where layoffs aren't occurring,

511
00:43:04,636 --> 00:43:05,736
but hiring is not happening.

512
00:43:06,296 --> 00:43:09,136
But I think once layoffs start happening,

513
00:43:09,776 --> 00:43:11,216
Powell's hand is going to be forced.

514
00:43:11,216 --> 00:43:15,996
So I think there is definitely a narrative for 26 and beyond,

515
00:43:16,176 --> 00:43:19,716
especially with the ending of QT and then slow build to QE.

516
00:43:20,656 --> 00:43:24,356
So Dan, I agree with all your macro indicators that you talked about,

517
00:43:24,716 --> 00:43:28,276
but I do want to talk something about the comments that are in here that are

518
00:43:28,276 --> 00:43:29,156
coming.

519
00:43:29,156 --> 00:43:33,476
the money printer will go out of control because there's nothing they can do to fix this if people

520
00:43:33,476 --> 00:43:38,596
are just out of work and how printing money just helps people is a second order effect that doesn't

521
00:43:38,596 --> 00:43:44,516
really make a lot of sense based upon what we just said so in the olden days back during the internet

522
00:43:44,516 --> 00:43:53,556
bubble or the way things are today is your future is um is utopia meaning that it's going to be

523
00:43:53,556 --> 00:43:58,996
awesome and goodness if you're in that new class that knows how to have those new skills to get

524
00:43:58,996 --> 00:44:06,116
those new high-paying jobs your future is dystopia if you don't have the skills to get that so what

525
00:44:06,116 --> 00:44:10,836
happened during the internet bubble i realized it was a shift and so i walked into a little internet

526
00:44:10,836 --> 00:44:16,996
company in florida said i don't get what you're doing and they had frame relay dsl did not exist

527
00:44:16,996 --> 00:44:23,396
yet and i learned that on one connection you could have 500 computers connected into it and you sell

528
00:44:23,396 --> 00:44:29,516
Well, the business is, and a T1 line is $5,000 a month for one and a half megabits.

529
00:44:29,856 --> 00:44:33,436
I now get a gigabit to my house for 50 bucks.

530
00:44:33,936 --> 00:44:36,556
So think about how the math has changed in that, okay?

531
00:44:36,836 --> 00:44:37,656
Orders of magnitude.

532
00:44:38,216 --> 00:44:39,796
And so I signed up for that.

533
00:44:39,796 --> 00:44:44,416
So that job went from being paid 25 grand a year in Florida.

534
00:44:44,976 --> 00:44:49,236
Within six months, I was making 125 grand in Silicon Valley.

535
00:44:49,236 --> 00:44:51,556
because once I had that skill set,

536
00:44:51,776 --> 00:44:55,076
understanding how to work on a Unix terminal,

537
00:44:56,136 --> 00:44:57,756
learning how to configure a router,

538
00:44:57,896 --> 00:45:00,356
I had a skill set that was in demand.

539
00:45:00,876 --> 00:45:02,476
So I was able to pack up my crap,

540
00:45:02,936 --> 00:45:03,856
move to California,

541
00:45:03,856 --> 00:45:05,556
and I'd been there ever since.

542
00:45:05,776 --> 00:45:07,136
So I got the skill set.

543
00:45:07,276 --> 00:45:08,796
So every day I went to work like,

544
00:45:08,976 --> 00:45:10,416
wow, this is changing fast.

545
00:45:10,676 --> 00:45:12,836
This is awesome because I have the right skill set.

546
00:45:13,276 --> 00:45:13,916
But meanwhile,

547
00:45:14,056 --> 00:45:16,016
the people working at Rocky Mountain News

548
00:45:16,016 --> 00:45:17,836
in freaking Denver out of jobs

549
00:45:17,836 --> 00:45:19,916
because newspapers were going bankrupt.

550
00:45:20,536 --> 00:45:23,856
It's not that the information or journalism

551
00:45:23,856 --> 00:45:26,636
won out of favor.

552
00:45:26,976 --> 00:45:28,316
It's just it changed the medium

553
00:45:28,316 --> 00:45:30,076
from printed paper to online.

554
00:45:30,416 --> 00:45:32,216
And those people got left behind.

555
00:45:32,476 --> 00:45:33,476
That's a destruction.

556
00:45:33,956 --> 00:45:36,996
The creative part was we saw this happening for a mile out.

557
00:45:37,616 --> 00:45:39,876
And so your view on the future is how this happens.

558
00:45:40,336 --> 00:45:42,636
The problem with AI is that it makes a person

559
00:45:42,636 --> 00:45:45,396
that knows how to use it 10 times more effective.

560
00:45:45,396 --> 00:45:52,336
and that literally wipes out 10 jobs and powell's not see do i think that powell knows it yeah do i

561
00:45:52,336 --> 00:45:58,936
think he could say it no totally agree he can't say it he's trying to be being his fucking full

562
00:45:58,936 --> 00:46:07,796
right before he does the post he says the chat gpt what's trump going to say when i say this and

563
00:46:07,796 --> 00:46:13,716
chat gpt responds back as trump i mean so so so look guys you have to be able to see this difference

564
00:46:13,716 --> 00:46:20,996
what's go what's going on am i the old guy yeah but i just read the death certificate on wikipedia

565
00:46:20,996 --> 00:46:26,036
creative destruction you will watch this happen in real time you'll hear about a trillion dollar

566
00:46:26,036 --> 00:46:31,876
company that that tim just said that will go public which is kind of and it's a non-profit

567
00:46:31,876 --> 00:46:37,156
which is absurd right yeah because once you have more than a thousand employees it can't be a

568
00:46:37,156 --> 00:46:43,396
non-profit so and and and what i know what's going on about that is crazy but i think that this is

569
00:46:43,396 --> 00:46:48,196
going to be highly disruptive and the way that you look at your future is what group you're in

570
00:46:48,196 --> 00:46:54,916
fred krueger said right he said either you're going to own bitcoin or ai stocks or you're

571
00:46:54,916 --> 00:47:00,836
pretty much miserable what was his quote or you're screwed yeah he said life he kept saying that in

572
00:47:00,836 --> 00:47:05,716
santa monica i think he was really he had a really good perspective on that it's like he's like okay

573
00:47:05,716 --> 00:47:10,596
yeah maybe bitcoin doesn't climb as high or as fast as people think but he's like the real risk

574
00:47:10,596 --> 00:47:16,916
is that if you don't own Bitcoin or some sort of AI related asset, life could be really, really bad.

575
00:47:16,916 --> 00:47:17,536
Bad.

576
00:47:17,976 --> 00:47:18,696
Very bad.

577
00:47:18,816 --> 00:47:19,796
Really bad.

578
00:47:20,156 --> 00:47:20,496
Very bad.

579
00:47:20,516 --> 00:47:21,916
And I think that's completely accurate.

580
00:47:22,196 --> 00:47:24,056
Like, I think he's not wrong there.

581
00:47:24,636 --> 00:47:27,996
And we've seen it in the existing economy, right?

582
00:47:28,276 --> 00:47:35,216
Asset owners are top 10% of earners, the majority of which their income is generated from asset appreciation,

583
00:47:35,736 --> 00:47:39,336
are driving the entire consumer spend across the economy.

584
00:47:39,976 --> 00:47:42,936
So that's only going to become exacerbated.

585
00:47:43,356 --> 00:47:47,076
This idea that we're going to get some sort of great recession reset,

586
00:47:47,376 --> 00:47:49,816
productivity will continue to be exponential,

587
00:47:49,976 --> 00:47:52,356
whether or not the people are on board.

588
00:47:52,476 --> 00:47:56,636
The GDP will continue to climb with this circular AI spend

589
00:47:56,636 --> 00:47:58,956
that ultimately leads to deflation.

590
00:47:59,476 --> 00:48:02,596
But GDP is just going to be a representation of the money printing

591
00:48:02,596 --> 00:48:03,376
at some point.

592
00:48:03,376 --> 00:48:07,296
Yeah, so it's like all that shit's going on.

593
00:48:07,296 --> 00:48:19,896
Yeah, if you need another reason to be bullish, all of the deflationary pressure caused by AI and all the other transformations, disruptive transformations that are happening, has to be hidden by the system.

594
00:48:20,236 --> 00:48:25,936
So if we're getting exponential deflation, they have to print exponential amounts of money to hide it.

595
00:48:26,636 --> 00:48:27,556
It's going to be insane.

596
00:48:27,896 --> 00:48:31,696
And I was re-watching this series by Tony Siba.

597
00:48:31,936 --> 00:48:33,316
It was called The Great Transformation.

598
00:48:33,896 --> 00:48:34,916
And it's not just AI.

599
00:48:34,916 --> 00:48:37,936
There's going to be transformations in transportation.

600
00:48:38,236 --> 00:48:39,976
You know, we're going to get transportation as a service.

601
00:48:40,656 --> 00:48:43,096
There's going to be energy, battery, solar.

602
00:48:43,856 --> 00:48:45,476
The other ones, I think, were food.

603
00:48:45,636 --> 00:48:53,496
We're going to actually be able to create animal proteins the same way that we create insulin with yeast.

604
00:48:54,216 --> 00:49:03,256
And so there's just going to be tons and tons of disruptive sectors, and they're all going to feed each other.

605
00:49:03,796 --> 00:49:05,936
It's not like they're individual and they're additive.

606
00:49:06,456 --> 00:49:09,776
They're all like multiplying each other.

607
00:49:10,076 --> 00:49:12,516
It's going to be freaking insane.

608
00:49:13,136 --> 00:49:19,556
And Bitcoin is already the intersection of encryption, the internet, and proof of work.

609
00:49:20,316 --> 00:49:26,516
And so these Bitcoin treasury companies, like strategy in particular, they're eating the bond market.

610
00:49:26,736 --> 00:49:29,276
So you've got Bitcoin, which is already an S-curve.

611
00:49:29,496 --> 00:49:33,236
And then strategy is going to disrupt the bond market, which is another S-curve.

612
00:49:33,256 --> 00:49:52,036
So it's like S-curves on top of S-curves. And I know people are frustrated about the languishing price over the last year. But, you know, my thesis has really not changed, gotten stronger. And my investment horizon is the same as Bitcoin, right? No one has ever bought Bitcoin and lost money over five years.

613
00:49:52,036 --> 00:49:58,156
so if you know five years from now if i'm looking at the five-year chart and you know strategies

614
00:49:58,156 --> 00:50:03,716
underperforming i'll reevaluate then but i'm i'm not going to change my uh change my invest

615
00:50:03,716 --> 00:50:10,836
investment thesis over you know the one-year chart it's a mega trend on top of a mega trend

616
00:50:10,836 --> 00:50:15,756
right and i think there's a real world and this is something i've been struggling with a lot too

617
00:50:15,756 --> 00:50:20,916
and um because you know i'm trying to manage a book and i fucking benchmark it against bitcoin

618
00:50:20,916 --> 00:50:23,636
and against the S&P, able to beat Bitcoin these days,

619
00:50:23,716 --> 00:50:25,816
but that's not hard, not beating the S&P,

620
00:50:25,976 --> 00:50:28,836
which is quite embarrassing because we've always joked

621
00:50:28,836 --> 00:50:31,236
like the S&P return is garbage for Bitcoin.

622
00:50:31,796 --> 00:50:34,176
But the point being is I think there's a real runway

623
00:50:34,176 --> 00:50:37,096
for the build-out of AI over the next five years,

624
00:50:37,636 --> 00:50:40,276
but it's a Geordie Visser kind of style of thinking.

625
00:50:40,456 --> 00:50:41,976
And something I think about a lot too is like,

626
00:50:41,976 --> 00:50:46,576
okay, yes, but then once the corporations and the AIs

627
00:50:46,576 --> 00:50:47,696
are building things themselves,

628
00:50:47,836 --> 00:50:49,916
the cost of energy has been pushed down to zero,

629
00:50:49,916 --> 00:50:56,276
math has been solved, physics have been solved, lots of healthcare tech and biotech is being

630
00:50:56,276 --> 00:51:02,656
discovered and diseases and drugs are being discovered by AI. Where is that profit flowing?

631
00:51:03,236 --> 00:51:07,976
And a lot of it may be owned by autonomous agents or corporations that own the autonomous agents,

632
00:51:08,416 --> 00:51:14,296
and it's going down and down and down in price. So where does the value flow? And then that's

633
00:51:14,296 --> 00:51:22,696
where the scarce asset jumps in. So I think Bitcoin has a high compound annual growth rate

634
00:51:22,696 --> 00:51:28,136
for a longer period of time than people are willing to assign to it. They want 50% CAGR

635
00:51:28,136 --> 00:51:33,756
for the next five years. But I think the real unlock of Bitcoin is that it's going to be 20%

636
00:51:33,756 --> 00:51:40,676
CAGR forever after 2030. And that's really where the investment unlocks freedom for a lot of people.

