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it's hundreds of trillions of dollars that just needs a steady reliable source of income

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there's definitely a ponzi involved in this and the ponzi is the fiat currency it's going to be

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very hard for a lot of people to kind of deal with where i think a lot of these numbers are going

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long term the governments are going to eventually figure out that they're going to have an oh shit

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moment. They're going to go out and they're going to look for the biggest pool of capital,

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Bitcoin capital, and they're going to try to rob it. There is nothing better than self-custody

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Bitcoin. Period. Period. Like, this is the risk. These are the trade-offs. It's the Bitcoin club.

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Like, if you get it wrong, I'm sorry. Like, you're going to fall on your face and hurt yourself.

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I gave a talk on, uh, on treasury companies. Oh, it wasn't at the conference yesterday.

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Oh, yeah.

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I think it was at the conference yesterday.

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Yeah, I got a little emotional yesterday on the stage.

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Did you?

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I'm tired of people having an opinion that literally don't know anything about it.

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Well, you're not going to like this then.

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No, no, no.

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No, there's a difference in the way that they kind of approach it.

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I think that is the perfect place to start, though, because I've been skeptical of these things.

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And people should be skeptical of them.

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Yeah.

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And I think I've said this a thousand times on the show.

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I separate the idea of a strategy and a meta planet, and I'm sure there'll be others, but a small group of them I can see doing really well.

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What I don't know is what happens to the long tail of these treasury companies.

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And if the idea of just selling equity to buy Bitcoin is interesting anymore, or if we've gone past that.

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But why don't we start with just-

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I would stop you right there with that statement.

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Let's do it.

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Okay, because you're not just selling equity to buy Bitcoin.

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you you are in in most cases you are especially since they're moving to issuing preferred stock

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to to buy bitcoin but you can also do convertible debt and it's not just diluting common shareholders

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there's there's much more to it than that well is there much more to it to all of these companies or

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are you talking specifically about the ones like strategy that i would say that most of my comments

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today are oriented to just talking about strategy and that's that's kind of i guess what i was

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trying to say, and maybe I didn't explain it properly, is that like all the products that

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strategy do on top of it with the prefers and things like that, which I do want to get into,

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like that is interesting. I think the companies that are just trying to copy what Saylor was

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doing three years ago may be less interesting to the market now. Yeah, I would argue that if

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you're trying to do what he's doing and you don't have a lot of access via liquidity in the preferred

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market or the convertible debt market, you literally can't do what he's doing. It's impossible.

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Because all you can do is issue more common stock. And you're just going to deflate the MNAB if

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that's the only mechanism that you have in this pump of a transmission that's pushing Bitcoin onto

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the balance sheet. So if you don't have access to public, and that's another important part,

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a public market for preferred issuance or convertible debt issuance, you can't do what

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he's doing. Yeah. And, and so let's, where's the best place to start? Maybe we'll just start with

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your take. Cause then I've got a few questions. I've got a ton of things I want to talk about.

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I would like to, I'd like to think I've been getting this wrong the whole time. Like that

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would be great to me. Well, well, to your point, like there's going to be a lot of copycats.

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There's going to be a lot of people have no clue what they're doing that are, that are trying to

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copy and they're going to get over levered and it's going to be a disaster. Not only that, you

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have people out there trying to do this with Solana. You have people trying to do this with

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other things. So like where I want to start is there is, and this is really important. And I want

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to make sure that this clip is out there because this is truly how I feel. There is nothing better

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than self-custody Bitcoin, period.

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Period, okay?

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The other thing that I want to say

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is can micro strategy or strategy outperform Bitcoin?

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The answer is yes, it can.

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Does it come with more risk

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than just holding your own keys in Bitcoin?

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Absolutely, like undoubtedly, yes, okay?

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And so if they're doing it

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in what I would describe as a responsible way and probably going to be the best out there

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executing this strategy, all the others are going to be risk in addition to strategy potentially.

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Now, the other ones could do it even safer being over collateralized seven to one instead of five

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to one or whatever, right? And that would be safer and that would be more investable, I guess

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you could say. But it would still be of a higher risk than just holding Bitcoin.

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And my opinion is, is Bitcoin today is doing 45% annualized if you're using the power law or

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whatever, as far as what you should expect out of your performance if you're holding it long term.

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So the question that you have to ask yourself is, well, why do you have to do better than 45%?

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In my case, and I'll speak about myself personally, I love security analysis.

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I was podcasting over 10 years ago about security analysis before we were even covering Bitcoin.

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And so for me, I've been for a decade just buying Bitcoin because nothing could possibly outperform it.

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This is like your two worlds colliding.

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And it's my two worlds colliding. And finally, I can find something out there that can potentially outperform it. And I've taken a position, and I've talked about it publicly since 2020, right? I've taken a position in a company that then has outperformed Bitcoin since 2020.

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and I'm trying to educate people

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on the very, very early days

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of security analysis

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for companies that can outperform Bitcoin.

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But it comes with more risk

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if you can even do it.

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It's funny because,

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I mean, that makes total sense.

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But one of the interesting things

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that's happened in the last few weeks

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is the kind of TradFi people

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that are now fading strategy.

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So you had Jim Channels on your show.

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Yeah.

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That was a great show with Pierre.

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And then just recently, I was telling you just before we recorded,

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I recorded with Lynn and Andy Constant.

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So he was an ex-Bridgewater guy.

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He's probably, I don't know, in his late 50s or something like that.

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And he is very skeptical of strategy.

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He called it a Ponzi scheme.

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He got quite fired up about it.

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And he also called out Saylor for being fraudulent in the numbers,

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not necessarily in misreporting them, but misexplaining them

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and putting the Bitcoin gain down as earnings.

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Yeah. I have a lot more that I want to make sure that I say from a really broad overview.

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And then because that's going to get into a very detailed accounting jargon heavy conversation really fast.

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And I'm not trying to avoid the question. I want to cover that question.

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But this is really important for a person that's looking at this company strategy or any other treasury company that's trying to do that from the outside.

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I would argue you have to understand three things like really, really well in order to truly understand it.

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The first thing is Bitcoin.

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Yep.

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You know, I know, the audience knows how hard it is to even understand Bitcoin.

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Like you've had conversations with your family members for literally decades, and they still don't get it.

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Okay, that's number one.

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So a person has to have a deep understanding of Bitcoin.

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Number two, a person has to deeply understand security analysis.

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And when I say that, it's not just an understanding of common stock.

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Like you really have to understand preferred stock.

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You have to understand what non-cumulative or cumulative or perpetual.

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And like you have to understand all that terminology.

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Does it convert?

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Does it not convert?

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Like most people don't understand that.

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Most people don't understand that the earnings potential of the business pretty much unaffects

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preferred stock if it doesn't have a convertible piece to it at all.

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And that's huge.

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If you don't understand that, you're never going to understand a Bitcoin treasury company.

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Just that little piece that I described about like security analysis.

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So that would be number two.

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You have to understand security analysis.

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Number three, you have to have a deep understanding that the fixed income market has been bid for 40 years and it's finally starting to unravel since 2020.

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So from like the 1980s until 2020, if you were a fixed income investor, it always went up.

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It was literally in a bull market for 40 years straight.

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And so when a person's looking at micro strategy and they're saying, OK, so he's like securitizing Bitcoin, he's issuing fixed income.

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But like that's not going to last forever.

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And my argument is, is when you have a bull market in something for 40 years and it's starting to unwind itself, like you have a really you have just tons of potential energy that's been stuffed into this into this fixed income market that's unwinding.

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And that is the fuel that in and of itself is the fuel that's allowing Michael to do what he's doing with strategy to funnel all this Bitcoin onto the balance sheet.

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It's because he's servicing that fixed income space as it's unwinding, which in my opinion has a decade.

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I literally was having dinner with Adam back last night.

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And as you know, he's starting a Bitcoin treasury company.

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And we were sitting there literally laughing our face off because we're like, nobody understands that this fixed income market is unwinding itself.

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And I was like, Adam, how big is that unwind?

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And he just started laughing and he's looking up and he's like, it's hundreds of trillions of dollars that's unwinding itself.

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And Danny, if we went and asked 100 people off the street, do they understand this third piece that I'm talking about,

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which is the unwinding of the fixed income market. How many of them understand that?

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There's probably zero.

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Zero. Like, so all three. So, and like, if this was like a Venn diagram,

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is that a Venn diagram with the circle? Yeah. You have to understand all three of those. And so

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like, how many people do you know that understand Bitcoin, understand the fixed income markets

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unwinding after a 40 year bull market, like straight bull market, and that they also understand

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security analysis. I mean, you? Well, I'm not trying to imply that. No, but I get the point.

