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You're going to 2032, like this is a gold rush, right?

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Like we are in the digital gold rush to acquire as much Bitcoin as humanly possible as we

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make this transition into a more digital world, a digital capital world, digital dollar world.

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Why was Bitcoin birthed?

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Bitcoin was birthed because we were losing trust in the existing institutions that existed

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on the planet.

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civilization is a function of trust being extended beyond our biological capability.

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One of the biggest things we're underwriting is just like the structure of Bitcoin itself,

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right? So the fact that the IBIT ETF exists, the fact that digital credit exists,

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the fact that the regulatory landscape is what it is.

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Good to have you back on the show. So I think it was December when we recorded,

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we were in Abu Dhabi. And I'm pretty sure, had SATA launched then, or had it maybe just

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launched? Yeah, it was about a month old. Just got into the market. Yeah, it was probably maybe

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not even a month old. And so at that time, I think you had, Strife had something like 7,500 Bitcoin

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and I'm pretty sure SATA was trading way below $100. And now we're sat here, you know, six months

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later, you've got, I think you've stacked nearly 10,000 Bitcoin since then and SATA's at par and

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crushing it, man. You've done good. Yeah. Yeah. We've been, we've been working really hard and

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you know, there, there was a lot of, it doesn't just happen. Like there was so much work that

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happens behind the scenes to get there. I mean, we went through the acquisition was similar. That

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was a, an entirely big process. We made some adjustments to how Seda works. We changed the

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target range. We bolstered our cash reserves. We weathered the drawdown. We did a follow on

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offering as a result of having all the similar Bitcoin on the balance sheet. So like the team

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has just been working so hard in that time horizon too.

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It's been about six months.

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Yeah, the team has been working crazy hard.

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And that's a result of how hard the team's been working.

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So we've just been continuously pushing the envelope

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and then watching the leader, right?

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Strategies been incredibly successful with STRC

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and we've gotten some really good advice

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from the strategy team and Sailor

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on how to think about these things,

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communicate to the market

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and start to establish this credit profile

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in the industry. You've been getting some attention from outside just before we started

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recording. We were talking about the CoffeeZilla show. I thought you did really well. And that's

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as someone who's been like skeptical of Bitcoin treasury companies, I still thought you absolutely

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crushed that. But maybe for anyone, I'm sure most people know what SATA is, but do you want to

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explain it and then we can get into it? Because I've got a load of questions around some of the

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details. Yeah. SATA is our marquee perpetual preferred equity. It's a digital credit instrument

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We're calling this digital credit. Perpetual preferred equity is a senior equity that sits

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on our balance sheet. So we have two equities. We have a senior equity being SATA. It pays 13%

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annualized. And starting on June 16th, it will pay daily dividends every single business day.

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This is the first security in US capital markets history to ever pay a daily dividend. So we think

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that's a pretty big deal. This is our marquee instrument. And then we've got our common stock,

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which is ASST and that's uh the residual the residual common stock like any other typical

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common stock and that's it we don't have any debt on our balance sheet we have those two instruments

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both of them are publicly traded uh SATA uh publicly traded on the NASDAQ and then ASST

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also publicly traded on the NASDAQ. All right I've got a ton of questions on both of these

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things actually but we let's start on on SATA so notes I know I was just getting my notepad out I

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I was like, I'm going to write some stuff down right now.

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Helpful.

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But so you say that there's no debt, but you do have obligations.

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So how do you try and figure out your leverage profile?

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Because I don't know how much Sater has been issued, but you owe a lot of money.

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Yeah.

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In dividends.

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Yeah.

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So let's see.

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As of today, I think we've got about $1.3 billion of Bitcoin on our balance sheet.

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We owed 16,500 Bitcoin.

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We announced that this morning.

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And then we've got $575 million of perpetual preferred equity outstanding at 13%. So I think it's just a touch over $70 million annual interest obligation last I checked.

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So on our balance sheet, not only do we have the 16,500 Bitcoin, but we also have 12 months of USD cash reserve and six months of SDRC reserve.

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That's our kind of first line of defense is how you could think of it for our flexibility of being able to pay out the dividends.

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And then we're in this process of constantly raising capital, whether that's through Common Stock ATM, whether that's through our perpetual preferred equity instrument, SEDA, or any other business operations that our company is engaging in.

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And so, sorry, you go on.

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Yeah.

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So there's a few ways to think about this.

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Amplification has been how to think about financial leverage.

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Amplification has been one of the standard ways to think about financial leverage on

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the balance sheet.

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And amplification is the notional preferred equity outstanding relative to the Bitcoin

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on the balance sheet.

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So our amplification as of today is, I think, around 40, 46, 47-ish percent. And so that's if you're taking the notional relative to the Bitcoin. Now, I think a little bit of the misnomer there is these aren't debt obligations. So there's no cliff repayment on the horizon. We get this money as equity capital, and we never have to pay back a principal.

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okay so that kind of changes your perspective of how you view a risk profile or financial

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leverage on these instruments and in my opinion what i think is a little bit more valuable of a

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view is um what we like to call bcr internally this is a bitcoin coverage ratio so it's how

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much bitcoin do you have relative to your annual interest obligation and so i think as of today

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For us, it's around 17, 18 years of just Bitcoin coverage relative to our annual interest

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obligation.

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And I think that's a helpful perspective when you're thinking about why would somebody hold

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this instrument?

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Well, you're holding this instrument.

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If you're holding an equity instrument for income, you're holding it for income.

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You're not holding it necessarily to get your principal back.

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That is it.

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These are hybrid instruments.

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These are like hybrid equity type debt instruments.

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They are equity. You do not get the principal repayment. And I'm not surprised that it's kind

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of breaking people's brains on how to think about this because it's a hybrid. It's a little bit of

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both. And so that changes the construction. That changes the psychology. That changes the

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construction of how you would design a portfolio. That changes how you would think about liabilities

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into the future. And a lot of this stuff is novel because there's never really been an instrument

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that's been this attractive before with that high of a yield and that high of a liquidity profile.

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So I would say it's hard to conceptualize because nothing like it has ever really existed before.

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And you have to think of it slightly differently than a traditional debt instrument because it is

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a hybrid vehicle. Okay. And with the structure of this, can you pause dividend payments whenever

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you want in the same way that strategy can we stretch yeah we we have the ability to uh to

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to pause dividend payments that's not our that's not our intention um our intention is to have a

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very high credit quality and very high credit profile forever we want to be continuous issuers

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of this credit instrument if there's a lot of psychology associated with these instruments if

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there were a situation where we were to pause the dividends that would impact the psychology of the

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holder. That would impact the risk profile, that would impact the people that are holding it,

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that would impact the common, that would impact the flywheel of the entire capital structure.

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So that is a tool in our toolkit. I think that's a little bit more of a break glass scenario after

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depleting a cash reserve or depleting all the other reserves and looking at all of the other ways

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to pay a dividend, turning over all of the other stones before using any of those tools.

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And the yearly dividend is 13%, is that right?

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13% is the annualized APR.

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With daily dividends, the annualized APY, including compounding, is 13.88%.

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These are return of capital instruments.

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So the tax equivalent yield depends on what tax jurisdiction you're in.

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But the tax equivalent yield is something in the 20s.

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when you're taking into consideration that tax component.

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Okay, so when I first saw that you were doing the daily dividends, I kind of,

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because I think a little bit before that, Stretch had come out saying they're going to do

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every two weeks, semi-monthly, yeah. And I thought it was initially like a marketing thing,

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like a marketing thing to retail where it's like you get daily dividends. It looks more like a

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money market account, like you're just getting money constantly coming into your account.

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Is there something more to it than that? Do you think it's more interesting than that?

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I think it's way more interesting than that. So first of all, yes, I think it is like a money

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market account, but let's, or well, I think the design, it's designed to be better than a money

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market account. So if you think about how the money market account works, when you hold money

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in a money market, you accrue interest daily, but you get paid the interest monthly. So you don't

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actually get paid daily. They give you the illusion that you get paid daily. You just get

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paid at the end of the month. Now we're actually going to pay the dividends every single day.

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Okay. So that's interesting. I think it's a, you can now, you can now put them next to each other.

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You can now put a money market and this instrument next to each other and you could compare them.

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Obviously they're different. I'm not saying that they're exactly the same, but you can compare them.

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The next piece is what I, what I think is incredibly fascinating is like we were moving

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into an algorithmic world. Like the world is getting more algorithmic every single day. AI

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is getting exponentially better. It's not getting linearly better. That is working its way into

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trading systems. That is working its way into DeFi. That's working its way into finance.

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And the biggest incentive for algorithms is like in the financial world. It's in crypto. It's in

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all like take traditional finance and digitize it. Like that is, we're going through a multi-decade

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transition of digitizing traditional finance. And we're living in the middle of it. We are

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smack dab in the middle of it. Okay. So why is that important? Why is that valuable?

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Just give you a couple examples in DeFi for a moment. What's happening in DeFi,

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decentralized finance, is they're taking these perpetual preferred equity instruments

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and they're wrapping it and providing a different instrument to the DeFi world.

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and so what they're doing in the defi world is that what what they initially did is they took

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the strc instrument and and put it in defi and they're providing daily dividends in defi and

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daily liquidity so you can trade it on the weekends and you can get paid a dividend every

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single day now when you do that you have to take on risk like that secondary industry is taking on

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liquidity risk and they're taking on interest rate risk. Because what if like liquidity comes

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out the door before the dividend comes out, you know, like you're taking on 29 days of risk

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to facilitate liquidity. Okay. Now, as that changes, as the frequency increases,

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the optionality and the risk profile of what you can build on top of this increases drastically.

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so for example if you go from one day a month you're taking on 29 days of risk and if you go

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to 22 days a month you're now taking on eight days of risk so just by making that change you

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reduce the risk profile by 70 percent in the secondary market that's huge that's massive like

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if you wanted to facilitate like a hyper liquid market that's trading on algorithms you need you

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need a transparent risk profile. So that's a fascinating development. And I think this stuff

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is just going to get way faster, like way, way, way faster. And we don't know exactly what the

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innovations are going to be because nothing like this has ever really existed before.

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But you can start to imagine this also creating more liquidity on the underlying. So this is one

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of the primary reasons we did this. Not only is it mathematically a better instrument, but it should

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facilitate a higher liquidity profile every single day for the SATA instrument. What we noticed is

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over time, every single month, there was a spike in the trading volume that came in the door

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right before our record date. So people were coming in the door to get the dividend and then

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they were leaving. And then the volume dried up and we would wait another 30 days. And then the

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trading volume would ramp back up into the record date and then it would leave and then go find

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other opportunities. So what we wanted to do was smooth out that volatility in the trading volume.

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We want to increase the liquidity every single day. So when a holder is holding this instrument,

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right, if you want to hold your instrument for principle, you want to get your principle back

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out of it. You want to know that you have the liquidity to go get your principal back out of it

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because there's a lot of people that are trading it. There's computers that are consistently trading

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it back and forth. They know that they're going to get the dividend every single day. And it's

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just going on behind the scenes. Now, another thing that's really fascinating here is the

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optionality of trading in this interest environment balloons. The number of carry trades that you can

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perform, it goes exponential. What do I mean by that? I mean, if you wanted to short a high yield

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bond, so for example, I've been obsessed with this trade and I haven't done it. If I had more

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time to trade, I think I would try it. You can short HYG the ETF. It's a high yield bond fund.

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It pays about 6%. Incredibly liquid. It's got about $20 billion of AUM. It's a pretty big

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fund. You could short HYG and theoretically buy Seda or Stretch, and you can hold it for the 29

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days that HYG doesn't pay a dividend and then close that position. You get paid the dividend

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the entire time, and then you close that short theoretically for whatever the price risk you took

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on HYG. That's an interesting trade. And you can run that trade for an extended period of time.

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You can have algorithms that are working back and forth, thinking about different points in time.

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And I think that there's just a continuous opportunity to find different things to trade.

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And one of the True North members, Soleil, he brought up the idea of these, like day traders is you start the day in cash and you end the day in cash.

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That's common with day traders.

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And he brought up the idea, well, what if you start the day at Seda and you end the day at Seda?

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It's like, okay, well, I'm taking my car out of the garage.

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I go to work and I come home and I park my car in the garage and I get my daily dividend.

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That's interesting. And that's, that is going to change how people work and like fundamentally

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think about these instruments. The second and third order impacts are absolutely enormous.

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And you think about like, what can you build on top of this?

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You can think about the design of a, sailors called it digital money. I'm going to call it

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a Bitcoin dollar. I just made that up 10 seconds ago. Like you could design a Bitcoin dollar

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and the Bitcoin dollar is a stable dollar, but it's paying you, you know, I don't know, 11%

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yield. What do you got? Something back there that's called the Bitcoin dollar?

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I've got a book for you.

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The Bitcoin dollar.

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The Bitcoin dollar.

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Yeah.

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Shout out to my good one.

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That, yeah, I guess hopefully he's trademarked that. So I guess what I'm

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saying is you can build on top of this and you can design different financial instruments

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and because the risk profile is unique and you're taking on a lot less risk than having

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a single monthly dividend payment. So for you on your side, it smooths out that

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volume across the month. Does that also help you keep Seta at par because you're not getting

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huge inflows and outflows around the end of the month. Yeah, that's the thesis. Yeah,

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that's the thesis is that because there's less speculation on the, I guess, the single dividend

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payment that month what I think will happen is we actually start to see volumes be a little bit dynamic every single day So because we going to pay out what it going to be like about a nickel a day we may see the instrument drop about a nickel a day

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and then come back to par throughout the day,

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throughout the end of the day.

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So it will be interesting to see the exact dynamics,

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but that is, again, part of the design of the instrument

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is to incentivize people to be in this instrument much longer.

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And it's not even necessarily retail.

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it's computers like we want the computers to be just incredibly fascinated with this instrument

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and just park there running different trading algorithms back and forth at a million miles

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an hour faster than the speed of light like that's that's what we want to incentivize is that that

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kind of structure so you want them to almost use sata as like the benchmark you start from there

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and then go and do other stuff throughout the day and then come back there.

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Yeah. Or think of it as like the blood in a body, like the liquidity layer of a market.

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And then for the holders of SATA, the benefit is that they're essentially,

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they can now do a daily DCA, assuming they're putting that money back into SATA

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instead of doing a monthly DCA.

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Daily DCA is interesting. Yeah. You can think about like a drip, right? Or a drip program,

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if you have capital in there and having the drip that the dividend that you get every single day,

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you can kind of recycle it back in, have a market order goes back in every single day.

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I think that structure is interesting. Yeah. And again, I mentioned earlier,

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this is a hybrid instrument. It's like a, it's like a debt and it's like a, it is an equity,

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but it's got a dividend payment. So it's a hybrid instrument. So if you're most concerned

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about principle to protection, you want the least amount of volatility. You want high yield,

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low volatility, high liquidity. That's like the trifecta. If you could get all three of those,

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you could have liquidity, low vol, high yield. It's never existed before. Go look at anything

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else in the traditional financial markets. You get two out of the three. If you get high yield,

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it's going to be illiquid. If you got low volatility, it's going to be low yield.