637
00:51:40,676 --> 00:51:50,816
you guys see those neo robots oh yeah oh man they've been all over twitter i'm surprised

638
00:51:50,816 --> 00:51:54,556
uh they're like robots that will do all of your household chores for you

639
00:51:54,556 --> 00:52:02,416
uh they've got eyes but they've got no mouth and uh the the videos are like them going to pick up

640
00:52:02,416 --> 00:52:09,516
your your dishes and make your bed and do your laundry and they live in your house for twenty

641
00:52:09,516 --> 00:52:17,996
thousand dollars you just plug it in uh it plugs itself in and uh it's been it's been funny seeing

642
00:52:17,996 --> 00:52:24,316
the the memes that have coming out that have come out of it it's like that you the view when you

643
00:52:24,316 --> 00:52:29,276
don't pay your neo subscription and it's like the robot like you know look you're laying on the

644
00:52:29,276 --> 00:52:33,756
ground and it's the robot looking above it above your head with a gun in its hand you know it's

645
00:52:33,756 --> 00:52:44,076
uh it's creepy it's super dystopian but it's so true i mean uh yeah it's or or and then 4.99 a

646
00:52:44,076 --> 00:52:49,036
month which is just wild that it's already cheap and you would think the price is going to come

647
00:52:49,036 --> 00:52:56,236
down over time the funny thing is there's uh speculation that it's like a uh a theranos sort

648
00:52:56,236 --> 00:53:03,916
of thing like there's actually a human operating it in a different country and like just watching

649
00:53:04,716 --> 00:53:09,356
like looking through the video camera and like with the remote control yeah with like they've got

650
00:53:09,356 --> 00:53:15,836
you know things and picking you know guys oh there it is yeah telly tello tele operated that's just

651
00:53:15,836 --> 00:53:22,956
like crazy look i i kind of get that i'm the dinosaur but i will leave my house to go food

652
00:53:22,956 --> 00:53:28,396
shopping i do it myself and i go get my food and i bring it back to the house and i actually cook

653
00:53:28,396 --> 00:53:32,556
my own food and you're like what does this have to do with anything well on the street that i might

654
00:53:32,556 --> 00:53:39,036
look through the window and there's a tech worker across the street from me and she has a a monitor

655
00:53:39,596 --> 00:53:45,036
i don't know how big it is it's freaking like four feet wide it's curved she's got like joysticks and

656
00:53:45,036 --> 00:53:50,236
mice and mouse whatever she's like work and and i've talked to her she's like some she does whatever

657
00:53:50,236 --> 00:53:51,696
or some remote work.

658
00:53:51,996 --> 00:53:55,516
I think that she gets two meals a day delivered to her

659
00:53:55,516 --> 00:53:56,896
that she doesn't cook at all.

660
00:53:57,776 --> 00:53:58,536
I don't think she cooks.

661
00:53:58,656 --> 00:54:00,096
I see the little scooter shoot up

662
00:54:00,096 --> 00:54:02,316
and they drop the food there and they go get it.

663
00:54:02,696 --> 00:54:04,116
So she doesn't cook at all

664
00:54:04,116 --> 00:54:06,116
because she has no time to do it with her tech job.

665
00:54:06,396 --> 00:54:07,176
And I'm just like,

666
00:54:07,456 --> 00:54:09,296
she'll be the first person to go get a robot.

667
00:54:09,816 --> 00:54:13,756
And she has a Tesla and a self-driving car.

668
00:54:14,336 --> 00:54:15,556
And people are like,

669
00:54:15,636 --> 00:54:17,776
I'm so busy in my job trying to make money

670
00:54:17,776 --> 00:54:18,836
that I don't get displaced

671
00:54:18,836 --> 00:54:21,236
by somebody else using AI better than me.

672
00:54:21,656 --> 00:54:24,156
And therefore I can't leave my desk to go do this

673
00:54:24,156 --> 00:54:27,316
because, and therefore I work as hard as I can.

674
00:54:27,776 --> 00:54:30,076
And so that's kind of like the weirdness

675
00:54:30,076 --> 00:54:31,236
of where we are right now.

676
00:54:31,516 --> 00:54:33,156
So do I think that we're gonna have robots

677
00:54:33,156 --> 00:54:35,016
in the house pretty soon?

678
00:54:35,896 --> 00:54:36,296
Yeah.

679
00:54:36,936 --> 00:54:39,036
You know, I don't, you know, people buy the Roomba,

680
00:54:39,156 --> 00:54:41,576
the, you know, the vacuum cleaner that goes by itself.

681
00:54:42,096 --> 00:54:43,536
I'm like, I have a vacuum cleaner.

682
00:54:43,636 --> 00:54:44,136
I do it myself.

683
00:54:44,256 --> 00:54:46,016
It takes like 15 minutes, not a big deal.

684
00:54:46,396 --> 00:54:48,136
But people buy those, you know,

685
00:54:48,136 --> 00:54:53,176
these robot vacuum cleaners. So I think that this is going to happen faster than people think.

686
00:54:53,176 --> 00:54:58,136
And then you're going to have other people that are just like, Jesus, I'm just trying to buy eggs

687
00:54:58,136 --> 00:55:04,456
and food and get by. And that's the haves and the haves nots. Somebody was saying, well, you have

688
00:55:04,456 --> 00:55:09,336
this wealth gap. Right now it's not going to change. Nothing's going to change. The people that are on

689
00:55:09,336 --> 00:55:15,176
this call, right? The people that are listening to us, the 13,000 people that are on, 19,000 people

690
00:55:15,176 --> 00:55:22,376
that are on this call they're like wow we better go get some new skills or make enough money and go

691
00:55:22,376 --> 00:55:30,936
buy bitcoin or mag 7 stocks no financial advice but if the other 493 s p 500 stocks are not

692
00:55:30,936 --> 00:55:37,656
performing you basically have like 10 assets you could buy yeah i think about this a lot

693
00:55:38,296 --> 00:55:43,256
considering i'm kind of at the you know earlier part of my career i'm 24 so i think a lot about

694
00:55:43,256 --> 00:55:47,636
about like, how can I position for these next 10 years and be set up in the best way possible?

695
00:55:48,016 --> 00:55:51,856
And I'll just give my thoughts on like what I've thought about by, you know, being in this kind

696
00:55:51,856 --> 00:55:56,296
of environment. I think you could be in, you could be a high end, run a high end electrical

697
00:55:56,296 --> 00:56:02,176
company. I'm an electrical engineer by trade. So during this AI CapEx build out, you know,

698
00:56:02,496 --> 00:56:07,256
Jensen Huang just made some statement, the millionaires of the next five to 10 years will

699
00:56:07,256 --> 00:56:11,276
be plumbers and electricians, right? What he's essentially saying is before embodied AI gets

700
00:56:11,276 --> 00:56:15,856
year, physical labor is still in demand, especially high skilled labor in a market where the white

701
00:56:15,856 --> 00:56:21,176
collar worker is being displaced. Okay. So that's like one thing. I also think an underrated sector

702
00:56:21,176 --> 00:56:28,876
is luxury goods. I think in a world of abundance, humans will still crave scarcity. Obviously,

703
00:56:28,876 --> 00:56:33,096
that's kind of the sales point on Bitcoin, but all the rich people are going to want to show

704
00:56:33,096 --> 00:56:36,276
all the other rich people that they're richer than them. So what are they going to buy? They're

705
00:56:36,276 --> 00:56:39,876
going to buy art that the other rich person can't buy, or they're going to buy sports cars, or

706
00:56:39,876 --> 00:56:44,636
they're going to buy watches, whatever it is. So I think somehow being well connected in that

707
00:56:44,636 --> 00:56:49,256
environment, brushing on shoulders against very wealthy people who are only getting wealthier,

708
00:56:49,256 --> 00:56:53,716
is likely a very good decision moving forward to protect yourself the next 10 years.

709
00:56:54,176 --> 00:56:58,656
And then finally, I mean, that's why I think actually Bitcoin credit is a really interesting

710
00:56:58,656 --> 00:57:04,036
space to work in. And that's why I've kind of chosen to be in this area. I think why a lot of

711
00:57:04,036 --> 00:57:10,836
have chosen to be here is because you know capital markets and the structure of finance uh will change

712
00:57:10,836 --> 00:57:17,716
moving forward and so positioning yourself in the middle of it uh is actually a great way to build a

713
00:57:17,716 --> 00:57:23,076
career moving forward and doing you know traditional finance and not being set up for that i think

714
00:57:23,076 --> 00:57:29,236
it's going to be difficult so that's a good segue can we transit transit we got some questions on um

715
00:57:29,236 --> 00:57:35,716
um we want to call it structured credit digital digital credit digital credit let's talk digital

716
00:57:35,716 --> 00:57:40,036
credit graham maybe you'll lead us off i know you've been uh kick us kick us off on digital

717
00:57:40,036 --> 00:57:48,916
credit great digital digital credit dc with diet coke and digital credit over the game so so digital

718
00:57:48,916 --> 00:57:55,636
credit um look i'll admit that i didn't i didn't understand something until yesterday i i didn't i

719
00:57:55,636 --> 00:57:59,796
didn't get something. I knew what return of capital was. I read the prospectus on Misty and

720
00:57:59,796 --> 00:58:04,836
IMST, and I read it the old-fashioned way. I actually read the documents, and you get to the

721
00:58:04,836 --> 00:58:11,156
juicy stuff about page 40. Now I'm much better at AI, given that that was a year ago, that I could

722
00:58:11,156 --> 00:58:15,876
say, you know, it's kind of hard to prompt for a term if you don't know what term to look for.

723
00:58:16,436 --> 00:58:24,416
But once you do this, so what didn't I understand? You know, with Misty and IMST, you have return of

724
00:58:24,416 --> 00:58:31,776
capital and the yield according to the sec is a combination of return of capital combined with

725
00:58:31,776 --> 00:58:38,416
the gains on the on the derivatives that they have the covered calls that they do that's according to

726
00:58:38,416 --> 00:58:44,176
the sec according to the irs if they give you back your own capital return of capital that's not

727
00:58:44,176 --> 00:58:53,536
taxable so the sec and the irs define yield two different ways and i and i knew that right

728
00:58:53,536 --> 00:59:00,376
Then I saw Misty has, you know, basically the prices eroded down over time.

729
00:59:00,716 --> 00:59:06,196
And I was thinking about buying this and I tweeted about this, whatever, six, eight months ago.

730
00:59:07,096 --> 00:59:14,296
And, you know, a couple people reached out to me, very prominent people and said, read the prospectus and then call me back.

731
00:59:14,336 --> 00:59:17,696
And I read the prospectus and I'm like, I don't like what I see in there.

732
00:59:17,756 --> 00:59:19,036
And they're like, well, you had to read it.

733
00:59:19,036 --> 00:59:26,056
So anyway, so when I looked at it and somebody said to me, why don't I like MSTY?

734
00:59:26,156 --> 00:59:30,656
Somebody said, look at TLSY, the Tesla covered called.

735
00:59:31,136 --> 00:59:34,856
And if you look at TSLY, it's basically down.

736
00:59:35,996 --> 00:59:37,956
And that had been trading much longer.

737
00:59:38,456 --> 00:59:40,916
And I'm like, well, to me, that seems like a good indicator.

738
00:59:40,916 --> 00:59:44,116
So I never bought any, you know, Misty.

739
00:59:44,676 --> 00:59:48,896
And I was like, I was like, this doesn't work good.

740
00:59:49,036 --> 00:59:54,316
That clouded my judgment for looking at the prefs.

741
00:59:54,956 --> 00:59:59,996
Because once they announced that the prefs are going to be return of capital,

742
00:59:59,996 --> 01:00:03,756
I thought about those and I conflated two things together.

743
01:00:04,636 --> 01:00:09,836
Now thinking about this differently, specifically with stretch, if it maintained, it came out at

744
01:00:09,836 --> 01:00:16,956
90, it's whatever, 98, $99 today, whatever it is. And if that stays pegged at par, if, and it should,

745
01:00:16,956 --> 01:00:24,216
in my view, no financial advice here, it doesn't have that price erosion. And so that perspective

746
01:00:24,216 --> 01:00:31,296
is that when you get paid, it's 10.25%, assume it's 10% to make the math easy. So you buy it for

747
01:00:31,296 --> 01:00:37,896
100 bucks and every year you get $10. After 10 years, your cost basis is zero. When you go to

748
01:00:37,896 --> 01:00:44,876
sell it, it's long-term capital gains. You pay 20% on the 100 bucks. Or what you do is you die,

749
01:00:45,276 --> 01:00:46,236
Give it to your kids.

750
01:00:46,436 --> 01:00:48,516
The step up value goes to 100 bucks.

751
01:00:48,856 --> 01:00:51,856
Your kids don't ever pay taxes on the 100 bucks that you did.

752
01:00:51,856 --> 01:00:56,456
And then they proceed to receive a 10%, assuming the coupon stays the same.

753
01:00:56,556 --> 01:00:57,436
I know it's 10 and a quarter.

754
01:00:57,656 --> 01:00:59,576
And they get that for the rest of their lives.

755
01:00:59,936 --> 01:01:02,076
So you just retired your second generation.

756
01:01:02,716 --> 01:01:06,936
Now, some people had said this, but it did not sink into my head.