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It's almost no one. No one. And I would be in one of those. I get Bitcoin, but the other two,

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I probably don't have a very good understanding of. So why don't we do a Preston Pysh masterclass

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and go through each one? So Bitcoin, I think the audience knows Bitcoin. Let's ignore that one for

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now. Let's start with the preferred stock. That was number two. What do you need to understand

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to understand these companies? So from a security analysis standpoint, I would just break it down

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like this. You have the common shareholders, right? When you're a common shareholder, you're

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the lowest in the stack, okay? Which means that if you're a preferred shareholder or you're a debt,

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if you own the debt, the bonds of the business, the only time that that stack matters is in a

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bankruptcy. So if the company goes bankrupt, the bondholders get paid out. You go to the assets,

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what are the assets on the book? So for micro strategy, it would be whatever the Bitcoin's

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worth. If it's zero, well, then that's marked down to zero. If the operating business that

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makes about 100 million a year-ish profit, I don't know what the top line is on that. I would guess

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$500 million to a billion is what the top line revenue is or something to that multiple of those

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earnings. But the assets that cause that, the building, the infrastructure, the computers,

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it all gets liquidated. And then whatever's left gets paid out to the bondholders first,

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the preferred shareholders second, and then the common shareholders last if there's anything even

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left. That's just the basic stack of failure. But if the business isn't dead and it hasn't failed

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and gone through bankruptcy, those first two stacks, the debt and the preferred stock,

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the terminology might be a little off here, but they don't participate in the earnings potential

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of the business. So if the business has just a knockout quarter and they made tons of money,

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Those first two don't participate in that upside like the common shareholders do.

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If that company makes a ton of money, that company can then pay that out in a dividend,

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or it just gets realized as additional retained earnings that benefit the common shareholders.

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The other two, they're income investors.

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So they've been promised a stream of income.

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And if the company makes a ton of money or it makes no money, they're still expecting that payout.

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In the strategies case, that's the people buying stretch, strike, strive, all that stuff.

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All that preferred issuance is treated.

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It performs just like a fixed income bond, the preferred stock.

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They're getting 9% of whatever it is, regardless of what happens to the company.

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That's right.

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So that preferred stock, and I got a caveat, if it's not convertible, when either one of those, the debt or the preferred stock is convertible, it performs a lot like a bond.

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But then as the common stock price runs, there's metrics that allow those investors of those to convert into the common stock.

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So they will perform a little bit like the common equity.

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But for the most part, if it doesn't have that, it performs just like a bond, where it's just completely based off of the income stream that it'll make.

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But if they're convertible, does it dampen upside volatility?

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Because if the price of the share is going up, they're going to sell.

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That's exactly right.

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It does.

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And this is one of the reasons why you're seeing strategy move away from issuing convertible debt.

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Because they want common stock to go through the roof.

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They want the volatility in the common stock because they can harness it and it creates more interest than it just it like rocket fuel to him being able to do what he does

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which is transmute this MNAV into additional Bitcoin on the balance sheet.

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OK.

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The other thing that I would just kind of preface with all of this is as they're using

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this preferred stock and the convertible debt, they're able to raise cash. They're able to sweep

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it onto the balance sheet. And the way that we'll use really simple numbers to kind of illustrate

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this. Let's say that the common shareholder had $100 worth of Bitcoin on the balance sheet,

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and the company's trading at an MNAV of two. So the market cap of all the stock would be 200.

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OK, so that math is really simple. If if you go into the preferred market and he issues $50 worth of preferred stock, it's cash he receives.

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He immediately turns it into Bitcoin and he sticks it on the balance sheet over on the common.

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You know, it's raised over here. It's stuck on the balance sheet. The common shareholder now has $150 worth of Bitcoin.

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OK, that preferred investor is just getting the income stream that he promised.

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They're not they're not getting a claim on that Bitcoin whatsoever, that that additional

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50 Bitcoin that was raised.

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So that preferred shareholder, they don't care about it.

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Like it's it's no impact to them.

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They're just like, I just want my 9% every every year.

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Give me my 9%, whatever you do with it.

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I don't care.

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Just keep giving me my 9%.

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So you can see how if we're valuing at an MNAV of two, and he just increased the amount of Bitcoin he had on the balance sheet by 50%, now he has 150 over here.

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You would double that, and now the stock should be up at 300 instead of 200.

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That's just the really basic math.

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And what does he owe back to that preferred?

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He just has to keep paying the dividend stream.

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OK, now this is where this this is what will really bake your noodle when it comes to like what he's doing.

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Those dividends are fiat denominated.

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He's going to pay and we're just going to use really simple numbers, 10 percent on the initial raise, which is denominated in dollars.

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OK, what he's doing as soon as he gets it is he's transmuting it into Bitcoin, which is growing at 50 percent annualized.

241
00:19:17,608 --> 00:19:24,448
OK, so going back to the really basic, like, how do you want to run a business these days?

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You want your assets denominated in Bitcoin and you want your liabilities denominated in fiat.

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And so that dividend payment that he's making in the preferred.

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OK, after 10 years, if that Bitcoin that he's if that if those funds that he raised and he swept into Bitcoin 10 years later, do you know what that dividend looks like?

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Like in Bitcoin terms that he has to pay, it's like almost zero.

246
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Okay.

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He's still paying the $10 dividend on 100 par, right?

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Which is the 10%.

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He's still paying that.

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But after 10 years relative to what he raised and what he stuck on his balance sheet, it

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to him feels like it's literally like zero.

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Yeah.

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So, I mean, I've got a load of questions in there.

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I think we're going to get onto the next one with these questions.

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But I couldn't agree more that assets and Bitcoin liabilities and fiat makes total sense.

256
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But what I don't know is what it means in the short term.

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Like long term, that obviously is a clear winning path.

258
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But in the short term, if price of Bitcoin goes down like we know it does, then what happens to those liabilities if your asset is dropping in value?

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Yeah.

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So, again, generically speaking, and again, this is just strategy.

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This is not for all Bitcoin treasury companies.

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They might be way more over levered and like more precarious or whatever.

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But like for for strategy, almost all of the dividend payments and coupon payments that he's paying out over on this side of the I'm just like drawing a line like this is the common shareholder.

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This is all the other preferred and the debt.

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He has $5 worth of Bitcoin on the common shareholder side for every $1 of debt that he's paying out over here.

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So you could say he's over collateralized five to one.

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So if the Bitcoin price would go down 80%, he still has $1 of Bitcoin for every dollar of issuance in the fixed income space.

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Yeah, so I heard him on the earnings call say that it could go down 80% and nothing happens.

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And if it goes down 90%, which I don't think Bitcoin is going to go down 90%, then he would have to pause.

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He would start getting diluted.

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Or he could pause the dividend payment.

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So, okay, another great comment, because he can, okay?

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Some of the issuance, and this goes into just security, your understanding of security analysis again, right?

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You have preferred stock that has cumulative and non-cumulative preferred, okay?

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What that means is if it's non-cumulative preferred, that means he can miss a dividend

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payment and there's literally no impact to him that he has to pay it back.

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Is there a kind of second order consequence of that where there may be no impact?

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Because like at that point, people are going to be selling off everything they can.

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Well, no, I don't know that they would be selling.

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So would it be an impact?

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Absolutely.

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Like would the stock probably get hammered?

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Yes.

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more importantly, would the stock of that particular preferred that's non-cumulative

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get hammered? Oh yeah. Yes, it would. And so what does he, what does he ultimately want with every

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one of these issuance over on the preferred side? He wants the price to, well, not on one of them,

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but the STRC, he doesn't want it to, that's even arguable. Okay. So he wants the price of the

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preferred stock to run hot. Why does he want it to run hot? Because when he wants to raise more,

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he can just issue more shares. They're bidding higher because his income is better than anything

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else in the fixed income market. So it's bidding. So if he issues more shares, do you want to issue

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more shares when they're higher or lower? You want to issue them when they're higher because you can

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raise more money without diluting yourself, even on the preferred side, because there's the dilution

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of the preferred, right? So he's issuing it there over on the preferred side. He's raising cash

294
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and he's sweeping that into Bitcoin. If he starts missing dividend payments because he can,

295
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okay, because they're non-cumulative preferred, he has that option. Well, what the market's going

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to do is they're going to be like, oh my God, I don't know if I'm ever going to get paid again

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in this issuance because he doesn't have to pay it. So the price is going to get punished.

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It would go from call it 100 down to 70 like that as soon as you'd miss a payment.

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And so now he has to issue a whole bunch more, which means he has a lot more dividend payments

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that he has to pay if he wants to keep that vehicle alive.

301
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Yeah.

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OK.

303
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And so he has an incentive to continue to pay it.

304
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But the way he's looking at it is I need if I get myself in trouble, I need a ripcord

305
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that will hit a parachute to help slow down my dividend payments that I have to pay on this stuff.

306
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And so for him, it's like an emergency hatch on the one issuance.

307
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That makes sense.

308
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That's all it is.

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00:24:19,168 --> 00:24:25,928
So when you think of how he's engineering this, because this is like, as an engineer,

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I'm looking at it and I'm just like, wow, this is so brilliant the way that it's organized.

311
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Have we ever seen products like this before in any market?

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Hell no.

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He said himself that he's using AI to help himself design all of this.

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He's vibe financing.

315
00:24:43,908 --> 00:24:46,188
Yes, he's vibe finance engineering.

316
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Yeah, it's vibe finance engineering.

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But when I look at it, I'm saying, wow, so he's over collateralized, five to one.

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Bitcoin could go down 80%.

319
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He's still one to one match.

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Would that be dilutive because he would have to either issue more in the preferred market

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or the common to kind of raise, to make up for the dividend payments, to kind of get himself

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through that bear downturn. All of that is yes. Would he survive? Absolutely. He's the issuer.