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And so really, we're hitting this trifecta in the capital markets that just becomes really

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appealing as a trading vehicle. And so let's talk about the makeup of Sata, because it's made up

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largely of stretch, right? And then what else on top? How do you outperform stretch in terms of

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like the dividend repayment?

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It's not made up largely of stretch.

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I mean, it's helpful to think about our balance sheet construction.

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Let's walk through it.

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We've got 16,500 Bitcoin, about $1.25 billion.

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Then we've got 12 months of USD cash, and we've got six months of STRC.

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Again, the USD cash, you can kind of think of that as like a buffer layer

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or like a first line of defense.

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the strc the reason we hold that on our balance sheet is because we view that as a moderate duration

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instrument uh what do i mean by that like uh you have duration liabilities right so we have

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we know what our liabilities are over time and if our alternative is holding usd cash at three and

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a half percent or four percent whatever the number is we would rather be getting clipping a little

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bit of a higher yield when we think that the risk profile is significantly misunderstood and

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better if not just as good as the U.S. Treasuries that we also hold.

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So we hold those a little bit more protected into our balance sheet, thinking about them as a

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medium duration asset that's providing a higher yield than just parking in the Treasuries.

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It's like the Andrew Carnegie thing, right? Andrew Carnegie goes and builds the

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steel bridge and Saylor goes out and walks on it. And we are too. But this is good.

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this security is good we're going to put it on our balance sheet and and that's uh that's another

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perspective how we view it um so this is this might be a funny one for people but this is one

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of the areas where i kind of i don't didn't necessarily agree with coffeezilla but i do

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think it's a very valid question um in the like how do you how do you kind of forecast bitcoin

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price and make sure that this product is going to be sort of sustainable in the long medium to

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long term. Like, let's start with just how you look at Bitcoin price. I've heard you say you

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think a 30% CAGR is reasonable. How do you get there? Yeah, we get there from really several

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different things. It's institutional structure. It's the dynamics of capital globally. It's the

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global debt situation in the United States, the corporate infrastructure, the regulatory

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environment. It's a little bit of art and science. One of the biggest things we're underwriting is

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just like the structure of Bitcoin itself, right? So the fact that the IBIT ETF exists,

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the fact that digital credit exists, the fact that the regulatory landscape is what it is,

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and the incentive structure around all of these different things and like how much capital it

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takes to move the price of Bitcoin. This is something that I think CheckOnChain, he's done

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a lot of work on like, you got to bring this capital in the door to push these assets higher.

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And I agree with that. It takes a lot of capital to push these assets higher. But I think the

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incentive structure is there such that a significant amount of capital can be onboarded into Bitcoin

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very quickly, particularly from these digital credit instruments that will attract a lot of

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other capital into spot Bitcoin, into the derivatives market, into the common equity

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of these things, looking at the landscape of how global monetary supply has changed,

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looking at the metallic capital in the world, and just the general capital landscape.

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So it's a little bit of art, a little bit of science, a combination of the two.

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and then thinking about the downside risk the we don't need bitcoin to go up 30 a year for this to

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work that's what we're anticipating see this would that that's good to hear because that was like

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really going to be my big question like i i played around and i was figuring out the kagra of bitcoin

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and i picked january 1st 2017 so you capture all the 2017 bull market and then the next two

336
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and if you bought bitcoin every single day from the 1st of january 2017 i'm pretty sure the cargo

337
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came out at something like 26 and so like for me looking forward like i'm insanely bullish bitcoin

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i've literally bet everything on it but um but like if you if 30 was a benchmark that you needed

339
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to hit like that's something i would be skeptical of one data point to throw out for you danny the

340
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uh the 200 week moving average of bitcoin has gone up at 30 over every single return period

341
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go look at go go pick data points along the 200 week moving average of bitcoin and it's 30

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interesting like every single one go look at it um that's that's one way one way to view the

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framework another way to view the framework is look at four-year compounding uh compound annual

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growth rate periods and and break them up into percentile distributions that's how my brain works

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i think about the statistics the probability analysis if you look at four-year compound

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annual growth rates. There has been around 4,000 four-year compound annual growth rates in Bitcoin's

347
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history. Every single one of them is positive. The 99th percentile of worst performing four-year

348
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return periods is like 9%. So we're talking like worst 1% of four-year compound annual growth rate

349
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periods. The median is like 60. Very high. Very, very high. So you can start to think about that

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as like a distribution or a probabilistic landscape.

351
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I think using all of those components in combination,

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thinking about the incentive structure,

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thinking about a finite asset,

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thinking about metallic capital,

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thinking about how the world's moving,

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that's how we land on that number.

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The thinking about what we need,

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we need Bitcoin to go up around,

359
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I think it's around 5.7 or 6% annually

360
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in order to pay our interest obligations forever.

361
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The value of the Bitcoin going up gives that additional buffer to pay the dividends.

362
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So that's true right now.

363
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But again, this is like if SATA absolutely blows up and you start selling an absolute shit ton of the stuff,

364
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then your obligations are going to go up and that number will increase as well.

365
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Obligations will go up, but so will the Bitcoin on our balance sheet.

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True.

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As soon as we sell a share of SEDA.

368
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Is it one-to-one?

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As soon as we sell a share of SEDA, it just depends on what our capital markets activities are like, whether that's the common stock or SEDA.

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But we're in the market buying Bitcoin within an hour, often much faster than that.

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And we own the Bitcoin very quickly.

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And that is a, I think that's just a fascinating element of this entire Bitcoin landscape.

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It's something that I learned a lot about when I jumped into this ecosystem, understanding how quickly you can hold Bitcoin and have it in custody and move it.

374
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The speed is just breakneck.

375
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Totally.

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If you were to go raise $50 million of capital and go buy a piece of real estate, it would take you 12 months to go find a piece of real estate.

377
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Yeah.

378
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You go raise the capital, $50 million, and then you're like, okay, well, let me go find a $50 million property.

379
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Well, guess what?

380
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there's not a lot of $50 million properties out there.

381
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So you got to go find one that's like for sale.

382
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And then you got to think about like,

383
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do I actually want that one?

384
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Is that the yield that I'm trying to get out of it?

385
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And like,

386
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it just takes forever.

387
00:30:37,780 --> 00:30:38,300
I can,

388
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I can deploy $50 million in,

389
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in an hour if I wanted to It awesome That crazy And it a capital asset and I can hold it So I would think of it that way It like if SEDA does very well we going to be in the

390
00:30:57,680 --> 00:31:03,680
market buying Bitcoin. We're going to be adding Bitcoin to our balance sheet, which should in

391
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theory bolster the value of the common equity. The market cap of the common equity should be a

392
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function of what the underlying Bitcoin is on the balance sheet and our ability to continue

393
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issuing that into the future. So we think we're looking at the dynamics of all these instruments

394
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day to day very closely, sometimes second by second, how the commons trading, how the

395
00:31:26,160 --> 00:31:29,340
perpetual preferred equities trading, what's happening in Bitcoin, how the rest of the Bitcoin

396
00:31:29,340 --> 00:31:33,400
treasury markets are moving. We've got some very advanced analytics behind the scenes that we've

397
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got like a, I don't know, like a 40 tab advanced analytic platform that we've made that we use

398
00:31:41,940 --> 00:31:48,660
behind the scenes. It's pretty killer. I know you say it's variable, but like just roughly,

399
00:31:48,900 --> 00:31:52,640
rough numbers. If I bought a million dollars of SATA, how much Bitcoin would you be buying?

400
00:31:55,280 --> 00:31:58,080
I mean, we could be buying a million dollars of SATA immediately.

401
00:31:58,940 --> 00:31:59,600
A million dollars of Bitcoin.

402
00:31:59,600 --> 00:32:07,360
Less fee. Yeah, sorry. A million dollars of Bitcoin. Less fees from our banks that sold the

403
00:32:07,360 --> 00:32:10,380
shares. So you're not putting any of that into like cash or anything like that?

404
00:32:11,040 --> 00:32:15,280
Again, like I said, it's a function of our capital markets activities and what we have going on at

405
00:32:15,280 --> 00:32:22,720
the time. That could be, we look at everything in tandem, right? So it's, what does the entire

406
00:32:22,720 --> 00:32:28,440
position look like? What is, as you will know, if you go look at our 8Ks over the last few weeks,

407
00:32:28,440 --> 00:32:34,420
we have been bolstering our cash position in line with the growth in SEDA as well to maintain our

408
00:32:34,420 --> 00:32:41,000
dividend reserve. So that's something that I think we're a little bit flexible in how this,

409
00:32:41,360 --> 00:32:46,500
and we need to manage a little bit tighter in my opinion, because strategy is significantly bigger.

410
00:32:46,500 --> 00:32:51,840
They're just on a whole nother level, like another playing field. But considering we're a smaller

411
00:32:51,840 --> 00:32:57,320
issuer, considering we want to grow this credit quality into the future, we want to manage that

412
00:32:57,320 --> 00:33:06,160
that reserve or that cash position a little bit tighter. And I guess tighter and what I mean by

413
00:33:06,160 --> 00:33:13,020
tighter is like a hawk. We're watching it very closely and how it all interacts together. Because

414
00:33:13,020 --> 00:33:18,000
what we really want is to foster liquidity in both of the instruments, our common equity and

415
00:33:18,000 --> 00:33:22,100
the preferred equity at the same exact time. So we're constantly thinking about the credit quality.

416
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We're constantly thinking about the financial leverage profile, the amplification, and then the cash position and all those things in tandem.

417
00:33:31,240 --> 00:33:35,380
The thing that keeps me up at night is the idea of a critical error with my Bitcoin cold storage.

418
00:33:35,920 --> 00:33:37,380
And this is where AnchorWatch comes in.

419
00:33:37,860 --> 00:33:42,840
With AnchorWatch, your Bitcoin is insured with your own A-plus rated Lloyds of London insurance policy.

420
00:33:43,400 --> 00:33:46,040
And all Bitcoin is held in their time-locked multi-sig vaults.

421
00:33:46,220 --> 00:33:49,880
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425
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455
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is the um an issue at all like or a foreseeable issue in the future with the fact that you've

456
00:35:51,180 --> 00:35:56,640
have stretch on the like as part of the makeup of sata that you're kind of at the whim of their

457
00:35:56,640 --> 00:36:00,760
company in a way in terms of like the actual dividend that they're paying out so for example

458
00:36:00,760 --> 00:36:07,320
if they drop the rate are you going to have to also drop the rate in tandem no i it's not a part

459
00:36:07,320 --> 00:36:12,540
of sata it's just on our balance sheet like that's that's how i would view it anybody that's listening

460
00:36:12,540 --> 00:36:17,380
to this, like it's not a part of SEDA. It's just, it's a part of our balance sheet. And if they

461
00:36:17,380 --> 00:36:21,380
drop the interest rate, we would make an analysis of its relative interest rate relative to the other

462
00:36:21,380 --> 00:36:27,460
things that we're holding, being the cash position and whether or not we deem that a

463
00:36:27,460 --> 00:36:32,420
worthy hold. I don't think that's incredibly likely.

464
00:36:33,360 --> 00:36:35,600
You don't think it's incredibly likely that they dropped the rate or?

465
00:36:35,980 --> 00:36:41,680
That they dropped the rate and we would want to shift into a cash position.

466
00:36:42,540 --> 00:36:53,460
Um, we, our team is probably the most familiar with the actual risk profile of STRC than anybody

467
00:36:53,460 --> 00:36:59,380
else on the planet. I can believe that. Right. So like, because we've done all of the work on

468
00:36:59,380 --> 00:37:03,020
our end, thinking about the risk profile of our own instrument, we we've got to, we've got to

469
00:37:03,020 --> 00:37:06,640
think about the leader, right? We're also underwriting the leader. You asked why we,

470
00:37:06,780 --> 00:37:12,520
why we're anticipating a 30% CAGR. Look at the leader. The leader's accumulated 800 and 800

471
00:37:12,520 --> 00:37:16,660
440,000 Bitcoin, they're going to have a million Bitcoin in August or September. And they've got

472
00:37:16,660 --> 00:37:20,920
the most successful perpetual preferred equity in history. And it's, you know, trading hundreds

473
00:37:20,920 --> 00:37:28,420
of millions of dollars a day. We're underwriting that. Right. And, and so we're constantly like,

474
00:37:28,440 --> 00:37:32,040
we have the hurdle rate podcast. We literally talk about strategy every single week. I have

475
00:37:32,040 --> 00:37:37,640
the true North podcast. I talk about strategy every single week. Right. So we, we are uniquely

476
00:37:37,640 --> 00:37:44,400
positioned to understand the actual risk profile of that and think about how that adds value to our

477
00:37:44,400 --> 00:37:49,500
balance sheet. Ultimately, how I think about it is like, would you rather us hold $50 million in

478
00:37:49,500 --> 00:37:54,660
cash or would you rather us hold $50 million in STRC and extend our runway by a month?

479
00:37:55,660 --> 00:37:56,360
I'll be content.

