Versus Bitcoin, you can sell a billion dollar position on a Saturday, and that is super useful for the loan products or the outstanding loans become very tradable, as we saw with the lead and securitization, because what they're backed by is very tradable.
And so you can always look at the market, the truth machine, and say, what is this thing worth?
And there's always an answer to that question.
Bitcoin is a currency on the Internet.
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It's going to outperform everything.
Bitcoin could eventually be worthless.
Every day is a good day to buy Bitcoin.
Bitcoin reached its highest price to date.
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Who cares about Bitcoin?
It's the only secure database that's ever been invented.
Antisocial.
Bitcoin is the real deal.
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Fix the money.
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We'll be right back.
Welcome to Bitcoin for Financial Services Media, the podcast where sound money meets professional services.
We explore how to build a financial system within the principles, values, and ethos of Bitcoin.
Today, we're joined by Scott Marmel, Managing Director at Capital B Advisory.
Let's get started.
all right welcome back to another episode of the bitcoin for financial services podcast i'm back
i know i took a look i went into hibernation i'm still in hibernation but i poked my head up
uh for today because i had to be on with scott marmel um to make sure i was part of this
conversation didn't let Wyatt have all the fun during tax season. So like I said, today we've
got Scott Marmall on. He is the founder and managing director of Capital B Advisory and is
ex-investment banker from Wall Street and is, you know, plowing a like new path in the Bitcoin
space that really no one else is going down. So I'm very excited for this conversation.
Scott, thank you so much for taking the time today.
Thanks for having me.
yeah all right why you're more in the finance world right i'm in boring tax and accounting
so i'm gonna let you lead and i'm gonna learn and and we can kind of play the roles of uh you're the
smart guy asking questions i'm the i'm the guy in the audience that asked the question that everyone
is thinking but no one's uh brave enough to ask so yeah so god thanks so much for coming on and
it's a pleasure to have you back to our nose get a little little lovely the riverside studio
know um and this is actually the the podcast format i've been suggesting for a while now so i'm happy
we're finally implementing it um regardless uh scott i'm stoked to have you on just because i feel
like interviewing folks like you see your exact reason why jordan and i'm you start this pod
as you you know kind of mentioned in the intro you're doing something very interesting
kind of paving the way for, you know, M&A advisory, capital advisory in the Bitcoin space.
I wanted to get into that, but before we do, let's fight a little bit with your background.
You know, you got a lot of experience in Trattify. What was it like being the covert
Bitcoin agent on the inside? What do your colleagues think of Bitcoin? What do these
firms today think of Bitcoin? Do you think they're the perception? You know, we hear a lot of
media and hype about Wall Street's adopting Bitcoin, big institutions are getting into
Bitcoin. Is it actually real? Yeah, I'm glad you asked. So I'll start a little bit with the
background and I can tell you some of the conversations along that career arc, but
always have sat around the M&A deal table, whether that's raising capital for a privately held
business to do a dividend or acquire a competitor or a majority sale. So always in the sort of
private markets M&A advisory space, I've also sat in the investing role. So just moving to the other
side of the deal table at a private equity fund and done this work across a bunch of different
industry sectors, healthcare services, tech-enabled business services, software, industrials,
consumer retail franchises. And all along the way, you know, a nights and weekends studier,
enjoyer of Bitcoin lore. And, you know, it probably took a couple of years into my career
to start kind of talking about Bitcoin out loud at work. But for the entire decade that I did that,
folks almost entirely dismissed it. And so I think, you know, there's a lot of commentary around
Bitcoin and Wall Street being here, sort of investing in this space, I would say,
you know, I'll set aside the public markets activity with the Bitcoin treasury companies,
because I think a lot of that is retail driven. And I'll just focus on like the institutional
investing, which is things like, you know, Ledin successfully, you know, running a syndication of
their Bitcoin backed loans. These headlines are exciting. And they're obviously big because it's
an institution or a bunch of institutions in a syndication taking on sort of exposure to the
Bitcoin asset class, except that we all know that the Bitcoin backed loans product is zero loss,
like it's zero risk for the lender. And so, yes, it's exciting that something like that has
happened. But at the same time, it doesn't to me say that institutions are taking principal or
equity risk on the Bitcoin asset class. And even when they're lending against it, they want,
you know, a liquidation right at 85% loan to value. That's a structure that means they don't
really care what the collateral is because they're going to sell it. What I would like to see and what
I started my firm in order to hope to bring to market is institutional finance taking long
positions in Bitcoin backed companies, in companies building products and services on this category,
and in the equity of businesses that hold Bitcoin in their balance sheet.
So that's the thesis around CBA.
And I guess I would say we have a lot of work left to do to bring that to bear.
There's been a lot of positive momentum.
But Wall Street taking zero lost positions against my Bitcoin isn't the win I think it is yet.
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yum and that's a shame journal i'll bring you in here a second but i specifically wanted one of
the things i want to talk to you about was this lead in bond deal um you know um sort of part of
credit fund tax partners you know we're we're raising capital to be a liquidity provider for
your bitcoin collateralized loans um so this is a space i've been you know pretty deep in for the
six plus months we were chatting about this a little bit in our bss um group chat i've been
i haven't done like a super deep dive into it but i've been surprised on the lack of information i've
been able to find on this deal everything i've come across is press releases how do you think
mechanically they got this done i think so i've been studying the um the hero's journey that is
capital intensive businesses like Bitcoin backed loans from startup to mature business.