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He's basically the central bank of micro strategy shares on the preferred and the common side. So

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if it goes down, these people that are saying, oh, he was almost margin called.

325
00:25:26,968 --> 00:25:32,128
Honestly, if you say that, if you say he was almost margin called, I'm looking at you and

326
00:25:32,128 --> 00:25:34,948
saying, you just do not understand security analysis.

327
00:25:35,108 --> 00:25:38,928
You don't understand that he's the issuer of last resort of his own stock and he can

328
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raise funds way beyond what.

329
00:25:41,988 --> 00:25:46,648
This is one thing I've learned, you know, studying businesses all the years is like,

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00:25:46,648 --> 00:25:51,128
when you think they're dead, you might be surprised at how creative they can get in

331
00:25:51,128 --> 00:25:55,708
raising more cash because they can always issue more shares and just dilute the existing

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base of shareholders. And they can stay alive a lot longer than people ever realize because they

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00:26:00,708 --> 00:26:06,548
have that luxury in a public market. Private company is way different. Public markets,

334
00:26:07,108 --> 00:26:11,148
like they can stay alive way longer than people realize because they have this power

335
00:26:11,148 --> 00:26:15,188
to issue more stock, either in the preferred markets, convertible debt markets,

336
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forward slash wbd so you said something there that this is kind of a tangent to this going

369
00:28:55,308 --> 00:28:59,868
through these three things you need to understand but you said if he's going to sell a stock he

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00:28:59,868 --> 00:29:04,528
wants to sell it high which makes total sense so if as someone who is looking like not personally

371
00:29:04,528 --> 00:29:09,868
but if someone's looking to buy strategy, is it stupid now to be buying that at anything over like

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00:29:09,868 --> 00:29:15,328
a 2XM nav in the sense that he's going to be diluting that stock as like, as soon as it gets

373
00:29:15,328 --> 00:29:21,608
to somewhere between two and three, you'd assume. So as a hardcore Warren Buffett value investing

374
00:29:21,608 --> 00:29:30,948
person, this is the classic investors quandary, which is if I go and buy a growth company,

375
00:29:30,948 --> 00:29:34,108
that's got revenues just blowing through the roof.

376
00:29:34,448 --> 00:29:38,728
And what I would argue is that's what you're seeing with MicroStrategy right now

377
00:29:38,728 --> 00:29:42,728
is that its growth factor, his ability to compound the Bitcoin on the balance sheet

378
00:29:42,728 --> 00:29:44,128
at the pace that he's doing it.

379
00:29:44,668 --> 00:29:50,808
You're caught in this dead man zone of, am I overpaying for it?

380
00:29:50,808 --> 00:29:55,488
Because it's growing so fast and the market's just piling into the stock

381
00:29:55,488 --> 00:29:57,648
and there's a premium on it.

382
00:29:57,648 --> 00:30:01,628
And is that premium going to collapse and come down to a steady state?

383
00:30:01,808 --> 00:30:07,088
And for five years, I basically went sideways because I overbought because the market was exuberant.

384
00:30:07,248 --> 00:30:07,368
Yeah.

385
00:30:07,568 --> 00:30:11,968
OK, it's the classic growth versus value problem.

386
00:30:12,928 --> 00:30:15,288
And to that, I don't have an answer for people.

387
00:30:15,708 --> 00:30:18,768
I have no idea where the MNAV should settle.

388
00:30:19,248 --> 00:30:25,708
I have a sneaking suspicion that anything under a two isn't that bad.

389
00:30:26,708 --> 00:30:30,848
But whether that's valid or not, I don't know.

390
00:30:31,268 --> 00:30:31,748
I don't know.

391
00:30:31,848 --> 00:30:32,888
But I will say this.

392
00:30:33,148 --> 00:30:34,328
Should it be more than one?

393
00:30:34,888 --> 00:30:37,248
In my opinion, hell yeah, it should be more than one.

394
00:30:37,888 --> 00:30:39,288
See, I don't disagree with that at all.

395
00:30:39,708 --> 00:30:43,928
So let's get on to the third part because this is understanding of a fixed income market.

396
00:30:44,368 --> 00:30:46,868
Maybe it's worth starting with why that's unraveling.

397
00:30:47,688 --> 00:30:47,968
Yeah.

398
00:30:47,968 --> 00:31:06,448
So when we went on to the petrodollar system, and if you could zoom out and just look at 100 years of the 10-year treasury in the US, you would literally see in the 1940s, it was 3% or 4%.

399
00:31:06,448 --> 00:31:12,968
And it went straight up into the 1980s, which was inflationary.

400
00:31:12,968 --> 00:31:17,268
We were basically debasing the peg against gold.

401
00:31:17,268 --> 00:31:18,908
The rest of the world was pegged to us.

402
00:31:18,988 --> 00:31:20,608
So they were also doing it simultaneously.

403
00:31:20,948 --> 00:31:22,588
And you just had interest rates running.

404
00:31:22,848 --> 00:31:24,708
We go on to the petrodollar system.

405
00:31:25,048 --> 00:31:30,868
And then central banks collaborate and just continue to bid.

406
00:31:31,248 --> 00:31:36,908
The way that they're infusing dollar liquidity, fiat, into the system is through the fixed

407
00:31:36,908 --> 00:31:37,568
income market.

408
00:31:37,988 --> 00:31:40,608
They're just bidding those prices to keep the stability.

409
00:31:41,068 --> 00:31:42,628
That liquidity is coming into the market.

410
00:31:42,628 --> 00:31:49,908
I always joke, you could have been a ham sandwich for 40 years in the fixed income market, and you would have just made money.

411
00:31:50,808 --> 00:32:02,388
And so once we got to COVID, you had the 10-year treasury that literally got to 50 basis points was how compressed that got.

412
00:32:02,568 --> 00:32:10,188
So the prices were literally sky high, and the yields were 50 basis, a half a percent.

413
00:32:10,188 --> 00:32:16,428
And just to kind of put context on this, just to kind of like help people understand how overbid this market was.

414
00:32:16,748 --> 00:32:25,948
If you were a retiree and you had a million dollars and you put it into a 10-year treasury in 2020, okay, you made $5,000 a year.

415
00:32:26,448 --> 00:32:35,148
So if you wanted to live on a fixed income, right, which is any retiree, right, that was what you were dealing with.

416
00:32:35,528 --> 00:32:38,288
And that's assuming you made a million dollars.

417
00:32:38,288 --> 00:32:50,708
So if you made $10 million, let's say you had the net worth of $10 million and you put it into fixed income to provide you your basic income to live on.

418
00:32:51,248 --> 00:32:56,488
$10 million gave you $50,000 of income for a year.

419
00:32:57,868 --> 00:32:59,988
Like, Danny, these numbers are so insane.

420
00:33:01,268 --> 00:33:06,608
Just to kind of give, when I say the fixed income market was bid for 40 years straight, this is how insane it was.

421
00:33:06,608 --> 00:33:34,496
OK so like that now unraveling because what I would describe at that moment in time was you had absolute total global cooperation through the central banks to make sure that the scheme was completely pieced together just in time Manufacturing was at its peak like globally collectively I getting roses from literally the other side of the world because that actually more efficient than them cutting them in the backyard and putting them in the grocery store

422
00:33:34,556 --> 00:33:37,256
That's how crazy like the global cooperation was.

423
00:33:37,256 --> 00:33:41,036
And like that was, I would argue, the absolute peak was in 2020.

424
00:33:41,556 --> 00:33:48,496
COVID hits, which really makes you raise an eyebrow of like, I don't even go down that path.

425
00:33:48,496 --> 00:33:53,436
Right. And now all of a sudden, all of that is starting to unwind itself. And now it's spinning

426
00:33:53,436 --> 00:33:59,696
the other way. And the world's desperately trying to find a store of value asset that can replace

427
00:33:59,696 --> 00:34:07,436
the US treasury market. OK, because now all of a sudden the prices are spinning off and they're

428
00:34:07,436 --> 00:34:12,956
going lower and the yields are going higher. And we're, in my opinion, and why Adam and I were

429
00:34:12,956 --> 00:34:18,896
laughing is because in my opinion, you're at, you're, you're at the national anthem

430
00:34:18,896 --> 00:34:27,376
in a nine inning baseball game of like that market unraveling itself. And so like that energy

431
00:34:27,376 --> 00:34:33,356
is, so let's go to strategy again. Okay. To kind of, before we do maybe worth contextualizing like

432
00:34:33,356 --> 00:34:37,656
the size of this market. Yeah. It's hundreds of trillions of dollars. And this is hundreds of

433
00:34:37,656 --> 00:34:42,736
trillions of dollars that don't know where to go. It's hundreds of trillions of dollars that

434
00:34:42,736 --> 00:34:49,836
are servicing. So who's the customer? The customer is any boomer or a person that's of retirement age

435
00:34:49,836 --> 00:34:56,816
that just needs a steady, reliable source of income. They've made their money. They're in

436
00:34:56,816 --> 00:35:00,976
retirement. They don't need a lot of risk and volatility of the underlying. They just want

437
00:35:00,976 --> 00:35:09,076
the principal to stay what it is. And they want to get some type of income. And that's the market.