480
00:37:57,520 --> 00:38:03,020
Like what's a better credit profile? And this is something that we're navigating with the market

481
00:38:03,020 --> 00:38:05,880
too. I mean, there are some people that don't like it. It sounds like you've got a little bit

482
00:38:05,880 --> 00:38:09,800
of a concern with it. Coffeezilla obviously had a concern with it. It's not even a concern. It's

483
00:38:09,800 --> 00:38:14,160
just like, these are questions people ask and I want to put them to you. Yeah. Yeah. It's, uh,

484
00:38:14,480 --> 00:38:22,940
it's something that we're aware of. Um, again, it's, it's kind of communicating this risk profile

485
00:38:22,940 --> 00:38:28,180
of these instruments. Like we, we think they're a really good moderate, we think SDRC is a really

486
00:38:28,180 --> 00:38:33,140
good moderate duration instrument. If I were running an insurance company and I had liabilities

487
00:38:33,140 --> 00:38:39,800
on my balance sheet. You carry cash for some of your short-term liabilities, and then you start

488
00:38:39,800 --> 00:38:45,880
to carry equities and bonds and reinsurance for your medium-term liabilities. If I ran an insurance

489
00:38:45,880 --> 00:38:52,000
company, I would shake out all of the bonds on my entire balance sheet, and I would park 100%

490
00:38:52,000 --> 00:38:57,320
of it into stretch. Now, I'm not running an insurance company, right? I'm running a different

491
00:38:57,320 --> 00:39:02,780
capital vehicle, a digital credit vehicle, and we're parking Bitcoin on our balance sheet, but

492
00:39:02,780 --> 00:39:08,180
like that's that's how i i view it is it's a it's a really good moderate duration instrument to help

493
00:39:08,180 --> 00:39:13,420
you manage like cash position uh and get a juiced yield on on something that you're holding for a

494
00:39:13,420 --> 00:39:18,780
medium term so one of the other questions i've heard asked a little bit is whether companies

495
00:39:18,780 --> 00:39:24,520
like you and strategy are kind of putting all the attention on the preferreds and ignoring the common

496
00:39:24,520 --> 00:39:29,140
stock at all and i know a minute ago you said that you're uh like you're obviously looking at both of

497
00:39:29,140 --> 00:39:32,240
those very carefully like how do you kind of weigh the two off against each other

498
00:39:32,780 --> 00:39:39,820
I love both of them. I love both of them. And we want to foster, uh, amplify Bitcoin as much as we

499
00:39:39,820 --> 00:39:45,000
do digital credit. But obviously like when you're buying a, when you're buying a common stock,

500
00:39:45,000 --> 00:39:49,120
you're buying the company, you're, you're buying a residual claim on the assets of the company and

501
00:39:49,120 --> 00:39:55,500
their ability to grow the assets of the company or grow the cashflow of the company. Obviously

502
00:39:55,500 --> 00:40:01,400
there's a lot of market tension figuring out what the value of that is. And a lot of dislocation in

503
00:40:01,400 --> 00:40:04,600
both directions there are periods of time where it's rich there are periods of time where it's

504
00:40:04,600 --> 00:40:09,600
very cheap and there's a fight between the bitcoiners and the and the strategy maxis and

505
00:40:09,600 --> 00:40:20,680
and all of the all the like but the uh how yeah i i view this is that we are we are fostering both

506
00:40:20,680 --> 00:40:26,860
of them and the i guess for us like the base effect math is really interesting when you're

507
00:40:26,860 --> 00:40:33,620
thinking about like the success of SEDA relative to our common equity and how much Bitcoin it would

508
00:40:33,620 --> 00:40:39,060
take to move the relative market cap value, the 1x MNAV value of our common stock. So thinking about

509
00:40:39,060 --> 00:40:45,360
how much we can increase the yield, how much Bitcoin per common share, how much can we increase

510
00:40:45,360 --> 00:40:50,320
the potency of the common share of the common equity. And we're really focused on that. So

511
00:40:50,320 --> 00:40:55,320
So thinking about, again, like you're buying the vehicle,

512
00:40:56,060 --> 00:40:58,520
you're buying the corporation,

513
00:40:58,520 --> 00:41:01,020
and I think a lot of people lose sight of that.

514
00:41:01,056 --> 00:41:08,816
buying this vehicle and its ability to operate into the future and not necessarily the underlying

515
00:41:08,816 --> 00:41:13,736
assets like this isn't a claim on bitcoin right you buy a common stock it's not buying bitcoin

516
00:41:13,736 --> 00:41:18,396
like if you want to go self-custody bitcoin go self-custody bitcoin i love that i love that for

517
00:41:18,396 --> 00:41:28,396
you i love it myself um i buy bitcoin every single day but like if you're buying common stock of the

518
00:41:28,396 --> 00:41:33,096
the amplified Bitcoin version, you're buying, you're buying the excess risk and the excess

519
00:41:33,096 --> 00:41:40,236
return that the preferred equity holders don't want to hold. So if you want that, that volatility

520
00:41:40,236 --> 00:41:45,416
has to go somewhere and that volatility goes to the common stock. You're, you're buying that

521
00:41:45,416 --> 00:41:51,436
excess like amplification. That's why it's called amplification. Cause it's, it's moving more than

522
00:41:51,436 --> 00:41:57,116
the underlying Bitcoin commodity. And it's true. The data shows it like our common stock, for

523
00:41:57,116 --> 00:42:02,616
example, let's start with strategy. Strategy has got a beta of 1.5 relative to Bitcoin. This is

524
00:42:02,616 --> 00:42:08,196
going back over the last like four years. That means for every point that Bitcoin moves, MSTR

525
00:42:08,196 --> 00:42:15,856
moves 1.5. Okay. Our common stock has about a 1.6, 1.7 beta to Bitcoin. So every point that Bitcoin

526
00:42:15,856 --> 00:42:22,996
moves, our common stock moves 1.6 to 1.7. And some people have pointed out that our common stock

527
00:42:22,996 --> 00:42:31,016
also has a beta to mstr because our relative size we move more than mstr does and we've got a higher

528
00:42:31,016 --> 00:42:36,556
amplification we've got a little bit more of a a pure expression of this corporate capital vehicle

529
00:42:36,556 --> 00:42:41,916
given that we don't have any debt we only have one instrument it's a very clean expression

530
00:42:41,916 --> 00:42:46,996
i um i know you think i'm skeptical and i know why because i obviously have been skeptical in

531
00:42:46,996 --> 00:42:51,116
the past i think these i think these are really cool um like one of the things i really like

532
00:42:51,116 --> 00:42:56,216
looking at your website is like you can see the bitcoin you've accumulated and like until a couple

533
00:42:56,216 --> 00:43:00,516
of months ago it was basically just like slugs of accumulation and and now you just see it like

534
00:43:00,516 --> 00:43:04,056
trickling up and and obviously that's with the money that's coming into sata and i think it's

535
00:43:04,056 --> 00:43:08,016
really cool that you're essentially now like dcaing bitcoin almost constantly i think that's

536
00:43:08,016 --> 00:43:12,756
really good for bitcoin market i think you guys are going to do really well um but like when you

537
00:43:12,756 --> 00:43:16,776
talk about risks i think we've gone through a couple of them there but one of the obvious ones

538
00:43:16,776 --> 00:43:19,056
is like the custody risk of the Bitcoin.

539
00:43:19,856 --> 00:43:23,116
Because I imagine you're not doing that in-house at the moment.

540
00:43:23,236 --> 00:43:25,656
So you're kind of offloading that risk to another company.

541
00:43:25,796 --> 00:43:27,256
I'm sure they're incredible at what they do.

542
00:43:27,296 --> 00:43:28,536
I'm sure they're very well vetted.

543
00:43:28,536 --> 00:43:30,396
But like, it's not you doing it.

544
00:43:30,516 --> 00:43:33,556
Is there ever a scenario that you would take custody in-house?

545
00:43:36,016 --> 00:43:37,176
Man, probably.

546
00:43:38,896 --> 00:43:43,416
I guess we'll continuously monitor what that probability looks like.

547
00:43:43,616 --> 00:43:46,656
We've got a few different custodians there.

548
00:43:46,776 --> 00:43:48,176
institutional.

549
00:43:49,456 --> 00:43:50,816
They're very big names.

550
00:43:50,916 --> 00:43:52,176
You'd be familiar with all of them.

551
00:43:53,016 --> 00:43:54,796
And we are constantly monitoring

552
00:43:54,796 --> 00:43:56,516
what that custody of risk looks like.

553
00:43:56,616 --> 00:43:58,496
We know where all of our Bitcoin is.

554
00:43:58,576 --> 00:44:00,236
We know we have access to all of it.

555
00:44:00,756 --> 00:44:02,376
We've got protocols in place

556
00:44:02,376 --> 00:44:04,536
to prevent it from being moved

557
00:44:04,536 --> 00:44:06,196
corporately. It's basically like

558
00:44:06,196 --> 00:44:08,536
the recipe for Coca-Cola.

559
00:44:08,776 --> 00:44:10,736
You can't have multiple people on the same airplane

560
00:44:10,736 --> 00:44:11,916
at the same time. We've got

561
00:44:11,916 --> 00:44:13,876
all of that crazy stuff in place.

562
00:44:14,596 --> 00:44:16,296
And we've been working on that for

563
00:44:16,776 --> 00:44:23,156
months, really like September through January. That was, we were laser focused on that. We did

564
00:44:23,156 --> 00:44:30,376
an enormous DDQ process. We had a 200 question DDQ questionnaire. We went out and just absolutely

565
00:44:30,376 --> 00:44:36,396
grilled all of the custodians on everything. And not just price. It's like, I want security,

566
00:44:36,776 --> 00:44:40,816
like every single question you could possibly come up with. And then we had our entire finance

567
00:44:40,816 --> 00:44:44,916
team kind of review the risk profile of all of those. And that's how we selected our custodians.

568
00:44:44,916 --> 00:44:48,596
So it was a well-vetted, very long process.

569
00:44:49,036 --> 00:44:49,716
So that's point number one.

570
00:44:49,896 --> 00:44:52,436
Point number two on self-custody,

571
00:44:52,436 --> 00:44:58,756
I think the risk profile of self-custodying Bitcoin

572
00:44:58,756 --> 00:45:00,936
starts to get incredibly tricky.

573
00:45:02,056 --> 00:45:08,336
Not only from a corporate investment standpoint,

574
00:45:08,456 --> 00:45:10,636
somebody being willing to invest in the equity of your company

575
00:45:10,636 --> 00:45:12,136
or the credit of your company,

576
00:45:12,136 --> 00:45:18,116
the risk profile of me going on an airplane and being somewhere

577
00:45:18,116 --> 00:45:20,136
it's completely heightened

578
00:45:20,136 --> 00:45:25,436
right like the risk profile of Matt our CEO being somewhere

579
00:45:25,436 --> 00:45:30,076
or it just changes the dynamics of how somebody I think could be thinking about

580
00:45:30,076 --> 00:45:33,376
the equity that they're holding or the credit that they're holding

581
00:45:33,376 --> 00:45:37,196
and something that I like Bitcoin is trustless right

582
00:45:37,196 --> 00:45:40,556
and this is something I've been kind of steering towards a little bit is

583
00:45:40,556 --> 00:45:49,256
trust trust is incredibly important for like humanity and if you haven't wrapped your head

584
00:45:49,256 --> 00:45:52,716
around this one it's like a pretty big idea and it kind of takes a while to kind of sink in

585
00:45:52,716 --> 00:46:00,336
trust is human's oldest technology it's been around for 200 000 years right before language

586
00:46:00,336 --> 00:46:05,896
before writing before any other technology existed like that was how that was how humanity

587
00:46:05,896 --> 00:46:14,556
separated from 150 person tribes into what we see today, right? Like it is civilization is a

588
00:46:14,556 --> 00:46:21,896
function of trust being extended beyond our biological capability. So one, why, why was

589
00:46:21,896 --> 00:46:28,656
Bitcoin birthed? Bitcoin was birthed because we were losing trust in the existing institutions that

590
00:46:28,656 --> 00:46:36,116
existed on the planet. So how do we start to, so it gives you the opportunity to be trustless,

591
00:46:36,196 --> 00:46:39,536
right? You could be your own bank. You could go take custody of your assets. Like absolutely,

592
00:46:39,536 --> 00:46:45,136
you could go do that. But it also establishes a new foundation for what trust can look like.

593
00:46:46,096 --> 00:46:51,696
So there are corporations that are involved in these trust networks. There are corporations that

594
00:46:51,696 --> 00:46:55,856
are doing custody. There are corporations that are holding the Bitcoin and issuing credit and

595
00:46:55,856 --> 00:47:02,276
equity against it. There are, um, the, the, it's a new landscape of trust is being built. Uh, and

596
00:47:02,276 --> 00:47:07,236
we, we've got a lot of branding work to do because of the challenging trust environment that we had

597
00:47:07,236 --> 00:47:11,636
in 2022 with all these shitty companies that were super opaque, go out of business, right? Completely,

598
00:47:11,636 --> 00:47:16,936
completely different environment that we're in today. We are the complete opposite, right? Like

599
00:47:16,936 --> 00:47:22,236
we actually want you to see our balance sheet. We want to show it to you. And we want to show you

600
00:47:22,236 --> 00:47:24,876
that like we are good stewards of this capital

601
00:47:24,876 --> 00:47:27,156
and we are going to protect these assets

602
00:47:27,156 --> 00:47:29,516
and we want you to see what they look like.

603
00:47:29,516 --> 00:47:33,776
And part of that is like trust

604
00:47:33,776 --> 00:47:35,756
in that we've done the hard work behind the scenes

605
00:47:35,756 --> 00:47:38,156
to vet our custodians,

606
00:47:38,156 --> 00:47:40,956
that we're not going to take risky positions

607
00:47:40,956 --> 00:47:43,036
with how we are custodying our Bitcoin.

608
00:47:43,036 --> 00:47:46,236
And like to us, self custody is a little bit of a,

609
00:47:46,236 --> 00:47:48,276
that's a riskier proposition,

610
00:47:48,276 --> 00:47:52,696
despite having other custody potential in place.

611
00:47:53,616 --> 00:47:57,416
So that's, I think broadly to answer your question,

612
00:47:58,196 --> 00:47:59,396
like on custody risk,

613
00:47:59,396 --> 00:48:04,996
is that we are very focused on custody risk.

614
00:48:05,096 --> 00:48:06,476
We spend a lot of time and effort to do it.

615
00:48:06,576 --> 00:48:09,896
We are incredibly incentivized to protect our assets

616
00:48:09,896 --> 00:48:14,396
and we want to be fiduciaries of this capital moving forward.

617
00:48:14,956 --> 00:48:16,276
So, I mean, that does make sense

618
00:48:16,276 --> 00:48:17,796
because if you were going to bring custody in-house,

619
00:48:17,796 --> 00:48:20,876
you need an entire security team. You need to build this out in like a way that's,

620
00:48:21,456 --> 00:48:25,756
and you can just outsource that to someone else. And I understand why that makes sense. And especially

621
00:48:25,756 --> 00:48:28,656
when you're looking at like the investors that potentially coming into this company,

622
00:48:28,836 --> 00:48:32,716
if they're not like deeply into Bitcoin, they may be questioned why you would even risk holding

623
00:48:32,716 --> 00:48:37,596
your own Bitcoin. So I do understand that. But there's also like a load of chatter, which by the

624
00:48:37,596 --> 00:48:41,336
way, I think is completely unfounded in that like does say they're actually on the Bitcoin he does.