757
01:01:07,416 --> 01:01:13,256
And I told Dan earlier before this call, I wasn't getting it.

758
01:01:13,256 --> 01:01:16,136
And the other reason why I wasn't getting it because I'm a large MSTR shareholder.

759
01:01:16,936 --> 01:01:23,016
In the short term, the coupons are paid out of the common stock ATM, which has put pressure

760
01:01:23,016 --> 01:01:25,856
on MSTR shares in the short term.

761
01:01:26,256 --> 01:01:34,116
To Jeff's point of view, if we educate these people that can buy a lot of bonds and shift

762
01:01:34,116 --> 01:01:40,776
to the prefs, that education, then they become self-funding based upon the inflows.

763
01:01:40,776 --> 01:01:49,556
and that changes the dynamics of where we are. So to sum this all up, I had a phone call,

764
01:01:49,776 --> 01:01:55,276
talked to a very important guy yesterday, changed my mind. That's where I am today. I won't say who

765
01:01:55,276 --> 01:02:01,736
he is. People could guess. And so from that view, I look at things differently today. And I think

766
01:02:01,736 --> 01:02:07,016
one of the most important things that you could do in life is to say, you know what? I thought I

767
01:02:07,016 --> 01:02:10,896
understood something a certain way at a high level where you thought that you have a good

768
01:02:10,896 --> 01:02:16,016
understanding and then you realize, hmm, you know what?

769
01:02:16,016 --> 01:02:17,576
I didn't get something.

770
01:02:17,576 --> 01:02:20,456
And I could admit that publicly, just like Tad Smith.

771
01:02:20,456 --> 01:02:22,836
He admitted that he didn't understand money until what?

772
01:02:22,836 --> 01:02:24,936
He was 56 years old, Tim.

773
01:02:24,936 --> 01:02:35,294
Yeah For a guy like that to admit that publicly but he did And then you change your mind And so for me it was a learning example

774
01:02:35,294 --> 01:02:37,094
And so I say this publicly.

775
01:02:37,094 --> 01:02:38,994
So that really changed.

776
01:02:38,994 --> 01:02:43,234
Do I think that MSCR stock will be under pressure in the short term?

777
01:02:43,234 --> 01:02:44,234
Sure.

778
01:02:44,234 --> 01:02:45,234
Do I like that?

779
01:02:45,234 --> 01:02:46,234
No, I don't.

780
01:02:46,234 --> 01:02:48,754
Do I get the greater good of why we're here?

781
01:02:48,754 --> 01:02:49,754
Yes.

782
01:02:49,754 --> 01:02:53,154
So this basically juices the yield.

783
01:02:53,154 --> 01:02:57,674
I highly encourage anybody, if you're still here and this is interesting to you, which

784
01:02:57,674 --> 01:03:05,574
I think it should be, go watch the Scott Milker 30 minute interview with Saylor because he

785
01:03:05,574 --> 01:03:06,874
hits on this directly.

786
01:03:08,094 --> 01:03:11,294
And they effectively stumbled into digital capital.

787
01:03:11,554 --> 01:03:13,174
They've stumbled into digital credit.

788
01:03:13,174 --> 01:03:18,354
And now they've stumbled into this return of capital scenario, which is the reason it's

789
01:03:18,354 --> 01:03:24,454
able to be characterized as return of capital is because they are utilizing the atm to pay the

790
01:03:24,454 --> 01:03:31,114
dividends and because they they are not uh it's like basically a break-even operating business

791
01:03:31,114 --> 01:03:37,274
to the extent that the operating business was really profitable it wouldn't be considered return

792
01:03:37,274 --> 01:03:45,674
of capital so because of that corporate structure it's almost like a loophole and that that effectively

793
01:03:45,674 --> 01:03:50,614
juices the yield on any of these prefs even higher. So let's just say you're getting 10 and a quarter

794
01:03:50,614 --> 01:03:55,554
on a tax adjusted basis, you're really getting like 17,

795
01:03:57,214 --> 01:04:02,334
which you look at anything else in the market, you know, like, why on earth would I hold anything

796
01:04:02,334 --> 01:04:09,294
else in the market? We just spent 35 minutes talking about, you know, future cash flows of

797
01:04:09,294 --> 01:04:16,414
any of these companies and what they look like based on AI, unknown. And now you have a fully

798
01:04:16,414 --> 01:04:22,734
collateral, like an over collateralized instrument that's harnessing the productivity of the asset

799
01:04:22,734 --> 01:04:29,894
and just this general market environment of AI and storing energy into the future.

800
01:04:30,894 --> 01:04:36,774
These things look incredibly attractive. Yeah. So, so I'm going to say, so, so Jeff,

801
01:04:36,774 --> 01:04:38,014
I'm going to say this a little bit differently.

802
01:04:38,634 --> 01:04:39,414
You know, some people are like,

803
01:04:39,474 --> 01:04:42,454
what happens if there's $3 trillion worth of these press?

804
01:04:42,714 --> 01:04:46,254
I'm like, look, it's $2.7 billion right now.

805
01:04:46,774 --> 01:04:46,914
Okay.

806
01:04:47,334 --> 01:04:48,954
And by the way, you know,

807
01:04:48,994 --> 01:04:51,534
if you watch the Scott Melker interview with Saylor,

808
01:04:51,934 --> 01:04:54,834
he said, basically, oh, PFF,

809
01:04:55,074 --> 01:04:56,814
the BlackRock Preferred Shares Fund,

810
01:04:57,314 --> 01:05:00,254
bought 200, bought 2.2 million.

811
01:05:00,554 --> 01:05:03,034
Yeah, 2 million shares worth of,

812
01:05:03,314 --> 01:05:05,474
quarter billion dollars worth of STRC.

813
01:05:05,474 --> 01:05:10,114
So of course I got a chat GPT to check it and you know what? It's correct. They unload that.

814
01:05:10,834 --> 01:05:15,954
So sorry, they load up their CSV file of what's inside of it. So that's true.

815
01:05:15,954 --> 01:05:20,274
And supposedly all of the prefs are inside PFF, but I haven't been able to.

816
01:05:20,274 --> 01:05:27,234
Yeah. So they're all in there. That's a big deal. The part what I want to say here is that

817
01:05:28,034 --> 01:05:34,594
if you, one of the things like in life insurance policies, there's a really high

818
01:05:35,474 --> 01:05:40,374
salesman fee that gets paid on those because they're hard to sell. With this, the sales fee

819
01:05:40,374 --> 01:05:49,674
is really zero on these prefs. But what I want to say is this, if you're able to sell these prefs

820
01:05:49,674 --> 01:05:55,854
and you can sell to somebody and they buy it, that's not a taxable event. Then what happens is

821
01:05:55,854 --> 01:06:04,194
you could sell MSTR common shares to pay that dividend. That is not a taxable event either.

822
01:06:04,194 --> 01:06:10,994
if strategy right now, the way that they can say that this is return of capital, right,

823
01:06:11,174 --> 01:06:15,274
is because strategy has structured it where they're not made, where they've designed to

824
01:06:15,274 --> 01:06:18,614
make this, where they're not running out of profit. That's where they get this, where this

825
01:06:18,614 --> 01:06:23,974
return of capital. So you've got these three levers that are very tax efficient in order to,

826
01:06:23,974 --> 01:06:28,894
to, to roll this out. And so I don't think people are getting that. So right there, MSTR

827
01:06:29,534 --> 01:06:35,294
is 1.49 that actually came up so look folks it's there there's the validation right there

828
01:06:35,294 --> 01:06:45,374
the notional value 218 million dollars that's stretch that's right and then uh on page three

829
01:06:46,574 --> 01:06:53,454
you've got strife at 91 million this is strike strike at 88 million and then the next page you've

830
01:06:53,454 --> 01:07:04,414
got uh stride at 74 million right so you got all of them yeah so i want people to realize i'm

831
01:07:04,414 --> 01:07:09,534
reading the comments are going on people like this is just a ponzi scheme um you know what

832
01:07:09,534 --> 01:07:16,574
then everything is a ponzi scheme you know people say all the time that um the only way you can make

833
01:07:16,574 --> 01:07:22,414
money in a stock that doesn't pay a dividend right is that you have to sell that stock to a bigger

834
01:07:22,414 --> 01:07:27,674
idiot than you. It's the greater fool theory. I bought a stock and it doesn't pay a dividend,

835
01:07:27,774 --> 01:07:31,254
so I get no yield. The only way I make money is sell to somebody else that pays a higher price.

836
01:07:32,454 --> 01:07:37,994
That's the way. So it's speculative. All non-dividend paying stocks are subscribed to

837
01:07:37,994 --> 01:07:44,514
the greater fool theory. In this case, what I think that what strategy built with Saylor

838
01:07:44,514 --> 01:07:50,834
is digital credit. Did I get this basically before yesterday? I understood all the parts of it. I

839
01:07:50,834 --> 01:07:56,254
have a much different understanding of that today. And from that perspective, I think the short-term

840
01:07:56,254 --> 01:08:04,574
pain on MSTR outweighs the long-term objectives of where the prefs are going. Jeff, does that make

841
01:08:04,574 --> 01:08:09,594
sense? A hundred percent. And somebody said they couldn't support $3 trillion with the MSTR common

842
01:08:09,594 --> 01:08:16,394
ATM. I think that is just absolutely incorrect because the relative risk in these instruments

843
01:08:16,394 --> 01:08:21,074
right now is completely mispriced at a future point in time when strategy is holding three

844
01:08:21,074 --> 01:08:26,514
trillion dollars of this stuff that means they probably have six to nine trillion dollars of

845
01:08:26,514 --> 01:08:31,894
assets on their balance sheet i would i would assume at that point so what what's the common

846
01:08:31,894 --> 01:08:41,334
stock worth a multiple of that i don't know like 10 15 15 trillion uh the numbers are a bit mind

847
01:08:41,334 --> 01:08:47,834
numbing, but the amount of liquidity that would be in that would be very, very high. It would be

848
01:08:47,834 --> 01:08:52,774
providing liquidity for the entire market, kind of like Bitcoin is. So just this really,

849
01:08:52,774 --> 01:09:00,654
really deep liquidity pool. And these instruments would probably reprice lower. So I think about

850
01:09:00,654 --> 01:09:06,294
this a lot, just risk. I've been doing a lot of research and development and advancement of risk

851
01:09:06,294 --> 01:09:11,674
models around this stuff. And I keep saying risk is mispriced globally. And I think that's,

852
01:09:11,674 --> 01:09:17,414
that's the like crux of this entire conversation is really getting anybody that's holding any

853
01:09:17,414 --> 01:09:21,494
instrument to think about what is the, what are the true risks of any of the things that they're

854
01:09:21,494 --> 01:09:27,774
holding? This kind of gets Soleil into like underwriting, underwriting risk. My last 11

855
01:09:27,774 --> 01:09:31,694
years, I've been underwriting risk for insurance companies, like identifying, like how do, how do I

856
01:09:31,694 --> 01:09:35,634
evaluate risk? You know, look at different things and selling different tranches of risk and talking

857
01:09:35,634 --> 01:09:45,474
about it and um i've now had just several conversations with uh with people in the industry

858
01:09:45,474 --> 01:09:50,974
and nobody can wrap their head like nobody's really focused on the risk of these instruments

859
01:09:50,974 --> 01:09:55,954
that like the instant thing that everybody likes to go to this is on twitter this is in trad fi

860
01:09:55,954 --> 01:10:02,434
is black swan downside like that's just the easy thing to go to like oh you didn't put a

861
01:10:02,434 --> 01:10:10,014
you didn't put a negative scenario in your BTC analysis. Well, if I assumed Bitcoin CAGR of 5%

862
01:10:10,014 --> 01:10:16,454
and a volatility of 50, that actually does assume significantly negative prices at any point in time.

863
01:10:16,454 --> 01:10:25,074
I'm simulating and modeling this into the future. Getting society to think about risk of these

864
01:10:25,074 --> 01:10:29,034
things relative to other things is going to just take so long. It's going to take so long.

865
01:10:29,034 --> 01:10:35,334
And it's not going to change until there's pain in other places, likely.

866
01:10:36,054 --> 01:10:44,214
So this is other debt instruments underperforming, pension funds maybe not necessarily meeting their liabilities,

867
01:10:44,934 --> 01:10:55,194
or large pools of the population getting their pension checks or their retirement checks,

868
01:10:55,194 --> 01:10:57,214
and they're just not keeping up with inflation.

869
01:10:57,214 --> 01:10:59,234
They're losing purchasing power over time.

870
01:10:59,794 --> 01:11:02,794
I mean, I'm seeing this with my father-in-law literally in real life right now.

871
01:11:02,854 --> 01:11:04,674
And it's like kind of sad to see.

872
01:11:05,794 --> 01:11:14,754
And I think that is just going to take a long time for people to shift perspective and start to think about the mathematics here.

873
01:11:15,134 --> 01:11:24,194
And you need AI, you need computing, you need a sophisticated pool to start accepting this stuff.