438
00:35:09,076 --> 00:35:15,676
So if going to the numbers that I was saying earlier, like how in the world could you live off of a $50,000?

439
00:35:15,876 --> 00:35:17,456
Now, the numbers are higher than that now.

440
00:35:17,856 --> 00:35:25,316
But still, like you need like hundreds of thousands of dollars to sustain your lifestyle moving forward.

441
00:35:25,656 --> 00:35:28,036
If you've got a net worth of $10 million, you don't want to live off $50,000 a year.

442
00:35:28,196 --> 00:35:28,496
No.

443
00:35:28,996 --> 00:35:29,296
Yeah.

444
00:35:29,476 --> 00:35:29,796
Amen.

445
00:35:31,716 --> 00:35:38,376
And again, the number today would be significantly higher than that because the numbers are now at about 5%.

446
00:35:38,376 --> 00:35:40,796
It's quickly unraveled from that.

447
00:35:41,056 --> 00:35:46,776
And I think that the numbers are only going to get more entertaining as we go into the

448
00:35:46,776 --> 00:35:47,456
coming decade.

449
00:35:48,616 --> 00:35:54,656
And I say that it's going to be entertaining isn't the right word.

450
00:35:54,796 --> 00:35:59,636
It's going to be very hard for a lot of people to kind of deal with where I think a lot of

451
00:35:59,636 --> 00:36:00,476
these numbers are going.

452
00:36:00,756 --> 00:36:04,576
And it's going to be the inflationary impact that's driving it higher and higher.

453
00:36:04,576 --> 00:36:14,736
But so when you look at the fixed income market and you're saying, okay, so like what, this is a question I would love to state.

454
00:36:15,096 --> 00:36:19,976
A person that would look at strategy would say, what the hell's the product?

455
00:36:21,016 --> 00:36:22,376
What's the product?

456
00:36:22,616 --> 00:36:23,996
I don't get it, right?

457
00:36:24,236 --> 00:36:25,136
Here's the product.

458
00:36:26,396 --> 00:36:34,556
The product is, he is servicing, and even further upstream than that, like who, when you build a product,

459
00:36:34,556 --> 00:36:39,896
product, you're providing some type of value to a customer at the core. If it's a real product,

460
00:36:40,096 --> 00:36:45,936
you're providing value, extreme value, especially if you're outperforming NVIDIA. What's the extreme

461
00:36:45,936 --> 00:36:51,376
value that he's providing to the market? And who is that customer? The extreme value that he's

462
00:36:51,376 --> 00:36:58,596
providing is he's given about 200 basis points more in fixed income to anybody that wants it

463
00:36:58,596 --> 00:37:05,696
in the world. And he's doing it in a way that he's over collateralized as to being under

464
00:37:05,696 --> 00:37:11,996
collateralized. Okay. So if you go out and you want to buy some type of corporate debt

465
00:37:11,996 --> 00:37:19,796
in the market, maybe you can get seven, 8% somewhere in that ballpark in return.

466
00:37:19,936 --> 00:37:23,116
So if you're in retirement and you're going out there and you're saying, okay, well,

467
00:37:23,116 --> 00:37:27,156
this one looks kind of like it's a healthy company. It's not going to fail. I can get

468
00:37:27,156 --> 00:37:35,976
7% or 8% by owning it. Or you could go by strategies issuance. And not only is it healthy,

469
00:37:35,976 --> 00:37:43,076
I would argue that he's already got all the money five times over, literally sitting on the balance

470
00:37:43,076 --> 00:37:51,116
sheet to pay it in an asset that's growing at 50% annualized, which is insane. Seems pretty safe.

471
00:37:51,476 --> 00:37:56,856
Which, when I'm looking at it from a safety factor, is way more safe than some company that

472
00:37:56,856 --> 00:38:01,596
says, hey, we're going to try to make the money and continue to service the debt, the dividend or

473
00:38:01,596 --> 00:38:05,136
the coupon. He's already got the money. He's already got the money five times over and it's

474
00:38:05,136 --> 00:38:10,096
growing at 50% annualized. Okay. So you want to talk about the health difference. There's a really

475
00:38:10,096 --> 00:38:16,636
big difference. But typically when you're in markets, if something is way more healthy,

476
00:38:17,436 --> 00:38:24,456
the yield on it is lower. Yep. Right. Just look at credit cards. Like why do you pay such a high

477
00:38:24,456 --> 00:38:31,096
thing on credit cards because it's very risky. So he's paying 200 basis points higher. I would

478
00:38:31,096 --> 00:38:36,736
argue he's literally five times safer than anything else out there. And so who is he servicing?

479
00:38:37,096 --> 00:38:42,816
He's servicing the trillions, the hundreds of trillions of dollars of demand that's out there

480
00:38:42,816 --> 00:38:51,256
for something like this. Like the new issuance, the SDRC, he's going after money market accounts.

481
00:38:51,256 --> 00:39:17,236
And I think it's 8% or 9%. Where can you go, a money market account, where your principal is somewhat pegged at $100, and you're getting, call it, an 8% to 9% to 10% return on your money. And if you want to sell it tomorrow, you still get your principal of $100 back, but you had the luxury of receiving such a high income. He's literally outperforming money markets by double, at least.

482
00:39:18,036 --> 00:39:27,076
So not to sidetrack you too much, but with Stretch, which is essentially a $100 peg stable coin, I think he's starting that issuance at 9%.

483
00:39:27,076 --> 00:39:32,976
Why won't the market wake up to this and that end up being below 5%?

484
00:39:34,256 --> 00:39:35,956
Well, so he can keep raising.

485
00:39:36,276 --> 00:39:40,276
So that's the beauty of the instrument is he can keep raising the interest rate on it.

486
00:39:40,996 --> 00:39:42,136
By just issuing more.

487
00:39:42,136 --> 00:39:44,216
Well, and the other thing that, yeah.

488
00:39:44,876 --> 00:39:48,716
Well, so no, he can go in and literally adjust the interest rate on it.

489
00:39:49,116 --> 00:39:52,596
Yeah, but I guess that, so he can just adjust it up constantly.

490
00:39:52,596 --> 00:40:02,096
Well, so in your case, so what you're describing is, if he didn't issue any more stock, the market's going to bid it.

491
00:40:02,196 --> 00:40:06,116
It's going to go over the hundred that he's trying to peg it at, and the yield will collapse down.

492
00:40:06,276 --> 00:40:07,536
So how does he handle that?

493
00:40:07,596 --> 00:40:08,676
He just issues more shares.

494
00:40:08,676 --> 00:40:11,316
because when he issues more shares,

495
00:40:11,316 --> 00:40:13,516
he's going to collapse it back down to 100

496
00:40:13,516 --> 00:40:14,536
and he's going to keep it at 100.

497
00:40:15,016 --> 00:40:19,536
So it's like a geyser that's just shooting out cash.

498
00:40:19,816 --> 00:40:21,976
But the interest rate can still move, can't it?

499
00:40:22,836 --> 00:40:24,936
If he keeps it pegged at 100,

500
00:40:25,396 --> 00:40:26,356
the interest rate will,

501
00:40:26,896 --> 00:40:28,296
because there's so much demand

502
00:40:28,296 --> 00:40:30,076
and he's controlling that demand

503
00:40:30,076 --> 00:40:31,616
through further share issuance,

504
00:40:32,236 --> 00:40:34,276
that interest rate will stay there

505
00:40:34,276 --> 00:40:36,036
as long as he doesn't adjust the interest rate.

506
00:40:37,176 --> 00:40:38,576
Wait, help me understand this.

507
00:40:38,576 --> 00:40:45,296
So this is just your basic, when prices in bonds or preferreds go up, right?

508
00:40:45,316 --> 00:40:47,056
When the prices go up, the yields go down.

509
00:40:47,476 --> 00:40:47,996
Okay.

510
00:40:48,396 --> 00:40:49,476
It's just that.

511
00:40:49,996 --> 00:40:52,756
So by issuing more, he can keep it at 9%.

512
00:40:52,756 --> 00:40:58,016
So if the demand is driving the price on the underlying higher, yes.

513
00:40:59,236 --> 00:41:02,236
So even if you went out five years from now, as this matures,

514
00:41:02,356 --> 00:41:04,536
you think it's still going to be at 9% on the stretch product?

515
00:41:04,556 --> 00:41:07,136
Well, I don't know what he's going to adjust the interest rate at.

516
00:41:07,136 --> 00:41:11,636
because so because he wants to pay as low interest rate as possible while still having demand i would

517
00:41:11,636 --> 00:41:17,176
assume absolutely but he also wants to have somewhat of a to have that demand there

518
00:41:17,176 --> 00:41:23,196
he's always going to have somewhat of a premium over what the rest of the market's offering

519
00:41:23,196 --> 00:41:29,296
even if the reason wake up to the idea that this is actually way more safe and and the reason he's

520
00:41:29,296 --> 00:41:33,936
going to be able to do it is because he's literally sitting on this this asset that's growing it

521
00:41:33,936 --> 00:41:40,016
call it 50% annualized. But what I can't understand is like, if the market wakes up

522
00:41:40,016 --> 00:41:42,556
and thinks like you, I think they would probably be happy to do a 6%.