And the way I have come to understand it is that you start out finding a forward flows agreement
partner that will buy your placements whenever they come to be. So if I'm a brand new Bitcoin
backed loans business, I partner with somebody with a fund or a high net worth individual.
And as soon as I place a Bitcoin backed loan, I sell it off to them. Right. And so that moves the
risk off the balance sheet and it reduces the capital intensity of a business like
lead in or unchained or strikes loan business to where they don't have to hold all the loans
themselves. They can just place them and then move them off. The next stage of that starts to look
like a warehouse credit facility. And that's where I think a lot of the Bitcoin backed loans industry
is today. So now you're moving from like one sort of trusted partnership to a little bit more of an
institutionalized product. And then the final form of that is a syndication where you tranche the
actual sort of security of it and you get it rated and then you can sell it in the open market and
you can hire an investment bank to place that with their hedge fund and other institutional investor
clients. And at the rated securities stage and a securitization, you also access insurance funds,
And so they have a bunch of different maturities they're investing along, and they have a ton of capital because they are collecting premiums and then using those to manage the risks of paying out for what they're insuring.
And that is the sort of final form of these businesses.
And you've seen this take shape along personal credit in the sort of a firm, SEZL, afterpay type business.
You've seen it in the home equity line of credit world.
and now we're starting to see it in the Bitcoin world.
I too have been disappointed.
I can't get more intel on what the details are,
but my strong hunch is that you first need to club together enough of these deals
to go do whatever it was, $100 million or so for lead.
And that scale means you can go talk to an investment bank
and they can help you put it together and get it rated
and then sell it to their sort of book of institutional investor clients.
I think it's huge for the category. It's the starting gun, in my mind, for the compression on the pricing. So Bitcoin-backed loans to the consumer are 11%, 12%, 13% today. I think that the lender side is probably making SOFR plus $300 or $400. So there's already a really nice spread for the middleman, which I think should come down. I'm looking at you, Strike, Ledin, Unchained.
But it's a race to the bottom because as soon as a private credit fund or an institutional insurance fund realizes that it's impossible to lose money on a Bitcoin-backed loan as long as it's managed correctly, they're going to say, okay, well, I'll take anything above treasuries.
And so if that's SOFR plus $400 today, it should be SOFR plus $300 tomorrow, and the race to the bottom is beginning, getting into the securitization world means that that's going to start to accelerate.
And I hope to see that because it means better service to the customers who are borrowing against their Bitcoin.
Yeah. Yeah. Well, I was excited to see it as well. Obviously, I think it's bullish for the industry. You know, we're seeing this deepening of Bitcoin capital markets. Curious. So, you know, in that middle step, we've got some term sheets for, um, your warehouse facilities backed by, you know, the loans themselves as opposed to, you know, having a claim on the Bitcoin collateral.
Do you think that's a slippery slope to go down?
You start obfuscating too much paper between the end investor and the actual spot Bitcoin collateral.
So it's really a derivative product then?
I don't know if I would go that far, but it's kind of like a traditional ABL setup.
And so they're collateralizing, the service originator is collateralizing this facility with loans they've originated as opposed to purchasing the claim directly, kind of like in that step one.
You mentioned where you have more senior rights to the actual Bitcoin.
I think as long as the accounting is clean there, it doesn't create the house of cards that it otherwise could.
Um, but yes, if, if, if I'm that, uh, aggregator and I, and I finance, um, if I raise capital
against a book of those loans and then don't, um, manage that liability asset match appropriately,
then there could be some risk there.
But ultimately, I mean, what, what's nice about this product is that it's backed by the
hardest money in the world.
And so it actually is a really easy product to make sense because the collateral is 24-7, super liquid, and you can always kind of settle up.
And sometimes that's painful for the customer.
But the point is that the lender can take pretty confident, low-risk positions in this because they know that their money can be kind of brought back if there's a market event that brings it to a place where the loan is now at risk.
Yeah.
I mean, we've seen that even on our client side when in fourth quarter last year, we were talking with a lot of small businesses, a lot of individuals who are getting into these loans.
And, you know, the price is at 120 at that time and everyone was really bullish at that time.
And I guess it seems pretty obvious that part of the reason for this extended drawdown was either people having to, you know, or they were getting liquidated, whereas maybe they didn't get into leverage prior to these loan products coming out.
Right. So then they were getting liquidated because the price dropped all the way down to whatever it was, 62 or something.
I assume that you would agree, Scott, that that has played a role in this, whether we
call it a bear market or just downtrend over the course of the last quarter.
Scott Cardani I think so.
Yeah.
I mean, look, I think about a lot of people.
I talked to a lot of people about leverage, both in levering up the balance sheet of a
business and levering up their personal balance sheet to bargain so Bitcoin to not sell it And in every case leverage is a tool And like any other tool it can be used for good or it can be used for bad or it can be negative to you I think about it like leverage is like a gun
right? So you can use, you know, if you are an oppressed nation, a gun can allow you to
sort of free your people and bring democracy to your country. At the same time, you can shoot
your foot off. And both of those possibilities come from the tool of the gun. In the same way,
leverage. Look, people taking out leverage on October 7th or whatever the cycle or the market
high was at $126K Bitcoin, those folks are either liquidated or they size it appropriately and
they've just had to add collateral to their loan and they're fine. And that is where the strategy
around Bitcoin-backed loans from an individual perspective is very important. And so if you
fancy yourself a financial engineer and you don't want to sell your Bitcoin, you need to do a lot
of math to make sure that you're comfortable with the risk. And that risk is that we have a 50%
drawdown. But if you started with 10% of your stack as a loan to value approach, then all you've
had to do over the last six months is add collateral to your loan. And you're still
totally fine. You still haven't sold any Bitcoin. And that's fine. And we know that over the long
term, the borrow against your Bitcoin trade does work out pretty favorably. Now, will it in the
future? Let's hope so. It certainly would make sense, right? There is an infinite amount of
and there will only ever be 21 million Bitcoin.
