Somebody once told me the world is gonna roll me
I ain't the sharpest tool in the shed
She was looking kind of dumb with her finger and her thumb
In the shape of an L on her forehead
Well, the years started coming and they don't stop coming
Fed to the rules and I hit the ground running
Didn't make sense not to live for fun
Your brain gets smart, but your head gets dumb.
So much to do, so much to see.
So what's wrong with taking the back streets?
You'll never know if you don't go.
You'll never shine if you don't glow.
Hey now, you're an awesome...
Woo! We are back.
Episode 43, True North.
We have got a great show for you tonight.
And I'm going to be hosting.
Jeff is in the building.
for some reason. He was adulting today or something and asked me to do it. I guess he
kind of assumes since I have no job that I got nothing else to do. Kind of rude, to be honest.
But we also have Tim Kotzman. We got Mike. We got Dan in the house. We've got a great agenda for you.
we are going to be covering uh s&p ratings uh whether they're good bad or indifferent we got
labor we got layoffs we got macro tailwinds we got the four-year cycle fallacy we got the five
pillars of bitcoin treasury companies uh but we will go ahead and kick it off with leverage as per
usual and then get into underwriting bitcoin risk probably so jeff is already sharing so take it away
Let's get into it. Yes. Episode 43. Thanks for kicking us off, Soleil. As usual, we start
off with the leverage update and we jump into the amount of Bitcoin held. Actually, before
that, let's kick it over to Tim for not financial advice.
I almost interrupted. I was going to interrupt and say, Jeff, can you really talk about leverage
without saying, ladies and gentlemen, what you're about to hear might be interesting,
but it's not financial advice.
The host working for free is overpaid, apparently.
It's for entertainment and informational purposes only.
Back to you, Jeff.
Thanks, Tim.
Okay, and for those that are new here,
this is True North, the investment grade Bitcoin podcast.
We're here talking about strategy.
We're talking about Bitcoin treasury companies.
We're talking about securitization of Bitcoin,
how this market space is evolving.
We talk about digital credit.
We talk about leverage.
We talk about business models, architecture of markets, macro, and we try to hit everything under the sun.
Obviously, there's so many things going on here.
We could talk for hours on each one of these individual topics.
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.
So we kick off every week with the financial leverage.
So looking at strategies to leverage, how it's changed over time, and to really showcase the
strength of the balance sheet here. So the strategy holds 640,808 Bitcoin. I think they
added somewhere around 300 Bitcoin this last week, purely from perpetual preferred equity issuance.
The price of Bitcoin as I made this was about 110,400. It looks like it's still about there.
My strategy price is $275. Bitcoin assets held on balance sheet. So they've got $70.8 billion
of assets held on balance sheet, $8.2 billion of debt. Notional preferred equity around $6.6 billion.
So their net capital, their assets minus the debt is about $62 billion. Annual dividend liability
is around $643 million. So the years of dividend coverage that they've got on their balance sheet
is about 110 years of dividend coverage, just taking the net capital divided by the annual
dividend liability. So really this is financial strength. Liability to asset leverage,
liability to asset ratio, thinking about total leverage, they're around 21%. Again,
I think strategy is now calling this amplification because the preferred equity on their balance
sheet is equity. It's not debt. There's not a maturity. So it can be treated a little bit
differently when you're thinking about leverage. The total debt coverage multiple is about 4.8.
Looking on an as-if basis, if you pull the debt that's trading as equity off the balance sheet,
you're looking at a 16.8% amplification ratio and a debt coverage multiple ratio of 6.0.
So when thinking about what would the price of Bitcoin need to go down to for this business
model to start to become a little bit concerning, the Bitcoin price would need to be less than $23,207
for the assets to be worth less than the notional debt and the preferred equity on the balance sheet.
So again, that's pretty far away. We haven't seen a price of $23,000 since November of 2023.
What was that? November of 2022. Actually, it's been quite a while. Actually, about December of
2022. So yeah, I think that the balance sheet looks incredibly strong here. And this is balance
sheet finance. It's blowing people's brains a little bit, trying to wrap their head around
utilizing this collateral for cash flow, I think they're doing this very efficiently and they're
growing that model into the future using digital credit, which we'll dive into a bit more.
When you think about the ability to withstand shocks on the balance sheet, the balance sheet
is actually still very strong. If the price of Bitcoin were to drop 50% here, strategy would have
$35 billion of assets on the balance sheet and not changing any of the debt or preferred equity
figures, they would then have 55 years of dividend coverage. So when you're thinking about downside
risk of the perpetual preferred equity, these things look incredibly strong from an over
collateralization perspective, when you're looking at the ability to pay dividends, not necessarily
notional repayment, but the ability to pay dividends. We can get into the S&P perspective
there, but maybe I'll kick it back to you, Soleil. Yeah. I mean, I think the leverage
There's been some comments like, oh, we talk about the leverage every time and it doesn't matter.
We just want to talk about when number go up.
But this is going to become very important when we talk about, when you talk about underwriting Bitcoin risk,
but then also like the JP Morgan thing that we'll discuss later.
So, I mean, if we don't have anything more to talk about leverage now, you want to just move on to underwriting Bitcoin?
Yeah. So there's a couple of, maybe we start with S&P.
Okay. Ratings.
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.
But right. So strategy, let me just stop sharing my screen. Here we go. We got Tim front and center. This is great.
so strategy was just rated they got an issuer credit rating of b minus recently uh earlier this
week and the irony here is strategy got a b minus issuer credit rating within days after jp morgan
said that they have they're accepting bitcoin as collateral total irony the irony is the smp
when they put out their ratings framework, gave zero credit for the Bitcoin capital held on their
balance sheet. Zero. So the $70 billion that we just walked through, the assets held on balance
sheet, they gave zero credit. Yet the largest bank in the world, JP Morgan, is now accepting
Bitcoin as collateral for loans. So there's just a disconnect between the S&P and what some larger
banking institutions are starting to see. Now, I think this is some really, really downstream
implications. I think the reason that they were, and I'm totally speculating, I think one of the
reasons that strategy was given a B minus rating was because the yield that they have on the
instruments that they're offering to the market is in line with other B minus entities. So if they
were to give strategy a rating higher than that, you then have to question the ratings framework,
the entire ratings framework. Why is this product that's paying a 12% effective yield
have an issuer credit rating higher than all of the other high yield instruments in the market,
yet the yields are the same? It starts to break the perspective of all of the other instruments
in the market. And then you start to look at the other maybe investment grade products in the
market that are paying, you know, six, seven, 8% effective yields. And they're not super over
collateralized. Basically, the only way that the S&P was able to really back into the B minus credit
rating was giving 0% credit to the Bitcoin as capital on the balance sheet. I think we all agree
that the amount of credit that Bitcoin should be given is greater than zero. And if you give
greater than zero credit, the rating goes higher, right? Like the rating absolutely goes higher.
Just to put this into perspective, real estate when held on balance sheet is given 89% credit as
capital. Bitcoin gets zero credit, real estate gets 89% credit. Big difference. So the fascinating
part here is just doing some research. Like global real estate, I think average daily volume
of global real estate is like $2 billion-ish, maybe a little bit higher. Average daily volume
of Bitcoin is $50 billion. So if you think about liquidity profile, which is a better form of
capital, probably the more liquid one. And then you think about real estate again, real estate is
just regionally liquid and Bitcoin is globally liquid. You can pick it up and you can move it
anywhere. Okay. So you now got two better check marks for Bitcoin over real estate. How often,
how many days a week, like can you liquidate real estate at 12 o'clock PM at night? No.
So you've got some discrepancies that I think are really hard to ignore
when you're looking at how to rate these particular companies.
Yeah, and I know some people are annoyed every time we say we're still early.
It's like the battle cry.
But if players this large are still fighting about whether Bitcoin is worth anything,
that's not like late S-curve adoption.
That's got to be early S-curve if there's still a battle about this thing.
Yeah.
Yeah. The other, I think reading the filing from the S&P is really fascinating too. The other thing
that was interesting is that the convertible debt maturities did weigh on the rating,
not necessarily the preferred equity, but the convertible debt in particular. And it was the
verbiage around it. I think it was the convertible debt has more liquidity risk and the preferred
equity has some liquidity risk. So just emphasizing that there's a different perspective
of having this maturity at a future point in time on your balance sheet, as opposed to not having a
maturity on your balance sheet as a future point in time. So you've got a whole different liquidity
profile in the future. Clearly, the cash held on balance sheet and cash flow, like technical cash
flow, I think has been a constraint, which I think is pretty clear with how this is written.
But the fact that they give zero credit for the actual capital that they're sitting on the
balance sheet, it seems insane because really the Bitcoin is the backstop for any of these
instruments. Like, will they sell their Bitcoin? The preference would be not to sell the Bitcoin.
You do everything in your power to pay the dividend or pay a maturity before you would sell the Bitcoin.
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.
You would explore every option on the planet before you'd sell your Bitcoin to do that.
So it's like Bitcoin is really the backstop of this whole thing.
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.
So I think we're still incredibly, I think we're just still incredibly early, right?
Strategies has the same issuer credit rating as Chuck E. Cheese and JetBlue.
Like I just, you can't make it up, right?
Like that's, that's insane, right?
You've got $70 billion of capital and you're getting the same rating as Chuck E. Cheese.
And didn't, didn't the language on it kind of insinuate that they understand that he's
going to keep stacking forever.
And it was almost kind of like, we're going to continue to give you nothing the more you
stack.
So it's almost like, are they kind of giving an ultimatum or trying to, uh, I don't know,
insinuate that they should sell the Bitcoin or do something to generate capital? Or am I reading
too much into that language? Well, let's pull it up. Because they did give guidance, right? They
said if they retired the convertible debt, that could result in an increased rating. Basically,
they're not expecting a rating within the next 12 months, which I think is common, right? The
rating agencies don't want to be seen as changing ratings significantly in any one direction. They
did give them a stable rating, so I don't think there's going to be a downgrade at any point in
time. But really, this is a big educational process for everybody, right? We're talking,
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.
You need to define risk.
You need to shape risk.
You need to calculate risk.
You need to show the math and walk through it.
Yeah, it's early days.
Let me pull it up.