523
00:41:43,696 --> 00:41:49,576
Pull on that thread a little bit more. Describe what you're saying.

524
00:41:49,576 --> 00:41:52,996
Well, you're saying that this is the safest fixed income product out there, essentially.

525
00:41:53,436 --> 00:41:53,596
Yeah.

526
00:41:53,736 --> 00:41:58,296
And so why can't he undercut the other products? Why does he have to be at a premium over them?

527
00:41:58,296 --> 00:42:03,336
Because I think if he came in and undercut the market, like the discount was lower because he's

528
00:42:03,336 --> 00:42:06,976
more healthy. He understands that he's more healthy, but the problem he has is the market

529
00:42:06,976 --> 00:42:11,196
doesn't understand that he's more healthy. So I guess that's my point. In a few years' time,

530
00:42:11,276 --> 00:42:14,436
if people are starting to think the way you are about this product, why can't he be doing that

531
00:42:14,436 --> 00:42:20,256
at 5%? Oh, he could be. And with the way that that vehicle is structured, STRC,

532
00:42:20,676 --> 00:42:24,916
he could lower the rates because he has an adjustable interest rate that he can change.

533
00:42:25,476 --> 00:42:28,616
So as this matures, you do expect that interest rate to drop at some point?

534
00:42:28,616 --> 00:42:35,876
if the market's demanding the product, he could relative to everything else. So what the question

535
00:42:35,876 --> 00:42:39,256
you have to ask yourself is what is the rest of the market doing? If the rest of the market is

536
00:42:39,256 --> 00:42:45,796
bidding to, I'm just going to use crazy numbers, the rest of the market's at 15%. And they've now

537
00:42:45,796 --> 00:42:51,136
understand that he's healthier and safer than everything else. And he doesn't have to overpay

538
00:42:51,136 --> 00:42:56,836
because the demand just continues to be there. Maybe he could have his at 13%. So in that scenario,

539
00:42:56,836 --> 00:43:03,856
it went higher, but on a relative basis to the rest of the market, it's trading at a discount to

540
00:43:03,856 --> 00:43:09,156
the yields that you're getting in the rest of the market. So of the $100 trillion in fixed income

541
00:43:09,156 --> 00:43:16,896
that needs to find a home, how much do you think Sayla can capture? I have no idea. But when I

542
00:43:16,896 --> 00:43:24,156
looked at the STRC issuance and he came out and it was oversubscribed at $4.2 billion, today,

543
00:43:24,156 --> 00:43:27,336
hey, there's a lot of market demand for this stuff.

544
00:43:27,976 --> 00:43:30,156
I'm just pulling up MBK's site.

545
00:43:33,216 --> 00:43:36,096
He asked me to be an advisor on the website.

546
00:43:36,396 --> 00:43:37,176
On this website, yeah.

547
00:43:37,236 --> 00:43:38,296
So I'm helping him out a little bit.

548
00:43:38,356 --> 00:43:39,956
I saw that he's brought Rizzo on as well.

549
00:43:41,296 --> 00:43:42,016
He's going to be...

550
00:43:42,016 --> 00:43:45,556
So Strategy have 628,000 coins at the moment.

551
00:43:46,276 --> 00:43:48,576
If these products are as successful as you think they are,

552
00:43:48,576 --> 00:43:51,056
he's going to be sat on a whole load of cash,

553
00:43:51,096 --> 00:43:52,556
which is going to go to Bitcoin instantly.

554
00:43:52,556 --> 00:43:54,796
At what point does that become an issue?

555
00:43:56,456 --> 00:44:04,016
Well, OK, so when we talk about the very beginning of the show, I said that these investments come with additional risk.

556
00:44:04,916 --> 00:44:09,376
Where you're leading me is that additional risk, right?

557
00:44:09,776 --> 00:44:20,456
My biggest concern with Bitcoin treasuries at large is long term, the governments are going to eventually figure out that they're going to have an oh shit moment.

558
00:44:20,456 --> 00:44:27,776
they're going to say oh my god like we're we have we've been conditioned to just continue to blow

559
00:44:27,776 --> 00:44:33,136
out our expenses further and further every single year and now we're being forced into this

560
00:44:33,136 --> 00:44:39,396
situation where we have to be fiscally responsible or else we literally die relative to all the other

561
00:44:39,396 --> 00:44:45,096
countries on the planet and we have major issues so what what are they going to do they're going to

562
00:44:45,096 --> 00:44:49,956
go out and they're going to look for the biggest pool of capital bitcoin bitcoin capital and they're

563
00:44:49,956 --> 00:44:55,376
going to try to rob it. And so nationalized strategy, nationalized strategy, nationalized

564
00:44:55,376 --> 00:45:01,616
whatever is, is where that could potentially go. Um, when I think about that scenario,

565
00:45:01,616 --> 00:45:06,716
I, it's all about, if you want to try to predict the future, you always just kind of look at the

566
00:45:06,716 --> 00:45:09,856
incentives and you say, okay, it's like, what are the incentives? And then that'll help you

567
00:45:09,856 --> 00:45:15,956
help guide you in where it could go. But, um, in that scenario, what, what's the incentives of a

568
00:45:15,956 --> 00:45:22,156
politician, votes, re-election. That's what they care about. So if they're going to go rob a

569
00:45:22,156 --> 00:45:29,316
treasury, are they going to go rob a treasury of a company that millions upon tens of millions of

570
00:45:29,316 --> 00:45:36,096
people own? Or are they going to go to a treasury that five people own that gives them a lot of the

571
00:45:36,096 --> 00:45:41,876
bang for the buck? I think they're going to go for the latter. Of course. But they also need

572
00:45:41,876 --> 00:45:47,036
substantial amounts of capital. So if they're going to go rob one, they're going to make sure

573
00:45:47,036 --> 00:45:54,856
that it's worth the squeeze in the one instance or whatever. So is that a threat? Is that a risk?

574
00:45:54,856 --> 00:46:03,816
100%. If you're not accounting for that in your overall security analysis, I don't know what to

575
00:46:03,816 --> 00:46:09,636
tell you. But when you look at the risks between self-custodial Bitcoin, where you hold the keys

576
00:46:09,636 --> 00:46:16,496
and nobody can take it versus I own paper Bitcoin in a treasury company. Like this is the risk.

577
00:46:16,576 --> 00:46:20,796
These are the trade-offs. It's the big boy club. Like if you get it wrong, I'm sorry. Like you're

578
00:46:20,796 --> 00:46:26,356
going to fall on your face and hurt yourself. So that is a, I think probably a very possible

579
00:46:26,356 --> 00:46:30,216
outcome. I don't know if it is going to happen, but it could. But there's another risk as well

580
00:46:30,216 --> 00:46:34,636
in terms of centralization of Bitcoin to the Bitcoin network itself, rather than like this

581
00:46:34,636 --> 00:46:39,396
nationalization of strategy. Do you see that as a problem if he gets to, I mean, presumably he's

582
00:46:39,396 --> 00:46:45,716
going to get to a million coins. Because he is literally five years in front of everybody else,

583
00:46:45,876 --> 00:46:52,996
there's a reason he has so many Bitcoin. Because he's not out in front. He's way out in front.

584
00:46:52,996 --> 00:47:01,516
I don't see it as a risk because I think, I mean, I would argue the influx of all these

585
00:47:01,516 --> 00:47:09,576
new treasury companies is the thing that's naturally bringing a counterforce to the

586
00:47:09,576 --> 00:47:15,096
consolidation of Bitcoin on his balance sheet. So is that healthy? I think it is healthy.

587
00:47:15,476 --> 00:47:21,396
Is there going to be a lot of people that do it poorly and investors that invest in it and then

588
00:47:21,396 --> 00:47:28,816
get wrecked? Yeah, there will be. But if I'm just looking at the natural market forces that are

589
00:47:28,816 --> 00:47:33,656
providing a counterbalance to that. Additional Bitcoin treasury companies are a counterbalance

590
00:47:33,656 --> 00:47:44,056
to that. And when I'm looking at ETFs, I'm way more concerned about ETFs that are just

591
00:47:44,056 --> 00:47:50,716
custodying at Coinbase. And there's going to be three that really kind of win in the end,

592
00:47:50,816 --> 00:47:56,336
probably, probably no more than that. And they're all custodying at Coinbase. I find that to be

593
00:47:56,336 --> 00:48:02,956
even more concerning because that's representing all of those investors that bought the ETF.

594
00:48:03,936 --> 00:48:06,696
And I mean, you talk about a honeypot of honeypots.

595
00:48:07,316 --> 00:48:13,256
See, I would maybe fade that in a way that I assume at some point in the near future,

596
00:48:13,416 --> 00:48:15,856
in-kind creation and redemption of ETFs is going to be-

597
00:48:15,856 --> 00:48:16,616
I would agree with that.

598
00:48:16,656 --> 00:48:20,376
And I think if you get in-kind redemption, then that risk is somewhat nullified.

599
00:48:20,676 --> 00:48:21,916
I would agree with that.

600
00:48:22,476 --> 00:48:25,056
So there's a huge tail after strategy.

601
00:48:25,136 --> 00:48:25,536
I've got it here.

602
00:48:25,536 --> 00:48:27,716
So we've got Marathon at like 50,000 coins.