But it definitely requires time and attention
and a conservative strategy
to not end up on the wrong side of that trade.
Yeah.
Do we want to stay in the lead and stuff?
Any other question on your side, Wyatt?
I know it's kind of a rabbit hole.
Yeah, it is a rabbit hole.
It happens to be one of my favorites.
I just have one more thing to say on it.
Yeah, it's funny because, you know,
From you my facility, it's like, everybody's always talking about position
sizing, it's like how much of my portfolio should be, you know, Bitcoin.
It's a nuanced conversation.
Obviously everybody has different opinions on it and risk profiles, all that jazz.
I think actually more fun conversation is like, you have a lot of interest
with people doing, you know, this Mark Moss strategy, you know, continuously
rolling over the lens.
It's actually much more interesting conversations like position sizing the
loan it's like well how much you rate coins that are you using you know how much is left over if
you do need to top off collateral do you intend to roll this over how many periods you intend to
roll it over you know there's different types of you know interest payment structures on these loans
so i'm actually vibe code and you know this calculator just help clients you know see that
through just from a more you know financial financial planner's perspective just because i
i honestly i think it's a good strategy but i hate a lot of the or dislike strongly dislike a lot of
the conversation around it and how people like pitch it or sell it to like the general
call life.
And it's like, okay, I like the gun analogy because it emphasizes the importance of what
you're doing or the severity of what you're doing.
Yeah, absolutely.
Yeah, I think, yeah, doing that backtesting is really important.
If you're going to borrow against the Bitcoin stack in a way that requires you to post more
collateral or pay down debt if it gets margin called, then the sizing is everything. And the
best way to do this math is to just take old Bitcoin price data and pretend, hey, what if it
was January 1st, 2017, and I did a loan today? And if I did it based on the amount of Bitcoin,
take a dollar amount, say how much Bitcoin would someone have had back then? And then how much of a
loan would you do? And then roll that math forward and say, okay, would I have ever gotten margin
called here and not had the collateral to make that call. And I think that when you run that math,
it's like 10, 20% loan to value is plenty because 80% drawdowns mean that you're almost out of cash
or out of Bitcoin being the cash in this case. And so it's super important. It is not a shortcut
to Valhalla, but it does allow you to monetize some of your Bitcoin stack without selling it.
And there's two pieces of that. There's the capital gains tax avoidance, but there's also
the idea that if you don't sell Bitcoin, and then everybody else also doesn't sell Bitcoin,
then are you helping bring about the hyper Bitcoinization faster? Versus if you say,
okay, time to buy that car, buy that house, or put a down payment on a house, I'm going to sell
some Bitcoin. Well, if you can borrow against it instead, that's whatever amount you didn't sell
there is the amount that is now no longer for sale. And so you can help with the sort of supply
constraint of Bitcoin growing by not selling your Bitcoin, but you still have to be conservative.
And that starts with not spending more than you have.
Well, I was just going to say, you know, something that I've been seeing in the news, again, as like someone who only follows financial markets from, you know, far, far away, is everything to do with the private credit, you know, narrative that's out there, I guess, that just sparked up, I guess, maybe one of the things that just sparked up, you know,
I know it's been in the news, but it really got in the news, I don't know, second half of last week or something like that going into the weekend.
I'm just curious, Scott, like, can you kind of give us an update on what your thoughts are on that overall just TradFi?
It seems like a conundrum.
And then also how you see Bitcoin fitting into the private credit.
Because I think that's kind of what you're describing in some ways, how it fits into that narrative going forward, potentially.
So, yeah, a lot of thoughts here is one.
I have observed from the inside of one of these deals or of several of these deals, what the private credit private markets direct lender world looks like.
And they are risky loans.
So in a specific case, I'm thinking about a business that I got to look at the sort of underwriting for where they had, depending on how you do the math, they had nine to 11 times their EBITDA number in debt outstanding.
And a lot of that through lenders like Blue Owl, Carlisle, HPS, these big names that you're now seeing in the headlines.
that level of leverage is potentially arguably more than the business is worth.
And so how is this possible?
Well, one, they're lending in a way that doesn't have principal payment requirements.
So it has either 1% or zero amortization.
So if I borrow a gazillion dollars from Jordan and Wyatt and I have zero amortization,
I only pay interest every year.
And either there's a maturity date in five or seven years where I owe you the full principal, or maybe there's some sort of longer term approach. But in either case, from a year on year basis, all I'm paying is the interest. So it's light on the cash flow burden, which is great from a flexibility perspective, but also means that the lender has a meaningful portion of their principal outstanding for longer.
versus if I borrow money on a straight five-year amortization,
I pay back one-fifth of the money every year, including interest,
then you're getting back more of your lent money faster.
So just at its face, the low amortization structure of a lot of these private credit direct deals
means that they're higher risk.
And then from that perspective of how much debt these businesses are able to raise,
well, nine or ten times total debt outstanding,
means that the whole business is levered up.