I'm going to frame this a little bit differently.
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.
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.
Can you liquidate a billion dollars worth of real estate over the weekend?
No.
Can you transport real estate across the world?
No.
So when you do that comparison, any logical assumption is you have to then downgrade what
you have on the other side in the physical world with something that's over here.
So I think that the takeaway for this is that I don't think it's that we're early.
I don't think they're allowed to make those changes, even if they could, because the $300
trillion dollar bond market would rate down if you rate Bitcoin up. That's part of the problem,
is that they're just not willing to do that yet. Now, you could assume, you could say,
they're just stupid and don't get it. Or you could say they're smart enough to get it and
they're just not allowed to do it. Or I think that there's a combination that's going on there.
I hate using the word stupid, but there comes a point where it's like, you have to see this.
Jeff, I wanted to go on a quick tangent here. When Blockbuster went out of business because
Netflix put them out of business, we all knew that streaming was going to put Blockbuster out
of business, except for Blockbuster. Blockbuster had $1 billion worth of bonds and it was
collateralized with DVDs and leaseholds. I am not a good enough salesman to sell a billion,
$1 billion worth of bonds backed up with DVDs. Having DVDs in inventory is like having a billion
dollars worth of bananas. If you can't sell it in two weeks, they're all worthless. And that's the
same thing with the DVD. Once you watch a DVD, it went from being worth $20 to a dollar at a flea
market. How you could convince somebody, even if it's rated junk, to buy DVDs in a bond,
breaks reality in 2010. This is not like old days. And so I think that that's part of the
problem is that they were able to sell junk because it had a rating on it. And so when this
happens, I think that when strategy got a rating of B minus, and finally when their prefs get a
rating, it's pretty much going to rock it up. The only question that exists is how long does that
take? Does that take three months, six months or a year? That's the only question.
So are you saying that if they gave them a higher rating, that would be like an indictment on the
rest of the bond market? It would have to be.
Like a rug pull on just everyone else?
It would be a rug pull because then you would admit that real estate is not fungible. Real
estate cannot be liquidated over a weekend. Look, if you do a real estate transaction,
the best that you could do it if you pay all cash in California is approximately 14 days.
Because you have to go through all the paperwork to go do it. But you could sell a billion dollars
worth of Bitcoin in what, 10 minutes? You could do it in 10 seconds, and then it takes 10 seconds
for the blocks to confirm it. And it's 24 by seven. You would have to ascribe some value to
that, which we all know. So I think that's the takeaway that I'm talking about. Why wouldn't they
have to take a hit on the rest of the collateral.
Everything would have to get repriced.
So is it just more?
Yeah, go ahead, Tim.
Just one, like, I think this is a huge point.
Anytime I got a B minus, I was pretty excited.
Like anytime I got a B minus, I was like through the roof.
Yeah, yeah.
That's actually pretty good.
Did you ever get a triple B minus?
I have to think back.
Yeah, I did a little grok-foo.
And yeah, I mean, nobody's got...
Yeah, go ahead.
I want to chime in here.
This guy, Mike Placid, I get what you just said.
You can't rate something you never sold.
Think about the negative feedback loop here is.
If Saylor sold, right?
Let's say he sold, he sold whatever,
$100 million worth of Bitcoin just to spite the S&P
and say, look, what you can check the price on
in anywhere around the world in 24 by seven
to prove to you it's real,
I have to sell it and potentially trigger a taxable gain
to prove it to you it's real.
And you know what I say to those people?
They could kiss my ass.
And you know why they could do that?
I'm going to be clear about this.
It's because I make money by holding Bitcoin
or Bitcoin derivatives.
And then when I have to live, I sell some of that.
And then I pay taxes.
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
just to show you that it's real. They could kiss my ass. Yeah. Be on the lookout if strategy
changes their IRS withholdings to last in, last out. They can just put the orange dot on,
take the orange dot off, put it right back on the next week. Right. That's like saying,
oh, my house has a value. Let me tell you how preposterous what Mike Placid is saying. I'm
going to beat up on him because if, by the way, if somebody ever wants to do a space with me,
DM me, we'll do a space. We'll have a thousand people on the call and you can answer questions.
If I have a house and I live in it for 30 years and it appreciates, right?
It doesn't have any value until I sell it, but it'd be better for me to give it to my kids
after I die because they get the step up value in it. Everybody knows this, but I should sell it
first to prove that it had value, me trigger the taxable event and then give the cash to my kids.
Now, that's not what anybody does. And it's not financial advice, but people don't do that.
That's the whole idea behind- Buy, borrow, die.
With the step up value, you don't sell it and trigger the taxable event.
Yeah. Buy, borrow, die. It's like the strategy of rich people.
right and you do that and you hand it off and by the way they have no problem doing the step-up
value and evaluating and you look it up in zillow there's the value of a house that's your step-up
value and there you move on with your life so yeah i keep coming back to this like real estate
perspective of like you've got this every i saw it on linkedin which is just the the classic place
to see some stupid stuff. They were saying, well, Bitcoin doesn't have any yield. And they're like,
real estate has yield. Well, real estate on its own does not have yield. If you just hold it and
you don't do anything to it, it doesn't have any yield. You have to put energy into it.
You've got to plant seeds and harvest the seeds and sell your produce.
Jeff, I'm going to be a little bit more specific on this. Your real estate has no yield, no income
yield if it's your primary residence. If your real estate is rented out, then it has a yield.
A typical cap rate in California is less than 5%. All you have to do is ask any real estate guy,
what's your cap rate? And it's typically always going to be under 10%.
And now that assumes that the person on the top floor doesn't break the toilet and have it flood
that one below and then you got to pay to fix all this and have an insurance claim real estate and
you have to make sure the people pay you so the idea behind this and we're we can get into the
prefs if i've got stretch and it's paying me a 10 and a quarter percent coupon every year and it's
return of capital and i don't pay taxes on it right but i got a five percent cap rate on a piece of
real estate and it's taxable that doesn't sound like a lot of fun it sounds like a lot of work
to make a little bit of money am i missing something no no no not at all you kind of
shifted shifted to the other to their side of the table there but i guess really what i was getting
at is right bitcoin on its own real estate on its own doesn't have any yield if if it's not doing
anything if you're not putting energy into it to get output out of it bitcoin on its own it doesn't
have any yield if you're not putting any energy into it to get any output out of it okay now you've
got a corporate structure corporate balance sheet structure and you've got all of this bitcoin held
on your balance sheet and they're putting energy into it, risk management, and they're generating
a yield off of it by selling securities. They are harnessing the yield of the Bitcoin
by selling securities. And that is like the same concept as putting energy into real estate,
hiring somebody to rent it out and manage it and take care of it. Same concept. They're just doing
it with risk management and designing and creating and selling a security.
I agree with that. I mean, it ultimately comes down to this idea of like BTC USD arbitrage,
CAGR arbitrage. If you think USD is ever declining in terms of Bitcoin, or if you think the
inflation rates higher than that, you know, stated by core CPI, then that relative to Bitcoin's
price appreciation is ever declining. So then the logical kind of coordination or interaction
between a Bitcoin security and a USD security is that the USD security is melting relative to the
Bitcoin forever. So I think that's the big idea. But I mean, to subscribe to that ideology,
I mean, you have to believe in Bitcoin. If you're saying Bitcoin is going to have a significantly
higher than 10% CAGR into perpetuity, you're essentially saying it's going to be the top
performing asset over the next 20 years guaranteed. And that's a crazy statement for like a normie
to wrap their heads around. You're saying it's going to smash the S&P. You're saying it's going
to smash the NASDAQ. And I think most credit agencies and just individuals in general aren't
willing to accept that fact. But I think the really important and the best way to sell these
sorts of pref securities to a potential investor is kind of what you say, Jeff. It's like, oh,
they have a hundred years of dividend payments. So even if the CAGR arbitrage doesn't come to
fruition, an investor may still want to purchase these securities because they're going to get the
yield for the remainder of their lifetime likely. And if that arbitrage CAGR doesn't in fact
manifest, doesn't work out, then the issuing corporation is taking that hit, that arbitrage
hit. So I think it's a cool, you know, strategy takes on the risk. So they get leverage on the BTC,
the investor that buys the preferred securities get the over collateralization threshold.
Like think about it, right? When a bank gets reserves, they go lend them out 10 to one.
Whatever the reserve ratio is, it's about 10% for a bank. Whereas strategies completely flip.
They're lending out, for example, or they're issuing credit against 20% of their stack.
So it's extremely, extremely safe for the credit purchaser.
And then, you know, strategies taking on the directional risk of the Bitcoin.
So it's a good setup if you're a Bitcoin bull.
Yeah, it's hard to wrap your head around if you're a normie, for sure.
For sure.
Yeah, and it just seems like a crazy bet that they're making because Bitcoin doesn't seem productive, right?
Like in a lot of people's minds.
I mean, I find myself falling into the same trap, and I think a lot of people do.
Like the allure of 1% return per quarter, right?
From real estate, 2% per quarter in terms of rent in real estate.
It feels like it's productive, right?
Whereas Bitcoin's up and down and chopping and doing nothing.
And it's brutal and everyone TAs and you feel like-
But it's directionally, you know, what am I doing this right?
You know, it's directionally that way.
Exactly.
And so if that's the case, then it feels a lot worse.
but you're actually getting a much higher return than you would be with any of those stable
sort of yielding products. So that's why it's hard for people to wrap their mind around.
And the really fascinating part with the real estate comparison too is
most people, I mean, people hold real estate for yield, but the wealthy people hold real estate for
the store of value, right? They're holding it for the store of value. Like if you're holding
large pieces of real estate or large blots of land or, you know, they're holding it for the
store of value and the capital appreciation, like the leveraged capital appreciation.