874
01:11:24,194 --> 01:11:27,194
Yeah. And on the topic, Tim, go ahead.

875
01:11:27,194 --> 01:11:44,194
Sorry. Mike, when you were talking and if again, sailor risk, not risk tax adjusted on the prefs because of return of capital 16 to 20 percent, depending on what state you live in.

876
01:11:44,194 --> 01:11:47,574
that's like a private equity style return.

877
01:11:47,574 --> 01:11:52,994
Mike, you and I literally met because of like a private equity style fund

878
01:11:52,994 --> 01:11:55,954
where it was targeting 15 to 20%.

879
01:11:55,954 --> 01:11:58,574
So I literally just put into chat,

880
01:11:58,874 --> 01:12:01,154
what is the total market value of private equity?

881
01:12:01,594 --> 01:12:03,434
Well, according to S&P Global,

882
01:12:03,874 --> 01:12:08,794
the global private equity market was about 5.3 trillion in 2023.

883
01:12:09,314 --> 01:12:11,974
It's expected to reach about 6 trillion by the end of 2024.

884
01:12:11,974 --> 01:12:19,734
for so maybe digital credit is the new private equity bit bitcoin's coming for everything yeah

885
01:12:20,454 --> 01:12:26,534
it's really coming forever yeah you know you know guys i'm gonna tell you something i taught i i i've

886
01:12:26,534 --> 01:12:32,214
met a lot of people that have 800 score math sat's and ivy league i'm a silicon valley people that are

887
01:12:32,214 --> 01:12:38,774
super coders pretty commonplace here um one of the things they don't get is moving averages so let's

888
01:12:38,774 --> 01:12:45,574
say your moving average is like literally 20 a year everybody's like oh that means it's 20 20 20

889
01:12:45,574 --> 01:12:50,054
and you stick that into your spreadsheet now moving average doesn't work like that bro what

890
01:12:50,054 --> 01:12:57,174
it means is i've got 40 one year zero percent the next year the average is 20 they're like well how

891
01:12:57,174 --> 01:13:03,734
do you know it's that well it's it's whatever it's an 80 vol 80 vol well it's 40 up and down

892
01:13:03,734 --> 01:13:08,134
you take the vol out and then what happens is they just assume that it's a straight linear

893
01:13:08,134 --> 01:13:14,394
relationship and it's not. So for moving averages for Tim, getting back to your 18%, if you want to

894
01:13:14,394 --> 01:13:21,374
average 18% a year after tax income, you need years where you get 36% to offset the years when you get

895
01:13:21,374 --> 01:13:28,394
zero. But if strategy is paying 10 and a quarter percent and they don't make payments if it's

896
01:13:28,394 --> 01:13:34,454
cumulative, Dan, jump in here when they make a mistake, they've got to keep up with that coupon

897
01:13:34,454 --> 01:13:39,494
that they promised. Now, did I think that it was rather unreasonable because they have to sell a

898
01:13:39,494 --> 01:13:45,434
lot of MS, they have to sell some MSDR common shares to pay that coupon and I own MSDR. So I

899
01:13:45,434 --> 01:13:53,554
don't like that dilution there. But back to your point, Tim, this 18% a year effective yield is

900
01:13:53,554 --> 01:14:00,814
huge. I mean, it's like, why invest in the S&P 500 if you get an effective non-taxable yield at

901
01:14:00,814 --> 01:14:03,154
18% it's 10% coupon.

902
01:14:03,154 --> 01:14:06,194
Not paying taxes is equal depending upon your tax bracket,

903
01:14:06,194 --> 01:14:08,314
15 to 18%.

904
01:14:08,314 --> 01:14:10,814
6X over collateralized with investor protection

905
01:14:10,814 --> 01:14:12,294
of cumulative annuities.

906
01:14:12,294 --> 01:14:14,694
And a step up penalty in the,

907
01:14:14,694 --> 01:14:17,814
like there's so many investor protections in these things too.

908
01:14:17,814 --> 01:14:20,034
Like they had to sell them and get them off the ground.

909
01:14:20,034 --> 01:14:21,474
That's why I was freaked out about them

910
01:14:21,474 --> 01:14:24,214
because I think they were adversarial to the common.

911
01:14:24,214 --> 01:14:26,174
Like I just, not adversarial,

912
01:14:26,174 --> 01:14:29,374
but the point being is they were so oriented

913
01:14:29,374 --> 01:14:30,614
towards the preferred holder.

914
01:14:30,614 --> 01:14:31,614
I mean, they still are.

915
01:14:31,614 --> 01:14:32,294
Right, right.

916
01:14:32,294 --> 01:14:34,774
I want to address some of the comments that are coming through.

917
01:14:34,774 --> 01:14:36,274
ROC is just tax deferred.

918
01:14:36,274 --> 01:14:37,274
Yeah.

919
01:14:37,274 --> 01:14:39,354
It's tax deferred.

920
01:14:39,354 --> 01:14:40,354
It's buy borrow.

921
01:14:40,354 --> 01:14:41,754
To the point when you sell it.

922
01:14:41,754 --> 01:14:42,754
So what do you mean?

923
01:14:42,754 --> 01:14:44,494
In 10 years, your cost basis is zero.

924
01:14:44,494 --> 01:14:46,414
Tax deferred, it's buy borrow, die.

925
01:14:46,414 --> 01:14:48,134
What do you want?

926
01:14:48,134 --> 01:14:53,094
Somebody's going to be like, well, you should go move to Dubai and you don't have to pay

927
01:14:53,094 --> 01:14:54,094
taxes.

928
01:14:54,094 --> 01:14:56,174
I'm like, well, I don't know anybody in Dubai.

929
01:14:56,174 --> 01:14:57,174
So British.

930
01:14:57,174 --> 01:14:58,174
British hodl.

931
01:14:58,174 --> 01:14:59,174
Right.

932
01:14:59,174 --> 01:15:04,534
but yeah that's a good point i mean the the tax implications are massive i think i personally am

933
01:15:04,534 --> 01:15:09,334
a little nervous like if if let's say stretch really takes off and starts eating the bomb market

934
01:15:10,054 --> 01:15:16,294
um i don't know if the sec and is going to be cool with these things things continue to be taxes we're

935
01:15:16,294 --> 01:15:19,974
going to return to capital so that's something i'm looking out over the horizon if it's in fact

936
01:15:19,974 --> 01:15:24,054
successful i don't think you can count on that lasting forever but that's just my two cents even

937
01:15:24,054 --> 01:15:29,814
if they're not even if they're not they still will pass on everything yeah no which is crazy and and

938
01:15:29,814 --> 01:15:37,014
to that point dan i want to tie it back to the smp thing here right like if strategy has an investment

939
01:15:37,014 --> 01:15:43,574
grade rating on these things they're they're going everywhere they're going in every single fund

940
01:15:43,574 --> 01:15:48,694
they're going in pension funds they're going in iras like they're going everywhere insurance

941
01:15:48,694 --> 01:15:57,334
companies systemically right too big to fail systemically and that is that is like a huge

942
01:15:57,974 --> 01:16:05,574
that is just so like the gravity of of making that decision is so big and i don't think they

943
01:16:05,574 --> 01:16:13,494
want to make that decision yet because right like if that's everywhere then you that's basically

944
01:16:13,494 --> 01:16:19,274
saying, if this fails, we're not going to let our society crumble.

945
01:16:23,634 --> 01:16:24,474
I'm in agreement.

946
01:16:24,714 --> 01:16:25,434
I think it's hard.

947
01:16:25,434 --> 01:16:25,914
That's what they're saying.

948
01:16:26,174 --> 01:16:26,354
Yeah.

949
01:16:26,494 --> 01:16:30,514
But I think them having a rating right now is a massive step in the right direction.

950
01:16:30,554 --> 01:16:31,014
100%.

951
01:16:31,014 --> 01:16:31,634
Right.

952
01:16:31,634 --> 01:16:36,334
There are a lot of funds who are supposed to buy B minus rated debt.

953
01:16:36,654 --> 01:16:39,714
So I tweeted about this, but I'm going to tell the story quickly.

954
01:16:39,714 --> 01:16:47,274
If you want to buy unrated securities as an insurance company, you have to go through this just ridiculous process, right?

955
01:16:47,294 --> 01:16:50,054
You've got to go to this securities valuation office.

956
01:16:50,434 --> 01:16:51,414
You've got to file a memo.

957
01:16:51,794 --> 01:16:53,714
You've got to send over the prospectus.

958
01:16:53,794 --> 01:16:56,894
You've got to go back and forth with their team, answer questions.

959
01:16:57,174 --> 01:16:58,634
It's a three to six month process.

960
01:16:58,954 --> 01:17:05,514
And you've got to pay the $5,000 fee annually on top of every security that you want to buy into the future.

961
01:17:05,514 --> 01:17:15,534
if you want to buy any rated security all of that is gone so like insurance companies are like yeah

962
01:17:15,534 --> 01:17:20,014
i'm literally never going to do this because i would have to i would literally have to hire people

963
01:17:20,014 --> 01:17:26,254
to do the administrative task to put the unrated security on my balance sheet that i already don't

964
01:17:26,254 --> 01:17:34,654
necessarily believe in now if you remove all of the friction aka a rating then that capital is

965
01:17:34,654 --> 01:17:42,734
like, sure, I'll put some of that on my balance sheet. Why not? That's just one anecdote in the

966
01:17:42,734 --> 01:17:50,214
insurance industry and going from unrated to rated. Every step along the way, every step that

967
01:17:50,214 --> 01:17:54,854
goes higher is a new pocket of capital that opens up. Basically, I'm viewing these as,

968
01:17:55,934 --> 01:18:00,134
you know that open door meme? It's got the Grim Reaper and it's like different pools of capital.

969
01:18:00,334 --> 01:18:04,454
That's how I see this in my head. You got to go open another door and you go kill them.

970
01:18:04,654 --> 01:18:08,734
get in the door. That's kind of how these different pools of capital are and these

971
01:18:08,734 --> 01:18:13,234
different ratings will probably be. You know, you know, what's going to happen is

972
01:18:13,234 --> 01:18:17,774
at some point in the future, they're going to get rated. Whatever the rating is,

973
01:18:17,814 --> 01:18:20,774
it'll probably be lower than we want. And then eventually we'll ratchet up.

974
01:18:21,194 --> 01:18:28,754
And by the time Bitcoin is in the future, three years, five years, Bitcoin's at 250, 300,

975
01:18:28,954 --> 01:18:34,394
$400,000 and they get a rating. Somebody is going to be on, hey, what's the next new thing?

976
01:18:34,394 --> 01:18:40,074
because I wasn't in on this. Stretch is only 90 days old, a little bit more. It was basically

977
01:18:40,074 --> 01:18:46,754
just announced in the last quarterly report and went live on the date. So the takeaway here is

978
01:18:46,754 --> 01:18:51,374
that Stretch is not even a little bit over three months old. So what's going to happen is we'll get

979
01:18:51,374 --> 01:18:56,694
an update tomorrow on what's going on. And I think you folks should watch the earnings report.

980
01:18:56,694 --> 01:19:02,274
The fact that, I don't know, what was on the last earnings report? 45,000 people?

981
01:19:02,734 --> 01:19:03,934
Wasn't that a crazy number?

982
01:19:04,674 --> 01:19:10,854
You know, we asked Tad about that, you know, or there's a picture of, you know, MetaPlanet

983
01:19:10,854 --> 01:19:13,014
before and after they started the Bitcoin treasury.

984
01:19:13,614 --> 01:19:15,994
There was like three, six people in the room.

985
01:19:16,574 --> 01:19:20,614
Four of them were with the company and two were like the people delivering coffee.

986
01:19:20,994 --> 01:19:23,214
Nobody wanted to hear anything about MetaPlanet.

987
01:19:23,214 --> 01:19:25,934
And then a year later, the room's got 500 people in it.

988
01:19:25,934 --> 01:19:34,414
So with that said, if there's 45,000 people on strategies call tomorrow, I think that's unprecedented.

989
01:19:34,414 --> 01:19:40,374
Maybe we should find out the metrics for how many people are on their call versus NVIDIA based upon the market cap.

990
01:19:40,554 --> 01:19:48,334
And I think you're going to find there's a much higher percentage of people on strategies call based upon the market cap than NVIDIA.

991
01:19:49,074 --> 01:19:53,334
And I think that we live in unprecedented times.

992
01:19:53,974 --> 01:19:54,714
That's signal, right?

993
01:19:54,714 --> 01:19:59,314
people per market cap on, right?

994
01:19:59,354 --> 01:20:03,114
Everybody's trying to figure these things out and they're so new.

995
01:20:03,114 --> 01:20:05,974
And in order to figure them out, you have to spend time in doing them.

996
01:20:06,494 --> 01:20:09,794
And like, I literally work in this environment.

997
01:20:09,954 --> 01:20:17,054
I spend all of my time thinking about this and anybody that's, you know,

998
01:20:17,054 --> 01:20:22,334
focused on AI, they may, like most people don't even know strategy exists.