And that means that the interest expense alone can start to reflect as much as the full cash flow of the business.
And so that's what we're starting to see is, look, if Carlisle, Blue Owl, HPS, Blackstone,
whoever lent $100 million to a business with $10 million of EBITDA,
or let's say it had $20 million of EBITDA, and now the market is softening,
and now they only have 10 of EBITDA.
Well, now they've gone from five times leverage to 10 times leverage, and that interest expense hasn't changed.
And a lot of that interest expense is non-cash.
And so that means that instead of paying the interest at the end of the year, it just gets added to the principal.
So on top of not getting amortization payments, these lenders are sometimes not even getting a meaningful portion of the interest expenses being paid in kind.
And so that total principal outstanding is growing, and the business might be deteriorating at the same time.
You have these two trends that can be very painful.
And I think the biggest thing is we're starting to see in private credit or in the private markets that a lot of businesses are feeling disruption via AI, via the job market, via the global economy and the macro sort of market headwinds.
And that's slowing down earnings at the same time that interest expense is growing.
And that means that some of these businesses are just not in a great spot.
Now, look, I mean, private credit is a big category and there are a lot of dollars chasing those deals.
I think that ultimately it'll probably all be fine.
But it is really interesting to see just how aggressive that leverage is.
And then for what I want to help people do with Capital B Advisory is I would love to find a privately held business owned by a Bitcoiner who is so bullish Bitcoin, like we all are,
that they would like to take some of that private credit money and use it to put more Bitcoin on their balance sheet.
Because I think that's a much better use of proceeds than, you know, a dividend recap to buy the owner a boat or an airplane or whatever else.
And for the lender, it's a better credit because the Bitcoin becomes recourse for the loan because it stays within the business.
Versus these dividend recaps, if it's an airplane or a boat, they don't stay within the business and it's actually not recourse for the loan.
So on both sides, it's a net positive.
You just have to find a scaled business owner crazy enough to take that trade.
And so part of the work I'm doing at Capital B is to talk to folks that might want to do
that alongside the traditional sort of M&A advisory work that is much more common and
practical.
Well, in that vein, Scott, naming up scrapping yet, I'm really wanting somebody to try it.
And you're uniquely positioned to speak on the viability of this.
But a couple of years ago, meanwhile, I was going to launch a product
kind of fund fully denominated in Bitcoin.
So they raised money in Bitcoin, they make loans in Bitcoin to businesses
that will pay them back in Bitcoin.
And they were talking about a 5% return, you know, for their investors.
To me, while fully denominated in Bitcoin, everybody wants, you know,
Bitcoin, Bitcoin yield.
So it's like got some positive things going for it, but it feels very hard
to identify companies that are capable of taking a loan to Bitcoin and paying it
buying Bitcoin. Do you think anything like that has legs? Do you think we kind of have to baby
step our way into something like that? I love the idea. I think that as long as I can borrow fiat,
I'd rather borrow fiat. You borrow in the crappy money and you save in the good money.
But I do think that there's, I've been talking about this with some folks. I think there's a
whole marketplace that needs to develop, which is Bitcoin backed loans, reinsurance. So let's say
I'll pick on Jordan. Let's say Jordan took on too much leverage in October. He has no more Bitcoin
left and he's getting margin called. He's put all of his Bitcoin into that loan. He calls you and me
and he says, hey guys, can you spot me some Bitcoin to keep my loan open? I need to post
more collateral. I'm good for it. I will pay you out of the proceeds. We all know Bitcoin's going
back up. It's just not there yet. Help me keep this loan open so I don't get liquidated. First
of all, it's in my interest to help Jordan because I don't want him to be a forced seller because
that's another seller of Bitcoin at the worst time. And if I can make some money doing that,
that's a great trade. So, okay, Jordan, I say, yes, here's collateral to keep your loan open.
You're going to pay me 1% a month. It's going to accrue. You're not going to pay it in cash.
It's going to accrue. And then when we get to whatever milestone, date or price,
we close your loan and you pay me what you,
what I've accrued based in Bitcoin terms.
So say you have a one Bitcoin, you have a 50% loan to value.
One Bitcoin is the collateral and you need another Bitcoin to keep the loan
open. And you know,
Scott or Wyatt gives you that Bitcoin and charges you 1% a month and you need
it for 12 months.
Well then you pay 12% out of that total collateral and everybody's happy
because you didn't lose all your Bitcoin.
Because if you get liquid at an 85% loan to value, by the time you pay your taxes, there's nothing left. And Scott or Wyatt or whoever has made a nice interest on their Bitcoin in Bitcoin terms.
So I think it's going to sound or look like loan sharks, but I think there should be a derivative market there where people who have mismanaged their capital and need to borrow Bitcoin to keep their Bitcoin-backed loans open, there is a logical sort of incentive for folks to help with that, and they can make a yield on their Bitcoin doing so.
that's fascinating salt is the salt is doing something like this they have like the salt
shield product i don't think it's quite structured the the same way but i like where your head's at
and adding products on top of this absolutely yeah it'll be it'll be complicated because you
would need to you need a bunch of sort of information exchange right like well hey you
know jordan what else do you what other loans do you have outstanding and things like that but
But I think it you know any product that passes that does this make sense for both parties test is eventually going to be built And in the world of you know AI and Bitcoiners building businesses it usually doesn take very long Yeah Well I glad you called out the taking loans in like that are Bitcoin denominated I was speaking with a mining company actually back
at NABs in Dallas last year that basically was saying they were getting screwed because as the
price was going up right they were in they were actually gonna have to pay more back because it
was bitcoin denominated uh that they had to pay back at the you know for the balloon kind of thing
so i think so it sounds like again smooth brain over here it sounds like always try to uh try to
take loan out in dollars and have btc be the collateral um which makes a lot of sense i guess
One video I was watching about the private credit funds of today, and, you know, especially in Blackstone, at least that was the case I was looking at, where people were trying to get out of those investments.