The yield is a much smaller component of that. They're holding it to store their value for a
long time horizon, right? Like that's, there's a reason a lot of the real estate, like prime
real estate doesn't turn over. It's very illiquid. They're holding prime real estate
to store their value there.
so what is it gonna yeah go ahead mike yeah i'm gonna chime in on this um from from where i live
there there's a very large tower that's probably 40 years old and i took a picture of in december
and then i took another picture of it just recently put the two pictures side by side
um and and i told it what the dates were in both pictures and i said assume that all of the if the
blinds are drawn in both pictures nine months apart then that means nobody was in that apartment
in nine months? Because just statistically, how could that happen? And so in San Francisco,
and this is in, that building's in Pack Heights. I'm not going to say where I live. That building
is a prime piece of land at the top of a hill with a view of everything. And 40% of the building
is empty. 40% of the blinds have not opened in nine months. Now, why do people buy something
that they would never live in it? And of course, they'll probably be somebody,
oh well san francisco is terrible well they bought it as a store of value but the problem is it's a
40 year old building and the ho fees are probably pretty high on it now so that became a store of
value that nobody lived in it it may be hard to sell so while it was probably a good idea when it
was brand new and and dan you're now down down you know in miami there's a lot of condos that were
bought as stores of value from people out of the country people buy real estate because they think
at some point in the future they could sell it for a higher price and if you buy a marquee building
you're probably in good shape but that marquee building 40 years later is a 40 year old building
it decays it needs new elevators it needs a new roof it needs a new pool and so that not to mention
grin like the all the systems in place to to borrow uh from banks to purchase the real estate
itself right like for you you want to sell your equity holdings but you want to start
transferring them into a real estate asset. You can take a mortgage out and start paying it down
over time, harvest tax losses, you know, do whatever you need to do. So yeah, to your point.
Right. So they built this whole ecosystem around real estate. Basically, that was a decision
right after World War II to have families buy homes. The government made that. How did the
government subsidize real estate? They made your primary residence, their mortgage interest
deductible. They put a cap on it, you know. But anyway, with that said, they made it so people
can go buy homes. But, you know, if you look at it as a rental market compared to buying a virtual
asset, those are two completely different beasts. And for some reason, something that we see is
simple. Other people see it as difficult. It's crazy to me that even with all of the tax
benefits, mortgage interest deduction, 1031 exchange, holding Bitcoin and these Bitcoin
yielding instruments are still outperforming any real estate holdings, which I think is
pretty fascinating. But one thing I think I kind of want to shift to here is talking about just
labor markets a little bit, right? Amazon just announced they're laying off 30,000 jobs. And I
think those are corporate jobs. Amazon's got like 1.5 million employees, but 350,000 of those
employees are corporate employees. So I think it's nearly like eight or 9% of their corporate
employees are getting laid off across different sectors within the business that seem susceptible
to AI. Now, granted, some of this is probably from overhiring during like COVID era, but it's
it's pretty hard to ignore getting rid of 30,000 productive corporate white collar employees.
And a lot of people have provided the feedback for strategy that they should acquire a cash
flowing business. They've got to focus on their cash flow. And Mike, we'll roll into return to
capital here. But what cash flows are safe 10 years from now? People are expensive, right?
People are incredibly expensive.
You've got to have health insurance for them.
You've got to buy liability insurance.
They're moving around.
They're inefficient.
You've got AI that's taking over jobs and moving around these days.
So really, what cash flows are safe?
Yeah, Jeff, I wanted to talk about that for a second because we had talked about this earlier in the week.
So for the people that don't know, we have a prep call on this.
So before we do these calls on Wednesday nights, we talk about this.
And so I do talk to Jeff.
And so basically what happened is Elon Musk did a tweet about Grokipedia.
Grokipedia is an AI-enabled Wikipedia.
So I basically tweeted about this, that basically the value of Wikipedia dropped 50% from one tweet.
And I put that in the chat, GPT, and it said, you can't make that claim.
And I said, no, you're not understanding what happened here.
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.
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.
The guy, Jimmy Wales, that's running Wikipedia, they asked him about this.
It's literally the blockbuster playbook.
Oh, we don't think that movies are going to be delivered over the internet.
How does the internet work?
You know, people drive in and go get their VCR, their DVD.
And he doesn't think this is a threat.
So one of the things by me being a tech guy out here in Silicon Valley is a term creative
destruction.
For the creator, right?
Grokipedia by Elon Musk.
That's the creative part.
What did it destroy?
Wikipedia.
Jeff, when I talked about this with you, what was your, you're like, did this feel like,
you know, the old days of the internet bubble?
That's what you said to me, because I'm the old guy.
I get it.
I said, and then you're like, and then you told me a story about how you used to do your
book reports.
How did you do your book reports?
I had the Encarta, like the CD-ROMs that I plug into my computer.
And now, you know, it's Wikipedia is on the internet.
And then Grokipedia just eviscerates.
Right.
right and just i went in and i typed in christopher columbus and it's like you know
everything you could ever so right so this is where we get to the cash flowing businesses
so they used to print encyclopedias i i saw those my parents bought one when i was probably five
years old they were printed versions of it then it went to cds and dvds and then it went to
wikipedia online and now you guys are going to watch in a business you know when we talk about
the old days there used to be sears there used to be these massive stores it was an anchor tenant
of real estate sears would be there amazon put them out of business done you guys are going to
watch elon musk eviscerate wikipedia and they're not even going to be aware of it my question to
you is if you can if you if you can use google or ai to look up something on the internet which
do you guys prefer to use right now i don't even use google anymore i don't i i instantly i go to
perplexity or i go to chat gpt and it's just i let it do the googling for me yeah it's just like
totally insane it's so efficient so jeff going back to your cash flowing business this is where
saylor said you know back in the old days in 2020 they had whatever 400 million dollars in cash
they're like well we could have bought we had treasuries we could buy gold that didn't seem to
be going anywhere they could have bought real estate but that was during covid so basically
all real estate was repriced down to being worthless because everybody can now who effectively
can work remotely so commercial real estate got crushed so it's like what does he put his money
into and that was the aha moment for him was bitcoin and then the path that he's on so i
think that what we've seen here is that go buy a cash flowing business that's a lot easier said
than done for something that's going to have some staying power yeah there's only a handful of
companies that have uh net incomes that are going up into the right in bitcoin terms as well everything
else is going down into the right in bitcoin terms so what's what's more efficient also crazy uh
crazy news today nvidia is now a five trillion dollar company
four four four months ago it was a four trillion dollar company it was the first four trillion
dollar company so yeah i mean this stuff this stuff is take nvidia is one of the companies with
cash flowing business that is performing bitcoin it's actually going up into the right in bitcoin
terms but it's one of the few yeah it's pretty nuts when you look at the broader market there
There was a Kobe Essie letter today,
Grant and I were talking about it earlier today,
on the outperformance of the MAG-7 recently compared to the S&P 500, 493.
And it's at the widest spread it's been in almost 40 years.
So what that tells you is pretty much all the other companies aren't performing.
If you look at all the macroeconomic indicators,
the services and manufacturing PMIs,
and just general performance of the Russell 2000,
which I think is about to break out,
But, you know, it's just a story of underperformance.
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.
Then you have Bitcoin, which has also been doing quite well.
And you've got gold.
So there's like debasement and there's productivity in a very select pocket of the economy that's generating shareholder value.
And that is AI, right?
So I think that story continues to become deflationary pressures across the equities market.
So you got to pick the winners in the equities market.
You got to pick the winners.
You have to pick the winners.
And like right now, obviously, you can buy the semiconductor ETF.
There's a lot of different winners related to AI that you may be able to pick in the short term.
But in the long term, I think picking those winners is going to be like extremely, extremely difficult.
So you're going to probably want to be on the debasement trade.
And I think that's something people are going to have to be OK with Bitcoin moving forward.
is like you know i kind of prescribed like a power law growth trajectory and that's essentially
a 38 kager going down to a 20 kager and 15 to 20 years and those aren't like that's pretty boring
like when you actually get 30 kager like it doesn't go up a lot that's on average what is
that that's like less than a that's like half a percent a week on average so like that's not a lot
and um in terms of like volatility so i think people are gonna have to get start getting used
to that and get back to that kind of long-term thinking um especially moving forward because
clearly the booms and busts aren't behaving the same way they used to hey dan did you see the
non-profit that's going to go out at a trillion dollar valuation insane yeah that's pretty insane
that's a um anything ai is just like well yeah you just touch it with a you touch with a match
it lights on fire i think um someone someone tweeted it was like the bull market's not over
until ai until open ai goes it goes public i guess that's probably keep your levered lungs
in nvidia until it goes public yeah the one thing i i also think about here is like what uh
how do people make if ai is really successful and could you know continues to eviscerate
white collar jobs well like what what do these where do these people go right like
so i was talking to my i was talking to my wife she's a biotech recruiter and she's seeing like
you know a bunch of these people that she's tried to hire and they've like never had a hard time
getting jobs now they've been without jobs for like six months and they're really struggling
to find other places because any of these other companies that have also done layoffs they're
like well i don't i'm not hiring anybody right now i don't i don't need to hire anybody because
I've got all this AI. So you've got all of this productive workforce that might just be sitting,
twiddling their thumbs. There's nobody that wants to hire up. I have a strong theory on that.
Well, one, you've got remarks from Powell today that are essentially saying AI is not the problem
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
So that's, you got that on one hand.
We can recap that today a bit.
But so that's complete nonsense.
He was hawkish during the entire meeting today.
You know, cuts are at a 95% probability
of a 25 basis point cut in December. They were before the meeting. And he essentially came out
and said, you know, they're not guaranteed. I think we're still going to get the cuts.
But, you know, he's saying the upside risk to inflation is still there because of tariffs,
right? Because of tariffs. Clearly tariffs are, inflation has been ticking down ever since we
had the tariff pressures. This has been sticky inflation since 2021. But on top of that, you
know, the AI thing is completely real. The jobs market's weak during a booming CapEx spend on AI
because no one's hiring, right? And layoffs haven't. You can look at both the non-farm
payrolls, but you can also look at the Joltz jobs reports, which show the actual layoffs
happening in the economy. What we can see is companies are starting to not hire as quickly
as they have in the past, but they're also not firing yet. So that's why we're in this like weird
little sticky situation where layoffs aren't occurring,
but hiring is not happening.
But I think once layoffs start happening,
Powell's hand is going to be forced.
So I think there is definitely a narrative for 26 and beyond,
especially with the ending of QT and then slow build to QE.