625
00:48:41,476 --> 00:48:46,516
I'm sure, I'm convinced he does, like clearly he will. But like you could just do proof of

626
00:48:46,516 --> 00:48:51,036
reserves to prove that? Like, is that something that you would look at doing? Uh, yeah, we we've

627
00:48:51,036 --> 00:48:55,036
considered it. It's something that we're, we're looking into if there becomes an industry standard

628
00:48:55,036 --> 00:49:02,516
way to do it. Um, I think it's something where we're open to doing the, the bigger thing is

629
00:49:02,516 --> 00:49:08,656
like that the reserves are less of the issue. It's the liability. And if you, even if you did proof

630
00:49:08,656 --> 00:49:13,756
of reserves, like you still don't know what the liability is on that Bitcoin is like you don't,

631
00:49:13,876 --> 00:49:15,836
you aren't aware of what that,

632
00:49:16,516 --> 00:49:22,876
what exists like what is the financial structure on top of that right so the in my opinion like we

633
00:49:22,876 --> 00:49:27,576
get audited we have auditors that come in and look what our bitcoin is every single quarter yeah right

634
00:49:27,576 --> 00:49:30,696
we've got to go through the whole audit process that's part of being like a publicly traded

635
00:49:30,696 --> 00:49:40,476
company you got to go do the financial colonoscopy every once in a while um and so in our in our

636
00:49:40,476 --> 00:49:44,096
opinion having that like up-to-date dashboard of like here's what our balance sheet looks like

637
00:49:44,096 --> 00:49:51,776
here's our liability profile i think that is far more important for like viewing viewing the

638
00:49:51,776 --> 00:49:58,656
exposure of the company relative to uh i guess proof of reserves because like these companies

639
00:49:58,656 --> 00:50:02,316
are already going to do it right they're already going out and they're tagging wallets and they're

640
00:50:02,316 --> 00:50:06,596
going to say like this is strategies bitcoin they found like 90 of it i think they've already done

641
00:50:06,596 --> 00:50:11,896
it with several of our wallets as well um and you know ideally you could hold a little bit of an

642
00:50:11,896 --> 00:50:17,476
anonymity for some of those assets. Yeah. No, I don't disagree with that. And I know like River,

643
00:50:17,656 --> 00:50:21,656
obviously not a publicly traded company, but they do attempt at proof of liabilities,

644
00:50:21,816 --> 00:50:24,456
which I think they'd be the first to admit. It's like, it's a little bit, trust me, bro,

645
00:50:24,516 --> 00:50:26,976
but they're like, you know, they're doing everything they can to be transparent.

646
00:50:27,256 --> 00:50:31,756
But like, just for such an easy lift, do you not think it would kind of just alleviate some

647
00:50:31,756 --> 00:50:36,696
worries that people might have? Like, it's not hard to do a proof of reserves, particularly.

648
00:50:36,696 --> 00:50:42,316
particularly. You know, honestly, Danny, you're the first person that's brought it up in like,

649
00:50:42,496 --> 00:50:48,456
I think since we've launched Seda, to be honest with you. Um, I know it was, it was a bigger issue

650
00:50:48,456 --> 00:50:56,776
in 2025, but I think the people that are buying the credit instrument don't really care. Um,

651
00:50:57,136 --> 00:51:06,136
if we had an overwhelming, uh, if we had an overwhelming demand from our credit,

652
00:51:06,136 --> 00:51:07,376
or credit buyers and saying,

653
00:51:07,376 --> 00:51:08,476
we're not gonna buy your credit

654
00:51:08,476 --> 00:51:11,076
unless you show us proof of reserves,

655
00:51:11,076 --> 00:51:26,976
then that would be something we would heavily consider But at the moment it you know we seeing capital flow from you know international capital we seeing institutional capital we seeing retail capital coming from all different areas that interested in

656
00:51:26,976 --> 00:51:32,576
this type of instrument. Yeah. Fair. Like, I mean, all you can do is react to the market.

657
00:51:32,676 --> 00:51:38,076
And if they're not demanding it, that's fair. Yeah. Yeah. So in terms of those people coming

658
00:51:38,076 --> 00:51:42,596
in? What is the makeup of it? How much is retail versus institutional capital?

659
00:51:44,276 --> 00:51:48,936
Yeah, I think it varies. And we've got a decent view into what that looks like.

660
00:51:49,496 --> 00:51:55,876
I think it's a similar profile to STRC, but I would say ours leans a little bit more institutional

661
00:51:55,876 --> 00:52:00,896
because we had the IPO in November and then we had the follow on offering, which was to retire

662
00:52:00,896 --> 00:52:04,396
some of the convertible bonds that we had. There was $100 million of convertible bond outstanding.

663
00:52:04,396 --> 00:52:09,616
and we did some swap of the convert for the perpetual preferred equity. So I don't know

664
00:52:09,616 --> 00:52:13,936
the exact numbers, but I think we're probably a little bit more heavily weighted towards

665
00:52:13,936 --> 00:52:18,376
institutional than retail, than the strategy SDRC instrument, which is like 80-20. I think

666
00:52:18,376 --> 00:52:22,916
ours might be 70-30, something like that, maybe 60-40, not 100% sure.

667
00:52:23,336 --> 00:52:27,876
Yeah, I did see, I think Phong came out and said they were 80% retail. Did that surprise you?

668
00:52:27,896 --> 00:52:30,996
Because the narrative has been that this is sort of driving institutional.

669
00:52:30,996 --> 00:52:38,756
no not at all honestly it didn't surprise me at all because the you think about how did like

670
00:52:38,756 --> 00:52:44,236
what's happened with bitcoin in the last 15 years like did it start with institutions no no the

671
00:52:44,236 --> 00:52:50,436
institutions didn't show up until 2020 to and the etf didn't even show up till 2024 so any retail

672
00:52:50,436 --> 00:52:59,856
investor that that got in in 2015 2017 they they just front ran everybody for seven years right i

673
00:52:59,856 --> 00:53:06,296
I think we're in a very similar type situation where institutions are going to be late to adopt this stuff by design.

674
00:53:06,636 --> 00:53:07,796
Like that's what they do.

675
00:53:08,436 --> 00:53:16,976
And there's an opportunity of alpha here, a period of time between retail being here to when institutions show up.

676
00:53:17,136 --> 00:53:20,616
And this is something that like our firm is uniquely familiar with because we are an asset manager.

677
00:53:20,736 --> 00:53:23,216
So we've got 13 ETFs out in the market.

678
00:53:23,316 --> 00:53:24,076
We started in 2022.

679
00:53:24,076 --> 00:53:28,876
So they're all starting to get to this like three year track record of seasoning.

680
00:53:28,876 --> 00:53:33,236
You kind of have to season an ETF for institutions that start to be interested in them.

681
00:53:33,716 --> 00:53:35,396
And so we're starting to hit this three-year track record.

682
00:53:35,556 --> 00:53:39,396
And that's where you hit this, like what the industry is known as like a hockey stick growth

683
00:53:39,396 --> 00:53:39,736
pattern.

684
00:53:40,496 --> 00:53:45,036
Or many of these institutions have like a three-year filter.

685
00:53:45,236 --> 00:53:48,876
So they'll go on there, like any of the assets they could buy, it's like filter greater than

686
00:53:48,876 --> 00:53:49,356
three years.

687
00:53:49,596 --> 00:53:51,376
And it's like, okay, those are the assets that pop up.

688
00:53:51,896 --> 00:53:52,576
And why is that?

689
00:53:52,596 --> 00:53:55,916
Is that because like if it's survived three years, the risk is reduced?

690
00:53:55,956 --> 00:53:57,136
Or is it to do with like liquidity?

691
00:53:57,376 --> 00:53:57,936
What's the reason?

692
00:53:58,676 --> 00:54:01,836
Yeah, I think Saylor brought this up in a recent interview as well.

693
00:54:01,996 --> 00:54:03,356
It's called the Lindy effect.

694
00:54:03,456 --> 00:54:05,896
If you think it's been around for a year, you think it can last another year.

695
00:54:06,016 --> 00:54:08,196
If you think it's been around, like in New York,

696
00:54:08,616 --> 00:54:10,276
if a restaurant's been around for 10 years,

697
00:54:10,316 --> 00:54:11,836
you think it's going to last another 10 years.

698
00:54:13,076 --> 00:54:16,396
And so there's this kind of like seasoning bias.

699
00:54:16,756 --> 00:54:19,876
If you think it's made its way through three years,

700
00:54:19,936 --> 00:54:21,456
it's going to make its way through another three years.

701
00:54:21,456 --> 00:54:24,116
And that kind of compounds on itself.

702
00:54:24,856 --> 00:54:25,956
And I mean, you think about it,

703
00:54:25,956 --> 00:54:28,136
Like look at the noise in the market right now, right?

704
00:54:28,136 --> 00:54:30,916
Like everybody's running around with their heads cut off

705
00:54:30,916 --> 00:54:32,416
thinking the strategy's gonna go bankrupt.

706
00:54:32,616 --> 00:54:34,356
They have a 9% leverage ratio.

707
00:54:35,236 --> 00:54:37,276
And like they've got the ability to pay,

708
00:54:37,416 --> 00:54:39,296
they've got 30 plus years of Bitcoin

709
00:54:39,296 --> 00:54:40,656
on their balance sheet to pay dividends, right?

710
00:54:40,916 --> 00:54:45,876
They're probably the most financially secure company

711
00:54:45,876 --> 00:54:50,516
in the market, maybe aside from Berkshire Hathaway,

712
00:54:51,196 --> 00:54:54,536
Apple, and any other huge cash cow, right?

713
00:54:54,536 --> 00:55:04,476
Like these, these, this company is very financially secure relative to many of the other thousands of publicly traded companies out in the market.

714
00:55:05,136 --> 00:55:11,236
So, yeah, I think it's just going to take some time and the things are going to be built on top of this very quickly.

715
00:55:11,236 --> 00:55:13,116
Like we were seeing it in DeFi land already.

716
00:55:14,036 --> 00:55:22,436
The fact that this instrument's gone from two and a half billion to 10 billion in under a year or not even at the one year anniversary of, of STRC.

717
00:55:22,436 --> 00:55:26,156
And it just, it takes time to like go into the market and communicate this to people.

718
00:55:26,476 --> 00:55:26,576
Yeah.

719
00:55:27,276 --> 00:55:28,196
And the track record.

720
00:55:28,336 --> 00:55:30,156
So I'll give you an example of track record as well.

721
00:55:30,436 --> 00:55:33,176
We went to Risk World like a month ago.

722
00:55:33,576 --> 00:55:35,416
That sounds like the nerdiest conference I've ever heard of.

723
00:55:35,416 --> 00:55:38,156
Oh man, it was nerdy.

724
00:55:38,936 --> 00:55:43,676
So Risk World is like the leading insurance industry conference of like people that are

725
00:55:43,676 --> 00:55:45,096
taking financial risk, right?

726
00:55:45,116 --> 00:55:52,416
So you got all these balance sheet companies, you got CNA, the Hartford, Berkeley, Allianz,

727
00:55:52,436 --> 00:55:59,496
nationwide liberty all these companies are there and they're all like you know working and we we

728
00:55:59,496 --> 00:56:03,636
went there this year and we got a booth and we're like let's go to risk world because we're doing

729
00:56:03,636 --> 00:56:07,656
something unique with risk right we're taking on financial risk we want to go tell people about

730
00:56:07,656 --> 00:56:13,576
this and we got this tiny little booth and it's just me and two other employees that were sitting

731
00:56:13,576 --> 00:56:17,356
there working at and we're just trying to talk to people we're like walking around trying to talk

732
00:56:17,356 --> 00:56:22,336
to people. We had people walk by, call us a scam. Like people are like, you're a scam. And I was

733
00:56:22,336 --> 00:56:25,976
like, Hey, let's talk about our $1 billion Bitcoin balance sheet. And they're like, yeah, okay, but

734
00:56:25,976 --> 00:56:33,756
so like we had a couple of good conversations, but they're all also several very, very skeptical

735
00:56:33,756 --> 00:56:40,876
conversations. And we had like a TV screen. It said, uh, 13% paid, uh, paid monthly, 13%

736
00:56:40,876 --> 00:56:45,896
annualized paid monthly. And we almost, we probably would have been better off if we would

737
00:56:45,896 --> 00:56:52,796
have said 8% annually paid monthly. Like people would have thought it was like not too good to be

738
00:56:52,796 --> 00:56:57,516
true. Like the people that we did talk to, they're like, this is too good to be true. I don't believe

739
00:56:57,516 --> 00:57:02,596
you. Like that's what everybody started with. But here's the thing. We're going to go back next year.

740
00:57:03,236 --> 00:57:07,456
We're going to have paid all of our dividends. The interest rate might still be at 13%. We're

741
00:57:07,456 --> 00:57:11,156
going to be paying it daily and we're going to get 25 more people that are going to show up.

742
00:57:12,216 --> 00:57:15,316
And they'd be like, wow, you're the crazy guys that were here last year that had a billion dollar

743
00:57:15,316 --> 00:57:18,796
balance sheet. And we're like, yeah, we're here again. And we've got, I don't know, $5 billion

744
00:57:18,796 --> 00:57:24,116
balance sheet, whatever the number is. And so then that's year two track record. Okay. Then the next

745
00:57:24,116 --> 00:57:28,176
year we're going to pay our dividends again for an entire year. We're going to show back up and

746
00:57:28,176 --> 00:57:33,336
maybe there's 50 or 75 people. And they're like, wait, I've heard of you. My neighbor holds your

747
00:57:33,336 --> 00:57:39,056
product, you know, like those types of things. And so that, that's like, it's really boots on

748
00:57:39,056 --> 00:57:43,616
the ground, man. Like you got to go talk to these people. You got to infiltrate trust networks. And

749
00:57:43,616 --> 00:57:50,556
that just takes so much time. These are, we're selling trust, right? Like these are trust products.

750
00:57:51,076 --> 00:57:55,516
Any credit instrument is a trust product, right? You're selling a trust product. You're selling

751
00:57:55,516 --> 00:58:00,816
education as well. And so how do you do that? You've got to go talk to other people that are

752
00:58:00,816 --> 00:58:06,136
trustworthy and the people that are trustworthy, that are interested in these products. If they

753
00:58:06,136 --> 00:58:10,796
start using them, they're trustworthy in their communities. They go start talking to their

754
00:58:10,796 --> 00:58:15,456
communities about, Hey, these are trustworthy products. These work like, you know, all of that,

755
00:58:15,576 --> 00:58:20,756
all of that stuff. So really it's going to be like an infection, like a wildfire, just like Bitcoin

756
00:58:20,756 --> 00:58:26,996
was in the early days of, um, you know, spreading and spreading like a wildfire. These things are

757
00:58:26,996 --> 00:58:32,676
far more attractive in my opinion, to like the normie, the, the pleb population.

758
00:58:33,956 --> 00:58:37,976
If you think about the dynamics of going to sell Bitcoin to somebody like your relative,

759
00:58:37,976 --> 00:58:43,796
everybody's had this story right everybody you go on thanksgiving you go sell you go sell your

760
00:58:43,796 --> 00:58:49,036
family on bitcoin inevitably it's at the all-time high and you know your family your uncle buys

761
00:58:49,036 --> 00:58:55,216
bitcoin and then it drops 70 percent and he sells it at the bottom he hates you you no longer talk

762
00:58:55,216 --> 00:59:00,496
to him you ruin family thanksgiving forever and then you come back at the thanksgiving next year

763
00:59:00,496 --> 00:59:03,816
and it's like all-time highs and you're like riding high again and then that family member

764
00:59:03,816 --> 00:59:08,056
still hates you. Yeah. I did this in 2017 and now I never told everybody's got it.

765
00:59:09,576 --> 00:59:16,196
Everybody's got it. Like I I've had the same experience now. Okay. There's, there's risk.