They are, I guess they're backed by illiquid assets, right?
They're backed by real estate assets in a lot of cases, at least in the case of Blackstone.
So I guess talk through why Bitcoin makes a lot better sense in that world, because if you did need to liquidate, it's not you're going to try to sell a huge apartment building.
You're just looking on a Saturday to sell how much ever Bitcoin needed to sell in the open market, right?
Right. Yeah. I mean, I think Wyatt probably sees this all the time or understands this even better than I do.
But if you think about just, OK, well, what is the loan backed by?
Okay, if it's backed by real estate, then what's the real estate worth?
Well, that is kind of anybody's guess and only verified every time the real estate trades.
And so if you start to say, hey, I don't think the real estate's worth what we thought it was,
and that loan is kind of deteriorating in quality, the way to settle the loan is to sell the real estate,
which is a high friction, illiquid transaction.
And if done in a hurry, a lot of value can leak out of that transaction.
versus Bitcoin, you can sell a billion dollar position on a Saturday.
And that is super useful for the loan products or the outstanding loans become very tradable,
as we saw with the lead and securitization, because what they're backed by is very tradable.
And so you can always look at the market, the truth machine, and say, what is this thing worth?
And there's always an answer to that question versus when you look at a real estate loan and
you say, what is this thing worth? The market, the truth machine only sounds off every time that
real estate is valued. So it's just way better collateral for those sorts of things. And yeah,
I think, will Blackstone realize that this cycle? I don't know. But I think we're all going to do
our best to make sure that they hear about it. Absolutely. That's what I said, Scott. I want to
get your thoughts on Bitcoin investment product design because I hear you. It's like,
borrowing crappy money, saving a good money.
But then, you know, I feel like if you follow that road long enough,
we're never going to get to Bitcoin denominated yield products with like
legitimate yield, not like wrapping your Bitcoin on some like shit coin
blockchain and it like evaporates, you know, in 10 weeks later.
But so how do you think we actually get to that point
if we're not transacting more dollars?
And I'll just kind of frame this to you where it's like, I get this question all the time.
The only way I've found where legitimate Bitcoin and Bitcoin yield is generating if somebody is providing a useful business service that people want to pay for in Bitcoin and they're just passing on some of that return to their quote unquote investors.
So if we're now transacting Bitcoin, how do we actually get there?
Yeah, I mean, you're absolutely right. The only true forms of Bitcoin denominated yield that I'm aware of that passed my smell test for this is sustainable is coin joint coordination, taking a fee for being a liquidity provider to privacy transactions on Bitcoin on chain.
And the other would be lightning routing. So layer two Bitcoin requires sort of liquidity channels. If you provide that liquidity, you can charge a fee for people transacting through your channels.
In both cases, we're talking about low, low, low single digit interest.
I have heard arguments that the lightning side of that can be higher if you have the velocity.
So if your payment channels are being used almost constantly, maybe you're making mid single digit interest rates on your Bitcoin on an annualized basis.
In both cases, they're highly technical.
They're small markets and they require a hot wallet or sort of Bitcoin on chain in a hot wallet where the seed is connected to the Internet and that has risks associated with it.
Your broader question around what what do we how do we get to Bitcoin, you know, denominated financial services and products?
I think the reality is as long as you can borrow in dollars and spend them and people are willing to accept them, that's the better way to do this.
And sorry, the better way to do this from someone trying to maximize the value that they hold on to, I think ethically, there's a much better way to do it, which is just use Bitcoin. But I think the way that comes to bear is people stop accepting fiat. And I think that that is, you know, feels like it's a long way away. Maybe it is, or maybe it happens overnight.
Right. But you'll probably you've probably Jordan's probably started to see it in the in the sort of tax clients of small Bitcoin businesses that have just decided, hey, we're Bitcoin only.
We don't accept fiat. And, you know, that isn't a meaningful portion of the economy today.
But I think it just takes time. And then there's a snowball effect there.
And when you see more of the economy move to we don't accept fiat, there's too much friction where we don't like it or we don't accept it ethically.
that's where you start to see that trend evolve.
And then you can start to underwrite equity and debt investments in a Bitcoin denominated world
once the P&Ls of those businesses have moved all the way over to Bitcoin.
So you've got to move revenue, cost of goods sold, SG&A,
and get all the way to like a Bitcoin denominated P&L.
And then you can start to denominate equity and debt investments in Bitcoin as well.
Please fix, Jordan.
No, it is interesting.
I mean, well, you know, the meanwhile news that dropped sometime last year where they were the first to really push out a full set of financial statements,
all denominated in Bitcoin, was a big step.
Right now, what we're seeing is businesses are still, you know, they'll use someone like ZapRite.
They'll give a preference there to, you know, pay some Bitcoin for basically a discount or frame it as fiat for a premium.
but I think the real issue for a lot of business owners is the payroll still has to go out in
dollars the suppliers still have to get paid out in dollars and so you end up having to manage
you just have to manage it's always been difficult to manage cash well now you have to manage cash
alongside bitcoin and and one of those at least is because the unit account is still a dollar
it's perceived its volatility is all measured in dollars.