So Dan, I agree with all your macro indicators that you talked about,
but I do want to talk something about the comments that are in here that are
coming.
the money printer will go out of control because there's nothing they can do to fix this if people
are just out of work and how printing money just helps people is a second order effect that doesn't
really make a lot of sense based upon what we just said so in the olden days back during the internet
bubble or the way things are today is your future is um is utopia meaning that it's going to be
awesome and goodness if you're in that new class that knows how to have those new skills to get
those new high-paying jobs your future is dystopia if you don't have the skills to get that so what
happened during the internet bubble i realized it was a shift and so i walked into a little internet
company in florida said i don't get what you're doing and they had frame relay dsl did not exist
yet and i learned that on one connection you could have 500 computers connected into it and you sell
Well, the business is, and a T1 line is $5,000 a month for one and a half megabits.
I now get a gigabit to my house for 50 bucks.
So think about how the math has changed in that, okay?
Orders of magnitude.
And so I signed up for that.
So that job went from being paid 25 grand a year in Florida.
Within six months, I was making 125 grand in Silicon Valley.
because once I had that skill set,
understanding how to work on a Unix terminal,
learning how to configure a router,
I had a skill set that was in demand.
So I was able to pack up my crap,
move to California,
and I'd been there ever since.
So I got the skill set.
So every day I went to work like,
wow, this is changing fast.
This is awesome because I have the right skill set.
But meanwhile,
the people working at Rocky Mountain News
in freaking Denver out of jobs
because newspapers were going bankrupt.
It's not that the information or journalism
won out of favor.
It's just it changed the medium
from printed paper to online.
And those people got left behind.
That's a destruction.
The creative part was we saw this happening for a mile out.
And so your view on the future is how this happens.
The problem with AI is that it makes a person
that knows how to use it 10 times more effective.
and that literally wipes out 10 jobs and powell's not see do i think that powell knows it yeah do i
think he could say it no totally agree he can't say it he's trying to be being his fucking full
right before he does the post he says the chat gpt what's trump going to say when i say this and
chat gpt responds back as trump i mean so so so look guys you have to be able to see this difference
what's go what's going on am i the old guy yeah but i just read the death certificate on wikipedia
creative destruction you will watch this happen in real time you'll hear about a trillion dollar
company that that tim just said that will go public which is kind of and it's a non-profit
which is absurd right yeah because once you have more than a thousand employees it can't be a
non-profit so and and and what i know what's going on about that is crazy but i think that this is
going to be highly disruptive and the way that you look at your future is what group you're in
fred krueger said right he said either you're going to own bitcoin or ai stocks or you're
pretty much miserable what was his quote or you're screwed yeah he said life he kept saying that in
santa monica i think he was really he had a really good perspective on that it's like he's like okay
yeah maybe bitcoin doesn't climb as high or as fast as people think but he's like the real risk
is that if you don't own Bitcoin or some sort of AI related asset, life could be really, really bad.
Bad.
Very bad.
Really bad.
Very bad.
And I think that's completely accurate.
Like, I think he's not wrong there.
And we've seen it in the existing economy, right?
Asset owners are top 10% of earners, the majority of which their income is generated from asset appreciation,
are driving the entire consumer spend across the economy.
So that's only going to become exacerbated.
This idea that we're going to get some sort of great recession reset,
productivity will continue to be exponential,
whether or not the people are on board.
The GDP will continue to climb with this circular AI spend
that ultimately leads to deflation.
But GDP is just going to be a representation of the money printing
at some point.
Yeah, so it's like all that shit's going on.
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.
So if we're getting exponential deflation, they have to print exponential amounts of money to hide it.
It's going to be insane.
And I was re-watching this series by Tony Siba.
It was called The Great Transformation.
And it's not just AI.
There's going to be transformations in transportation.
You know, we're going to get transportation as a service.
There's going to be energy, battery, solar.
The other ones, I think, were food.
We're going to actually be able to create animal proteins the same way that we create insulin with yeast.
And so there's just going to be tons and tons of disruptive sectors, and they're all going to feed each other.
It's not like they're individual and they're additive.
They're all like multiplying each other.
It's going to be freaking insane.
And Bitcoin is already the intersection of encryption, the internet, and proof of work.
And so these Bitcoin treasury companies, like strategy in particular, they're eating the bond market.
So you've got Bitcoin, which is already an S-curve.
And then strategy is going to disrupt the bond market, which is another S-curve.
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.
so if you know five years from now if i'm looking at the five-year chart and you know strategies
underperforming i'll reevaluate then but i'm i'm not going to change my uh change my invest
investment thesis over you know the one-year chart it's a mega trend on top of a mega trend
right and i think there's a real world and this is something i've been struggling with a lot too
and um because you know i'm trying to manage a book and i fucking benchmark it against bitcoin
and against the S&P, able to beat Bitcoin these days,
but that's not hard, not beating the S&P,
which is quite embarrassing because we've always joked
like the S&P return is garbage for Bitcoin.
But the point being is I think there's a real runway
for the build-out of AI over the next five years,
but it's a Geordie Visser kind of style of thinking.
And something I think about a lot too is like,
okay, yes, but then once the corporations and the AIs
are building things themselves,
the cost of energy has been pushed down to zero,
math has been solved, physics have been solved, lots of healthcare tech and biotech is being
discovered and diseases and drugs are being discovered by AI. Where is that profit flowing?
And a lot of it may be owned by autonomous agents or corporations that own the autonomous agents,
and it's going down and down and down in price. So where does the value flow? And then that's
where the scarce asset jumps in. So I think Bitcoin has a high compound annual growth rate
for a longer period of time than people are willing to assign to it. They want 50% CAGR
for the next five years. But I think the real unlock of Bitcoin is that it's going to be 20%
CAGR forever after 2030. And that's really where the investment unlocks freedom for a lot of people.
you guys see those neo robots oh yeah oh man they've been all over twitter i'm surprised
uh they're like robots that will do all of your household chores for you
uh they've got eyes but they've got no mouth and uh the the videos are like them going to pick up
your your dishes and make your bed and do your laundry and they live in your house for twenty
thousand dollars you just plug it in uh it plugs itself in and uh it's been it's been funny seeing
the the memes that have coming out that have come out of it it's like that you the view when you
don't pay your neo subscription and it's like the robot like you know look you're laying on the
ground and it's the robot looking above it above your head with a gun in its hand you know it's
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
month which is just wild that it's already cheap and you would think the price is going to come
down over time the funny thing is there's uh speculation that it's like a uh a theranos sort
of thing like there's actually a human operating it in a different country and like just watching
like looking through the video camera and like with the remote control yeah with like they've got
you know things and picking you know guys oh there it is yeah telly tello tele operated that's just
like crazy look i i kind of get that i'm the dinosaur but i will leave my house to go food
shopping i do it myself and i go get my food and i bring it back to the house and i actually cook
my own food and you're like what does this have to do with anything well on the street that i might
look through the window and there's a tech worker across the street from me and she has a a monitor
i don't know how big it is it's freaking like four feet wide it's curved she's got like joysticks and
mice and mouse whatever she's like work and and i've talked to her she's like some she does whatever
or some remote work.
I think that she gets two meals a day delivered to her
that she doesn't cook at all.
I don't think she cooks.
I see the little scooter shoot up
and they drop the food there and they go get it.
So she doesn't cook at all
because she has no time to do it with her tech job.
And I'm just like,
she'll be the first person to go get a robot.
And she has a Tesla and a self-driving car.
And people are like,
I'm so busy in my job trying to make money
that I don't get displaced
by somebody else using AI better than me.
And therefore I can't leave my desk to go do this
because, and therefore I work as hard as I can.
And so that's kind of like the weirdness
of where we are right now.
So do I think that we're gonna have robots
in the house pretty soon?
Yeah.
You know, I don't, you know, people buy the Roomba,
the, you know, the vacuum cleaner that goes by itself.
I'm like, I have a vacuum cleaner.
I do it myself.
It takes like 15 minutes, not a big deal.
But people buy those, you know,
these robot vacuum cleaners. So I think that this is going to happen faster than people think.
And then you're going to have other people that are just like, Jesus, I'm just trying to buy eggs
and food and get by. And that's the haves and the haves nots. Somebody was saying, well, you have
this wealth gap. Right now it's not going to change. Nothing's going to change. The people that are on
this call, right? The people that are listening to us, the 13,000 people that are on, 19,000 people
that are on this call they're like wow we better go get some new skills or make enough money and go
buy bitcoin or mag 7 stocks no financial advice but if the other 493 s p 500 stocks are not
performing you basically have like 10 assets you could buy yeah i think about this a lot
considering i'm kind of at the you know earlier part of my career i'm 24 so i think a lot about
about like, how can I position for these next 10 years and be set up in the best way possible?
And I'll just give my thoughts on like what I've thought about by, you know, being in this kind
of environment. I think you could be in, you could be a high end, run a high end electrical
company. I'm an electrical engineer by trade. So during this AI CapEx build out, you know,
Jensen Huang just made some statement, the millionaires of the next five to 10 years will
be plumbers and electricians, right? What he's essentially saying is before embodied AI gets
year, physical labor is still in demand, especially high skilled labor in a market where the white
collar worker is being displaced. Okay. So that's like one thing. I also think an underrated sector
is luxury goods. I think in a world of abundance, humans will still crave scarcity. Obviously,
that's kind of the sales point on Bitcoin, but all the rich people are going to want to show
all the other rich people that they're richer than them. So what are they going to buy? They're
going to buy art that the other rich person can't buy, or they're going to buy sports cars, or
they're going to buy watches, whatever it is. So I think somehow being well connected in that
environment, brushing on shoulders against very wealthy people who are only getting wealthier,
is likely a very good decision moving forward to protect yourself the next 10 years.
And then finally, I mean, that's why I think actually Bitcoin credit is a really interesting
space to work in. And that's why I've kind of chosen to be in this area. I think why a lot of
have chosen to be here is because you know capital markets and the structure of finance uh will change
moving forward and so positioning yourself in the middle of it uh is actually a great way to build a
career moving forward and doing you know traditional finance and not being set up for that i think
it's going to be difficult so that's a good segue can we transit transit we got some questions on um
um we want to call it structured credit digital digital credit digital credit let's talk digital
credit graham maybe you'll lead us off i know you've been uh kick us kick us off on digital
credit great digital digital credit dc with diet coke and digital credit over the game so so digital
credit um look i'll admit that i didn't i didn't understand something until yesterday i i didn't i
didn't get something. I knew what return of capital was. I read the prospectus on Misty and
IMST, and I read it the old-fashioned way. I actually read the documents, and you get to the
juicy stuff about page 40. Now I'm much better at AI, given that that was a year ago, that I could
say, you know, it's kind of hard to prompt for a term if you don't know what term to look for.