766
00:59:16,276 --> 00:59:21,356
There's like family risk associated with like getting people involved in Bitcoin. Right. You

767
00:59:21,356 --> 00:59:27,736
have to like really get them plugged in hard to do now going to tell your family member, like you're

768
00:59:27,736 --> 00:59:33,116
65, like my father-in-law, like I'm, I'm having conversations with my father-in-law all the time.

769
00:59:33,116 --> 00:59:35,456
It's like, hey, you're 65.

770
00:59:36,216 --> 00:59:37,636
You're starting to enter retirement.

771
00:59:37,776 --> 00:59:39,056
You're going to start drawing on your retirement.

772
00:59:39,256 --> 00:59:42,176
Like these might be interesting to have in your portfolio.

773
00:59:43,276 --> 00:59:51,556
And he's not going to kill me if it, like you're talking about a 13% instrument that's

774
00:59:51,556 --> 00:59:52,856
going to be relatively stable.

775
00:59:53,536 --> 00:59:55,776
Our goal is to keep that stable.

776
00:59:55,896 --> 00:59:57,436
Our goal is to pay the 13%.

777
00:59:57,436 --> 00:59:58,996
Yeah, there's a risk associated with it.

778
00:59:59,036 --> 01:00:01,636
This is a risk product, just like any other financial instrument in the entire planet.

779
01:00:01,636 --> 01:00:14,956
But the price risk, the principal risk associated with a position is significantly different than taking Bitcoin principal risk when you're looking at like 20 years of life left.

780
01:00:15,616 --> 01:00:16,496
Completely different.

781
01:00:16,756 --> 01:00:17,996
Completely different conversation.

782
01:00:18,976 --> 01:00:19,076
Yeah.

783
01:00:19,196 --> 01:00:21,676
So, and then who's got all the money, right?

784
01:00:21,956 --> 01:00:22,596
The boomers.

785
01:00:23,136 --> 01:00:25,276
The older generations have all the money.

786
01:00:25,676 --> 01:00:27,096
Like they screwed all of us, right?

787
01:00:27,116 --> 01:00:28,036
They bought all the homes.

788
01:00:28,256 --> 01:00:29,276
They're holding all the homes.

789
01:00:29,276 --> 01:00:33,156
They bought all the equity before we had a chance to make a ton of money.

790
01:00:34,036 --> 01:00:34,156
Right.

791
01:00:34,296 --> 01:00:38,196
And that's how do you facilitate that transfer?

792
01:00:38,516 --> 01:00:41,356
You create a product that is perfect for them.

793
01:00:42,436 --> 01:00:48,016
Low volatility, high yield, go live out the rest of your life and, you know, transfer.

794
01:00:49,596 --> 01:00:53,956
And when you look at like how this is going to mature over the next few years, what do

795
01:00:53,956 --> 01:00:57,336
you think the interest rate that you'll be able to offer will be?

796
01:00:57,336 --> 01:01:01,596
I imagine you think it's going to drop, but how quickly do you think it's going to drop over time?

797
01:01:04,196 --> 01:01:09,076
It's tough to say. I mean, it all is a function of Bitcoin price performance,

798
01:01:09,076 --> 01:01:14,936
the relative market scale, like how fast Bitcoin moves, what the US debt situation looks like,

799
01:01:15,536 --> 01:01:20,296
what the interest rate environment looks like, the rest of the credit world, the rest of the

800
01:01:20,296 --> 01:01:37,896
equity market You know I wouldn be surprised if the interest rate stayed relatively high for quite a while I mean six eight years I wouldn be surprised Like you going to 2032 like this is a gold rush right like we are in a we are in the digital gold rush to acquire as much

801
01:01:37,896 --> 01:01:44,436
bitcoin as humanly possible as we make this transition into a more digital world a digital

802
01:01:44,436 --> 01:01:52,296
capital world digital dollar world so um it's so hard to speculate i i think the the probability

803
01:01:52,296 --> 01:01:59,456
that you could bring the interest rate down is probably pretty high um yeah just it time will

804
01:01:59,456 --> 01:02:05,116
tell time will tell and do you think that this like i remember when we spoke in december we were

805
01:02:05,116 --> 01:02:11,256
talking about like how the kind of raise like issuing debt to buy bitcoin sort of side of the

806
01:02:11,256 --> 01:02:15,936
bitcoin treasury market treasury company market had kind of slowed down we've seen like you've

807
01:02:15,936 --> 01:02:20,776
obviously retired some converts um sailor just recently bought some of his own bonds like do you

808
01:02:20,776 --> 01:02:25,456
think that part of the industry we'd like we've moved on from that part of the sort of this growth

809
01:02:25,456 --> 01:02:36,456
phase uh i mean the the ideal is that you you have a clean sheet of paper and a professional

810
01:02:36,456 --> 01:02:40,976
preferred equity and no debt all right that's uh i think that's the perfect perfect scenario in my

811
01:02:40,976 --> 01:02:45,116
opinion can i ask you a question on that because this might be silly but like why is that more

812
01:02:45,116 --> 01:02:50,816
attractive because the cost of capital is higher than all the converts the converts have a cliff

813
01:02:50,816 --> 01:02:56,736
maturity so you can think about the cost like okay a convertible bond they strategy's got a bunch of

814
01:02:56,736 --> 01:03:04,096
zeros right there's zero convertible bonds there's no interest rate okay but the interest rate is

815
01:03:04,096 --> 01:03:11,856
priced into the conversion premium so it's how much how many shares are you giving up

816
01:03:11,856 --> 01:03:14,176
for that instrument.

817
01:03:14,676 --> 01:03:16,216
And there's a cliff maturity risk.

818
01:03:16,436 --> 01:03:18,056
So there's two ways to look at it.

819
01:03:18,136 --> 01:03:18,856
Like with the convert,

820
01:03:18,996 --> 01:03:20,316
you've got the cliff maturity risk.

821
01:03:20,516 --> 01:03:21,576
So you've got to take the risk

822
01:03:21,576 --> 01:03:23,856
that your common stock doesn't move, right?

823
01:03:23,956 --> 01:03:25,416
And then if it doesn't move

824
01:03:25,416 --> 01:03:26,456
and it doesn't convert,

825
01:03:26,856 --> 01:03:27,576
then you got to figure out

826
01:03:27,576 --> 01:03:28,476
how to come up with capital.

827
01:03:29,296 --> 01:03:31,496
And that's either sell Bitcoin

828
01:03:31,496 --> 01:03:34,196
or figure out like refinance the debt

829
01:03:34,196 --> 01:03:34,756
or do something.

830
01:03:34,856 --> 01:03:35,936
You have to make a decision.

831
01:03:36,316 --> 01:03:37,596
Okay, so are the incentives worse

832
01:03:37,596 --> 01:03:38,496
in that scenario then?

833
01:03:39,696 --> 01:03:40,096
100%.

834
01:03:40,096 --> 01:03:41,196
Most, yeah.

835
01:03:41,196 --> 01:03:45,676
a hundred percent the incentives are worse the there's a few different things the um

836
01:03:45,676 --> 01:03:51,156
the convertible bonds also have uh several of them from the smaller bitcoin treasury companies

837
01:03:51,156 --> 01:03:56,836
terrible covenants like margin requirements they've got a post margin if the bitcoin hits

838
01:03:56,836 --> 01:04:01,356
a certain price they've they've got like liquidation preferences where the bitcoin

839
01:04:01,356 --> 01:04:05,916
will actually get sold they've got collateralization there are several different

840
01:04:05,916 --> 01:04:09,616
requirements on a lot of the convertible bonds right now the terms were very bad which is why

841
01:04:09,616 --> 01:04:14,476
we didn't take any. When Strive went and raised $750 million of equity capital, they could have

842
01:04:14,476 --> 01:04:18,496
raised a billion and taken on $250 million of convertible debt, but they didn't like the terms.

843
01:04:19,496 --> 01:04:22,816
So we said, okay, we're going to go equity only and we're going to figure it out.

844
01:04:23,416 --> 01:04:28,676
And luckily the PREF model was kind of evolving and we were learning a lot about it and how it

845
01:04:28,676 --> 01:04:34,416
could work and we can manage the capital. And that's the route that we took. Will it exist?

846
01:04:34,516 --> 01:04:38,876
I think the convertible bond market will exist for some of these moving forward into the future.

847
01:04:39,616 --> 01:04:43,056
it's like, it's how strategy scaled the balance sheet.

848
01:04:43,416 --> 01:04:43,516
Yeah.

849
01:04:43,576 --> 01:04:45,376
They wouldn't be where they are today without them.

850
01:04:45,716 --> 01:04:48,836
So I think that they were a necessary part of strategy's growth.

851
01:04:48,936 --> 01:04:51,396
I think other companies will make the risk calculus

852
01:04:51,396 --> 01:04:53,476
on whether or not they want to use a convertible bond.

853
01:04:53,476 --> 01:04:58,996
The really interesting thing, Danny, about the converts relative to the prefs

854
01:04:58,996 --> 01:05:01,576
is the holder's incentive.

855
01:05:01,936 --> 01:05:02,756
So a couple of things.

856
01:05:04,996 --> 01:05:08,316
Convertible bond trades 144A.

857
01:05:09,616 --> 01:05:12,336
So it's a private instrument that you can't buy.

858
01:05:13,116 --> 01:05:14,316
You know who could buy it?

859
01:05:14,336 --> 01:05:17,396
It's 40 dudes that trade in the back alley at a high rise in Manhattan.

860
01:05:18,796 --> 01:05:19,236
Right?

861
01:05:19,316 --> 01:05:21,176
That's who buys and trades 144A.

862
01:05:21,856 --> 01:05:23,716
Now the PrefEquity, you could buy it.

863
01:05:24,876 --> 01:05:25,316
Right?

864
01:05:25,436 --> 01:05:28,396
Like it's exchange traded on NASDAQ.

865
01:05:28,596 --> 01:05:29,036
Okay.

866
01:05:29,116 --> 01:05:32,896
It's now available to 8 billion people theoretically.

867
01:05:33,616 --> 01:05:34,056
Right?

868
01:05:34,136 --> 01:05:34,336
Okay.

869
01:05:34,336 --> 01:05:37,936
So it's 30 people in a high rise in Manhattan or 8 billion people, which is better?

870
01:05:37,936 --> 01:05:40,896
I'd probably take the 8 billion people that would be interested in the instrument

871
01:05:40,896 --> 01:05:46,176
they could be designed very similar right like strike strk is very similar to convertible bond

872
01:05:46,176 --> 01:05:50,416
it's just in a pref it's in a pref form and it's now available and I exchange straight a ticker

873
01:05:50,416 --> 01:05:57,636
ticker to everybody okay that's interesting the next piece is the uh the convertible bond market

874
01:05:57,636 --> 01:06:02,196
is very interested in the volatility of your underlying common stock so they're hedging

875
01:06:02,196 --> 01:06:07,016
every single day so they're they're longing the stock they're shorting the stock and immediately

876
01:06:07,016 --> 01:06:11,076
when you go out to market for a convertible bond, you can watch this like clockwork.

877
01:06:11,416 --> 01:06:18,816
When the deals get priced, the price of the stock falls because the convertible bond holder

878
01:06:18,816 --> 01:06:22,556
is shorting the stock right on the moment to like delta hedge the position.

879
01:06:23,776 --> 01:06:30,876
So there's consistent hedging and the convertible bond holder is long the volatility and they

880
01:06:30,876 --> 01:06:34,396
don't give a shit about the rest of the, they don't give a shit about the common.

881
01:06:34,576 --> 01:06:35,896
They don't give a shit about the credit quality.

882
01:06:35,896 --> 01:06:40,636
They know that they're senior in the capital stack and they just want the common stock to be volatile because that's what they're trading on.

883
01:06:41,296 --> 01:06:44,576
Now, the PREF equity, you think about the incentive structure.

884
01:06:45,796 --> 01:06:50,876
The PREF equity is not long the volatility of MSTR or long the volatility of ASSD.

885
01:06:51,236 --> 01:06:53,096
They're long the credit quality of your company.

886
01:06:53,656 --> 01:06:55,816
They only want you to have a high credit quality.

887
01:06:55,976 --> 01:07:01,076
They want to know that they're going to get paid and they want to know that you're going to manage this instrument.

888
01:07:01,076 --> 01:07:11,276
So the incentive structure, not only is it like 33 dudes in a back alley in Manhattan, the incentive structure is not aligned with the convert.

889
01:07:11,816 --> 01:07:17,016
Okay, so the PREF, the incentive structure, the people are aligned with the credit quality of your company.

890
01:07:18,056 --> 01:07:26,136
And so you have, hypothetically, significantly less hedging exposure, people that are shorting your common stock.

891
01:07:26,236 --> 01:07:26,916
That makes sense.

892
01:07:27,776 --> 01:07:29,396
With the PREF equity.

893
01:07:29,396 --> 01:07:34,976
so it's better for everybody it's better for the equity holder it's better for the pref holder

894
01:07:34,976 --> 01:07:41,216
everybody's aligned on the you know the the capital structure that makes total sense um

895
01:07:41,216 --> 01:07:46,816
you brought up strike before their uh strategies one of their other preferreds like stretch has

896
01:07:46,816 --> 01:07:52,296
taken so like all the headlines and i don't really hear much about the rest of them now have i i

897
01:07:52,296 --> 01:07:56,176
understand like what sailor is trying to do like he's obviously issued is it five preferreds he has

898
01:07:56,176 --> 01:07:59,216
like what's happening with the other ones are they also being successful

899
01:07:59,216 --> 01:08:06,636
uh their their trading liquidity is far lower i think they're great products i think the other

900
01:08:06,636 --> 01:08:11,036
preferreds are great products stretch is just the best right now it's the best product it's

901
01:08:11,036 --> 01:08:19,656
a variable rate low um variable rate stable price it's that's where a lot of the retail demand is

902
01:08:19,656 --> 01:08:23,076
right like the retail demand wants something that's stable and they're just going to get paid

903
01:08:23,076 --> 01:08:26,976
the interest rate the sailor calls it like a bank account right it's like a bank account that

904
01:08:26,976 --> 01:08:34,296
pays you 11 11 and a half percent i think the other products are very good like very good i

905
01:08:34,296 --> 01:08:40,236
think they're super interesting in creating like a an entire risk profile but they're like before

906
01:08:40,236 --> 01:08:44,616
their time they're like too good they're too good that the market doesn't know what to do with them

907
01:08:44,616 --> 01:08:50,696
yet and the market will know what to do with them in like four years in my opinion that's because

908
01:08:50,696 --> 01:08:56,636
this when you're talking about like almost like the yield curve of bitcoin yeah yeah because right

909
01:08:56,636 --> 01:09:04,996
strf is senior that uh to strc so it should trade um the interest rate that it trades at should be

910
01:09:04,996 --> 01:09:10,256
lower so that it's going to be the price is going to be volatile strk has got the conversion premium

911
01:09:10,256 --> 01:09:16,636
into mstr so it's it should have significantly more convex upside that should be a very interesting

912
01:09:16,636 --> 01:09:26,576
product. You effectively have structured Bitcoin exposure with an 8% downside. Right now, as of

913
01:09:26,576 --> 01:09:32,656
today, I think it's around 8% to 10% interest rate that you get to have a protected downside.