And so, I mean, it's something we deal with on the accounting firm side.
You know, a lot of clients will pay us in Bitcoin
and we're having to figure that out.
And then one last thing I would say is there's, you know,
yes, there's hedging strategies,
but are small businesses really, do they have the time
or even the knowledge to adequately hedge a position on their balance sheet?
The answer generally is no.
I mean, if they can even just get me a clean balance sheet at year end, that's a win.
So but that is something that we ran into with one of our larger clients even this week, where they're like, we have no hedging strategy.
And most of our balance sheet is in Bitcoin and all of their customers pay them in Bitcoin.
And but all their liabilities are still almost all of them are still denominated in dollars.
So figuring out a hedging strategy, Scott, we actually might talk offline about that because, you know, generally speaking at accounting firms.
That's not something we offer, but I'm sure that's something that you know a lot about.
Well, I think about it like this.
If you had a, maybe not an employer, but a prospective client in either of y'all's cases that was saying, hey, I want to hire you to do some work for our firm.
It's going to be over the next 10 years.
You're going to do this every year.
I'll pay you one Bitcoin each year.
wouldn't you be pretty skeptical that they're going to pay you in years eight nine and ten
because because the the math if you're bullish bitcoin is that they're going to be paying you
like millions of dollars in the last years of your contract arrangement and they say okay and
so the only way they could give you confidence that that was going to be true is that they'd say
well look no our customers our revenue is also denominated in bitcoin and we expect it not to
change as the value of bitcoin goes up that's a very unique business i mean the really the only
one that comes to mind that even is
close to sniffing that business model wise is bitcoin mining and so i think it's in this phase
this very short period of history where we have dollars and bitcoin uh it's just really hard to
price like you know asset long-term assets and liabilities in one or or the other currency right
because in fiat you have the same problem which is if i say i'm never going to give you a raise
in the next 10 years you're saying no way that's not a good deal either and so the problem the
The problem is that the money is broken.
And unfortunately, that is a thing that Bitcoin solves, but it does it slowly.
And so in the meantime, it's hard to say that a business is fully on a Bitcoin basis.
Like, meanwhile, P&L was very cool.
But a lot of those assets and liabilities and revenues and expenses are still fiat denominated,
meaning that if you fast forward 10 years, if the price of Bitcoin has changed, so too will their P&L.
Like, they wouldn't have, oh, we made one Bitcoin this year.
We're going to make one Bitcoin 10 years from now.
Well, only if you expand the value you create meaningfully over the next 10 years.
Scott, I'm curious in your opinion on this.
This is your question.
Yeah, I agree with this too.
Avenues here, you mentioned a day of Bitcoin, Bitcoin yield.
One I have seen is, you know, if you had a currently financial, you know, buying spot, shorting futures, there are a couple of funds that do this.
the funds i know that do this are funds of funds and they're like you know we do due diligence on
these other you know fund managers are actually deploying the strategy you've been around the blog
you know i talk about people in the space i haven't met any of these funds that actually do the work
have you do you think this is a viable legitimate strategy that has you know long-term stability
i i have actually i do i work i work with one um with one bitcoin mining focused business that
the CFO of which is involved in his own separate business,
which is a hedge fund that's sort of farming that perpetual,
perpetual swap spread that you're describing.
And I think that it makes sense in this,
in the fact that there's like disjointed markets and pockets of liquidity that
make some alpha exist there.
I think the actual mechanics of it is it's happening on hyper liquid.
which to me, you know, gives me a lot of pause as far as the sustainability of it.
And then just more broadly, I would say like, if there's meaningful alpha in some sort of risk-free trade,
the market is very good at pushing that out.
Because if, let's say the market is just the three of us,
and I realize that there's a nice arbitrage in lightning routing,
and I'm making 20% on my money every 12 months.
well you guys are going to start doing lightning routing too and then you're going to cut the price
down and then my yield's going to come down and so i think in the same like in deeply liquid
financial markets these things happen really fast so yeah i think there's a uh there's a
a yield trade in um in in that sort of spot versus futures market right now um it's probably like 12
percent if i had to guess on an annualized basis depending on who's doing it and how but you got
to think about it like well do you want to be kind of risk-free at 12 or do you want to be long
bitcoin at 50 keger right and so to me these these strategies are interesting if you're forced to
hold cash and you need to sort of make that uh recurring income or sort of yield but if you
actually want to like make real investments for the long term yeah you can't beat bitcoin and
that's still true even against those yield trades. Well, I was going to ask you, Scott,
you know, so you're having a lot of these conversations with either high net worth or
people on Wall Street. How do you come back? Because for the longest time, there was just
this narrative of, well, Bitcoin never goes down over the course of a four year or five year span,
right? And I think I saw something even yesterday or maybe over the weekend that was,
that basically said that trend is actually breaking down.
Right.
And so I'm curious.
I'm just curious your thoughts.
You know, glass half full kind of says,
well, that means we have a lot.
We have a lot of ways to run up from here.
But maybe you're hearing from people on Wall Street
that are like, well, I'm just bearish.
Maybe everything right now, even gold,
you know, even gold,
we've seen some crazy action in the last few days.
I'm just curious how you normally kind of come back to someone saying, well, that thesis seems to be breaking down.
What do I do?
Yeah, I think the Bitcoiner response to this has been, you know, zoom out.
And that's fine.