603
00:48:28,296 --> 00:48:30,236
21 when they launch is going to be like 43.

604
00:48:30,716 --> 00:48:30,816
Yeah.

605
00:48:31,236 --> 00:48:33,136
And Adam Backs is at 30.

606
00:48:33,516 --> 00:48:33,696
Yeah.

607
00:48:34,076 --> 00:48:39,656
Do you think that kind of ratio between 50,000 and 600,000 coins will stay the same even as they grow?

608
00:48:39,816 --> 00:48:42,676
Or do you think any of these companies can actually meaningfully catch Saylor?

609
00:48:42,796 --> 00:48:48,976
So why does MetaPlanet have such a high MNAV versus strategy?

610
00:48:49,216 --> 00:48:52,136
Because it's smaller and they can increase their Bitcoin stack more quickly.

611
00:48:52,136 --> 00:49:04,236
So when we're talking about like what's an appropriate MNAV to pay for one of these companies, part of that math is how big is the treasury today and how fast can they grow it?

612
00:49:04,896 --> 00:49:15,816
OK, when you look at micro strategy, there's this natural because they're so big, it's harder for them to grow the position size that they already have on a relative basis.

613
00:49:15,816 --> 00:49:26,656
Therefore, the MNAV should be, you know, the market should value it's lower than one of these smaller treasury companies that are doing the same thing that might have the ability.

614
00:49:26,756 --> 00:49:27,636
They can triple the amount of Bitcoin they've got.

615
00:49:27,656 --> 00:49:29,276
They can triple their Bitcoin in a year.

616
00:49:29,396 --> 00:49:30,676
They can quadruple or whatever.

617
00:49:31,276 --> 00:49:35,256
And so that's going to allow them to catch up.

618
00:49:35,256 --> 00:49:43,356
And if there's 10 of them that are doing it responsibly, they can start really putting

619
00:49:43,356 --> 00:49:48,236
a pool on the amount of Bitcoin that's flowing onto their balance sheets as opposed to what

620
00:49:48,236 --> 00:49:48,676
he's able to.

621
00:49:48,856 --> 00:49:51,396
And then just think about the competition in the fixed income market.

622
00:49:51,556 --> 00:49:54,236
What do you think they're going to do when they go to the fixed income market to compete

623
00:49:54,236 --> 00:49:54,716
with Michael?

624
00:49:55,216 --> 00:49:58,316
I think they have to come in with higher interest rates.

625
00:49:58,316 --> 00:49:58,696
Of course.

626
00:49:59,236 --> 00:50:03,916
If they're not competing in the US, if they're competing in other markets, well, that's not

627
00:50:03,916 --> 00:50:04,216
true.

628
00:50:04,216 --> 00:50:20,684
But if they competing in his market that he dominating like absolutely dominating they going to have to come in at 200 basis points higher than him or something Or even more over collateralized Or be over yeah or be more over collateralized I wonder if the market even cares about that

629
00:50:20,844 --> 00:50:22,504
I don't think the market cares about that at all.

630
00:50:22,504 --> 00:50:24,264
I think Saylor's plenty over collateralized probably.

631
00:50:24,524 --> 00:50:29,084
I think the market will eventually look at it that way because you're thinking about it in

632
00:50:29,084 --> 00:50:35,824
the correct way, Danny, which is if, if the, if the balance sheet is healthier and the management

633
00:50:35,824 --> 00:50:42,024
team is just as good, like that should fetch a lower yield. Um, and they shouldn't have to pay

634
00:50:42,024 --> 00:50:47,524
up, but you got a whole brand that's like happening there. That's going to be difficult to compete

635
00:50:47,524 --> 00:50:53,384
with. Yeah. Um, so I want to get back to the original question, which we talked about 50

636
00:50:53,384 --> 00:51:00,684
minutes ago. Oh, the accounting stuff. But before we do, like long-term, do you think MNAVs of all

637
00:51:00,684 --> 00:51:06,144
these companies will be under two? Like looking five years out in the future, let's say. I think

638
00:51:06,144 --> 00:51:10,464
for the smaller ones that kind of come on the scene, if they have the ability to kind of brand

639
00:51:10,464 --> 00:51:15,924
themselves well, then it might be in excess of that because they're able to compound and grow

640
00:51:15,924 --> 00:51:21,024
the Bitcoin on the balance sheet faster. Actually, I said last question on this, but

641
00:51:21,024 --> 00:51:24,004
In a bear market, let's assume cycles haven't changed.

642
00:51:24,104 --> 00:51:26,584
We go into another relatively deep bear market.

643
00:51:26,644 --> 00:51:28,184
I don't think we're going to get 80% again.

644
00:51:28,264 --> 00:51:31,224
But let's say you go into a 60% bear market, and it's a little longer.

645
00:51:31,824 --> 00:51:34,184
Do you think they'll start trading at a discount again?

646
00:51:34,184 --> 00:51:35,904
Or do you think those days are kind of...

647
00:51:35,904 --> 00:51:38,004
And actually, let's talk specifically about strategy,

648
00:51:38,104 --> 00:51:39,144
because they've been through a bear market.

649
00:51:39,224 --> 00:51:40,684
They did trade at a discount for an amount of time.

650
00:51:40,984 --> 00:51:43,424
Do you think they will ever go below one for a period of time?

651
00:51:44,364 --> 00:51:49,844
The thing I've learned in financial markets is prices will usually not make sense.

652
00:51:51,024 --> 00:51:55,184
And so would it surprise me to see them go below one?

653
00:51:55,284 --> 00:51:55,884
Not at all.

654
00:51:56,524 --> 00:51:57,924
That wouldn't surprise me at all.

655
00:51:58,804 --> 00:51:59,084
Okay.

656
00:52:00,024 --> 00:52:03,084
But you think, again, in a bear market,

657
00:52:03,144 --> 00:52:05,184
because I really liked Lynn's question on this

658
00:52:05,184 --> 00:52:05,884
and the earning call,

659
00:52:05,964 --> 00:52:07,364
because she's thinking about bear markets.

660
00:52:07,404 --> 00:52:08,944
And to me, that's maybe the most interesting part

661
00:52:08,944 --> 00:52:10,124
of these treasury companies is like,

662
00:52:10,604 --> 00:52:12,484
we're going to find out who's swimming naked

663
00:52:12,484 --> 00:52:13,204
in a bear market.

664
00:52:13,424 --> 00:52:15,624
And I assume it's not going to be zero people.

665
00:52:16,944 --> 00:52:18,524
Of all the treasury companies,

666
00:52:19,064 --> 00:52:20,864
even just take like the top 50,

667
00:52:20,864 --> 00:52:26,384
let's say, of any real size, do you think we'll see some of them go underwater in a bear market?

668
00:52:28,484 --> 00:52:34,944
If they're levering themselves like two to one right now, they potentially could.

669
00:52:35,664 --> 00:52:39,304
I think that the, and maybe this is me just being too optimistic,

670
00:52:41,024 --> 00:52:47,824
but what I've seen in security analysis is that public companies that have access to public

671
00:52:47,824 --> 00:52:53,904
markets can stay alive a lot longer than people realize and they can endure a lot just because

672
00:52:53,904 --> 00:53:01,604
they have the power to issue more shares to generate uh life the cash i do also wonder if

673
00:53:01,604 --> 00:53:06,964
there's going to be an interesting dynamic if we see a lot of them go to a discount to their nav

674
00:53:06,964 --> 00:53:11,104
um if there's like a consolidation like why wouldn't sailor buy coins at an even bigger

675
00:53:11,104 --> 00:53:15,364
discount if you could essentially by acquiring these other companies absolutely you and that's

676
00:53:15,364 --> 00:53:21,264
just, that's another natural market forces is you will see other companies that will,

677
00:53:21,384 --> 00:53:27,684
and it might not be sailor. It could be the Black Rocks of the world that go in there. And I mean,

678
00:53:27,684 --> 00:53:33,144
think about it. If you're, if you're Black Rock and you can go buy a bunch of Bitcoin at half off

679
00:53:33,144 --> 00:53:38,944
by just, you know, but think about that. Like they're going to go in there. The, the, the market

680
00:53:38,944 --> 00:53:46,964
price is this and BlackRock comes, let's say you're running a treasury company that's half the,

681
00:53:47,104 --> 00:53:52,344
it's at an MNAV of 0.5. BlackRock comes and knocks on your door and said, hey, we want your coins.

682
00:53:52,504 --> 00:53:56,744
We want to buy your whole company. You're like, okay, no problem. I know the market's at 0.5,

683
00:53:56,744 --> 00:54:05,624
but I'm not selling unless it's 0.9 or it's 0.95 is where it'll quickly get repriced when they pull

684
00:54:05,624 --> 00:54:09,684
it off the market. Yeah. It's going to be interesting. But it's going to be very interesting.

685
00:54:09,964 --> 00:54:14,284
It's going to be, it's going to get wild. So let's get back to that original question.

686
00:54:14,484 --> 00:54:19,064
One other interesting, hold on, one other, one other really interesting thing that nobody's,

687
00:54:19,064 --> 00:54:23,384
I haven't seen anybody talking about is if the MNAV is below one,

688
00:54:24,724 --> 00:54:30,124
if, if the company sells the Bitcoin and buys the stock, that's actually a creative in Bitcoin

689
00:54:30,124 --> 00:54:36,864
terms to a treasury company. And it is, I totally see what you're saying, but it ruins the narrative.