914
01:09:33,516 --> 01:09:37,316
And then you've got Bitcoin convexity upside. It's an interesting product for somebody that

915
01:09:37,316 --> 01:09:46,616
wants income and convexity. So my father-in-law holds that one. And then you've got STRD and

916
01:09:46,616 --> 01:09:52,056
stream. And STRD is interesting, right? It's the junk bond version, right? It's the lowest on the

917
01:09:52,056 --> 01:09:59,036
totem pole, but its relative risk profile is still really high. It's a non-cumulative instrument,

918
01:09:59,036 --> 01:10:06,976
so it's got one different feature than the others. What I'm getting at is they have unique features.

919
01:10:07,636 --> 01:10:11,376
I think they're all very interesting, and I think the liquidity profiles of them will increase

920
01:10:11,376 --> 01:10:16,856
in the future as the world starts to wrap their heads around these. How I imagine this is there's

921
01:10:16,856 --> 01:10:21,476
never existed a period of time where you have a credit instrument that's backed by Bitcoin

922
01:10:21,476 --> 01:10:30,776
and you can calculate the risk 24-7, 365. So theoretically, you should be able to price all

923
01:10:30,776 --> 01:10:36,556
of those instruments in parity with each other every single day. There is a technical, mathematical

924
01:10:36,556 --> 01:10:44,916
risk parity every single day. And you should also theoretically be able to calculate a

925
01:10:44,916 --> 01:10:49,056
mathematical risk parity between everything else in the credit market and those instruments every

926
01:10:49,056 --> 01:10:53,596
single day. So there should be like a balancing mechanism that's happening all the time.

927
01:10:54,176 --> 01:10:59,216
That's not really happening right now. There's a disconnect between some of the other PREF

928
01:10:59,216 --> 01:11:06,096
equities, the risk profile and SDRC and our instrument, and then everything else in the

929
01:11:06,556 --> 01:11:12,256
Another unique thing is because these are exchange traded, it creates another unique nuance.

930
01:11:12,476 --> 01:11:16,076
Like if you were to go hold a bond, you're going to go buy a bond of any other company.

931
01:11:17,176 --> 01:11:22,176
One, again, that also trades 144A, but it's illiquid.

932
01:11:22,176 --> 01:11:27,416
And you can't go in and out of that instrument very easily.

933
01:11:27,416 --> 01:11:31,256
and that that that's a

934
01:11:31,256 --> 01:11:36,456
that's a challenge for the existing credit market that I think will

935
01:11:36,456 --> 01:11:40,576
kind of iron itself out over time as the world starts to move a little bit like

936
01:11:40,576 --> 01:11:55,476
faster and quicker like having some more transparency on credit instruments I think that will attract more capital into the transparent credit instruments And I think it going to make the world a lot more difficult to go raise credit capital because you competing against this

937
01:11:56,616 --> 01:12:02,136
So I think these instruments are going to re-rate the entire cost of capital for the entire credit

938
01:12:02,136 --> 01:12:06,596
market, which is a big idea, like a really big idea. If you're a company, think about it. If you're

939
01:12:06,596 --> 01:12:11,836
like, I don't know, you're a startup. Okay. And you're like, I want to go raise debt capital.

940
01:12:13,236 --> 01:12:18,936
Why as an investor, would you take anything less than whatever STRC is paying?

941
01:12:19,296 --> 01:12:23,116
Yeah. Makes no sense. It becomes like you say, it becomes the new hurdle, right?

942
01:12:23,736 --> 01:12:28,596
It's the new hurdle, right? It's like, if you're, do you think your business is going to outperform

943
01:12:28,596 --> 01:12:36,336
your cashflow of your business is going to outperform, uh, STRC or SATA, right? Like what,

944
01:12:36,336 --> 01:12:41,176
What's the risk profile of that proposal, that proposition relative to this?

945
01:12:43,036 --> 01:12:46,236
Does the ultimate hurdle rate not remain Bitcoin though?

946
01:12:46,916 --> 01:12:47,816
Bitcoin's our hurdle rate.

947
01:12:47,916 --> 01:12:50,456
I think that's our hurdle rate for capital deployment.

948
01:12:50,876 --> 01:12:54,636
And I mean, our ultimate goal is to increase Bitcoin exposure per share.

949
01:12:54,776 --> 01:13:04,036
So the potency of the common stock, but the credit markets, which is a huge market, $300

950
01:13:04,036 --> 01:13:09,636
trillion market, I think that the hurdle rate is going to move to these credit instruments.

951
01:13:09,856 --> 01:13:13,876
You have to outperform these credit instruments or you're not going to get access to money.

952
01:13:14,576 --> 01:13:20,756
That might take five years, might take a decade, but I think that's where the world is going

953
01:13:20,756 --> 01:13:21,596
to trend a little bit.

954
01:13:22,076 --> 01:13:25,516
So with the strategy preferred, it's like the tools are good, the tools are there.

955
01:13:25,596 --> 01:13:28,396
It's just the market doesn't really know how to use them yet, I guess is kind of what you're

956
01:13:28,396 --> 01:13:28,656
saying.

957
01:13:28,896 --> 01:13:29,156
Yeah.

958
01:13:29,156 --> 01:13:35,436
Yeah. There's probably a good arbitrage option there if these are inefficient and not being used properly.

959
01:13:36,516 --> 01:13:43,356
Yeah. I think there's alpha there. But again, the other tricky part is that they're just relatively illiquid, the other ones.

960
01:13:43,356 --> 01:13:52,276
So, for example, I've got a little data. Strategy, Stretch traded $189 million today.

961
01:13:52,936 --> 01:13:57,916
Seta traded $59 million. Strike traded $8 million.

962
01:13:57,916 --> 01:14:06,696
okay so the timing in comparison and strife traded seven so so sata traded eight times more

963
01:14:06,696 --> 01:14:15,316
than strike stride and strife today and it traded uh double what they all traded combined

964
01:14:15,316 --> 01:14:21,536
wow sata our instrument yeah yeah that's impressive right so it's that that liquidity

965
01:14:21,536 --> 01:14:27,436
profile uh makes them a little bit more challenging as a as an investment instrument like that so

966
01:14:27,436 --> 01:14:32,376
like I was talking about duration a little bit earlier, you might have to take a longer duration

967
01:14:32,376 --> 01:14:38,616
view on those instruments. Again, these are, these are complex financial concepts that we're like

968
01:14:38,616 --> 01:14:45,276
trying to talk to people about. Um, a lot of people can wrap their head around STRC and SATA.

969
01:14:45,276 --> 01:14:49,796
And as they're like liquid, as they're more liquid, people are a little bit less concerned.

970
01:14:49,896 --> 01:14:53,436
They don't have to learn as much, but if you're interested in the other instruments, you can,

971
01:14:53,436 --> 01:14:57,236
there's like a little bit more of a learning curve and it's a bit more difficult.

972
01:14:58,076 --> 01:15:03,576
Would you at Strive look at doing these other preferreds with different durations and different

973
01:15:03,576 --> 01:15:06,716
seniorities in the stack or are you kind of happy with what you've got at the moment?

974
01:15:08,096 --> 01:15:14,416
I love what we have at the moment. It's very clean. It's very pure. The market can wrap their

975
01:15:14,416 --> 01:15:19,116
head around having one senior perpetual preferred equity and one common stock. And it's like a very

976
01:15:19,116 --> 01:15:20,216
pure expression of both.

977
01:15:20,856 --> 01:15:21,776
That being said,

978
01:15:22,456 --> 01:15:23,876
I think we're open to it

979
01:15:23,876 --> 01:15:24,976
at different market times

980
01:15:24,976 --> 01:15:25,976
and different market conditions

981
01:15:25,976 --> 01:15:28,776
if the market need is there.

982
01:15:29,056 --> 01:15:31,816
We've said that we will not issue

983
01:15:31,816 --> 01:15:33,116
another perpetual preferred equity

984
01:15:33,116 --> 01:15:34,596
within 12 months of launching SEDA.

985
01:15:34,736 --> 01:15:36,836
So you will not see one from us

986
01:15:36,836 --> 01:15:39,436
before November of 2026.

987
01:15:39,816 --> 01:15:41,436
So you could put that on your radar,

988
01:15:41,596 --> 01:15:43,696
but that's something we'd consider.

989
01:15:44,396 --> 01:15:46,056
We've kicked it around internally.

990
01:15:46,396 --> 01:15:48,916
I think there's...

991
01:15:49,116 --> 01:15:52,156
There's some ideas that are interesting, but we're not going to rush.

992
01:15:52,156 --> 01:15:57,416
We think we're, we could have these two instruments for 20 years.

993
01:15:58,016 --> 01:16:01,536
We could be damn near final form of what this instrument looks like.

994
01:16:01,596 --> 01:16:07,356
Paying daily, like we can scale this from where we're at right now.

995
01:16:07,396 --> 01:16:11,316
We have 31 people that operate at Strive, let alone the similar business.

996
01:16:12,056 --> 01:16:15,756
We can scale this 10x without any additional people.

997
01:16:15,756 --> 01:16:20,336
like we don't have to we don't have to change anything we're doing you know what i mean

998
01:16:20,336 --> 01:16:24,816
it's interesting to hear though that um you think you could have this for 20 years because like

999
01:16:24,816 --> 01:16:29,036
sailors shaking the market up completely twice like essentially when he first started doing

1000
01:16:29,036 --> 01:16:34,196
the treasury play and then i think the preferreds were huge and and to be fair like i've always

1001
01:16:34,196 --> 01:16:38,596
thought since they came out with the preferreds that that was like a killer feature that if you

1002
01:16:38,596 --> 01:16:41,656
didn't have that as a treasury company i thought you were going to struggle against the others

1003
01:16:41,656 --> 01:16:48,096
um but are you saying we've like reached the killer product now and this won't you know there's

1004
01:16:48,096 --> 01:16:51,636
nothing new novel coming in the future like if you think this can be a 20-year thing like do you

1005
01:16:51,636 --> 01:16:56,936
think this is it or do you think there's more to come i i think that's like building on top of this

1006
01:16:56,936 --> 01:17:03,316
is it like these are this is a new substrate to like build a new found like foundation right so

1007
01:17:03,316 --> 01:17:06,836
you got bitcoin the commodity and we've split it into two right now you've got the senior

1008
01:17:06,836 --> 01:17:10,636
professional preferred equity in the common stock well now you can take this senior instrument it's

1009
01:17:10,636 --> 01:17:17,636
happening already had a conversation earlier today a pendle is like this taking strc and

1010
01:17:17,636 --> 01:17:22,856
splitting it into a principal piece and a yield piece okay so that's now you can have a principal

1011
01:17:22,856 --> 01:17:28,216
protection at a lower interest rate and a yield uh a yield strip at a higher interest rate and

1012
01:17:28,216 --> 01:17:34,916
you're like protecting the senior instrument that's that construction is super fascinating

1013
01:17:34,916 --> 01:17:43,156
And I think that could be that those business ideas, like that, that idea of splitting it into a senior tranche and a junior tranche.

1014
01:17:43,956 --> 01:17:45,956
That example I just explained is in DeFi.

1015
01:17:46,236 --> 01:17:48,036
You can also do that in TradFi.

1016
01:17:49,196 --> 01:17:53,216
And the market to do it in TradFi is enormous.

1017
01:17:53,596 --> 01:17:53,736
Yeah.

1018
01:17:53,996 --> 01:17:57,356
So, so like this is a perpetual preferred equity, right?

1019
01:17:57,416 --> 01:17:58,376
It lasts forever.

1020
01:17:58,656 --> 01:17:59,696
So is Bitcoin.

1021
01:17:59,896 --> 01:18:02,096
Bitcoin's a perpetual, lasts forever.

1022
01:18:02,096 --> 01:18:09,196
a lot of trad fi actually can't wrap their head around that like a perpetual credit instrument

1023
01:18:09,196 --> 01:18:19,476
so what they need for their mandates is a term a true term credit instrument okay so you could

1024
01:18:19,476 --> 01:18:25,236
start to think about well let's let let's tranche this into a different layer and have a senior

1025
01:18:25,236 --> 01:18:30,816
uh senior instrument of strc let's call it uh investment grade digital credit and amplified

1026
01:18:30,816 --> 01:18:36,036
digital credit. You could split it into two again. You could like tranche it again and you could slap

1027
01:18:36,036 --> 01:18:41,856
a term on it. So now you have a, let's just say a four-year term, $50 million tranche, and you can

1028
01:18:41,856 --> 01:18:49,016
go get it rated by a rating agency. And the junior tranche is just taking the perpetual risk, like

1029
01:18:49,016 --> 01:18:53,956
everything out the side of four years. And then also the equity risk of the instrument like

1030
01:18:53,956 --> 01:18:59,156
de-pegging from a hundred. That's interesting. I think there's infinite demand for both of those

1031
01:18:59,156 --> 01:19:03,076
things. I think there's infinite demand for investment grade digital credit. And I think

1032
01:19:03,076 --> 01:19:09,596
there's infinite demand for like amplified digital credit. So that's happening in DeFi right now.

1033
01:19:10,176 --> 01:19:15,316
And that's like, I think that concept is a hundred billion dollar idea.

1034
01:19:16,516 --> 01:19:21,856
Like you can go create a hundred billion dollar business. I think doing just that,

1035
01:19:22,356 --> 01:19:26,316
just taking these instruments and tranching them again and just doing what we do,

1036
01:19:26,316 --> 01:19:30,176
but doing it with a perpetual preferred equity as opposed to Bitcoin.

1037
01:19:32,356 --> 01:19:32,796
Interesting.

1038
01:19:33,796 --> 01:19:36,716
So you're asking me, could this happen for 20 years?

1039
01:19:36,876 --> 01:19:37,276
Yes.

1040
01:19:37,396 --> 01:19:41,516
I think the scale, the amount of scaled capital that you could bring onto this,

1041
01:19:41,616 --> 01:19:44,516
and you think about if that were to work, imagine this.

1042
01:19:44,996 --> 01:19:49,916
You've got 16,000 insurance companies, I think, in the world.

1043
01:19:50,736 --> 01:19:51,596
16,000.

1044
01:19:52,596 --> 01:19:54,156
None of them hold Bitcoin right now.

1045
01:19:54,156 --> 01:20:02,436
and like maybe five hold strc 16 000 insurance companies okay well they don't want to hold a

1046
01:20:02,436 --> 01:20:08,896
perpetual but if there's if there's uh somebody that's issuing investment grade digital credit

1047
01:20:08,896 --> 01:20:15,536
they could do 50 million dollar tranches i can issue infinite of it i can issue infinite

1048
01:20:15,536 --> 01:20:19,656
because what am i doing i'm going to take that capital and maybe buy bitcoin with it

1049
01:20:19,656 --> 01:20:26,216
I could issue infinite of it, Danny. How crazy is that? Think about that. Like Microsoft, Boeing,

1050
01:20:26,416 --> 01:20:30,196
they can only issue a certain amount of investment grade credit.