But at a certain point, if we have to keep zooming out to the first five or six years of Bitcoin, then we're not talking about a sustainable return anymore.
We're talking about just you either had to be early or you were wrong.
And so, you know, Bitcoin's CAGR right now on a five year basis is underwhelming, but still good.
Maybe it 10 percent I not sure exactly on the day that it up 30 or 40 percent over the past five years But if we get to September of this year our our comp the five CAGR is the 65K high of 2021 And so if we at 70K this September then the narrative that you have a really nice five
even gross return, let alone CAGR for this asset class, will need some reconstruction. And my
belief is that while it would be a healthy identity crisis for Bitcoiners to sort of,
you know, stare in their reflection in the pond and make a better case for why freedom money matters,
regardless of the returns. My stronger expectation is we'll never have to do that because we'll laugh
in September when we look back at the CAGR and us being worried about it right now. But Bitcoin has
to sort of shake everybody out first. And it feels like that's almost complete. And so, you know,
I love the joke of like, whatever the funniest and most painful case for Bitcoin is what's going to happen.
And for that, I think for everybody, that was 50% drawdown from 126K.
And then everyone capitulates in the middle of a new war.
And then we just go up only for six months.
And then you look back in September and go, wow, I don't know what I was worried about because now Bitcoin's 600K.
I was joking with some folks in our local Bitcoin Charlotte community the other day, 2% a day for 100 days puts us at 600K.
And when I said it, we went on a 4 or 5 day, 2% a day run.
And so it's a lot more possible than you realize.
It's going to happen when you least expect it.
But yes, I think there's a little bit of weakness in the store value narrative right now.
Just like there was at 15K after FTX collapsed.
This time we're doing war, but it's just as bad of a macro environment, more broadly, worse than it was for Bitcoin when FTX collapsed.
Now, we had a worse sort of crypto-specific market narrative then.
But in both cases, it looked like a really good time to buy in a very short amount of hindsight a few months later.
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Yum.
okay we're we're coming up on time i just want to make sure are you good to go just a little over
yeah sure all right cool i know one question that i've got all right perfect i know one question i've
got is about the whole like uh it was jane street right the jane street slam is that yeah is that
like is that just conspiracy or is uh is there any truth to to that story that dropped i guess
at this point a week or two ago i think that the you can kind of look at the price chart and see
like a 10 a.m slam so like i think the short term i think there was uh some gamesmanship being played
on like the 15 minute candle right and and that doesn't shock me or it shouldn't shock anyone like
financial engineer is going to financial engineer the part that i have not seen evidence for that
seems to be a popular conspiracy theory is that like Jane Street is the reason we're not at 150k.
Bitcoin is like a beach ball. The harder you hold it under the water, the more explosively
it returns to the surface. And if you look at the alleged Jane Street slam, what you see is like
they're able to push the price down for a few minutes each day. So in my opinion, a few minutes
each day was taking like billions of dollars of like one of the larger sort of hedge funds
trading in this space, doing everything they could to manipulate the price.
And they were able to manipulate it for a few minutes at a time to then argue that the
same group or others have managed to suppress the price by 50 percent over five or six months
just doesn't pass the smell test to me because you would need orders of magnitude more capital
to manipulate the price at that scale.
And I just don't, I think Bitcoin has outgrown
any one entity or individual's ability
to sort of manipulate the price like that
on a long-term basis.
But for sure, if you were selling Bitcoin at 10 a.m.
or whatever, you can see it in the short-term price chart.
But no, I think the reason we're at 70K
is because we're doing like three or four wars
and everything's bad and interest rates are too high
and all the things we already know.
It has a lot less to do with Sam Altman's, or not Sam Altman, Sam Bakeman Freed's former employer managing to manipulate the Bitcoin price to punish us for putting him in jail.
I guess over time, if you're wiping traders out, right, if you're wiping out leverage consistently enough, I guess that money is transferring hands from, I guess if you're a trader, maybe you're not a long term holder.
But I'm just curious if you do that over long enough and we see these like violent moves that I'm not an expert on.
I just know that that wipes people out, right, or makes people a lot of money.
And I'm just curious on if they were doing that and by way of wiping out those trades, those short-term trades, they were able to accumulate.
And now I guess they were able to manipulate it broadly because they did it over a long time frame.
frame. Yeah, perhaps. I guess, yeah, it's possible. I think that if folks are giving up on their
Bitcoin strategy because Jane Street punished them at 10 a.m., then they were going to sell
Bitcoin at the worst time ever anyway. And so whether that was when we ran to 150K and then
crashed to 45 or then when we ran to 126 to 60, you could definitely argue that high frequency
trading actually removes fall from an asset class. So does that mean that the up and the down
got compressed the cycle? Perhaps. I think it's more just like it's happening on the 15 minute
candle and then everybody just goes back to doing what they do. But look, if we're frustrated that
Jane Street suppressed Bitcoin, then we need to buy more Bitcoin and do it harder. So that's on us
to accumulate more. Because I know that I think when Michael Saylor buys Bitcoin, it's never
trading again i know when i buy bitcoin it's never trading again and so if more of us are
doing that then this thing does not care about jane street any longer um but yeah it's possible
and scott i don't fully understand this market but there's some nuances to market making for
ets with the authorized participants with jane street like involved in that business is that
you're just kind of like some high level finance that most folks don't understand and so it's just
easy to say they're manipulating the price i don't know i i've only read like the surface level sort
of twitter review of this uh without actually even being on twitter uh so i'm not sure like
the actual nuts and bolts mechanics of the strategy like i was talking about earlier these strategies
whether it's like farming the yield or the spread between spot and future or whatever it is to me
like in the age of the internet uh these alpha strategies last for like days if not you know
weeks or months, but they never, never for very long. And so I usually don't make time to like
study them closely because I'm like, oh, that's cool. Somebody's making some money, but it's not
going to last. And then what scares me about like ever considering one of those strategies myself
is that, you know, the last person taking that trade might actually lose all the return, like
might have a commensurate loss for all the returns that were in the alpha strategy before.
