If we have another bout of high inflation as a result of the straightforward moves remaining closed for the rest of the year, you're going to see 10% inflation before the end of the year.
And in that event, you see a huge recession.
In that event, you see everything sell off.
And then you see the Fed slam rates to zero.
So the two scenarios going forward for Bitcoin are, he said, we are entering into an era of systematically falling prices, which is something that Fed chair has never said as far as I can recall.
The strategy has proven they could sell a fat amount of Bitcoin, their biggest sale ever.
Bitcoin won't care.
is the bottom in. If the bottom's not in, when is said bottom coming, if ever?
The reality is, guys, a fixed income product going down in price simply means that the market wants
a higher yield. That's the flywheel. And now the Ponzi argument is officially dead. Two years from
now, three years from now, four years from now, when Bitcoin's at $350K, they're going to be awfully silent.
Joe Consorti, welcome, man.
We have done, you've been on my, well, rest in peace, my Roxham streams, but you were on
at least one of those.
You've been a frequent guest on BitCast as well with the boys, but welcome to the Bitcoin
podcast.
Stoked to have you here, man.
Yeah, thank you so much for having me, Walker.
Always a blast.
So happy to be chatting in this.
slightly different format where we don't have any commercial breaks.
No commercial breaks whatsoever.
Even fewer filters than before, which I was never very good at filtering myself anyway.
Perhaps that's part of the problem.
But, okay, a bunch of stuff I want to get into with you today.
You, first of all, for anybody who's not following you, they should be doing so.
They should be doing it on X and on YouTube.
We're going to get you on Noster as well.
We just discussed that off camera.
So we'll get you over there on the Sovereign Web.
But you put out fantastic analysis and it's, I think it's really resonating with people.
You typically do kind of mid-length content.
You break a lot of stuff down.
You just had a video yesterday where we were talking about off camera.
You broke down like five different factors that are influencing Bitcoin and macro.
And like, it was all like within 10 minutes, super nice, super tight, really approachable.
Well done on all that.
I want to expand on some of those things a little bit.
want to talk about sort of the uh the overall let's say vibe check on the bitcoin uh where
bitcoin is right now where it's going because i think the big question on everybody's mind
is is the bottom in if the bottom's not in when is said bottom coming if ever uh is bitcoin dead
um and then also on sort of the uh the strategy front that was another thing you broke down in
your video around this bitcoin sale and you pointed out something very interesting about
a similar sale that they made and what that sort of signified from a cycle perspective last time
around. So maybe we can just start out like gut check with you on where you are feeling Bitcoin
is at right now, because I see a lot of bearishness still. I also start, I'm starting to see, I'm,
I've never, I've never stopped being bullish. So I'm not a good indicator, right? I'm just,
I'm like, I'm always bullish. So it's not really telling you much. Where are you at? Has your
sentiments changed? Has your perception of external sentiment changed? Where do you think
we're at right now? Absolutely. By the way, that was, there's a fly in my room for some reason,
in my office. I literally saw it. I've got one in here too, so don't worry. I've been trying to get
this thing for days. Anyway, yeah, so where we are in the Bitcoin cycle, that was hilarious.
Someone's going to clip that. Basically, there are a couple of things going on here
that lead me to believe we are in the bottoming range, but maybe not near the bottom. So
first and foremost like one of the biggest headwinds for bitcoin since february has been
the war in iran so obviously the war in iran has been raging um the strait of formus has been closed
as a result of that until mid june when it opened and now there's live fire in the strait again
we're sinking iran vessels like it's battleship um and as a result of that it threatens the uh
the strait to close back up so the straight of formus is responsible for transporting
20% of the world's oil supply. Now, it's quite significant because when you shut the
straight-up Homoose, you're not just causing a 20% price spike in oil, you're causing a 50% to 80%
price spike in oil. And you could actually see it. I'll share my screen here. You could see just
before the war, as tensions were escalating, CLI, which is the WTI crude oil future for the front
month, started elevating a little bit. The war kicks off. All of a sudden, we go from where we
were, which was $65 up to $120 thereabout. So it had a 100% price increase as a result of shutting
off 20% of the supply. And it goes to show just how critical the straight is. Now, obviously,
it began actually trending down in advance of the straight opening back up. Obviously,
two reasons for this. Number one, these are futures contracts. So these are a way for
people who deal in oil in any way, shape or form to hedge themselves. And so it was falling in
anticipation of the strait opening back up but more importantly um it it began falling as a result
of other countries um uh dredging up oil more cheaply uh and more efficiently so the united
states like the the amount of oil fracking that we're doing is extremely high right now
as a direct result of the strait of hormuz relatively um being being shut now when it
opened in mid-june um you can see it fell uh basically to pre-war levels where we were prior
to the war, more or less. And then Trump gets up two days ago like a baller and says on camera,
for whatever reason, he says, we're going to bomb Iran right now or something like that.