690
00:54:37,404 --> 00:54:42,504
That's well, it ruins the, the multiple, the over collateralization of the fixed income issuance.

691
00:54:42,504 --> 00:54:50,724
And so you'd be sending a market signal that, that what they thought was the pristine capital

692
00:54:50,724 --> 00:54:55,904
that's backing everything is actually encumbered by the management itself through such antics.

693
00:54:55,904 --> 00:55:01,884
And so, and then in a bull market, when things are going well, you would never have confidence that they're not going to sell the Bitcoin.

694
00:55:02,204 --> 00:55:02,504
That's right.

695
00:55:03,044 --> 00:55:03,444
That's right.

696
00:55:03,624 --> 00:55:07,144
So strategically, even if it makes sense, strategically, it's a bad decision.

697
00:55:07,144 --> 00:55:22,844
And that's why I think you didn't see strategy do that in the bear market, even though he's also saying that, you know, he measures everything in Bitcoin per share for the common shareholder.

698
00:55:22,844 --> 00:55:26,524
And that's important for the common shareholders, how he optimizes.

699
00:55:26,684 --> 00:55:32,844
So the fact that he didn't do it goes straight to your point that you're sending a very mixed

700
00:55:32,844 --> 00:55:39,004
message to the market, which this whole thing is possible because of the fixed income market.

701
00:55:40,044 --> 00:55:43,964
And I think that's probably why you saw Taylor go on that tirade saying he'll never sell

702
00:55:43,964 --> 00:55:48,164
his Bitcoin, even his personal Bitcoin, because he wants the market to know that that stuff

703
00:55:48,164 --> 00:55:48,864
is never moving.

704
00:55:48,864 --> 00:55:49,224
Yeah.

705
00:55:49,884 --> 00:55:55,744
So original point was this guy called it out as a Ponzi, which maybe that's an easier one to do.

706
00:55:55,844 --> 00:55:57,964
So we could start there and then we could talk about the earnings.

707
00:55:58,304 --> 00:55:58,464
Yeah.

708
00:56:01,484 --> 00:56:04,804
There's definitely a Ponzi involved in this.

709
00:56:05,404 --> 00:56:07,404
And the Ponzi is the fiat currency.

710
00:56:08,764 --> 00:56:09,744
See, Checkmate called.

711
00:56:10,244 --> 00:56:11,084
I don't know.

712
00:56:11,144 --> 00:56:12,184
I don't want to put words in his mouth.

713
00:56:12,264 --> 00:56:12,884
I don't know if he was talking.

714
00:56:12,924 --> 00:56:17,704
I think he wasn't talking about Saylor specifically in strategy, but he called these treasury companies Ponzi adjacent.

715
00:56:17,704 --> 00:56:24,624
Oh, yeah, I disagree with that. I disagree with that. The Ponzi in this that he is harnessing

716
00:56:24,624 --> 00:56:32,164
is fiat. Going back to the asset is Bitcoin on the balance sheet and the liability is fiat,

717
00:56:32,404 --> 00:56:43,684
which is the Ponzi. And so he is leaning into the idea that fiat is a Ponzi. He's taking full

718
00:56:43,684 --> 00:56:49,944
advantage of it. And he's stacking the soundest thing that nobody can manipulate or tinker with

719
00:56:49,944 --> 00:56:59,764
to create more units of. And yeah, I think that anybody that's saying that really doesn't fully

720
00:56:59,764 --> 00:57:04,104
understand the security analysis side of it, and they definitely don't understand that fiat's

721
00:57:04,104 --> 00:57:10,964
unraveling itself in real time. And that's the play. If he's wrong about that, let's say tomorrow

722
00:57:10,964 --> 00:57:15,124
So governments collectively around the world wake up and say, you know what?

723
00:57:15,204 --> 00:57:16,684
We're done debasing the currency.

724
00:57:16,684 --> 00:57:27,104
If we don't peg it and take total control of our monetary units together on a global scale, this Bitcoin thing is going to ruin all of us.

725
00:57:27,304 --> 00:57:27,404
Right.

726
00:57:27,884 --> 00:57:31,504
And they never then the whole strategy thing falls apart.

727
00:57:31,984 --> 00:57:36,124
But as we know, that's not how this is going to play out.

728
00:57:36,124 --> 00:57:44,244
Okay, so the more interesting point he made is strategy calling their Bitcoin gains earnings.

729
00:57:44,664 --> 00:57:46,664
He thought, I mean, he was fired up.

730
00:57:46,764 --> 00:57:47,884
He called it fraud.

731
00:57:48,044 --> 00:57:50,284
I mean, I don't think that's right.

732
00:57:50,844 --> 00:57:55,344
But there is some nuance in it where Bitcoin going up is not necessarily earnings.

733
00:57:55,484 --> 00:57:56,904
And it's not recurring earnings.

734
00:57:57,244 --> 00:57:58,244
Well, I would agree with that.

735
00:57:58,244 --> 00:58:09,104
But anybody saying that it's fraud is being very disingenuous because they're audited by the biggest accounting firms on the planet.

736
00:58:09,384 --> 00:58:11,404
He's following gap accounting rules.

737
00:58:11,624 --> 00:58:20,804
And according to the accounting rules, he has to file the 10K and the 10Q the way he's filing it.

738
00:58:21,504 --> 00:58:21,584
Right?

739
00:58:21,984 --> 00:58:26,424
So I think that that's very unreasonable to say that.

740
00:58:26,424 --> 00:58:37,864
Just to give context to it, sorry, I just want to make sure I'm giving Andy's point clearly, is it was one of the slides in the earnings call that he had a problem with, where it looked like he was comparing his earnings to the other companies.

741
00:58:38,264 --> 00:58:41,624
And because they're not recurring earnings, he thought that was...

742
00:58:41,624 --> 00:58:42,244
Yeah, okay.

743
00:58:42,404 --> 00:58:43,424
So that might be...

744
00:58:44,544 --> 00:58:46,804
Yeah, we could argue that.

745
00:58:48,064 --> 00:58:51,964
This point that they're not recurring earnings, I 100% agree with.

746
00:58:51,964 --> 00:58:59,704
the way that I would try to value it instead of like kind of getting into whether it is or isn't,

747
00:58:59,704 --> 00:59:04,364
I would give people maybe a framework to think through like, how would you do this?

748
00:59:05,044 --> 00:59:13,144
So when I would value stocks, this before Bitcoin, even one of the things that I love to look at was

749
00:59:13,144 --> 00:59:17,864
the growth of retained earnings on the balance sheet, because what that was showing me is like

750
00:59:17,864 --> 00:59:21,724
when you're looking at the income statement and you're seeing the cash flows that are generated

751
00:59:21,724 --> 00:59:26,484
from the income statement. That's interesting. But what I really like to see is like, what does

752
00:59:26,484 --> 00:59:33,664
the equity of the business look like as far as a growth rate over time? And when you're looking at

753
00:59:33,664 --> 00:59:38,264
that trend and you're kind of plotting it out and maybe you have three years of data and you can see

754
00:59:38,264 --> 00:59:43,364
the growth rate of that equity, you can say, well, this company's growing its balance sheet

755
00:59:43,364 --> 00:59:50,284
at 10% annualized. And then you can kind of like model out, like if that 10% growth rate kind of

756
00:59:50,284 --> 00:59:55,724
persists into the future, I can then look at what the market's valuing it at. And then I can conduct

757
00:59:55,724 --> 01:00:01,104
an IRR, an internal rate of return calculation to figure out what I think an appropriate price is to

758
01:00:01,104 --> 01:00:07,804
own the company. So when I look at strategy and you look at their balance sheet and you look at

759
01:00:07,804 --> 01:00:14,024
the growth of the balance sheet, I can tell you over the last five years, it's completely warranted

760
01:00:14,024 --> 01:00:17,664
that it is exceeding the return profile of NVIDIA.

761
01:00:18,224 --> 01:00:18,744
Okay.

762
01:00:19,484 --> 01:00:22,684
And because when you're looking at like what they're reporting

763
01:00:22,684 --> 01:00:26,764
and I disagree with the way the gap accounting treatment is,

764
01:00:27,084 --> 01:00:29,604
I, you know, Preston Pish's opinion,

765
01:00:29,724 --> 01:00:32,584
like if I could control how that accounting would work,

766
01:00:32,884 --> 01:00:35,644
I think that the way that you would do it

767
01:00:35,644 --> 01:00:38,984
is you would list as on your asset line of your balance sheet,

768
01:00:39,244 --> 01:00:41,964
you would list it as a current asset

769
01:00:41,964 --> 01:00:43,964
because it can be immediately sold.

770
01:00:44,144 --> 01:00:44,864
It's super liquid.

771
01:00:45,524 --> 01:00:47,664
And you would list it at the purchase price

772
01:00:47,664 --> 01:00:49,384
on the asset line of the balance sheet.

773
01:00:49,564 --> 01:00:52,044
And then any unrealized gain would actually be listed

774
01:00:52,044 --> 01:00:53,844
into the equity line of the balance sheet.