So like, you don't want to be the last one holding the bag on something like that.
And so I just buy and hold Bitcoin for the long term and outperform most of these funds.
But yeah, I guess you got to zoom out past five years now to make that claim.
In our closing minutes here, I was hoping we could just kind of zoom out.
You've done something that Jordan and I have done.
You worked at a stratified industry and you applied Bitcoin to it.
So I was just kind of wondering if you could get us some insight into what your journey at Capital B has been like,
how you add most value to clients? Any learning so far that you could share with the audience?
Yeah. So the thesis was that Bitcoiners are, well, we definitely think we're the smartest
people in the room. In a lot of cases, we are. And so that's good news, Jordan.
They own nice businesses. And so the thesis for me was, look, I really love M&A dealmaking. I love
raising capital. I don't really like doing it for folks that don't understand Bitcoin. And so I
launched Capital B Advisory to just take the M&A capital raising dealmaking skill set and apply it
exclusively to businesses owned by Bitcoiners. And so my top of funnel is every business that
is owned by a Bitcoiner. And the fun part of that is that it expands every day. People don't come
to understand Bitcoin and then change their mind. And so that means that a lot of my prospects and
clients are Bitcoin focused businesses. They have products or services built on the Bitcoin space,
But also it's every other business in the world that is owned by a Bitcoiner. And that number increases every day as well. And so in both cases, you want an M&A, capital raising advisor, fractional CFO, or whatever the work scope in the finance world looks like to understand Bitcoin because that's what you understand.
And to hire someone to do that sort of work that doesn't understand something as fundamental as Bitcoin is you just know outright that you're not going to get the best advice for your worldview.
In the same way, you wouldn't have a physician do surgery on you that didn't agree with your worldview medically.
If you didn't want to use a certain medicine or whatever it might be, and the physician you decide to have do the surgery is like, no, I exactly want to do it that way that you disagree with.
Well, then you know you're not going to get the best service.
In the same way, Bitcoin or mindset is an important sort of thing to filter for when you're getting advice, whether it's who does your taxes or whatever other sort of Bitcoin financial services product.
And so the good news is that since I launched this in October, the market feedback has been a resounding, yes, this is needed.
I don't think there are other sort of investment bankers that understand Bitcoin to this degree.
not that I'm special or smart, but I just was lucky to be studying Bitcoin at the very same
time that I was getting into my career in investment banking. And so I have a decade
of running parallel in these two things that in many ways are exact opposites of each other.
And so I can navigate the dealmaking, the fiat sort of private capital markets. But I also
understand that the goal here is to just stack more Bitcoin and not lose it. And so that has
been really fun. And if the goal was to talk about Bitcoin all day, every day with Bitcoiners,
then mission accomplished. If the goal was to make money doing that, then I think mission
accomplished too, but TBD, still early days. That's funny. Scott, you can be honest here.
Did your wife make you leave your job and go into Bitcoin so that you'd stop talking to her
about Bitcoin? So it's funny. I probably, I wouldn't say I would have done. That's what
happen to why tonight. Yeah, I think I, you know, look, I leaving the investment banking world of
W2 and bonus was something that required my wife's support because it is a massive shift in certainty
of income. And I think that it took some warming up to the idea for both of us to contemplate
entrepreneurship. And, and, you know, since I've done it, I've kind of made my goal to be as
unemployable as possible. So I've really slammed the door shut behind myself. But I think she would
tell you herself that this was the greatest career decision I ever could have made. And it's been
incredibly rewarding. I'm so grateful. And now can say confidently that my time, and this is a
phrase I stole from Rod Rowdy, who helps run Bitcoin Park in Nashville, my time, capital,
and reputation are all in on Bitcoin. This is my life's work. This was my calling. And it has been
incredible to make that shift. And so I think every business and client that works with Capital
B Advisory is lucky in the sense that they get to work with someone who's just obsessed
with deal making and with Bitcoin. And when those two things intersect, you get really good service
out of me. Yeah, I love it, man. But behind all of us, you know, you have to have a strong wife
that's helping in all the different ways. So that's awesome to hear. Well, you know,
Give everyone who's listened today just hand off where can they find you if they own a business and they want to work with you.
Yeah.
Absolutely.
Yeah.
So CapitalBadvisory.com is the company website.
You can find me on LinkedIn, Scott Marmel.
I'm on NosterPrimal.net slash SuitCoiner.
And not on Twitter, although I keep getting told that I should probably have a CBA Twitter account.
So maybe coming soon.
Perfect. All right, man. Well, thank you so much. This was awesome. This, this was honestly the
conversation I didn't know that we all really needed. So I think you're probably finding that
in, in your conversations a lot with clients. So really appreciate it. Why anything else on your
side? Yeah. Thanks so much for coming on, man. Looking forward to seeing you in October.
A lot of fun. Yeah. Thanks guys. Take care. All right. See you, Scott. All right. Bye.
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