999
01:20:22,334 --> 01:20:29,174
the company even exists and we're meanwhile we're running around like these are the greatest things

1000
01:20:29,174 --> 01:20:36,134
since sliced bread right uh we've got just a lot of work to do yeah if i'm talking to somebody in

1001
01:20:36,134 --> 01:20:41,614
the gym or the sauna whatever about investing and you know it comes up you know strategy has to come

1002
01:20:41,614 --> 01:20:46,394
up and then i have to explain to them it's called strategy but the ticker is mstr because it used to

1003
01:20:46,394 --> 01:20:52,474
called micro strategy and they're just like oh okay yeah uh-huh let me not care about this

1004
01:21:00,394 --> 01:21:01,834
fucking ravens fans around here

1005
01:21:04,394 --> 01:21:12,394
you know so so you know jeff um i i think you know this digital credit there's a lot of moving parts

1006
01:21:12,394 --> 01:21:18,674
in it and being able that i think that the longer the person the more that they have been in

1007
01:21:18,674 --> 01:21:23,214
traditional finance they're more resistant just to understanding it there's a massive friction

1008
01:21:23,214 --> 01:21:29,734
tim what you just said if private credit or private equity gets you whatever 15 a year or 20

1009
01:21:29,734 --> 01:21:35,314
a year and basically i could buy an instrument right now that does that after basically after

1010
01:21:35,314 --> 01:21:40,754
tax i know it's return of capital um you know i think that that you know they're like well that's

1011
01:21:40,754 --> 01:21:45,874
good to be true so i'm not gonna even listen to you and so that's exactly it right it's too good

1012
01:21:45,874 --> 01:21:50,754
to be true it's too good to be true it's tax deferred okay it's tax deferred go ahead mike

1013
01:21:50,754 --> 01:21:59,954
continue so real quick i actually had a friend of mine text me and say hey i get it now and you know

1014
01:21:59,954 --> 01:22:06,434
what he sent me he sent me an image i don't know if we can pull it up of like the pipe that's like

1015
01:22:06,434 --> 01:22:12,754
the newest thing from jesse oh yeah yeah yeah and oh yeah of course it's matthew montgomery

1016
01:22:12,754 --> 01:22:17,394
or the oil guy right but it's like he was like i get it now right so it's like i think that's

1017
01:22:17,394 --> 01:22:23,154
part of the education curve is like give people something that they can actually see to help them

1018
01:22:23,154 --> 01:22:27,634
visualize what's going on with all of these products mike as you were saying right it's

1019
01:22:27,634 --> 01:22:33,634
there's a lot going on there so so mike to your point on this too good to be true i and i said

1020
01:22:33,634 --> 01:22:42,034
this on um i think the hurdle rate like i literally took the right before i left in

1021
01:22:42,034 --> 01:22:48,274
reinsurance i was like you know what i'm gonna give it one more shot and originally i wanted to

1022
01:22:48,274 --> 01:22:52,594
bring bitcoin into the reinsurance markets and i thought look i'm gonna go make a good pitch i'm a

1023
01:22:52,594 --> 01:22:58,034
pretty good salesman uh in selling these structured products i'm gonna go talk to my ceo about bitcoin

1024
01:22:58,034 --> 01:23:00,434
and tell them I want to work on it.

1025
01:23:00,434 --> 01:23:04,074
I walk in the door and I bring in

1026
01:23:04,074 --> 01:23:06,874
the four-year compound annual growth rate chart

1027
01:23:06,874 --> 01:23:09,094
and the log-log Bitcoin chart.

1028
01:23:10,234 --> 01:23:12,714
And then also a chart of other technologies

1029
01:23:12,714 --> 01:23:14,614
and their adoption rates.

1030
01:23:14,614 --> 01:23:17,634
And we talked about it for, I don't know,

1031
01:23:17,634 --> 01:23:19,934
10 minutes, 15 minutes.

1032
01:23:19,992 --> 01:23:22,532
And I was like, I was pretty nervous.

1033
01:23:23,292 --> 01:23:26,092
I'm like, I'm literally putting my entire career on the line here.

1034
01:23:26,672 --> 01:23:31,772
And he's like, well, when I, when I look at this chart, this seems sketchy.

1035
01:23:33,192 --> 01:23:35,692
And it was just like too good to be true.

1036
01:23:35,732 --> 01:23:39,332
This is the CEO of the company, like a multi-billion dollar company

1037
01:23:39,672 --> 01:23:40,932
that works in finance.

1038
01:23:41,612 --> 01:23:44,032
And, you know, I seem like the crazy guy.

1039
01:23:44,032 --> 01:23:48,192
I seem like the, you know, the church goer, like, uh, let me tell

1040
01:23:48,192 --> 01:23:49,692
you about my Lord and savior, Jesus Christ.

1041
01:23:49,692 --> 01:23:53,112
Right. Like this, that that's kind of what it came across as.

1042
01:23:53,652 --> 01:23:57,392
But my initial reaction was like, I can underwrite this.

1043
01:23:57,392 --> 01:24:08,932
Like this is all of these elements can is is creating a risk profile that I can underwrite, which at the time strategy was coming out the convertible bonds.

1044
01:24:08,932 --> 01:24:12,972
And I was like, I was starting to see it visions of underwriting tranches of risk.

1045
01:24:12,972 --> 01:24:19,852
and it's just going to take so much time for people to wrap their head around it because it's

1046
01:24:19,852 --> 01:24:24,812
novel but there are new products they're really starting to do the same thing and they're starting

1047
01:24:24,812 --> 01:24:33,592
to take off and i saw it i saw it yesterday um it's a fixed income product and it's long tesla

1048
01:24:33,592 --> 01:24:44,572
nvidia and meta i think and it and it takes the like worst performance of the three over a four

1049
01:24:44,572 --> 01:24:50,312
year period and it kicks off a dividend i i'll have to find it and send it out to you guys i it

1050
01:24:50,312 --> 01:24:53,512
was totally fast you know i'll see if i can look it up if you guys want to keep the conversation

1051
01:24:53,512 --> 01:24:57,552
going but you know you know you know something that happens i was on a i was in a space a couple

1052
01:24:57,552 --> 01:25:02,132
days ago and there was a guy that came on it was grant and gary and grant card over in the space

1053
01:25:02,132 --> 01:25:05,512
And this guy was saying, you know, it's the same tired old trope about Bitcoin.

1054
01:25:05,892 --> 01:25:09,372
I'll believe in Bitcoin when I can go buy a coffee at my local pub.

1055
01:25:09,432 --> 01:25:12,292
The guy was British and he's saying this.

1056
01:25:12,692 --> 01:25:13,752
And I'm like, that's my brother-in-law.

1057
01:25:14,172 --> 01:25:16,732
So I'm like, so you know what I say to those guys?

1058
01:25:16,732 --> 01:25:18,132
I'm like, okay, you know what?

1059
01:25:18,352 --> 01:25:22,352
Go take a stock certificate down and go buy, go buy, go buy a beer with it.

1060
01:25:22,392 --> 01:25:24,112
You can't use a stock certificate to buy it.

1061
01:25:24,132 --> 01:25:25,052
You don't even have a stock certificate.

1062
01:25:25,412 --> 01:25:28,532
I said, take a $20 gold piece.

1063
01:25:29,032 --> 01:25:33,192
Now, the $20 gold piece is worth whatever the price of gold is, but it's stamped 20 bucks.

1064
01:25:33,272 --> 01:25:34,072
So that's all it's worth.

1065
01:25:34,312 --> 01:25:36,092
We're going to file off some of the gold.

1066
01:25:36,332 --> 01:25:40,652
So I can't use gold to go buy a cup of a cup of what do you call it?

1067
01:25:40,892 --> 01:25:43,192
And they're like, well, it's a digital asset.

1068
01:25:43,412 --> 01:25:44,232
What does that mean?

1069
01:25:44,712 --> 01:25:47,972
Well, there's like there's music portfolios.

1070
01:25:48,092 --> 01:25:49,092
Can't touch music.

1071
01:25:49,212 --> 01:25:49,932
You can hear it.

1072
01:25:49,972 --> 01:25:51,672
You could see sheet music if it's printed.

1073
01:25:51,672 --> 01:25:54,332
But those music portfolios have a value.

1074
01:25:55,092 --> 01:25:56,672
Frickin what's his name?

1075
01:25:56,672 --> 01:26:03,052
you know, Elvis Presley is worth more dead than he is alive because they license his name. The

1076
01:26:03,052 --> 01:26:08,332
guy is not even here. So they license this. So when somebody tells me that I can't use Bitcoin

1077
01:26:08,332 --> 01:26:14,852
to go buy something, I'm like, what's your point? You buy your asset and at some point,

1078
01:26:14,912 --> 01:26:19,312
either you borrow against it or you sell off a piece of it and you go live your life.

1079
01:26:19,532 --> 01:26:25,272
And somebody is like, have I ever transacted in Bitcoin? Not really, maybe once or twice to get

1080
01:26:25,272 --> 01:26:29,572
a t-shirt at an event, but I would never do that. You know how bad I would feel if I used

1081
01:26:29,572 --> 01:26:37,192
two Bitcoin to buy a t-shirt now that that's an expensive t-shirt, right? So, so my takeaway is

1082
01:26:37,192 --> 01:26:41,392
that we keep on hearing those same things. And the guy said this, and I'm watching the Jeremy

1083
01:26:41,392 --> 01:26:48,712
Clarkson show, like 80% of the pubs in the UK have closed down. You know, what killed it? Social

1084
01:26:48,712 --> 01:26:53,932
media. They're not going to the bar to drink. And, and Jeremy's like, well, we'll serve food also.

1085
01:26:53,932 --> 01:26:58,372
And when he went to go get this license to go do this, because I'm a car nut, even though

1086
01:26:58,372 --> 01:27:00,552
the show's not about cars, right?

1087
01:27:01,112 --> 01:27:03,532
They're like, no, you can't set it up.

1088
01:27:03,672 --> 01:27:08,412
We had three restaurants in here that all went bankrupt out of business over the past

1089
01:27:08,412 --> 01:27:09,012
six years.

1090
01:27:09,192 --> 01:27:10,872
You're not going to be any better than them.

1091
01:27:11,632 --> 01:27:14,272
So the way the world used to be changed.

1092
01:27:14,612 --> 01:27:15,752
I didn't change it.

1093
01:27:16,072 --> 01:27:16,832
It changed.

1094
01:27:17,372 --> 01:27:20,172
So lead follower, get out of the way.

1095
01:27:20,172 --> 01:27:25,012
and you know i i think i'm pretty fired up today about this jeff if you want to talk about something

1096
01:27:25,012 --> 01:27:31,792
just cut me off but well from from my view it's like you know what you better be prepared for the

1097
01:27:31,792 --> 01:27:36,412
future if you don't like the future maybe you need to change your attitude i'll take the other side

1098
01:27:36,412 --> 01:27:41,792
of that grain i'd love every every chance i get that i can spend some bitcoin i'm like so excited

1099
01:27:41,792 --> 01:27:47,972
i feel like a kid um when when tim took me to pub key the first time that was the first time i ever

1100
01:27:47,972 --> 01:27:53,872
spent, you know, Bitcoin and, you know, a couple of double cheeseburger, smash burgers, whatever

1101
01:27:53,872 --> 01:27:59,772
the heck it was, lightning. And, you know, I just hold open the code, the guy scans it

1102
01:27:59,772 --> 01:28:03,712
and then he walks away and I'm like, did it work? You know what I mean? I was like, I

1103
01:28:03,712 --> 01:28:08,612
don't know. And he's like, oh yeah, everything's good. And, um, you know, I'm being a little

1104
01:28:08,612 --> 01:28:12,392
cheeky with it, but if you, if you've got Fiat to buy cheeseburgers, you're already Bitcoin

1105
01:28:12,392 --> 01:28:16,752
poor. So I don't mind the spend and replace aspect of, of Bitcoin.

1106
01:28:16,752 --> 01:28:37,792
I think it's fun. Look, back in the old days in 2017, I would give, you know, back when I got into whatever, $2,000, I was giving people, you know, whatever it was, $10 or $20 worth of Bitcoin. And I was giving them full Litecoins at whatever they were back, I don't remember, $3, whatever it went to. And I was giving them all kinds of stuff just to show them that it works.

1107
01:28:37,792 --> 01:28:43,952
I will tell you that most of the people probably forgot how to get in the Coinbase to go get it.

1108
01:28:44,492 --> 01:28:48,892
So that experiment kind of didn't work the way I wanted it to.

1109
01:28:49,492 --> 01:28:55,332
But I think our takeaway here right now is that we've talked about some very complex things.

1110
01:28:56,172 --> 01:29:01,192
Prefs that are designed to sell by an operating company to attack the bond market.

1111
01:29:02,092 --> 01:29:06,912
Tim, you're talking about the Jesse Myers with the little pipe showing how that all works.

1112
01:29:06,912 --> 01:29:10,572
is pretty awesome.

1113
01:29:11,152 --> 01:29:12,172
You know, for a visual,

1114
01:29:12,172 --> 01:29:14,992
a picture's worth a thousand words sometimes.