1051
01:20:30,396 --> 01:20:30,576
Yeah.

1052
01:20:31,736 --> 01:20:36,196
Right. Like they can only, because it's a function of like, how big can their business go? You're

1053
01:20:36,196 --> 01:20:40,916
like, I can only get so big if I'm Amazon. Like I can only sell so many iPhones. I can only send

1054
01:20:40,916 --> 01:20:46,316
so many packages to homes, right? I can only get so big where you're like, I can't issue any more

1055
01:20:46,316 --> 01:20:52,036
IG credit, sorry, insurance company, like you're, you're shit out of luck. I can issue infinite

1056
01:20:52,036 --> 01:20:57,996
credit because I'm just going to take that energy and I'm going to shove it into Bitcoin.

1057
01:20:58,396 --> 01:21:02,276
As someone who holds Bitcoin, this is music to my ears. That means the price of Bitcoin goes very

1058
01:21:02,276 --> 01:21:11,296
high. Yes. So like this is, it's like, we've, we've, we've turned on the spigot to bring this

1059
01:21:11,296 --> 01:21:15,856
like credit capital in the door. And now we want to, we want to like cut it open. So it's like a

1060
01:21:15,856 --> 01:21:20,296
funnel of capital that could like comes in the door. And so how do you do that? You've got to

1061
01:21:20,296 --> 01:21:25,396
build on top of it of, you've got to like structure it in a slightly different way, um, to make it

1062
01:21:25,396 --> 01:21:29,736
attractive to a different pool of capital and you know, all of those, all of those different things.

1063
01:21:29,736 --> 01:21:36,456
So we're early. A lot of this stuff is moving. Like ideas are moving forward. We're having

1064
01:21:36,456 --> 01:21:41,696
conversations with people every single day. We're crazy busy moving on all this stuff. And, uh,

1065
01:21:41,696 --> 01:21:45,696
And those are just like, we don't know what we don't know yet either.

1066
01:21:45,696 --> 01:21:49,016
Like the innovation that, that we don't even, we haven't even heard of yet.

1067
01:21:49,836 --> 01:21:53,696
And we've got several off the wall ideas that, uh, that we've

1068
01:21:53,696 --> 01:21:54,776
bat, bat around.

1069
01:21:54,776 --> 01:21:57,716
So yeah, there's, there's a lot more here.

1070
01:21:58,616 --> 01:22:02,076
So I'm going to ask you the question that, um, say the kind of

1071
01:22:02,112 --> 01:22:08,112
doubted at me for asking but like one of the things that at least from my perspective obviously

1072
01:22:08,112 --> 01:22:12,392
you're spending way more time than i am looking at treasury companies um but it seems like the

1073
01:22:12,392 --> 01:22:19,192
long tail is getting left behind um like there's the companies like you like obviously strategy i

1074
01:22:19,192 --> 01:22:23,092
think there's probably five six other companies that are like holding significant amounts of

1075
01:22:23,092 --> 01:22:28,132
bitcoin that are doing interesting things like how do the smaller ones compete and one of the

1076
01:22:28,132 --> 01:22:31,512
things that say they got annoyed at me for saying was compete but like you are competing over

1077
01:22:31,512 --> 01:22:37,812
capital and buying Bitcoin. They seem like competition to me. Do you think that long

1078
01:22:37,812 --> 01:22:43,492
tail is just going to get more and more insignificant? The long tail? What do you

1079
01:22:43,492 --> 01:22:47,432
mean by the long tail? I mean the smaller treasury companies that aren't able to go out and issue

1080
01:22:47,432 --> 01:22:54,372
preferreds and do the novel things that you're doing. I think we will be cheerful and constructive,

1081
01:22:54,372 --> 01:23:02,152
day the uh i just i think there's so much opportunity for all like any of these other

1082
01:23:02,152 --> 01:23:07,272
companies a lot of these companies that went and went and purchased bitcoin um let's just say they

1083
01:23:07,272 --> 01:23:11,272
were operating business a lot of them were already dead right they're already zombie companies and

1084
01:23:11,272 --> 01:23:15,352
they went and go put bitcoin on balance sheet and it's like that's better than not like you're

1085
01:23:15,352 --> 01:23:19,312
going to be around you've got some optionality you can do something with it and like there will

1086
01:23:19,312 --> 01:23:24,212
always be investors that will be buying different stuff in in the marketplace and the reality is

1087
01:23:24,212 --> 01:23:28,632
many of these companies are small. Like what, we're the seventh largest holder of Bitcoin.

1088
01:23:29,272 --> 01:23:34,372
Yeah. So you over took Coinbase, by the way, which is very embarrassing Coinbase as a company

1089
01:23:34,372 --> 01:23:37,692
that's been in this space since 2012. Yes. You've done very well.

1090
01:23:37,692 --> 01:23:43,272
You passed Coinbase. So the reason I bring that up is we're number seven and we have a $1.37

1091
01:23:43,272 --> 01:23:51,872
trillion market cap. So we are like the 1,750th largest company or something like that.

1092
01:23:51,872 --> 01:24:11,572
Right. Okay. So there's several, like, that means all of the other companies are smaller than us. So you're already talking about like very, very tiny companies that traditionally, even if they didn't have Bitcoin on their balance sheet, you would never even have heard of them. So the fact that they have Bitcoin on the balance sheet, you've heard of them.

1093
01:24:11,572 --> 01:24:14,132
They're at least on the Bitcoin treasury dashboard.

1094
01:24:14,272 --> 01:24:20,592
So there's a likelihood that they've gotten more holders of their common equity than if they were to have not held Bitcoin.

1095
01:24:20,732 --> 01:24:21,772
So that's probably better off.

1096
01:24:21,772 --> 01:24:22,612
I've not really thought about that.

1097
01:24:23,332 --> 01:24:25,032
They're just so small, right?

1098
01:24:25,152 --> 01:24:31,472
Like go look at, one website that I really like is, what's it called?

1099
01:24:31,632 --> 01:24:35,092
Like US companies ranked by market cap.

1100
01:24:35,852 --> 01:24:40,112
And so I'm constantly looking at, it's like, where's our company rank relative to these other companies?

1101
01:24:40,112 --> 01:24:46,052
and i like i haven't heard of any of them any of them right the company's there's there's three

1102
01:24:46,052 --> 01:24:49,812
around us right now that i've heard of and i've like had to scroll through a couple pages

1103
01:24:49,812 --> 01:24:58,632
kohl's wendy's and uh oh there's one other one lazy boy like the couches kohl's as in like the

1104
01:24:58,632 --> 01:25:05,092
australian supermarket kohl's it's like a supermarket here it's uh k-o-h-l-s it's uh okay

1105
01:25:05,092 --> 01:25:08,452
It's like they sell clothes.

1106
01:25:09,312 --> 01:25:11,152
It's like a Kmart or something like that.

1107
01:25:11,292 --> 01:25:13,632
You know, it's just like, it's just a crappy brand store.

1108
01:25:13,832 --> 01:25:18,112
And like those are the three that are just notable.

1109
01:25:18,392 --> 01:25:22,432
But around us, there's just like, I've never heard of any of these companies.

1110
01:25:22,512 --> 01:25:23,352
And they're so small.

1111
01:25:23,652 --> 01:25:28,932
Like the fact that any of these are buying Bitcoin is probably good for their optionality into the future.

1112
01:25:28,932 --> 01:25:49,112
So I think many of these other companies are going to be buying Bitcoin. Is there optionality for them to take on financial risk with the Bitcoin on the balance sheet? Sure. Is their common equity going to be massively outperformed? It just depends on what they do with it.

1113
01:25:49,112 --> 01:25:51,652
Like, are they going to go run an operating business?

1114
01:25:52,272 --> 01:25:58,112
Are they going to take out a loan and go start like a food truck that absolutely kills it?

1115
01:25:58,272 --> 01:26:00,692
And, you know, like go raise a bunch of money and go do that thing.

1116
01:26:00,792 --> 01:26:03,652
Like, maybe, maybe it happens.

1117
01:26:03,772 --> 01:26:06,192
I don't think we've hit the pinnacle.

1118
01:26:06,372 --> 01:26:10,412
We're going to see thousands of companies add Bitcoin to the balance sheet in the next decade.

1119
01:26:10,952 --> 01:26:11,052
Yeah.

1120
01:26:11,232 --> 01:26:15,172
I think the companies are more likely to add digital credit to their balance sheet before they add Bitcoin.

1121
01:26:15,172 --> 01:26:26,232
Well, I was going to say, I agree that I'm sure we'll see these companies add Bitcoin to their balance sheet at some point, but they're not going to do it the same way you are. And like you say, I could imagine them adding something like Sator or Stretch to their balance sheet before Bitcoin.

1122
01:26:26,232 --> 01:26:32,252
probably i think that's far more likely again it's like the same like go convince your board

1123
01:26:32,252 --> 01:26:36,772
to add bitcoin on the balance sheet and they they smash by the pico top and they get hammered and

1124
01:26:36,772 --> 01:26:41,452
you're like well the ceo's fired cfo's fired like i hate everybody now like nobody wants to take

1125
01:26:41,452 --> 01:26:46,172
that career risk like that's a difficult proposition digital credit is a is a much easier

1126
01:26:46,172 --> 01:27:06,187
value proposition for like a board to discuss the um i think there will be other issues of perpetual preferred equity in the market Like that again we a trillion company Like if there were a trillion sorry not trillion billion billion company

1127
01:27:06,547 --> 01:27:09,207
hopefully we're a trillion dollar company in the future.

1128
01:27:09,447 --> 01:27:12,687
Yeah, that would be, yes, that's our goal.

1129
01:27:14,687 --> 01:27:18,227
But I mean, there could be a $5, $10 billion company that comes to market

1130
01:27:18,227 --> 01:27:21,907
and starts to convert their balance sheet into Bitcoin

1131
01:27:21,907 --> 01:27:23,387
and start issuing credit against it.

1132
01:27:23,587 --> 01:27:25,407
I think we are going to see more of these.

1133
01:27:25,527 --> 01:27:26,827
And I think that's good for the market.

1134
01:27:27,067 --> 01:27:29,307
Like I think the market can handle

1135
01:27:29,307 --> 01:27:30,947
having several issuers out there.

1136
01:27:31,027 --> 01:27:33,367
Again, like I said, we're pounding the pay.

1137
01:27:33,407 --> 01:27:34,447
We're going to events.

1138
01:27:35,527 --> 01:27:37,747
So more people at events,

1139
01:27:38,227 --> 01:27:41,047
like creating with trustworthy,

1140
01:27:41,327 --> 01:27:42,747
like high quality products in the market

1141
01:27:42,747 --> 01:27:44,067
is good for the entire industry.

1142
01:27:44,067 --> 01:27:45,927
Like us being there helps strategy.

1143
01:27:46,587 --> 01:27:47,887
Every Bitcoin we buy,

1144
01:27:48,227 --> 01:27:49,647
Helps pump strategies bags.

1145
01:27:50,367 --> 01:27:53,067
It also, us existing helps provide them some flexibility,

1146
01:27:53,267 --> 01:27:54,247
like financial flexibility.

1147
01:27:55,047 --> 01:27:57,547
Just like they're underwriting the Bitcoin ecosystem,

1148
01:27:58,107 --> 01:27:59,787
they're underwriting that we exist.

1149
01:28:01,187 --> 01:28:04,487
I think the fact that we exist has allowed them to rethink

1150
01:28:04,487 --> 01:28:06,167
how they manage their bond exposure.

1151
01:28:06,807 --> 01:28:07,107
Interesting.

1152
01:28:07,867 --> 01:28:11,267
Like we went out in the market and we retired

1153
01:28:11,267 --> 01:28:13,687
$100 million of convertible bonds.

1154
01:28:14,207 --> 01:28:17,947
Before that, they hadn't talked about retiring convertible bonds.

1155
01:28:18,227 --> 01:28:23,047
Okay. So we, we went out and we showed them like, Hey, we could do it. You could go negotiate. This

1156
01:28:23,047 --> 01:28:29,847
is what it looked like. Uh, we we've had conversations about it and that provides them

1157
01:28:29,847 --> 01:28:35,867
a little bit. Now they can, they can make that decision as opposed to having to wait until 2027

1158
01:28:35,867 --> 01:28:42,327
or 2028 to like change or move or evaluate the market. Having multiple people that are operating

1159
01:28:42,327 --> 01:28:45,687
in the same direction is just super helpful. Going to be helpful for rating agencies.

1160
01:28:45,687 --> 01:28:50,367
yep like going like having two companies coming at you it's like if it's just one company it's

1161
01:28:50,367 --> 01:28:54,407
like wow you're crazy if it's two it's like wow both of you guys are crazy but i need to take you

1162
01:28:54,407 --> 01:29:01,307
seriously now right yeah and etf issuers if you're if you're creating or designing an etf

1163
01:29:01,307 --> 01:29:05,327
there's constraints on how much exposure you can have to one company okay well if you got two

1164
01:29:05,327 --> 01:29:10,807
companies three or four or five companies that are doing this i'm like okay that actually starts to

1165
01:29:10,807 --> 01:29:16,527
help the entire ecosystem because like everything can be built around it diversity in the defy

1166
01:29:16,527 --> 01:29:23,607
ecosystem um you know several it's good for the market to have more issuers there will be more

1167
01:29:23,607 --> 01:29:30,587
issuers how long will it take i think a long time will the products be exactly the same no everybody's

1168
01:29:30,587 --> 01:29:34,667
going to do a completely different flavor of it will there be a market for all of them that there

1169
01:29:34,667 --> 01:29:39,267
will be a market for all of them because think about strc versus sata they're different products

1170
01:29:39,267 --> 01:29:46,587
strc has strf that's senior to it as they have convertible debt they also have 840 000 bitcoin

1171
01:29:46,587 --> 01:29:54,407
incredible right like that's a lot but ours is a senior product we don't have any convertible debt

1172
01:29:54,407 --> 01:29:58,607
there's nothing in front of it but it's also our only product there's nothing else so you don't

1173
01:29:58,607 --> 01:30:03,027
have to worry about the capital structure it also pays 13 it's going to pay daily that's different

1174
01:30:03,027 --> 01:30:04,287
It's a different risk return profile.

1175
01:30:04,667 --> 01:30:07,027
We also have 16,500 Bitcoin.

1176
01:30:07,927 --> 01:30:12,207
It's like there's different reasons to hold those.

1177
01:30:12,687 --> 01:30:16,187
If you're an institutional capital manager, you would be holding different ones for different

1178
01:30:16,187 --> 01:30:19,967
reasons and managing a liability profile as a function of that.