But once you do this, so what didn't I understand? You know, with Misty and IMST, you have return of
capital and the yield according to the sec is a combination of return of capital combined with
the gains on the on the derivatives that they have the covered calls that they do that's according to
the sec according to the irs if they give you back your own capital return of capital that's not
taxable so the sec and the irs define yield two different ways and i and i knew that right
Then I saw Misty has, you know, basically the prices eroded down over time.
And I was thinking about buying this and I tweeted about this, whatever, six, eight months ago.
And, you know, a couple people reached out to me, very prominent people and said, read the prospectus and then call me back.
And I read the prospectus and I'm like, I don't like what I see in there.
And they're like, well, you had to read it.
So anyway, so when I looked at it and somebody said to me, why don't I like MSTY?
Somebody said, look at TLSY, the Tesla covered called.
And if you look at TSLY, it's basically down.
And that had been trading much longer.
And I'm like, well, to me, that seems like a good indicator.
So I never bought any, you know, Misty.
And I was like, I was like, this doesn't work good.
That clouded my judgment for looking at the prefs.
Because once they announced that the prefs are going to be return of capital,
I thought about those and I conflated two things together.
Now thinking about this differently, specifically with stretch, if it maintained, it came out at
90, it's whatever, 98, $99 today, whatever it is. And if that stays pegged at par, if, and it should,
in my view, no financial advice here, it doesn't have that price erosion. And so that perspective
is that when you get paid, it's 10.25%, assume it's 10% to make the math easy. So you buy it for
100 bucks and every year you get $10. After 10 years, your cost basis is zero. When you go to
sell it, it's long-term capital gains. You pay 20% on the 100 bucks. Or what you do is you die,
Give it to your kids.
The step up value goes to 100 bucks.
Your kids don't ever pay taxes on the 100 bucks that you did.
And then they proceed to receive a 10%, assuming the coupon stays the same.
I know it's 10 and a quarter.
And they get that for the rest of their lives.
So you just retired your second generation.
Now, some people had said this, but it did not sink into my head.
And I told Dan earlier before this call, I wasn't getting it.
And the other reason why I wasn't getting it because I'm a large MSTR shareholder.
In the short term, the coupons are paid out of the common stock ATM, which has put pressure
on MSTR shares in the short term.
To Jeff's point of view, if we educate these people that can buy a lot of bonds and shift
to the prefs, that education, then they become self-funding based upon the inflows.
and that changes the dynamics of where we are. So to sum this all up, I had a phone call,
talked to a very important guy yesterday, changed my mind. That's where I am today. I won't say who
he is. People could guess. And so from that view, I look at things differently today. And I think
one of the most important things that you could do in life is to say, you know what? I thought I
understood something a certain way at a high level where you thought that you have a good
understanding and then you realize, hmm, you know what?
I didn't get something.
And I could admit that publicly, just like Tad Smith.
He admitted that he didn't understand money until what?
He was 56 years old, Tim.
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
And so I say this publicly.
So that really changed.
Do I think that MSCR stock will be under pressure in the short term?
Sure.
Do I like that?
No, I don't.
Do I get the greater good of why we're here?
Yes.
So this basically juices the yield.
I highly encourage anybody, if you're still here and this is interesting to you, which
I think it should be, go watch the Scott Milker 30 minute interview with Saylor because he
hits on this directly.
And they effectively stumbled into digital capital.
They've stumbled into digital credit.
And now they've stumbled into this return of capital scenario, which is the reason it's
able to be characterized as return of capital is because they are utilizing the atm to pay the
dividends and because they they are not uh it's like basically a break-even operating business
to the extent that the operating business was really profitable it wouldn't be considered return
of capital so because of that corporate structure it's almost like a loophole and that that effectively
juices the yield on any of these prefs even higher. So let's just say you're getting 10 and a quarter
on a tax adjusted basis, you're really getting like 17,
which you look at anything else in the market, you know, like, why on earth would I hold anything
else in the market? We just spent 35 minutes talking about, you know, future cash flows of
any of these companies and what they look like based on AI, unknown. And now you have a fully
collateral, like an over collateralized instrument that's harnessing the productivity of the asset
and just this general market environment of AI and storing energy into the future.
These things look incredibly attractive. Yeah. So, so I'm going to say, so, so Jeff,
I'm going to say this a little bit differently.
You know, some people are like,
what happens if there's $3 trillion worth of these press?
I'm like, look, it's $2.7 billion right now.
Okay.
And by the way, you know,
if you watch the Scott Melker interview with Saylor,
he said, basically, oh, PFF,
the BlackRock Preferred Shares Fund,
bought 200, bought 2.2 million.
Yeah, 2 million shares worth of,
quarter billion dollars worth of STRC.
So of course I got a chat GPT to check it and you know what? It's correct. They unload that.
So sorry, they load up their CSV file of what's inside of it. So that's true.
And supposedly all of the prefs are inside PFF, but I haven't been able to.
Yeah. So they're all in there. That's a big deal. The part what I want to say here is that
if you, one of the things like in life insurance policies, there's a really high
salesman fee that gets paid on those because they're hard to sell. With this, the sales fee
is really zero on these prefs. But what I want to say is this, if you're able to sell these prefs
and you can sell to somebody and they buy it, that's not a taxable event. Then what happens is
you could sell MSTR common shares to pay that dividend. That is not a taxable event either.
if strategy right now, the way that they can say that this is return of capital, right,
is because strategy has structured it where they're not made, where they've designed to
make this, where they're not running out of profit. That's where they get this, where this
return of capital. So you've got these three levers that are very tax efficient in order to,
to, to roll this out. And so I don't think people are getting that. So right there, MSTR
is 1.49 that actually came up so look folks it's there there's the validation right there
the notional value 218 million dollars that's stretch that's right and then uh on page three
you've got strife at 91 million this is strike strike at 88 million and then the next page you've
got uh stride at 74 million right so you got all of them yeah so i want people to realize i'm
reading the comments are going on people like this is just a ponzi scheme um you know what
then everything is a ponzi scheme you know people say all the time that um the only way you can make
money in a stock that doesn't pay a dividend right is that you have to sell that stock to a bigger
idiot than you. It's the greater fool theory. I bought a stock and it doesn't pay a dividend,
so I get no yield. The only way I make money is sell to somebody else that pays a higher price.
That's the way. So it's speculative. All non-dividend paying stocks are subscribed to
the greater fool theory. In this case, what I think that what strategy built with Saylor
is digital credit. Did I get this basically before yesterday? I understood all the parts of it. I
have a much different understanding of that today. And from that perspective, I think the short-term
pain on MSTR outweighs the long-term objectives of where the prefs are going. Jeff, does that make
sense? A hundred percent. And somebody said they couldn't support $3 trillion with the MSTR common
ATM. I think that is just absolutely incorrect because the relative risk in these instruments
right now is completely mispriced at a future point in time when strategy is holding three
trillion dollars of this stuff that means they probably have six to nine trillion dollars of
assets on their balance sheet i would i would assume at that point so what what's the common
stock worth a multiple of that i don't know like 10 15 15 trillion uh the numbers are a bit mind
numbing, but the amount of liquidity that would be in that would be very, very high. It would be
providing liquidity for the entire market, kind of like Bitcoin is. So just this really,
really deep liquidity pool. And these instruments would probably reprice lower. So I think about
this a lot, just risk. I've been doing a lot of research and development and advancement of risk
models around this stuff. And I keep saying risk is mispriced globally. And I think that's,
that's the like crux of this entire conversation is really getting anybody that's holding any
instrument to think about what is the, what are the true risks of any of the things that they're
holding? This kind of gets Soleil into like underwriting, underwriting risk. My last 11
years, I've been underwriting risk for insurance companies, like identifying, like how do, how do I
evaluate risk? You know, look at different things and selling different tranches of risk and talking
about it and um i've now had just several conversations with uh with people in the industry
and nobody can wrap their head like nobody's really focused on the risk of these instruments
that like the instant thing that everybody likes to go to this is on twitter this is in trad fi
is black swan downside like that's just the easy thing to go to like oh you didn't put a
you didn't put a negative scenario in your BTC analysis. Well, if I assumed Bitcoin CAGR of 5%
and a volatility of 50, that actually does assume significantly negative prices at any point in time.
I'm simulating and modeling this into the future. Getting society to think about risk of these
things relative to other things is going to just take so long. It's going to take so long.
And it's not going to change until there's pain in other places, likely.
So this is other debt instruments underperforming, pension funds maybe not necessarily meeting their liabilities,
or large pools of the population getting their pension checks or their retirement checks,
and they're just not keeping up with inflation.
They're losing purchasing power over time.
I mean, I'm seeing this with my father-in-law literally in real life right now.
And it's like kind of sad to see.
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.
And you need AI, you need computing, you need a sophisticated pool to start accepting this stuff.
Yeah. And on the topic, Tim, go ahead.
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.
that's like a private equity style return.
Mike, you and I literally met because of like a private equity style fund
where it was targeting 15 to 20%.
So I literally just put into chat,
what is the total market value of private equity?
Well, according to S&P Global,
the global private equity market was about 5.3 trillion in 2023.