1115
01:29:15,812 --> 01:29:19,292
And I think Clarkson's Farm is totally underrated.

1116
01:29:19,912 --> 01:29:20,932
You know, by the way,

1117
01:29:20,972 --> 01:29:22,752
the guy gets a Lamborghini tractor.

1118
01:29:22,912 --> 01:29:24,472
It's like the worst tractor to get.

1119
01:29:24,652 --> 01:29:26,152
Although it sounds awesome.

1120
01:29:26,672 --> 01:29:27,692
It looks cool,

1121
01:29:27,872 --> 01:29:29,492
but they have lots of problems with it.

1122
01:29:29,892 --> 01:29:33,012
But anyway, you know, look,

1123
01:29:33,372 --> 01:29:35,772
I like everybody likes to take us to task.

1124
01:29:35,772 --> 01:29:44,092
if we make any type of comment, you know, you know, you know, the two Bitcoin, you know,

1125
01:29:44,272 --> 01:29:50,132
on a muck there, you know, use two Bitcoin to buy two t-shirts. It's like, well, anybody that's

1126
01:29:50,132 --> 01:29:56,512
transacted that way, you know, you kind of feel bad eight years later. So, or whatever dollar

1127
01:29:56,512 --> 01:30:00,412
amount it was. And that's why I don't transact in it because I think it's going up forever.

1128
01:30:00,412 --> 01:30:03,872
And so from that perspective, I want to hold on to as much as I have.

1129
01:30:04,792 --> 01:30:08,052
But what else do we want to talk about, guys?

1130
01:30:08,652 --> 01:30:13,532
I think I found the note, the fixed income note.

1131
01:30:13,852 --> 01:30:18,432
It's called a worst of fixed income note.

1132
01:30:19,212 --> 01:30:20,992
And it uses NVIDIA.

1133
01:30:21,692 --> 01:30:23,452
I think there are a few of these now.

1134
01:30:23,452 --> 01:30:37,492
But they use stocks and they structure stock performance into fixed income to reduce the risk and reduce the upside, which is the same thing that strategy is doing with Bitcoin.

1135
01:30:37,932 --> 01:30:45,452
They're like literally these structured notes are being created, wrapped around these equity products for people that aren't willing to take the equity risk.

1136
01:30:45,452 --> 01:30:50,152
but they know that like if I hold Nvidia or Tesla,

1137
01:30:50,472 --> 01:30:51,592
I'm not getting paid a dividend,

1138
01:30:51,972 --> 01:30:53,972
but I need like,

1139
01:30:54,112 --> 01:30:56,512
I need some protections here.

1140
01:30:56,612 --> 01:31:00,932
So they basically slam together performance of these equities

1141
01:31:00,932 --> 01:31:05,132
and structure a fixed income product around it.

1142
01:31:05,252 --> 01:31:06,332
And it's just becoming fascinating.

1143
01:31:06,632 --> 01:31:08,152
Like this stuff is just going to keep getting crazier.

1144
01:31:08,872 --> 01:31:12,312
But that's wild because every single one of those assets

1145
01:31:12,312 --> 01:31:14,792
that are getting wrapped have disruption risk.

1146
01:31:14,792 --> 01:31:21,632
100 and and strategy has bitcoin which money is impervious to disruption it's the only thing that

1147
01:31:21,632 --> 01:31:27,652
can't be disrupted is a bitcoin balance sheet right so it's it's it's an insane comparison

1148
01:31:27,652 --> 01:31:32,932
hey you know what i i've got a quick financial engineering story here involves warren buffett

1149
01:31:32,932 --> 01:31:39,552
and apple and you guys anybody could fact check me on this and it'll take two seconds so um at

1150
01:31:39,552 --> 01:31:47,312
some point, Tim Cook was running Apple. Steve Jobs had died and he's sitting on whatever,

1151
01:31:47,312 --> 01:31:54,352
$100 billion in cash. And he didn't know what to do with it. So the internet lore is he wanted to

1152
01:31:54,352 --> 01:31:58,912
know if he could talk to Warren Buffett, but he didn't know if he would take his call, whether or

1153
01:31:58,912 --> 01:32:05,552
not it's true or not. So he calls up Warren Buffett and they have a talk about this. And basically,

1154
01:32:05,552 --> 01:32:16,988
what Warren Buff said to him is you have all this cash it billion This is financial engineering at the best If you believe that your stock is undervalued the best thing that you could do is buy back your own

1155
01:32:16,988 --> 01:32:23,228
shares because automatically it accretes value because it reduces the float and increases your

1156
01:32:23,228 --> 01:32:30,088
earnings per share. Now, so Tim Cook hears that and he's like, oh my God, that actually makes sense.

1157
01:32:30,628 --> 01:32:35,728
The interesting part about it was the downstream effects to Warren Buffett. Warren Buffett was one

1158
01:32:35,728 --> 01:32:40,148
of the largest shareholders in Apple, not because he's a tech guy, it was because he brought in two

1159
01:32:40,148 --> 01:32:47,828
guys that explained to him to do this. He had a large stack of Apple shares. So when he told Tim

1160
01:32:47,828 --> 01:32:56,248
Cook to do this, right, it was benefiting Warren Buffett directly because they bought back their

1161
01:32:56,248 --> 01:33:02,168
own shares, which means each share that Warren Buffett had is now a higher percentage of the

1162
01:33:02,168 --> 01:33:08,688
market cap of the company. And this was a non-taxable event. Well, I mean, and so how do

1163
01:33:08,688 --> 01:33:13,428
they fund these buybacks with Apple? A lot of the buybacks are funded by floating a bond.

1164
01:33:13,768 --> 01:33:19,248
Why do they float a bond? Because a lot of the money is offshore. So the way they buy the shares

1165
01:33:19,248 --> 01:33:24,288
in the US is they float a bond so they don't repatriate the dollars because they have to pay

1166
01:33:24,288 --> 01:33:31,148
taxes on it. They float a bond. So Apple sitting on $100 billion in cash is floating a bond so they

1167
01:33:31,148 --> 01:33:37,468
don't pay taxes to buy back their own shares to reduce the float to make more money and everybody's

1168
01:33:37,468 --> 01:33:43,788
like well we're cool with that that's all good oh no what sayers doing that's financial engineering

1169
01:33:43,788 --> 01:33:49,708
ponzi scheme must be it's a ponzi scheme it's not gonna work i mean this is all gonna because he's

1170
01:33:49,708 --> 01:33:54,588
doing with balance sheet and apple did it with the income statement but the same financial

1171
01:33:54,588 --> 01:34:00,588
engineering that apple is doing with tim cook nobody has a problem with that yeah well and i i

1172
01:34:00,588 --> 01:34:05,928
I know this is not MetaPlanet True North, but I mean, they did announce that they might buy back some shares, right?

1173
01:34:07,308 --> 01:34:12,928
MetaPlanet did 13.13% over the course of a year, and they pledged collateral for the Bitcoin to go do it.

1174
01:34:14,128 --> 01:34:16,268
I think they need to do a couple other things.

1175
01:34:16,368 --> 01:34:20,028
And if Dylan and Simon are watching this, you guys could DM me.

1176
01:34:20,388 --> 01:34:21,688
Dylan, you have my phone number.

1177
01:34:22,228 --> 01:34:23,788
I've talked to him in person many times.

1178
01:34:23,788 --> 01:34:26,508
But anyway, with that said, just give me a call.

1179
01:34:26,588 --> 01:34:27,948
I have some ideas for you guys.

1180
01:34:28,808 --> 01:34:35,368
And I think that what I just explained to you about financial engineering, any TradFi guy should know that.

1181
01:34:35,468 --> 01:34:38,088
If they don't know that, then they don't grab a Diet Coke.

1182
01:34:39,748 --> 01:34:47,988
Jeff, so could you underwrite Bitcoin black swan insurance for a treasury company that was stacking?

1183
01:34:48,508 --> 01:34:51,448
Yeah, I think that absolutely could be a product in the market.

1184
01:34:51,948 --> 01:34:53,268
100%. You can calculate.

1185
01:34:53,268 --> 01:34:58,788
Like I think you, well, really, I think the question is, is there anybody on the other

1186
01:34:58,788 --> 01:34:59,988
side that wants to take that trade?

1187
01:35:01,188 --> 01:35:01,508
Right.

1188
01:35:01,648 --> 01:35:06,228
So, but you can, you can certainly quantify the risk and start to structure the risk.

1189
01:35:06,228 --> 01:35:14,348
And you're, you're talking like tail out of, to put this in perspective, uh, in the

1190
01:35:14,348 --> 01:35:23,148
reinsurance world, I w I, I frequently sold, uh, very like deep out of the money, uh,

1191
01:35:23,148 --> 01:35:30,068
earthquake tail protection. So California earthquake authority exists. They've got

1192
01:35:30,068 --> 01:35:36,268
billions of dollars of coverage. They buy, you know, reinsurance up to one in 250 year return

1193
01:35:36,268 --> 01:35:42,428
period. So if there was an event that was a one in two 50 year event, like significantly worse than

1194
01:35:42,428 --> 01:35:48,988
1989 earthquake or like the 1908 earthquake, like double, double as bad as the 1908 earthquake in

1195
01:35:48,988 --> 01:35:58,048
San Francisco, that, that, uh, product would kick in. And yeah, I think I sold it for like 4%.

1196
01:35:58,048 --> 01:36:02,708
I sold a hundred million dollars for $4 million, a hundred million dollars of coverage for $4

1197
01:36:02,708 --> 01:36:09,908
million. But, uh, there was somebody that was willing to take on that risk to, to the downside,

1198
01:36:10,028 --> 01:36:15,208
right? Like it's a, it's a tail event, but you have to be able to like wrap your head around

1199
01:36:15,208 --> 01:36:21,728
what's the probability of that tail event? And how do I quantify it? And I think you can.

1200
01:36:21,728 --> 01:36:27,568
I think you can quantify those tail events and I think you can quantify those things.

1201
01:36:28,368 --> 01:36:36,888
Many people think you cannot, but I believe this is a structural instrument that is building and

1202
01:36:36,888 --> 01:36:44,628
getting adoption. This is an adoption curve, not a speculative asset. And if you take that

1203
01:36:44,628 --> 01:36:49,588
perspective, then yeah, you can underwrite it and you can underwrite. So you could sell that product

1204
01:36:49,588 --> 01:36:53,448
to the market, to somebody that's willing to take it on.

1205
01:36:54,168 --> 01:36:58,848
Yeah. When you tweeted, I can underwrite this. The only thing I could think of was that saying,

1206
01:36:58,848 --> 01:37:02,808
when you're a hammer, everything looks like a nail. So apparently when you're an underwriter,

1207
01:37:02,928 --> 01:37:07,248
everything looks like insurance. Yeah, totally. Totally. And the

1208
01:37:07,248 --> 01:37:25,668
Another takeaway that I've been having over time here is that there's basically one form in my mind of digital credit that will be pervasive and very viable in the future, and it's Bitcoin-backed credit.

1209
01:37:25,668 --> 01:37:35,448
it's very, very, very difficult to underwrite with any more certainty digital credit backed

1210
01:37:35,448 --> 01:37:40,888
by Ethereum or Solana or any of these other cryptocurrencies that have a centralized authority.

1211
01:37:43,328 --> 01:37:49,248
You've got a new element that is unpredictable and difficult to quantify. There are convertible

1212
01:37:49,248 --> 01:37:55,028
bonds that exist in the market, but for anybody going to get Ethereum backed digital credit,

1213
01:37:55,668 --> 01:38:00,708
the rates are going to have to be higher, right? Like they're going to have to be way high.

1214
01:38:00,708 --> 01:38:03,148
They're going to have to be, there's going to be a credit spread between

1215
01:38:03,148 --> 01:38:09,028
Bitcoin backed digital credit and Ethereum backed digital credit, which is in my, like my bull thesis

1216
01:38:09,028 --> 01:38:14,028
here is that Bitcoin is going to capture the credit market. It's not going to be any of these

1217
01:38:14,028 --> 01:38:21,648
other shit coins because you can't, it's, they're far more difficult to underwrite from a risk

1218
01:38:21,648 --> 01:38:31,248
perspective. And Bitcoin being decentralized is much easier to wrap your head around that risk

1219
01:38:31,248 --> 01:38:38,688
profile. So this is going to be a multi, this is going to be a multi trillion dollar market.

1220
01:38:39,688 --> 01:38:44,848
So, so let me talk about black swan events. Black swan events occur every single year.

1221
01:38:45,688 --> 01:38:48,748
Nvidia had a black swan event this year. Does anybody remember it?

1222
01:38:48,748 --> 01:38:54,928
they signed the death certificate what happened to them deep seat came out

1223
01:38:54,928 --> 01:39:02,328
the deep seat came out i just googled it just chat gp it comes up oh nvidia has peaked the ai

1224
01:39:02,328 --> 01:39:07,908
the ai boom is over you know this this ai startup in china was able to figure out how to use low

1225
01:39:07,908 --> 01:39:13,828
cost or outdated nvidia chips to have orders of magnitude better than anything else and so they

1226
01:39:13,828 --> 01:39:18,588
not to pick on you we had a black swan event on nvidia which is now the most valuable company

1227
01:39:18,588 --> 01:39:20,308
How much is NVIDIA worth, Jeff?