1179
01:30:20,547 --> 01:30:21,427
Yeah, that makes sense.

1180
01:30:21,767 --> 01:30:22,827
I think it's really cool.

1181
01:30:23,007 --> 01:30:23,907
You're buying a lot of Bitcoin.

1182
01:30:24,207 --> 01:30:25,767
You're helping pump my bags.

1183
01:30:26,127 --> 01:30:28,227
I think it's, I really do.

1184
01:30:28,607 --> 01:30:28,827
We're aligned.

1185
01:30:28,967 --> 01:30:29,767
We're aligned, Danny.

1186
01:30:29,907 --> 01:30:30,727
Yeah, there you go.

1187
01:30:30,727 --> 01:30:36,987
can i ask you one more slightly fun question to end it out sure um there's obviously there are

1188
01:30:36,987 --> 01:30:43,107
companies out there that are struggling um we don't need to like necessarily go into the details

1189
01:30:43,107 --> 01:30:47,567
of them but like a knacker for example like they've had a really rough time like if you were to

1190
01:30:47,567 --> 01:30:52,327
take your strive hat off and you went into a company like that what would you do to try and

1191
01:30:52,327 --> 01:31:04,007
like right turn the shit man um just keep keep pounding the pavement and try to try to ignore

1192
01:31:04,007 --> 01:31:09,507
ignore the haters and try to communicate with your equity uh partners and your credit partners as uh

1193
01:31:09,507 --> 01:31:14,747
as cleanly and as cleanly as possible try to communicate the mission your capital structure

1194
01:31:14,747 --> 01:31:19,947
uh it's yeah there are there are some companies that are challenged out there at the moment

1195
01:31:19,947 --> 01:31:23,827
certainly. Do you think they will be able to turn that around?

1196
01:31:26,127 --> 01:31:30,407
Yeah, I think right now you look at their balance sheet. Well, just I guess it depends on the drag

1197
01:31:30,407 --> 01:31:35,187
of the company, depends on the revenue, depends on the price of Bitcoin. I think they do have like

1198
01:31:35,187 --> 01:31:40,067
I think they have a 58K liquidation preference or something on there or not a liquidation

1199
01:31:40,067 --> 01:31:44,087
preference, but like a margin call on their convertible bond. I haven't looked at it recently.

1200
01:31:44,087 --> 01:31:45,087
I looked at it a few months ago.

1201
01:31:46,887 --> 01:32:02,922
So yeah I mean the market cap is trading at a fraction of what the underlying net assets on the balance sheet are I think there opportunity there for some arbitrage opportunity

1202
01:32:03,102 --> 01:32:04,902
But, yeah, I mean, it's tough, right?

1203
01:32:05,002 --> 01:32:10,762
Like if Bitcoin moves the other direction, then rising tide is going to float all the boats and the debt gets inflated away.

1204
01:32:10,762 --> 01:32:16,702
a convertible bond becomes less of an issue and you know everybody forgets about everything that's

1205
01:32:16,702 --> 01:32:22,962
happened the i think that one of the biggest one of the biggest challenges and and this is like a

1206
01:32:22,962 --> 01:32:29,802
a totally misconstrued data point is um they do it on our our common equity as well

1207
01:32:29,802 --> 01:32:38,682
they they look at the the trading history of the common equity before we were part of the company

1208
01:32:38,682 --> 01:32:44,442
Yeah. Because there's a pump before just on the news of something potentially happening.

1209
01:32:44,702 --> 01:32:51,042
Right. So let's think about this for a moment. We announced that we're raising $750 million to

1210
01:32:51,042 --> 01:32:58,622
run a Bitcoin strategy in May. We just passed the one-year anniversary. It's May of 2025.

1211
01:32:59,802 --> 01:33:06,042
Okay. We raised $750 million of capital to shove into this tiny company. The Target company was a

1212
01:33:06,042 --> 01:33:11,702
shell company and they had a 15 million dollar market cap so think about how many shares are

1213
01:33:11,702 --> 01:33:16,082
available outstanding for a 15 million dollar market cap it's not very many so there was a ton

1214
01:33:16,082 --> 01:33:23,562
of speculation right a ton of speculation ran into this tiny company and so the the price of the of

1215
01:33:23,562 --> 01:33:31,022
the common stock like ballooned we we weren't part of the company that was our target our our deal

1216
01:33:31,022 --> 01:33:36,582
didn't close until September 15th, something like that. So you look at the price of the stock and

1217
01:33:36,582 --> 01:33:43,162
it's like all over the place. It does, what it did, we had no control over, right? It was pure

1218
01:33:43,162 --> 01:33:49,022
speculation. It had nothing to do with, like, we didn't, we weren't part of the company. On September

1219
01:33:49,022 --> 01:33:55,502
15th, we effectively got the keys to the company and we adopted the capital structure that the

1220
01:33:55,502 --> 01:34:01,682
target company had so we took 750 million dollars of equity capital and we shoved it into a tiny

1221
01:34:01,682 --> 01:34:09,062
15 million dollar company so if you actually go overlay the the price history relative to the

1222
01:34:09,062 --> 01:34:15,442
market cap completely different stories we just hit a market cap all-time high of 1.37 trillion

1223
01:34:15,442 --> 01:34:23,322
and when the the price of our stock billions it kind of billion i'm i'm thinking about where

1224
01:34:23,322 --> 01:34:30,662
strategies going i'm like yeah i'm at one point yeah 1.37 billion our market cap hit 1.37 billion

1225
01:34:30,662 --> 01:34:45,442
but in july when our when our the price of asst peaked the market caps like 50 uh 50 million or

1226
01:34:45,442 --> 01:34:52,382
something like that like it's a fraction of where it is today so it's like not all of the shares

1227
01:34:52,382 --> 01:34:57,242
were trading no like there were there was it was an institutionally complex product right you're

1228
01:34:57,242 --> 01:35:02,322
talking about a reverse merger arbitrage scenario where everybody's speculating on the stock and

1229
01:35:02,322 --> 01:35:10,202
moving in and out and on on a tiny float of a company that's going to be literally uh like 50

1230
01:35:10,202 --> 01:35:20,542
60x larger than it was so so the that's greatly misconstrued also with naka any of these like

1231
01:35:20,542 --> 01:35:25,862
pipe transaction deals the same dynamics exist like the market cap relative to the price history

1232
01:35:25,862 --> 01:35:33,302
is uh they're two different stories yeah and not if like you look at the the average cost basis

1233
01:35:33,302 --> 01:35:38,122
of looking at the the volume volume turnover relative to price on most of these instruments

1234
01:35:38,122 --> 01:35:45,202
and they're not nearly what everybody makes them out to be and so the company actually

1235
01:35:45,202 --> 01:35:49,562
like you officially sort of got the keys to the company september 15th i think you said

1236
01:35:49,562 --> 01:35:55,302
So you only actually had like three weeks of a bull market before this whole thing sort of turned on its head.

1237
01:35:55,962 --> 01:35:56,262
Oh, yeah.

1238
01:35:56,802 --> 01:36:03,122
And the thing that's impressive, though, is that you're still trading above MNAV, above 1XMNAV.

1239
01:36:03,562 --> 01:36:05,722
And this prefers obviously crushing at the moment.

1240
01:36:06,082 --> 01:36:08,422
I bet you are so excited to see what happens in a bull market.

1241
01:36:09,302 --> 01:36:09,862
Yeah, yeah.

1242
01:36:09,862 --> 01:36:21,062
It's one of my, one of the things that I'm most excited about is we have, we have an ability to buy Bitcoin when the price of Bitcoin is down 40% from an all time high.

1243
01:36:21,062 --> 01:36:33,742
Like historically in past cycles, uh, strategy had access to the capital markets when everything was booming in the, when the equity markets were booming.

1244
01:36:33,742 --> 01:36:51,757
And when in the bear market in 2022 they bought hardly any Bitcoin like damn near zero And now both of us are buying Bitcoin when the price is down 40 The architecture of the market is fundamentally changed

1245
01:36:52,517 --> 01:36:57,717
Like these instruments are, like I'm thinking of them as like the buyers of last resort.

1246
01:36:58,377 --> 01:37:04,557
Like we've created a product where there's capital that's able to come in the door without

1247
01:37:04,557 --> 01:37:06,317
the equity markets booming.

1248
01:37:06,317 --> 01:37:13,617
and that changes in my opinion the structure that the future trajectory and the structure of what

1249
01:37:13,617 --> 01:37:20,037
bitcoin can look like so yeah the cool thing with the fudds is it's not even just buyer of last

1250
01:37:20,037 --> 01:37:23,577
resort it's the buyer of first is the buy it's just the buyer you're just always buying just the

1251
01:37:23,577 --> 01:37:30,477
buyer just just always be buying right always be buying yeah yeah and we haven't seen what uh

1252
01:37:30,477 --> 01:37:34,717
a perpetual preferred equity bull market.

1253
01:37:35,097 --> 01:37:37,157
We haven't seen what strategy can do in a perpetual,

1254
01:37:37,317 --> 01:37:40,397
like the last bull market, strategy had,

1255
01:37:40,677 --> 01:37:42,957
or when everything went crazy, November of 24,

1256
01:37:43,957 --> 01:37:47,877
strategy had, what was it?

1257
01:37:49,517 --> 01:37:50,837
331,000 Bitcoin.

1258
01:37:51,197 --> 01:37:52,037
That's crazy.

1259
01:37:52,517 --> 01:37:53,417
Now they're 850.

1260
01:37:53,657 --> 01:37:55,917
They now have 843,000.

1261
01:37:56,337 --> 01:37:57,717
Okay, check this data.

1262
01:37:58,337 --> 01:38:00,377
When Bitcoin goes back to an all-time high,

1263
01:38:00,477 --> 01:38:10,177
strategy will have $109 billion balance sheet. That's assuming they buy zero more Bitcoin.

1264
01:38:10,537 --> 01:38:15,257
Crazy. So when Bitcoin goes back to an all-time high, they will have the second largest balance

1265
01:38:15,257 --> 01:38:18,157
sheet on the planet behind Berkshire Hathaway. Holy shit, that's wild.

1266
01:38:19,097 --> 01:38:26,237
Yes. So that's what's on the horizon. And the amount of noise that's going to make is going to

1267
01:38:26,237 --> 01:38:31,337
be absolutely insane and then that's like we're in a perpetual preferred equity model where

1268
01:38:31,337 --> 01:38:36,417
all of the investors are aligned you're not launching convertible bonds that are out there

1269
01:38:36,417 --> 01:38:42,437
shorting your common stock like right away you've got the the credit as the price of bitcoin rises

1270
01:38:42,437 --> 01:38:47,597
that the risk profile the credit improves it gets consistently better your amplification drops your

1271
01:38:47,597 --> 01:38:53,637
ability your capacity to issue more increases so there's uh there's a lot of things to look forward

1272
01:38:53,637 --> 01:38:59,097
to on the horizon and when we see this stuff move it's i think it'll be electric for sure the crazy

1273
01:38:59,097 --> 01:39:03,477
thing on the strategy side is i saw a tweet the other day and they've bought some like is 130 000

1274
01:39:03,477 --> 01:39:09,157
bitcoin this year is it something ridiculous like that yeah yeah yeah so they started the year with

1275
01:39:09,157 --> 01:39:15,697
300 wait no hold on uh they started the year with 672 000 yeah they're like over 150 000

1276
01:39:15,697 --> 01:39:22,197
175 000 bitcoin this year crazy do you think they'll get over a million in 2026

1277
01:39:22,197 --> 01:39:24,397
like August or September.

1278
01:39:25,237 --> 01:39:25,637
Holy shit.

1279
01:39:26,297 --> 01:39:27,037
I mean, that's incredible.

1280
01:39:27,377 --> 01:39:28,177
Does it get to a point

1281
01:39:28,177 --> 01:39:29,117
where you worry about

1282
01:39:29,117 --> 01:39:30,757
the concentration of Bitcoin?

1283
01:39:31,017 --> 01:39:32,577
And I know like the Bitcoin

1284
01:39:32,577 --> 01:39:34,037
isn't necessarily strategies,

1285
01:39:34,137 --> 01:39:34,637
it's the shareholders,

1286
01:39:34,797 --> 01:39:36,477
but like, do you worry about that at all?

1287
01:39:38,497 --> 01:39:39,277
Not really.

1288
01:39:39,537 --> 01:39:42,337
Hopefully we've got a couple basis points

1289
01:39:42,337 --> 01:39:44,217
of the market by that point.

1290
01:39:44,677 --> 01:39:46,017
I think we've got the ability

1291
01:39:46,017 --> 01:39:47,477
to grow incredibly quickly here.

1292
01:39:47,477 --> 01:39:48,497
Right, we've just got,

1293
01:39:49,157 --> 01:39:49,557
we bought,

1294
01:39:49,877 --> 01:39:51,397
we increased our Bitcoin stack

1295
01:39:51,397 --> 01:39:59,677
7% last week. That's crazy. Last week. Yeah. So if, if we can keep up this trajectory and if

1296
01:39:59,677 --> 01:40:05,717
daily dividends, you know, provides the, the, um, you know, the, the structure that we think that it

1297
01:40:05,717 --> 01:40:12,017
can provide, I think we can scale the business very quickly. And ideally you've got at least a

1298
01:40:12,017 --> 01:40:18,697
couple of pretty big issuers out in the market, uh, that, uh, are, you know, vying for a very

1299
01:40:18,697 --> 01:40:23,877
large portion of the network. Honestly, I think the credit issuers could be a very large portion

1300
01:40:23,877 --> 01:40:30,657
of the Bitcoin network. I mean, it seems like it. It's happening. It could be 20%

1301
01:40:31,457 --> 01:40:35,357
of the Bitcoin network, like long-term. I don't know how that makes me feel.

1302
01:40:35,357 --> 01:40:38,377
This is like, what's that? I don't know how that makes me feel.

1303
01:40:39,697 --> 01:40:45,057
Well, let's do 20 years from now, right? What does this look like? You've got universal Bitcoin

1304
01:40:45,057 --> 01:40:51,057
income everybody's just getting paid by these instruments that i i don't know i don't know what

1305
01:40:51,057 --> 01:40:58,057
that looks like but um yeah look forward to being part of it yeah well it's it's awesome to see it

1306
01:40:58,057 --> 01:41:03,817
you're crushing man um i think thank you like i i'm really glad that there's another product that's

1307
01:41:03,817 --> 01:41:09,117
like alongside strategy in this i think having multiple is definitely better than having one

1308
01:41:09,117 --> 01:41:13,857
um you're doing really well i'm very very impressed man it's cool thank you thank you for

1309
01:41:13,857 --> 01:41:19,777
buying all the Bitcoin and pumping my bags. Happy to. We'll have to catch up again in a few

1310
01:41:19,777 --> 01:41:23,177
months time, but this has been cool. Thank you, Jeff. Cool. Yeah. Thanks, Danny. Appreciate it.