It's expected to reach about 6 trillion by the end of 2024.
for so maybe digital credit is the new private equity bit bitcoin's coming for everything yeah
it's really coming forever yeah you know you know guys i'm gonna tell you something i taught i i i've
met a lot of people that have 800 score math sat's and ivy league i'm a silicon valley people that are
super coders pretty commonplace here um one of the things they don't get is moving averages so let's
say your moving average is like literally 20 a year everybody's like oh that means it's 20 20 20
and you stick that into your spreadsheet now moving average doesn't work like that bro what
it means is i've got 40 one year zero percent the next year the average is 20 they're like well how
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
you take the vol out and then what happens is they just assume that it's a straight linear
relationship and it's not. So for moving averages for Tim, getting back to your 18%, if you want to
average 18% a year after tax income, you need years where you get 36% to offset the years when you get
zero. But if strategy is paying 10 and a quarter percent and they don't make payments if it's
cumulative, Dan, jump in here when they make a mistake, they've got to keep up with that coupon
that they promised. Now, did I think that it was rather unreasonable because they have to sell a
lot of MS, they have to sell some MSDR common shares to pay that coupon and I own MSDR. So I
don't like that dilution there. But back to your point, Tim, this 18% a year effective yield is
huge. I mean, it's like, why invest in the S&P 500 if you get an effective non-taxable yield at
18% it's 10% coupon.
Not paying taxes is equal depending upon your tax bracket,
15 to 18%.
6X over collateralized with investor protection
of cumulative annuities.
And a step up penalty in the,
like there's so many investor protections in these things too.
Like they had to sell them and get them off the ground.
That's why I was freaked out about them
because I think they were adversarial to the common.
Like I just, not adversarial,
but the point being is they were so oriented
towards the preferred holder.
I mean, they still are.
Right, right.
I want to address some of the comments that are coming through.
ROC is just tax deferred.
Yeah.
It's tax deferred.
It's buy borrow.
To the point when you sell it.
So what do you mean?
In 10 years, your cost basis is zero.
Tax deferred, it's buy borrow, die.
What do you want?
Somebody's going to be like, well, you should go move to Dubai and you don't have to pay
taxes.
I'm like, well, I don't know anybody in Dubai.
So British.
British hodl.
Right.
but yeah that's a good point i mean the the tax implications are massive i think i personally am
a little nervous like if if let's say stretch really takes off and starts eating the bomb market
um i don't know if the sec and is going to be cool with these things things continue to be taxes we're
going to return to capital so that's something i'm looking out over the horizon if it's in fact
successful i don't think you can count on that lasting forever but that's just my two cents even
if they're not even if they're not they still will pass on everything yeah no which is crazy and and
to that point dan i want to tie it back to the smp thing here right like if strategy has an investment
grade rating on these things they're they're going everywhere they're going in every single fund
they're going in pension funds they're going in iras like they're going everywhere insurance
companies systemically right too big to fail systemically and that is that is like a huge
that is just so like the gravity of of making that decision is so big and i don't think they
want to make that decision yet because right like if that's everywhere then you that's basically
saying, if this fails, we're not going to let our society crumble.
I'm in agreement.
I think it's hard.
That's what they're saying.
Yeah.
But I think them having a rating right now is a massive step in the right direction.
100%.
Right.
There are a lot of funds who are supposed to buy B minus rated debt.
So I tweeted about this, but I'm going to tell the story quickly.
If you want to buy unrated securities as an insurance company, you have to go through this just ridiculous process, right?
You've got to go to this securities valuation office.
You've got to file a memo.
You've got to send over the prospectus.
You've got to go back and forth with their team, answer questions.
It's a three to six month process.
And you've got to pay the $5,000 fee annually on top of every security that you want to buy into the future.
if you want to buy any rated security all of that is gone so like insurance companies are like yeah
i'm literally never going to do this because i would have to i would literally have to hire people
to do the administrative task to put the unrated security on my balance sheet that i already don't
necessarily believe in now if you remove all of the friction aka a rating then that capital is
like, sure, I'll put some of that on my balance sheet. Why not? That's just one anecdote in the
insurance industry and going from unrated to rated. Every step along the way, every step that
goes higher is a new pocket of capital that opens up. Basically, I'm viewing these as,
you know that open door meme? It's got the Grim Reaper and it's like different pools of capital.
That's how I see this in my head. You got to go open another door and you go kill them.
get in the door. That's kind of how these different pools of capital are and these
different ratings will probably be. You know, you know, what's going to happen is
at some point in the future, they're going to get rated. Whatever the rating is,
it'll probably be lower than we want. And then eventually we'll ratchet up.
And by the time Bitcoin is in the future, three years, five years, Bitcoin's at 250, 300,
$400,000 and they get a rating. Somebody is going to be on, hey, what's the next new thing?
because I wasn't in on this. Stretch is only 90 days old, a little bit more. It was basically
just announced in the last quarterly report and went live on the date. So the takeaway here is
that Stretch is not even a little bit over three months old. So what's going to happen is we'll get
an update tomorrow on what's going on. And I think you folks should watch the earnings report.
The fact that, I don't know, what was on the last earnings report? 45,000 people?
Wasn't that a crazy number?
You know, we asked Tad about that, you know, or there's a picture of, you know, MetaPlanet
before and after they started the Bitcoin treasury.
There was like three, six people in the room.
Four of them were with the company and two were like the people delivering coffee.
Nobody wanted to hear anything about MetaPlanet.
And then a year later, the room's got 500 people in it.
So with that said, if there's 45,000 people on strategies call tomorrow, I think that's unprecedented.
Maybe we should find out the metrics for how many people are on their call versus NVIDIA based upon the market cap.
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.
And I think that we live in unprecedented times.
That's signal, right?
people per market cap on, right?
Everybody's trying to figure these things out and they're so new.
And in order to figure them out, you have to spend time in doing them.
And like, I literally work in this environment.
I spend all of my time thinking about this and anybody that's, you know,
focused on AI, they may, like most people don't even know strategy exists.
the company even exists and we're meanwhile we're running around like these are the greatest things
since sliced bread right uh we've got just a lot of work to do yeah if i'm talking to somebody in
the gym or the sauna whatever about investing and you know it comes up you know strategy has to come
up and then i have to explain to them it's called strategy but the ticker is mstr because it used to
called micro strategy and they're just like oh okay yeah uh-huh let me not care about this
fucking ravens fans around here
you know so so you know jeff um i i think you know this digital credit there's a lot of moving parts
in it and being able that i think that the longer the person the more that they have been in
traditional finance they're more resistant just to understanding it there's a massive friction
tim what you just said if private credit or private equity gets you whatever 15 a year or 20
a year and basically i could buy an instrument right now that does that after basically after
tax i know it's return of capital um you know i think that that you know they're like well that's
good to be true so i'm not gonna even listen to you and so that's exactly it right it's too good
to be true it's too good to be true it's tax deferred okay it's tax deferred go ahead mike
continue so real quick i actually had a friend of mine text me and say hey i get it now and you know
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
the newest thing from jesse oh yeah yeah yeah and oh yeah of course it's matthew montgomery
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
part of the education curve is like give people something that they can actually see to help them
visualize what's going on with all of these products mike as you were saying right it's
there's a lot going on there so so mike to your point on this too good to be true i and i said
this on um i think the hurdle rate like i literally took the right before i left in
reinsurance i was like you know what i'm gonna give it one more shot and originally i wanted to
bring bitcoin into the reinsurance markets and i thought look i'm gonna go make a good pitch i'm a
pretty good salesman uh in selling these structured products i'm gonna go talk to my ceo about bitcoin
and tell them I want to work on it.
I walk in the door and I bring in
the four-year compound annual growth rate chart
and the log-log Bitcoin chart.
And then also a chart of other technologies
and their adoption rates.
And we talked about it for, I don't know,
10 minutes, 15 minutes.
And I was like, I was pretty nervous.
I'm like, I'm literally putting my entire career on the line here.
And he's like, well, when I, when I look at this chart, this seems sketchy.
And it was just like too good to be true.
This is the CEO of the company, like a multi-billion dollar company
that works in finance.
And, you know, I seem like the crazy guy.
I seem like the, you know, the church goer, like, uh, let me tell
you about my Lord and savior, Jesus Christ.
Right. Like this, that that's kind of what it came across as.
But my initial reaction was like, I can underwrite this.
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.
And I was like, I was starting to see it visions of underwriting tranches of risk.
and it's just going to take so much time for people to wrap their head around it because it's
novel but there are new products they're really starting to do the same thing and they're starting
to take off and i saw it i saw it yesterday um it's a fixed income product and it's long tesla
nvidia and meta i think and it and it takes the like worst performance of the three over a four
year period and it kicks off a dividend i i'll have to find it and send it out to you guys i it
was totally fast you know i'll see if i can look it up if you guys want to keep the conversation
going but you know you know you know something that happens i was on a i was in a space a couple
days ago and there was a guy that came on it was grant and gary and grant card over in the space
And this guy was saying, you know, it's the same tired old trope about Bitcoin.
I'll believe in Bitcoin when I can go buy a coffee at my local pub.
The guy was British and he's saying this.
And I'm like, that's my brother-in-law.
So I'm like, so you know what I say to those guys?
I'm like, okay, you know what?
Go take a stock certificate down and go buy, go buy, go buy a beer with it.
You can't use a stock certificate to buy it.
You don't even have a stock certificate.
I said, take a $20 gold piece.
Now, the $20 gold piece is worth whatever the price of gold is, but it's stamped 20 bucks.
So that's all it's worth.
We're going to file off some of the gold.
So I can't use gold to go buy a cup of a cup of what do you call it?
And they're like, well, it's a digital asset.
What does that mean?
Well, there's like there's music portfolios.
Can't touch music.
You can hear it.
You could see sheet music if it's printed.
But those music portfolios have a value.
Frickin what's his name?
you know, Elvis Presley is worth more dead than he is alive because they license his name. The
guy is not even here. So they license this. So when somebody tells me that I can't use Bitcoin
to go buy something, I'm like, what's your point? You buy your asset and at some point,
either you borrow against it or you sell off a piece of it and you go live your life.
And somebody is like, have I ever transacted in Bitcoin? Not really, maybe once or twice to get
a t-shirt at an event, but I would never do that. You know how bad I would feel if I used
two Bitcoin to buy a t-shirt now that that's an expensive t-shirt, right? So, so my takeaway is
that we keep on hearing those same things. And the guy said this, and I'm watching the Jeremy
Clarkson show, like 80% of the pubs in the UK have closed down. You know, what killed it? Social
media. They're not going to the bar to drink. And, and Jeremy's like, well, we'll serve food also.
And when he went to go get this license to go do this, because I'm a car nut, even though
the show's not about cars, right?
They're like, no, you can't set it up.
We had three restaurants in here that all went bankrupt out of business over the past
six years.