1228
01:39:21,068 --> 01:39:21,548
Five trillion.

1229
01:39:21,988 --> 01:39:23,248
Five trillion dollars.

1230
01:39:23,448 --> 01:39:25,288
We had a black swan event on this year.

1231
01:39:25,628 --> 01:39:31,328
So if we go back to the morons that wrote those articles in February, we go ask them,

1232
01:39:31,348 --> 01:39:31,788
what do you think?

1233
01:39:31,948 --> 01:39:34,588
Well, we thought the world was ending for NVIDIA.

1234
01:39:34,828 --> 01:39:38,428
And then remember the yen carry trade blew up last year, last August?

1235
01:39:38,868 --> 01:39:41,668
Oh, well, the freaking yen carry trade is over.

1236
01:39:42,348 --> 01:39:43,188
Bitcoin's dead.

1237
01:39:43,188 --> 01:39:49,048
So it seems like every year, Charlie Bielo, who's on X, is awesome.

1238
01:39:49,348 --> 01:39:54,768
He's got a chart, and every year it lists what caused the major dip to happen.

1239
01:39:55,788 --> 01:40:00,848
So somebody could say is, well, if you don't own NVIDIA, it's not a black swan event.

1240
01:40:01,388 --> 01:40:03,068
But if you do, it is.

1241
01:40:03,668 --> 01:40:07,708
It's a recession when your neighbor loses a job.

1242
01:40:07,828 --> 01:40:09,588
It's a depression when you lose your job.

1243
01:40:09,588 --> 01:40:14,568
yeah and so your perspective is if the yen carry trade blew up what you were doing or the price of

1244
01:40:14,568 --> 01:40:19,608
bitcoin it's a black swan event if you're owned nvidia you had a black swan event earlier this

1245
01:40:19,608 --> 01:40:27,508
year if you got shaken out and then it went up wow i guess you didn't see that coming yeah i think

1246
01:40:27,508 --> 01:40:33,088
i think um you're kind of going back to that question a little bit i think about often like

1247
01:40:33,088 --> 01:40:39,548
what is risk? And in my opinion, risk is just math. It's probabilities, right? Like let's think

1248
01:40:39,548 --> 01:40:47,048
about the very first insurance contract that was ever created in 1686, the first ship that sailed

1249
01:40:47,048 --> 01:40:52,568
across the Atlantic. There's a probability that that ship wasn't going to make it. And they said,

1250
01:40:52,648 --> 01:41:08,984
I will insure your trip You pay me this And if the goods don get there and get back then I will make you whole And that was just a probabilistic calculation Like risk has been in society like forever

1251
01:41:08,984 --> 01:41:11,484
and it's just been ingrained, like gambling.

1252
01:41:11,884 --> 01:41:12,824
Like what is gambling?

1253
01:41:12,984 --> 01:41:13,824
Gambling is risk-taking.

1254
01:41:14,344 --> 01:41:15,884
And you can boil risk-taking down

1255
01:41:15,884 --> 01:41:18,164
to probabilistic simulations and math.

1256
01:41:18,824 --> 01:41:20,924
And now you have math money,

1257
01:41:21,924 --> 01:41:24,504
money that is designed around math

1258
01:41:24,504 --> 01:41:31,164
and you can throw probabilistic simulations and probabilities around its future performance

1259
01:41:31,164 --> 01:41:40,204
and create a risk curve for that instrument and you can begin to structure and tranche

1260
01:41:40,204 --> 01:41:50,504
different risk tranches based on anything really if you could think of it you can create it like

1261
01:41:50,504 --> 01:41:56,624
and now you've got the use of ai and like sailor creating these instruments he's out creating

1262
01:41:56,624 --> 01:42:02,204
different risk tranches on all of these different things but this is just the tip of the iceberg

1263
01:42:02,204 --> 01:42:09,764
like you can do 10 000 different ideas here like i everybody there's been so much infighting

1264
01:42:09,764 --> 01:42:15,684
on bitcoiners yelling at bitcoin treasury companies they're all trending to one m nav it's like

1265
01:42:15,684 --> 01:42:23,844
everybody's wasting so much energy when they should be focused on the bond market like

1266
01:42:23,844 --> 01:42:30,984
can we just all be on the same page here and focus on how shitty the entire bond market is

1267
01:42:30,984 --> 01:42:38,104
like just i mean just go look at a few things out there like why would anybody buy these things

1268
01:42:38,104 --> 01:42:41,864
We need to turn a critical eye to those things, right?

1269
01:42:41,864 --> 01:42:47,504
Like a lot of like grifter mentality out here.

1270
01:42:48,104 --> 01:42:50,844
People think that the Bitcoin treasury companies are grifting.

1271
01:42:50,984 --> 01:42:54,744
No, like we're trying to push Bitcoin adoption forward.

1272
01:42:55,604 --> 01:43:00,724
And I would argue that Bitcoin is probably the most trustworthy people on the planet.

1273
01:43:01,724 --> 01:43:02,284
Right?

1274
01:43:02,344 --> 01:43:04,784
Any other shit coiners, like I'm not trusting any of those people.

1275
01:43:04,784 --> 01:43:11,524
like trust is a is human nature there's going to be trust structures in the future of society like

1276
01:43:11,524 --> 01:43:16,024
if society is going to be around like trust is going to be everywhere like you're still going

1277
01:43:16,024 --> 01:43:23,904
to have trust like unless we're all computers you cannot remove trust from society so i think

1278
01:43:23,904 --> 01:43:29,644
that's just always going to be around but anyway that's just my perspective yeah so um dan i think

1279
01:43:29,644 --> 01:43:35,544
you put some some research together do you want to talk about the uh the four-year cycle fallacy

1280
01:43:35,544 --> 01:43:44,724
i have i just have some brief macro notes for your cycle policy we can discuss as a collective

1281
01:43:44,724 --> 01:43:48,284
i think yeah i think people in the comments are getting psyched about all the bitcoin

1282
01:43:48,284 --> 01:43:55,624
conversation so this might be a good rip it good topic rip it no while you're pulling that up i

1283
01:43:55,624 --> 01:44:06,544
I'm super excited to see what it is because I'm torn between everybody thinks they've got the four-year cycle figured out, so then that means it can't be true.

1284
01:44:07,064 --> 01:44:14,344
But then at the same time, Bitcoin's never existed before, so maybe it's just mathematically programmed to do it that way.

1285
01:44:14,744 --> 01:44:18,664
So I can't even decide for myself what to think about it.

1286
01:44:18,664 --> 01:44:22,684
Liquidity environments, business cycles, right?

1287
01:44:22,764 --> 01:44:30,864
There's just a lot of, it's like not going to operate on a, like, math, like a.

1288
01:44:32,404 --> 01:44:36,924
Well, people are suspecting that it would work on the, you know, be related to the having, right?

1289
01:44:36,984 --> 01:44:42,724
But I think some people are coming to believe that it's not specifically having related.

1290
01:44:44,644 --> 01:44:45,084
Inception.

1291
01:44:46,044 --> 01:44:46,324
Yeah.

1292
01:44:46,324 --> 01:44:55,364
I mean, to start, I think a lot of the pain people have been feeling has been the underperformance relative to QQQ, but it's really nothing too bad.

1293
01:44:55,624 --> 01:44:57,884
It's just been going on for three months.

1294
01:44:58,664 --> 01:45:00,464
But, you know, we're still up big.

1295
01:45:00,904 --> 01:45:02,824
And QQQ, I just did an analysis the other day.

1296
01:45:02,924 --> 01:45:03,944
I mean, not analysis.

1297
01:45:04,124 --> 01:45:04,944
I just looked through the index.

1298
01:45:05,384 --> 01:45:09,384
I mean, 70% of QQQ is the MAG-8.

1299
01:45:10,104 --> 01:45:12,024
So that's just something for people to consider.

1300
01:45:12,284 --> 01:45:13,884
QQQ is not really an index.

1301
01:45:13,884 --> 01:45:15,524
It's the MAG-7, essentially.

1302
01:45:16,324 --> 01:45:19,084
manufacturing PMIs.

1303
01:45:20,164 --> 01:45:27,684
We've been in this period where this has contributed to the underperformance of the S&P 493.

1304
01:45:28,824 --> 01:45:34,464
Everything that's not mega cap tech AI is underperforming and Bitcoin is trending along with it.

1305
01:45:34,904 --> 01:45:36,064
And that's a function of the business cycle.

1306
01:45:36,224 --> 01:45:37,984
So this has just been a super weird period of time.

1307
01:45:38,724 --> 01:45:41,664
Maybe AI capex spend makes this trend higher.

1308
01:45:41,664 --> 01:45:46,424
But I think anyone calling for like a 70% decline in Bitcoin is just like a fool right now.

1309
01:45:47,024 --> 01:45:51,824
You know, we may not get that crazy rip people are expecting, like $200K in a short period of time.

1310
01:45:51,984 --> 01:45:57,404
But I think fading this and getting short Bitcoin here is just ridiculous.

1311
01:45:58,744 --> 01:46:00,144
This one's pretty interesting, actually.

1312
01:46:01,584 --> 01:46:03,584
Average returns by Bitcoin cycle phase.

1313
01:46:04,544 --> 01:46:08,024
So, and you've got Bitcoin, QQQ, SPY, and gold.

1314
01:46:08,024 --> 01:46:13,984
but the four main, four big drivers or big indicators of kind of the macroeconomic trends.

1315
01:46:14,524 --> 01:46:20,684
So in bear markets over the past four years, on average, every single asset has been negative.

1316
01:46:21,244 --> 01:46:25,864
So the QQQs, SPY and gold actually during these Bitcoin bear markets.

1317
01:46:26,624 --> 01:46:32,764
This is a four portions of the cycle, bear market recovery, bull, and then bull peak.

1318
01:46:33,344 --> 01:46:36,664
But you can see these assets are highly, highly correlated in every single market.

1319
01:46:36,664 --> 01:46:45,104
So like a bet that the Bitcoin four-year cycle will continue is essentially a bet that QQQ and SPY will be negative next year.

1320
01:46:45,704 --> 01:46:49,164
And that's hard to foresee considering it's just AI CapEx spend.

1321
01:46:49,484 --> 01:46:54,664
It seems to be going nowhere, but higher, plus we're cutting rates into market all-time highs.

1322
01:46:56,044 --> 01:47:03,284
And then again, this is during the last three Bitcoin bear markets, how have assets performed?

1323
01:47:03,284 --> 01:47:05,284
So 2014 was a bit of anomaly.

1324
01:47:06,084 --> 01:47:13,244
But during 2018 and 2022, you can see a high, high correlation between QQQ and Bitcoin.

1325
01:47:13,484 --> 01:47:25,664
I really think when you look back, the 2022 bear market was far worse than the 2018 bear market in terms of how far we deviated from the general trend and how subdued we were in price.

1326
01:47:26,204 --> 01:47:31,704
And I think that obviously as a function of global liquidity and the credit hiking cycle, the rate hiking cycle.

1327
01:47:31,704 --> 01:47:34,364
And so it's reflected in the general indices as well.

1328
01:47:35,064 --> 01:47:39,144
But I don't think now is the time to be, you know, shying away.

1329
01:47:39,244 --> 01:47:41,424
And then CMC fear greed, super low.

1330
01:47:42,284 --> 01:47:44,504
And yeah, and volatility.

1331
01:47:44,764 --> 01:47:47,644
Volatility has actually been slowly coming back into Bitcoin.

1332
01:47:47,824 --> 01:47:50,384
It unfortunately has been to the downside recently.

1333
01:47:50,944 --> 01:47:53,324
But I think volatility is at a good spot.

1334
01:47:54,204 --> 01:47:57,104
You know, this is all kind of peak here, but volatility is a good spot.