775
01:00:54,044 --> 01:00:56,664
And nothing would flow over to the income statement

776
01:00:56,664 --> 01:00:59,704
unless a sale was actually conducted in the Bitcoin itself.

777
01:00:59,984 --> 01:01:00,664
That makes sense to me.

778
01:01:00,804 --> 01:01:03,924
And then it would be listed as an extraordinary gain

779
01:01:03,924 --> 01:01:05,464
or loss on the income statement.

780
01:01:05,644 --> 01:01:08,524
That's how Preston Pysh would do the gap accounting treatment.

781
01:01:09,484 --> 01:01:11,184
That's not how it is.

782
01:01:11,964 --> 01:01:24,844
And I think as a person who's looking at the results, the whole reason that the income statement exists the way that it does is to help an investor know that this is recurring revenue.

783
01:01:25,004 --> 01:01:26,464
This is a recurring expense.

784
01:01:26,624 --> 01:01:35,184
This is an outside abnormal, extraordinary gain or loss that probably only happens one time item on the income statement.

785
01:01:35,284 --> 01:01:40,264
And then the investor or the shareholder can discount that or think that there's more value there.

786
01:01:40,264 --> 01:01:43,784
So I disagree with the whole way that it's treated in general.

787
01:01:44,244 --> 01:01:45,044
But he's just following the rules.

788
01:01:45,064 --> 01:01:56,444
He's just following the rules, which is a good thing for him getting included into the S&P 500 because they have this stipulation that you have to have multiple quarters of earnings.

789
01:01:57,024 --> 01:02:00,264
And I guess it counts as earnings, even though I don't see it as earnings.

790
01:02:00,864 --> 01:02:02,284
I see it as unrealized gains.

791
01:02:02,564 --> 01:02:07,164
And it's a good thing in a bull market, but it's not going to be a good thing in a bear market if he has to post like 10 billion losses.

792
01:02:07,164 --> 01:02:07,564
Absolutely.

793
01:02:08,004 --> 01:02:08,164
Yeah.

794
01:02:08,664 --> 01:02:09,064
Yeah.

795
01:02:09,704 --> 01:02:10,104
Okay.

796
01:02:10,264 --> 01:02:13,984
I mean, I think we've done, this is the Preston Pitch masterclass on treasury companies.

797
01:02:14,424 --> 01:02:16,704
There's a lot more to this than what we covered, but.

798
01:02:16,804 --> 01:02:18,664
Is there anything else that is worth getting into now?

799
01:02:20,704 --> 01:02:27,724
I just, I really want everybody to really understand that if I'm talking about this

800
01:02:27,724 --> 01:02:30,824
kind of stuff a lot, it's more for my own intellectual stimulation.

801
01:02:30,824 --> 01:02:44,944
And because I find it's as a finance engineering person that loves studying Buffett and these other ways of like valuing business, I'm like a pig in mud with this.

802
01:02:45,264 --> 01:02:50,964
This is like one of the most exciting things ever for me to be talking about because I'm constantly learning new things.

803
01:02:50,964 --> 01:03:01,284
And I'm having these aha moments like, oh, my, like the STRC issuance for me was just like, that is the most brilliant thing I think I've ever seen like come to market.

804
01:03:01,284 --> 01:03:05,384
And then hearing Michael say, oh, yeah, I got the idea from AI.

805
01:03:05,644 --> 01:03:08,924
I'm kind of like, oh, my God, like what is happening?

806
01:03:09,364 --> 01:03:14,264
So, like, I'm just really I'm really enjoying like covering this.

807
01:03:14,264 --> 01:03:20,684
and i say all that because at the end of the day the best thing that a person who doesn't

808
01:03:20,684 --> 01:03:24,684
understand any of this jargon because i know there was a ton of jargon in this conversation

809
01:03:24,684 --> 01:03:29,664
people who don't understand any of that just buy bitcoin self-custody the bitcoin like nobody can

810
01:03:29,664 --> 01:03:35,184
ever take it from you you're gonna get crazy returns i i suspect based on everything we are

811
01:03:35,184 --> 01:03:41,204
seeing and where this is all going and you don't have to be fancy to like really have a profound

812
01:03:41,204 --> 01:03:47,164
change in your life by just owning Bitcoin and enjoying the ride and like not overthinking it.

813
01:03:47,384 --> 01:03:52,424
A hundred percent. And that's what I'm doing. Um, but just, I, I said, I just want to cover one

814
01:03:52,424 --> 01:03:57,464
more thing. I think we've got time. Um, people talk about all these preferreds as sailor,

815
01:03:57,464 --> 01:04:02,824
like creating his own yield curve. Um, can you give a TLDR on that? Then I got a question on it.

816
01:04:02,824 --> 01:04:07,104
Yeah. Well, he's just looking at, he's looking at the pools of capital and fixed income.

817
01:04:07,104 --> 01:04:10,444
And so what's one of the biggest pools of fixed income?

818
01:04:10,964 --> 01:04:12,764
It's literally money market accounts.

819
01:04:13,584 --> 01:04:19,804
And so he's very strategically going and looking at these different pools of capital.

820
01:04:19,984 --> 01:04:22,984
And you have investors that want long-term fixed income.

821
01:04:23,184 --> 01:04:24,844
They want to hold for 30 years.

822
01:04:24,924 --> 01:04:27,964
You got people that are wanting 10 years of exposure.

823
01:04:28,124 --> 01:04:30,284
You're having people that want an overnight rate.

824
01:04:30,644 --> 01:04:32,524
And he's just looking at all of those.

825
01:04:32,524 --> 01:04:39,324
And then his issuance that he's going into the preferred market with is trying to service those large pools of capital.

826
01:04:39,664 --> 01:04:43,444
And the larger the pool of capital, the more he wants to focus on providing something there.

827
01:04:44,004 --> 01:05:02,504
Something else that I think is a little more nuanced in what he's doing, the fact that he's using preferred stock is really interesting in and of itself because he's really never having to pay back the face value or the book value of the market.

828
01:05:02,524 --> 01:05:06,044
The issuance, it's just the dividend or the coupon payment.

829
01:05:06,464 --> 01:05:08,364
It's the dividend payment when it's preferred stock.

830
01:05:09,024 --> 01:05:10,644
And that's huge.

831
01:05:10,784 --> 01:05:14,844
Because if you look at convertible debt, and I know I'm going off on a little bit of a tangent,

832
01:05:15,104 --> 01:05:20,824
but when you look at convertible debt, when you issue that, let's say you raise a billion dollars of convertible debt,

833
01:05:20,824 --> 01:05:25,824
you have to pay the billion dollars back in addition to whatever coupon is associated with it.

834
01:05:26,164 --> 01:05:30,164
But with the preferred, he's raising, call it a billion dollars.

835
01:05:30,684 --> 01:05:33,084
He never has to pay the billion dollars back,

836
01:05:33,484 --> 01:05:35,584
but he does have to pay the dividend if it's perpetual.

837
01:05:35,784 --> 01:05:37,124
He has to pay the dividend forever.

838
01:05:37,484 --> 01:05:39,884
But he's looking at that dividend payment 10 years later

839
01:05:39,884 --> 01:05:43,204
and saying, well, it's literally de minimis amount of money

840
01:05:43,204 --> 01:05:45,284
because I'm sweeping it all into Bitcoin.

841
01:05:45,644 --> 01:05:47,544
Yeah, so the question I have on that is,

842
01:05:47,644 --> 01:05:50,824
he's got four of these preferred stock issuances.

843
01:05:51,324 --> 01:05:53,264
Is there anything else he's going to do, do you think?

844
01:05:53,464 --> 01:05:54,164
Is there more to come?

845
01:05:54,184 --> 01:05:54,444
I think so.

846
01:05:54,744 --> 01:05:55,584
I don't think he's done.

847
01:05:55,684 --> 01:05:57,664
What do you think is missing from the stock Bitcoin has?

848
01:05:57,664 --> 01:06:01,804
I would have to look at the durations that he's targeting.

849
01:06:02,964 --> 01:06:04,144
And I mean, it'd be pretty.

850
01:06:04,244 --> 01:06:05,584
He has a slide.

851
01:06:05,664 --> 01:06:16,264
I saw it in his second quarter shareholders meeting that lays out the whole duration and where the large pools of capital are in fixed income.

852
01:06:16,264 --> 01:06:19,404
And you can see where the various preferreds have been issued.

853
01:06:19,624 --> 01:06:22,944
And I would just look at the next biggest one and that's probably where he's going next.

854
01:06:23,464 --> 01:06:24,084
It's pretty incredible.

855
01:06:25,164 --> 01:06:26,824
I'm starting to understand it.

856
01:06:26,824 --> 01:06:28,484
You understand it well, Danny.

857
01:06:28,564 --> 01:06:30,764
This was very useful for me.

858
01:06:30,864 --> 01:06:31,264
Thank you.

859
01:06:31,724 --> 01:06:33,064
We should probably go to the conference.

860
01:06:34,324 --> 01:06:35,144
Thank you, Preston.

861
01:06:35,204 --> 01:06:36,084
Thanks for having me, Danny.

862
01:06:36,104 --> 01:06:36,744
I appreciate it.