You're not going to be any better than them.
So the way the world used to be changed.
I didn't change it.
It changed.
So lead follower, get out of the way.
and you know i i think i'm pretty fired up today about this jeff if you want to talk about something
just cut me off but well from from my view it's like you know what you better be prepared for the
future if you don't like the future maybe you need to change your attitude i'll take the other side
of that grain i'd love every every chance i get that i can spend some bitcoin i'm like so excited
i feel like a kid um when when tim took me to pub key the first time that was the first time i ever
spent, you know, Bitcoin and, you know, a couple of double cheeseburger, smash burgers, whatever
the heck it was, lightning. And, you know, I just hold open the code, the guy scans it
and then he walks away and I'm like, did it work? You know what I mean? I was like, I
don't know. And he's like, oh yeah, everything's good. And, um, you know, I'm being a little
cheeky with it, but if you, if you've got Fiat to buy cheeseburgers, you're already Bitcoin
poor. So I don't mind the spend and replace aspect of, of Bitcoin.
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.
I will tell you that most of the people probably forgot how to get in the Coinbase to go get it.
So that experiment kind of didn't work the way I wanted it to.
But I think our takeaway here right now is that we've talked about some very complex things.
Prefs that are designed to sell by an operating company to attack the bond market.
Tim, you're talking about the Jesse Myers with the little pipe showing how that all works.
is pretty awesome.
You know, for a visual,
a picture's worth a thousand words sometimes.
And I think Clarkson's Farm is totally underrated.
You know, by the way,
the guy gets a Lamborghini tractor.
It's like the worst tractor to get.
Although it sounds awesome.
It looks cool,
but they have lots of problems with it.
But anyway, you know, look,
I like everybody likes to take us to task.
if we make any type of comment, you know, you know, you know, the two Bitcoin, you know,
on a muck there, you know, use two Bitcoin to buy two t-shirts. It's like, well, anybody that's
transacted that way, you know, you kind of feel bad eight years later. So, or whatever dollar
amount it was. And that's why I don't transact in it because I think it's going up forever.
And so from that perspective, I want to hold on to as much as I have.
But what else do we want to talk about, guys?
I think I found the note, the fixed income note.
It's called a worst of fixed income note.
And it uses NVIDIA.
I think there are a few of these now.
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.
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.
but they know that like if I hold Nvidia or Tesla,
I'm not getting paid a dividend,
but I need like,
I need some protections here.
So they basically slam together performance of these equities
and structure a fixed income product around it.
And it's just becoming fascinating.
Like this stuff is just going to keep getting crazier.
But that's wild because every single one of those assets
that are getting wrapped have disruption risk.
100 and and strategy has bitcoin which money is impervious to disruption it's the only thing that
can't be disrupted is a bitcoin balance sheet right so it's it's it's an insane comparison
hey you know what i i've got a quick financial engineering story here involves warren buffett
and apple and you guys anybody could fact check me on this and it'll take two seconds so um at
some point, Tim Cook was running Apple. Steve Jobs had died and he's sitting on whatever,
$100 billion in cash. And he didn't know what to do with it. So the internet lore is he wanted to
know if he could talk to Warren Buffett, but he didn't know if he would take his call, whether or
not it's true or not. So he calls up Warren Buffett and they have a talk about this. And basically,
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
shares because automatically it accretes value because it reduces the float and increases your
earnings per share. Now, so Tim Cook hears that and he's like, oh my God, that actually makes sense.
The interesting part about it was the downstream effects to Warren Buffett. Warren Buffett was one
of the largest shareholders in Apple, not because he's a tech guy, it was because he brought in two
guys that explained to him to do this. He had a large stack of Apple shares. So when he told Tim
Cook to do this, right, it was benefiting Warren Buffett directly because they bought back their
own shares, which means each share that Warren Buffett had is now a higher percentage of the
market cap of the company. And this was a non-taxable event. Well, I mean, and so how do
they fund these buybacks with Apple? A lot of the buybacks are funded by floating a bond.
Why do they float a bond? Because a lot of the money is offshore. So the way they buy the shares
in the US is they float a bond so they don't repatriate the dollars because they have to pay
taxes on it. They float a bond. So Apple sitting on $100 billion in cash is floating a bond so they
don't pay taxes to buy back their own shares to reduce the float to make more money and everybody's
like well we're cool with that that's all good oh no what sayers doing that's financial engineering
ponzi scheme must be it's a ponzi scheme it's not gonna work i mean this is all gonna because he's
doing with balance sheet and apple did it with the income statement but the same financial
engineering that apple is doing with tim cook nobody has a problem with that yeah well and i i
I know this is not MetaPlanet True North, but I mean, they did announce that they might buy back some shares, right?
MetaPlanet did 13.13% over the course of a year, and they pledged collateral for the Bitcoin to go do it.
I think they need to do a couple other things.
And if Dylan and Simon are watching this, you guys could DM me.
Dylan, you have my phone number.
I've talked to him in person many times.
But anyway, with that said, just give me a call.
I have some ideas for you guys.
And I think that what I just explained to you about financial engineering, any TradFi guy should know that.
If they don't know that, then they don't grab a Diet Coke.
Jeff, so could you underwrite Bitcoin black swan insurance for a treasury company that was stacking?
Yeah, I think that absolutely could be a product in the market.
100%. You can calculate.
Like I think you, well, really, I think the question is, is there anybody on the other
side that wants to take that trade?
Right.
So, but you can, you can certainly quantify the risk and start to structure the risk.
And you're, you're talking like tail out of, to put this in perspective, uh, in the
reinsurance world, I w I, I frequently sold, uh, very like deep out of the money, uh,
earthquake tail protection. So California earthquake authority exists. They've got
billions of dollars of coverage. They buy, you know, reinsurance up to one in 250 year return
period. So if there was an event that was a one in two 50 year event, like significantly worse than
1989 earthquake or like the 1908 earthquake, like double, double as bad as the 1908 earthquake in
San Francisco, that, that, uh, product would kick in. And yeah, I think I sold it for like 4%.
I sold a hundred million dollars for $4 million, a hundred million dollars of coverage for $4
million. But, uh, there was somebody that was willing to take on that risk to, to the downside,
right? Like it's a, it's a tail event, but you have to be able to like wrap your head around
what's the probability of that tail event? And how do I quantify it? And I think you can.
I think you can quantify those tail events and I think you can quantify those things.
Many people think you cannot, but I believe this is a structural instrument that is building and
getting adoption. This is an adoption curve, not a speculative asset. And if you take that
perspective, then yeah, you can underwrite it and you can underwrite. So you could sell that product
to the market, to somebody that's willing to take it on.
Yeah. When you tweeted, I can underwrite this. The only thing I could think of was that saying,
when you're a hammer, everything looks like a nail. So apparently when you're an underwriter,
everything looks like insurance. Yeah, totally. Totally. And the
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.
it's very, very, very difficult to underwrite with any more certainty digital credit backed
by Ethereum or Solana or any of these other cryptocurrencies that have a centralized authority.
You've got a new element that is unpredictable and difficult to quantify. There are convertible
bonds that exist in the market, but for anybody going to get Ethereum backed digital credit,
the rates are going to have to be higher, right? Like they're going to have to be way high.
They're going to have to be, there's going to be a credit spread between
Bitcoin backed digital credit and Ethereum backed digital credit, which is in my, like my bull thesis
here is that Bitcoin is going to capture the credit market. It's not going to be any of these
other shit coins because you can't, it's, they're far more difficult to underwrite from a risk
perspective. And Bitcoin being decentralized is much easier to wrap your head around that risk
profile. So this is going to be a multi, this is going to be a multi trillion dollar market.
So, so let me talk about black swan events. Black swan events occur every single year.
Nvidia had a black swan event this year. Does anybody remember it?
they signed the death certificate what happened to them deep seat came out
the deep seat came out i just googled it just chat gp it comes up oh nvidia has peaked the ai
the ai boom is over you know this this ai startup in china was able to figure out how to use low
cost or outdated nvidia chips to have orders of magnitude better than anything else and so they
not to pick on you we had a black swan event on nvidia which is now the most valuable company
How much is NVIDIA worth, Jeff?
Five trillion.
Five trillion dollars.
We had a black swan event on this year.
So if we go back to the morons that wrote those articles in February, we go ask them,
what do you think?
Well, we thought the world was ending for NVIDIA.
And then remember the yen carry trade blew up last year, last August?
Oh, well, the freaking yen carry trade is over.
Bitcoin's dead.
So it seems like every year, Charlie Bielo, who's on X, is awesome.
He's got a chart, and every year it lists what caused the major dip to happen.
So somebody could say is, well, if you don't own NVIDIA, it's not a black swan event.
But if you do, it is.
It's a recession when your neighbor loses a job.
It's a depression when you lose your job.
yeah and so your perspective is if the yen carry trade blew up what you were doing or the price of
bitcoin it's a black swan event if you're owned nvidia you had a black swan event earlier this
year if you got shaken out and then it went up wow i guess you didn't see that coming yeah i think
i think um you're kind of going back to that question a little bit i think about often like
what is risk? And in my opinion, risk is just math. It's probabilities, right? Like let's think
about the very first insurance contract that was ever created in 1686, the first ship that sailed
across the Atlantic. There's a probability that that ship wasn't going to make it. And they said,
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
and it's just been ingrained, like gambling.
Like what is gambling?
Gambling is risk-taking.
And you can boil risk-taking down
to probabilistic simulations and math.
And now you have math money,
money that is designed around math
and you can throw probabilistic simulations and probabilities around its future performance
and create a risk curve for that instrument and you can begin to structure and tranche
different risk tranches based on anything really if you could think of it you can create it like
and now you've got the use of ai and like sailor creating these instruments he's out creating
different risk tranches on all of these different things but this is just the tip of the iceberg
like you can do 10 000 different ideas here like i everybody there's been so much infighting
on bitcoiners yelling at bitcoin treasury companies they're all trending to one m nav it's like
everybody's wasting so much energy when they should be focused on the bond market like
can we just all be on the same page here and focus on how shitty the entire bond market is
like just i mean just go look at a few things out there like why would anybody buy these things
We need to turn a critical eye to those things, right?
Like a lot of like grifter mentality out here.