1335
01:47:57,184 --> 01:48:01,124
I think it's healthy, but it's going to take longer, I think,

1336
01:48:01,124 --> 01:48:07,644
for us to go higher but it's all gonna happen yeah showing those other equities going down

1337
01:48:07,644 --> 01:48:12,644
during the bitcoin bear markets like if you're going to assume that bitcoin went down because

1338
01:48:12,644 --> 01:48:18,284
of a four-year cycle then you'd have to kind of assume that somehow bitcoin's four-year cycle

1339
01:48:18,284 --> 01:48:23,484
dragged the other equities down with it like that would just be a weird coincidence right so i it

1340
01:48:23,484 --> 01:48:28,224
does seem uh like i don't think you can make that assumption right like if anything the other

1341
01:48:28,224 --> 01:48:34,284
equities like at that point in time bitcoin was you know like a one trillion our market cap um in

1342
01:48:34,284 --> 01:48:42,804
2022 so yeah i don't i mean bitcoin's not leading equities right right following equities yeah

1343
01:48:42,804 --> 01:48:49,204
all right that's some yeah go ahead go ahead mike yeah so a little different take let's just say we

1344
01:48:49,204 --> 01:48:55,524
look 2016 it just happens that bitcoin halvings kind of correspond to u.s election years by

1345
01:48:55,524 --> 01:49:02,704
coincidence. So 2016 was an election year, 2017 was the peak. 2020 was, sorry, 2016 was an election

1346
01:49:02,704 --> 01:49:08,324
year and a halving year. 2020 was a halving year, an election year. 2021 was the peak. It had a

1347
01:49:08,324 --> 01:49:14,924
double top. We had an election year last year. Bitcoin went way up. It did really well. And then

1348
01:49:14,924 --> 01:49:19,904
we hit a peak in this year. The question is, does that happen the year after? Is there a crypto

1349
01:49:19,904 --> 01:49:27,224
winter. I agree with Dan said, given where we are with the ISM, cutting interest rates. I think that

1350
01:49:27,224 --> 01:49:32,484
we're in a different phase this cycle. So I think that you have this exuberance that when a new

1351
01:49:32,484 --> 01:49:36,904
political party comes in, people are like, well, things are going to be different. Whether it's you

1352
01:49:36,904 --> 01:49:43,264
wanted the person or not, things will be different and we're optimistic. Basically a year, year and a

1353
01:49:43,264 --> 01:49:48,044
half after that, we have midterm elections next year. I think they're going to cut rates. I think

1354
01:49:48,044 --> 01:49:48,804
that's going to happen.

1355
01:49:49,284 --> 01:49:59,580
So I think next year we will have this AI continue the CapEx AI build out everything that we discussed And so I think we in a different cycle 2020 was also a COVID year

1356
01:49:59,760 --> 01:50:02,940
So that was pretty miserable how it ground the price down.

1357
01:50:03,360 --> 01:50:05,360
And so that cycle is a little bit weird.

1358
01:50:05,980 --> 01:50:08,180
Somebody had mentioned before about the money printer.

1359
01:50:08,660 --> 01:50:13,500
Since 2000, in the US, the M2 has gone up an average of 6.5%.

1360
01:50:13,500 --> 01:50:20,260
If you probably take out the 2020 peak in 2021, it'll probably drop it to a lower number.

1361
01:50:20,460 --> 01:50:27,340
But you take M2 at 6.5%, combine it with inflation at 3%, which is probably more, that gets you

1362
01:50:27,340 --> 01:50:29,940
your debasement value on the currency.

1363
01:50:30,640 --> 01:50:35,460
And so basically at 10%, every 7.2 years, you lose half your value.

1364
01:50:35,780 --> 01:50:37,480
So we should all be able to say that.

1365
01:50:37,480 --> 01:50:46,740
So I think the takeaway from here is that, you know, if a black swan event will happen every single year, do I think we're going to have one in the future?

1366
01:50:47,100 --> 01:50:49,020
Probably, probably within a year.

1367
01:50:49,120 --> 01:50:50,040
I don't know what it's going to be.

1368
01:50:50,500 --> 01:50:57,900
But I think next year with cutting rates, I think it's going to be different than what it was in 2022 and 2029.

1369
01:50:58,260 --> 01:50:59,100
Sorry, 2019.

1370
01:50:59,580 --> 01:51:02,480
I think those years are going to be different next year.

1371
01:51:02,480 --> 01:51:07,240
I think next year, Bitcoin is big enough now, $2 trillion plus asset.

1372
01:51:07,480 --> 01:51:09,300
where it just operates differently.

1373
01:51:09,600 --> 01:51:10,580
It truly does.

1374
01:51:11,260 --> 01:51:12,840
Spot Bitcoin ETFs.

1375
01:51:13,540 --> 01:51:15,060
And I just think it's different.

1376
01:51:15,660 --> 01:51:17,820
So Fed dropped interest rates.

1377
01:51:17,820 --> 01:51:22,920
I think it's Elliot is mentioning credit expansion, right?

1378
01:51:23,020 --> 01:51:27,1000
So I think credit expansion is a worthy topic to kind of get out there.

1379
01:51:28,680 --> 01:51:32,200
As interest rates drop and more people take out loans,

1380
01:51:32,300 --> 01:51:37,460
it's like leverage in the system systemically expands, right?

1381
01:51:37,460 --> 01:51:41,560
Like that money isn't really, it's just kind of created out of thin air.

1382
01:51:41,700 --> 01:51:45,540
You've got increased credit being delivered to the entire market.

1383
01:51:45,660 --> 01:51:52,420
Those people are now operating within the system with more money, more leverage taking on.

1384
01:51:53,340 --> 01:51:57,780
And one thing that was just really fascinating, I'm still trying to wrap my head around it,

1385
01:51:57,780 --> 01:52:04,500
and I can't really speak too much on it today, but interest rates rose or interest rates dropped,

1386
01:52:04,500 --> 01:52:13,940
sorry 25 basis points and treasuries ripped it went it was counterintuitive it went backwards

1387
01:52:13,940 --> 01:52:19,060
from what i thought would happen i dan i don't know if you've seen this or looked into this really but

1388
01:52:19,620 --> 01:52:27,860
um which to me i think senior the the 10-year went up the five-year one year after that yeah

1389
01:52:27,860 --> 01:52:33,860
it's because he was hawkish about the december cut is what because of inflation yeah exactly

1390
01:52:34,500 --> 01:52:40,620
which that's just how the traders are trading it right i mean i guess

1391
01:52:40,620 --> 01:52:47,140
but i think the tenure like like there are a lot of smart people out there that are just saying it's

1392
01:52:47,140 --> 01:52:54,880
like like a lot of people are thinking like oh you know rates are going to come down on the long end

1393
01:52:54,880 --> 01:52:58,620
but like there's no reason for rates to come down on the long end with deficits blown out as hard

1394
01:52:58,620 --> 01:53:03,780
as high as they are it's just like yeah long end rates probably aren't going to come down

1395
01:53:03,780 --> 01:53:09,500
even if they drop the fed funds 2.7 by the end of the 26 like the 10 year will probably still be a

1396
01:53:09,500 --> 01:53:18,1000
four but fed funds could be a 2.7 like and yeah extreme higher yeah so then like how do credit

1397
01:53:18,1000 --> 01:53:25,820
spreads like what what pegs credit spreads is it the strife is pegged to like a 10 or a 30 year

1398
01:53:25,820 --> 01:53:31,900
because it's like infinite duration yeah i'm not even i'm not even thinking about the

1399
01:53:31,900 --> 01:53:40,620
it you just match duration like then keep going right that's how i i always do so then what what's

1400
01:53:40,620 --> 01:53:48,060
the what's the point of the fed funds rate the ability to borrow fed funds rate sets short-term

1401
01:53:48,060 --> 01:53:55,500
duration sure i mean it's it's how they manage short-term duration like the short term whereas

1402
01:53:55,500 --> 01:54:01,580
like the market sets the longer end of the curve right so like a credit spread relative so like

1403
01:54:01,580 --> 01:54:06,940
strife which is a perpetuity its credit spread could typically be priced against the 10 year

1404
01:54:07,900 --> 01:54:17,260
10 years at like 4.9 it's at 4.09 after the fed meeting up nine basis points you benchmark strife's

1405
01:54:17,900 --> 01:54:23,340
yield relative to the 10 year whereas you benchmark stretches yield relative to

1406
01:54:23,340 --> 01:54:28,580
to, I mean, you know, a 30 day T bill.

1407
01:54:28,580 --> 01:54:34,740
Hey, have you guys ever met a rich bond trader?

1408
01:54:34,740 --> 01:54:37,780
I've never met.

1409
01:54:37,780 --> 01:54:41,840
I've heard they exist, but usually they manage someone else's money.

1410
01:54:41,840 --> 01:54:44,680
I feel like bond traders are now equity traders.

1411
01:54:44,680 --> 01:54:46,960
Like the rich bond traders are now equity traders.

1412
01:54:46,960 --> 01:54:48,840
Yeah, Josh Mandel.

1413
01:54:48,840 --> 01:54:49,840
Yeah.

1414
01:54:49,840 --> 01:54:57,700
You know, I'm going to drop off, but I want to thank you guys, you know, for the past two hours to be on this.

1415
01:54:58,240 --> 01:55:07,600
And I think, you know, the key takeaway for this is that, you know, from my perspective is that, you know, with new information and new insight, when you think about things, you could change your mind.

1416
01:55:08,060 --> 01:55:11,560
And sometimes, you know, you have to be open to listening to those things.

1417
01:55:11,580 --> 01:55:12,860
I think that's critically important.

1418
01:55:12,860 --> 01:55:14,800
Talk to people that have greater insight.

1419
01:55:14,800 --> 01:55:20,760
and and and i think it's okay to admit that you have a different you change your mind about

1420
01:55:20,760 --> 01:55:26,900
something based upon new information if anybody ever says well you said this six months three

1421
01:55:26,900 --> 01:55:32,440
months ago six months a year ago you're like well i have a lot of new information in the three six

1422
01:55:32,440 --> 01:55:39,300
months or one year and it makes sense and sometimes i learn better by comparison if i compare something

1423
01:55:39,300 --> 01:55:44,700
against something else it makes more sense to me and other people you know whatever they just well

1424
01:55:44,700 --> 01:55:47,740
if you just think about it enough, it'll make sense. I mean, that's just the way,

1425
01:55:48,180 --> 01:55:52,060
you know, you do those comparisons. So with that, you know, I think this was,

1426
01:55:52,200 --> 01:55:55,640
you know, great call, Jeff, we're going to do this every Wednesday going forward.

1427
01:55:56,780 --> 01:56:00,880
Maybe we're still working through general schedule, but I think it'll be

1428
01:56:00,880 --> 01:56:06,500
a little bit more scheduled. We'll have some changes in 2026, but yeah, we're going to still

1429
01:56:06,500 --> 01:56:10,500
keep plowing through. Awesome. Good night guys. Thank you.

1430
01:56:10,500 --> 01:56:15,580
all right i think we covered everything on the agenda that we're going to cover

1431
01:56:15,580 --> 01:56:23,020
uh do you want to do some uh final thoughts jeff you want to knock start it off yeah i will i will

1432
01:56:23,020 --> 01:56:29,060
start it off uh everything there's risk everywhere in the world how you handle that risk is how you

1433
01:56:29,060 --> 01:56:35,520
can quantify it and wrap your head around it and uh bitcoin can be underwritten that's all i got

1434
01:56:35,520 --> 01:56:37,860
love it tim you want to go

1435
01:56:37,860 --> 01:56:56,600
Yeah. Maybe we'll cover this another time, but just I've been trying to think through the three, four, however many things that are like the most important for Bitcoin treasury companies and just rattling down the list.

1436
01:56:56,600 --> 01:56:59,580
It's like social media, right?

1437
01:56:59,680 --> 01:57:06,580
Call it digital distribution, AI, energy, capital markets, and one that I don't think

1438
01:57:06,580 --> 01:57:10,360
gets a lot of attention yet, which is regulatory arbitrage, right?

1439
01:57:10,600 --> 01:57:13,940
Where you kind of, what are the rules here versus there?

1440
01:57:14,180 --> 01:57:15,420
So those are my final thoughts.

1441
01:57:17,100 --> 01:57:17,180
Cool.

1442
01:57:18,460 --> 01:57:21,540
Mike, you're, well, I guess you're signing off, but we're all signing off.

1443
01:57:21,600 --> 01:57:22,060
What do you got?

1444
01:57:22,520 --> 01:57:23,240
That was it.

1445
01:57:23,280 --> 01:57:24,900
I already gave my closing remarks.

1446
01:57:24,900 --> 01:57:25,580
Thank you, guys.

1447
01:57:25,580 --> 01:57:35,040
yes sir go ahead dan um it's been a good combo guys always fun sure all right i'll i'll kick it

1448
01:57:35,040 --> 01:57:41,740
off with this uh so back to disruption my uh one of my favorite quotes uh from the dan sieba great

1449
01:57:41,740 --> 01:57:51,260
transformation uh series was a butterfly is not a caterpillar with wings and so if you're trying to

1450
01:57:51,260 --> 01:57:57,320
predict what Bitcoin treasury companies will be based on what TradFi has been forever,

1451
01:57:57,900 --> 01:58:04,320
you're going to be wrong. You just cannot slap wings on TradFi companies that own Bitcoin

1452
01:58:04,320 --> 01:58:10,040
and think you know how to price them. You know what direction they're going to go. You know

1453
01:58:10,040 --> 01:58:17,740
what products they're going to offer. And so you have to wait for the phase change. They're going

1454
01:58:17,740 --> 01:58:23,720
to go and they're going to go into a chrysalis, metamorphosize, and then you're going to get

1455
01:58:23,720 --> 01:58:30,140
something completely different on the other end. So it's going to take some time. And I think the

1456
01:58:30,140 --> 01:58:39,320
high time preference traders will probably get washed out and the low time preference Bitcoiners

1457
01:58:39,320 --> 01:58:44,880
will win out in the end. Appreciate everybody for tuning in and we'll see you next time.