People think that the Bitcoin treasury companies are grifting.
No, like we're trying to push Bitcoin adoption forward.
And I would argue that Bitcoin is probably the most trustworthy people on the planet.
Right?
Any other shit coiners, like I'm not trusting any of those people.
like trust is a is human nature there's going to be trust structures in the future of society like
if society is going to be around like trust is going to be everywhere like you're still going
to have trust like unless we're all computers you cannot remove trust from society so i think
that's just always going to be around but anyway that's just my perspective yeah so um dan i think
you put some some research together do you want to talk about the uh the four-year cycle fallacy
i have i just have some brief macro notes for your cycle policy we can discuss as a collective
i think yeah i think people in the comments are getting psyched about all the bitcoin
conversation so this might be a good rip it good topic rip it no while you're pulling that up i
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.
But then at the same time, Bitcoin's never existed before, so maybe it's just mathematically programmed to do it that way.
So I can't even decide for myself what to think about it.
Liquidity environments, business cycles, right?
There's just a lot of, it's like not going to operate on a, like, math, like a.
Well, people are suspecting that it would work on the, you know, be related to the having, right?
But I think some people are coming to believe that it's not specifically having related.
Inception.
Yeah.
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.
It's just been going on for three months.
But, you know, we're still up big.
And QQQ, I just did an analysis the other day.
I mean, not analysis.
I just looked through the index.
I mean, 70% of QQQ is the MAG-8.
So that's just something for people to consider.
QQQ is not really an index.
It's the MAG-7, essentially.
manufacturing PMIs.
We've been in this period where this has contributed to the underperformance of the S&P 493.
Everything that's not mega cap tech AI is underperforming and Bitcoin is trending along with it.
And that's a function of the business cycle.
So this has just been a super weird period of time.
Maybe AI capex spend makes this trend higher.
But I think anyone calling for like a 70% decline in Bitcoin is just like a fool right now.
You know, we may not get that crazy rip people are expecting, like $200K in a short period of time.
But I think fading this and getting short Bitcoin here is just ridiculous.
This one's pretty interesting, actually.
Average returns by Bitcoin cycle phase.
So, and you've got Bitcoin, QQQ, SPY, and gold.
but the four main, four big drivers or big indicators of kind of the macroeconomic trends.
So in bear markets over the past four years, on average, every single asset has been negative.
So the QQQs, SPY and gold actually during these Bitcoin bear markets.
This is a four portions of the cycle, bear market recovery, bull, and then bull peak.
But you can see these assets are highly, highly correlated in every single market.
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.
And that's hard to foresee considering it's just AI CapEx spend.
It seems to be going nowhere, but higher, plus we're cutting rates into market all-time highs.
And then again, this is during the last three Bitcoin bear markets, how have assets performed?
So 2014 was a bit of anomaly.
But during 2018 and 2022, you can see a high, high correlation between QQQ and Bitcoin.
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.
And I think that obviously as a function of global liquidity and the credit hiking cycle, the rate hiking cycle.
And so it's reflected in the general indices as well.
But I don't think now is the time to be, you know, shying away.
And then CMC fear greed, super low.
And yeah, and volatility.
Volatility has actually been slowly coming back into Bitcoin.
It unfortunately has been to the downside recently.
But I think volatility is at a good spot.
You know, this is all kind of peak here, but volatility is a good spot.
I think it's healthy, but it's going to take longer, I think,
for us to go higher but it's all gonna happen yeah showing those other equities going down
during the bitcoin bear markets like if you're going to assume that bitcoin went down because
of a four-year cycle then you'd have to kind of assume that somehow bitcoin's four-year cycle
dragged the other equities down with it like that would just be a weird coincidence right so i it
does seem uh like i don't think you can make that assumption right like if anything the other
equities like at that point in time bitcoin was you know like a one trillion our market cap um in
2022 so yeah i don't i mean bitcoin's not leading equities right right following equities yeah
all right that's some yeah go ahead go ahead mike yeah so a little different take let's just say we
look 2016 it just happens that bitcoin halvings kind of correspond to u.s election years by
coincidence. So 2016 was an election year, 2017 was the peak. 2020 was, sorry, 2016 was an election
year and a halving year. 2020 was a halving year, an election year. 2021 was the peak. It had a
double top. We had an election year last year. Bitcoin went way up. It did really well. And then
we hit a peak in this year. The question is, does that happen the year after? Is there a crypto
winter. I agree with Dan said, given where we are with the ISM, cutting interest rates. I think that
we're in a different phase this cycle. So I think that you have this exuberance that when a new
political party comes in, people are like, well, things are going to be different. Whether it's you
wanted the person or not, things will be different and we're optimistic. Basically a year, year and a
half after that, we have midterm elections next year. I think they're going to cut rates. I think
that's going to happen.
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
So that was pretty miserable how it ground the price down.
And so that cycle is a little bit weird.
Somebody had mentioned before about the money printer.
Since 2000, in the US, the M2 has gone up an average of 6.5%.
If you probably take out the 2020 peak in 2021, it'll probably drop it to a lower number.
But you take M2 at 6.5%, combine it with inflation at 3%, which is probably more, that gets you
your debasement value on the currency.
And so basically at 10%, every 7.2 years, you lose half your value.
So we should all be able to say that.
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?
Probably, probably within a year.
I don't know what it's going to be.
But I think next year with cutting rates, I think it's going to be different than what it was in 2022 and 2029.
Sorry, 2019.
I think those years are going to be different next year.
I think next year, Bitcoin is big enough now, $2 trillion plus asset.
where it just operates differently.
It truly does.
Spot Bitcoin ETFs.
And I just think it's different.
So Fed dropped interest rates.
I think it's Elliot is mentioning credit expansion, right?
So I think credit expansion is a worthy topic to kind of get out there.
As interest rates drop and more people take out loans,
it's like leverage in the system systemically expands, right?
Like that money isn't really, it's just kind of created out of thin air.
You've got increased credit being delivered to the entire market.
Those people are now operating within the system with more money, more leverage taking on.
And one thing that was just really fascinating, I'm still trying to wrap my head around it,
and I can't really speak too much on it today, but interest rates rose or interest rates dropped,
sorry 25 basis points and treasuries ripped it went it was counterintuitive it went backwards
from what i thought would happen i dan i don't know if you've seen this or looked into this really but
um which to me i think senior the the 10-year went up the five-year one year after that yeah
it's because he was hawkish about the december cut is what because of inflation yeah exactly
which that's just how the traders are trading it right i mean i guess
but i think the tenure like like there are a lot of smart people out there that are just saying it's
like like a lot of people are thinking like oh you know rates are going to come down on the long end
but like there's no reason for rates to come down on the long end with deficits blown out as hard
as high as they are it's just like yeah long end rates probably aren't going to come down
even if they drop the fed funds 2.7 by the end of the 26 like the 10 year will probably still be a
four but fed funds could be a 2.7 like and yeah extreme higher yeah so then like how do credit
spreads like what what pegs credit spreads is it the strife is pegged to like a 10 or a 30 year
because it's like infinite duration yeah i'm not even i'm not even thinking about the
it you just match duration like then keep going right that's how i i always do so then what what's
the what's the point of the fed funds rate the ability to borrow fed funds rate sets short-term
duration sure i mean it's it's how they manage short-term duration like the short term whereas
like the market sets the longer end of the curve right so like a credit spread relative so like
strife which is a perpetuity its credit spread could typically be priced against the 10 year
10 years at like 4.9 it's at 4.09 after the fed meeting up nine basis points you benchmark strife's
yield relative to the 10 year whereas you benchmark stretches yield relative to
to, I mean, you know, a 30 day T bill.
Hey, have you guys ever met a rich bond trader?
I've never met.
I've heard they exist, but usually they manage someone else's money.
I feel like bond traders are now equity traders.
Like the rich bond traders are now equity traders.
Yeah, Josh Mandel.
Yeah.
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.
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.
And sometimes, you know, you have to be open to listening to those things.
I think that's critically important.
Talk to people that have greater insight.
and and and i think it's okay to admit that you have a different you change your mind about
something based upon new information if anybody ever says well you said this six months three
months ago six months a year ago you're like well i have a lot of new information in the three six
months or one year and it makes sense and sometimes i learn better by comparison if i compare something
against something else it makes more sense to me and other people you know whatever they just well
if you just think about it enough, it'll make sense. I mean, that's just the way,
you know, you do those comparisons. So with that, you know, I think this was,
you know, great call, Jeff, we're going to do this every Wednesday going forward.
Maybe we're still working through general schedule, but I think it'll be
a little bit more scheduled. We'll have some changes in 2026, but yeah, we're going to still
keep plowing through. Awesome. Good night guys. Thank you.
all right i think we covered everything on the agenda that we're going to cover
uh do you want to do some uh final thoughts jeff you want to knock start it off yeah i will i will
start it off uh everything there's risk everywhere in the world how you handle that risk is how you
can quantify it and wrap your head around it and uh bitcoin can be underwritten that's all i got
love it tim you want to go
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.
It's like social media, right?
Call it digital distribution, AI, energy, capital markets, and one that I don't think
gets a lot of attention yet, which is regulatory arbitrage, right?
Where you kind of, what are the rules here versus there?
So those are my final thoughts.
Cool.
Mike, you're, well, I guess you're signing off, but we're all signing off.
What do you got?
That was it.
I already gave my closing remarks.
Thank you, guys.
yes sir go ahead dan um it's been a good combo guys always fun sure all right i'll i'll kick it
off with this uh so back to disruption my uh one of my favorite quotes uh from the dan sieba great
transformation uh series was a butterfly is not a caterpillar with wings and so if you're trying to
predict what Bitcoin treasury companies will be based on what TradFi has been forever,
you're going to be wrong. You just cannot slap wings on TradFi companies that own Bitcoin
and think you know how to price them. You know what direction they're going to go. You know
what products they're going to offer. And so you have to wait for the phase change. They're going
to go and they're going to go into a chrysalis, metamorphosize, and then you're going to get
something completely different on the other end. So it's going to take some time. And I think the
high time preference traders will probably get washed out and the low time preference Bitcoiners
will win out in the end. Appreciate everybody for tuning in and we'll see you next time.