It was crazy. Like the balls in the sky, right? And so then like lo and behold, unfortunately,
the price spike from 68 bucks all the way up to 70, over $75, 76 bucks. And we're in the era of
elevated oil again as the strait now becomes a bit of a war zone. Now, that's not to say now two
things here. So the reason this was a massive headwind for Bitcoin is because obviously Bitcoin
and all other assets hate geopolitical uncertainty, even gold, right? The safe haven du jour hates
uncertainty. At the very least, it hates when, you know, all of a sudden countries begin bombing each
other. And so number one, it's been a major headwind for Bitcoin as a result of that. But
number two, and most importantly, and this is why I always encourage people to think in terms of
second and third order effects rather than what's simply presented in front of them is that when oil
prices rise obviously oil is an input for basically everything in the global economy not to mention
right gasoline prices diesel prices but just about everything else too and so when oil spikes you have
sort of this cascading effect of price increases that ripple throughout the global economy with
about a four-month lag all throughout the world right and so as a result of that you're only just
now as of the june print um remember the war started in february uh the straight closed in
february you're only starting to see elevated inflation now why is that substantial well
elevated inflation we're above 4.2 for the first time in like four years
um drives the fed the likelihood of a fed rate hike up and obviously bitcoin doesn't like that
bitcoin likes easy money when you're in a regime of tightening monetary policy so interest rates
rising or policy rates rising rather and the balance sheet being reduced, Bitcoin doesn't like
that. In fact, Bitcoin topped in 2022 right around the time when the Fed began hiking interest rates
and reducing the balance sheet or at least attempting to. Bitcoin managed to do its massive
run up from 16K only after the Fed stopped raising rates and it stopped expanding its balance sheet.
That said, Bitcoin can perform well during tighter monetary regimes. However, now instead of
continuing to cut, which was the initial plan. That was the initial forecast for this year.
Now rate hikes are back on the table as a result of elevated inflation. That said,
there's so many layers to this. And so as a result, Bitcoin sold off.
The reason I'm actually betting on cuts this year, well, two reasons. I think the strait is
going to remain open or at the very least, people are still going to find a way to transport their
vessels through the strait. The reason it opened up in mid-June, and I said that there was a four
month lag for price inflation. The reason it opened up in mid-June is because the midterms
are coming up and the Republicans, unfortunately, expending what little goodwill they have with
their constituents, are at risk of losing. They're at risk of losing the House, losing the Senate,
all of it. And as a result of that, they need to really pull out all the stops. So one of the
things that you can try to do is make it so that you have disinflation or falling inflation.
And so the Strait of Hormuz opening up when it did was no coincidence. And for that same reason,
I think at the very least, vessels will remain transporting through it.
The other component is I don't think the Fed is actually going to hike rates.
And I said this a couple of weeks ago.
I said this when Kevin Warsh went up there and started talking about how he wanted to bring more accountability back to the Fed.
And he wanted to, you know, repair the damaged reputation of the Federal Reserve.
He was saying a whole bunch of stuff about how he was going to do that.
and rate hike expectations soared.
I was saying that there's no shot the Fed raises rates
in any material way because they can't.
And if they do, it won't actually matter all that much
because ultimately the inflation that we're feeling now
is as a result of oil,
the oil shock that I just described
and went through the charts on,
as opposed to like a ton of money printing
that drew up the inflation.
So like typically the monetary inflation
leads to price inflation
where rates get slammed down to zero,
the Fed expands its balance sheet by printing money out of thin air, and then money gets lent
into existence because credit conditions are so loose. So every time consumers go to the bank,
they're creating new money. This inflation wasn't caused by that. And so therefore,
it cannot be fixed by raising interest rates and reducing the balance sheet. It was caused by a
supply shock. So believe it or not, for the viewers watching this live now, and all of you guys know
this. The Fed doesn't actually control the price of things. It only controls the price of money.
It sets the rate at which banks can borrow and lend between one another, and in doing so,
influences the borrowing rates across the economy. When oil spikes in price, and Lynn Alden said this
as well, the Fed can't do anything about that. They can't control the price of oil. The only
thing they can do is they have two levers. They have their balance sheet. They have policy rates.
Neither of those are going to fix an oil spike.
The only thing that fixes an oil spike is opening the straight.
That's why you saw it happen.
And so when a lot of people were seeing price inflation coming at 4.2% in June,
and then Kevin Warsh get out there and adjust his tie and say,
we're going to be responsible.
I said, no, it's not going to happen.
Because the only thing that's going to happen if you raise interest rates
is you're going to choke the consumer who's already choking.
And lo and behold, rate expectations are now coming back down to earth.
So we now only have less than one rate cut, actually quite insane.
I thought it was even more than this, but I suppose not.
Originally, it was three rate cuts for this year, and now it is just one rate cut this year.
You can see the current target rate for the U.S. Fed funds rate is 3.75%.
This is the implied rate as of March of next year.
So over the next seven months, nine months rather, we are only pricing in eight months, excuse me.
We're only pricing in one rate increase, one 25 basis point rate increase from 3.75% to 4%.
This used to be like three or four a couple of weeks ago.
So it's already coming in as a result of these trade of Hormuz opening at the margin,
oil prices collapsing to where they were.
I promise all of this is relevant to Bitcoin.
Now, the reason this is all so significant, right?
The reason that oil prices collapsing is so significant and why it's still a bit of a risk to Bitcoin.
is obviously because I mentioned, you know,
Fed policy rates being set,
that matters quite a bit for Bitcoin's direction
and whether or not we are actually close to the bottom.
If the straight-up for Moose really closes up, right?
If the sphincter really tightens, as it were,
that's a very kind way of talking about the Middle East.
If the sphincter really tightens, as it were,
then ultimately what's going to happen is
oil prices may go back to where they were.
And as a result, that disinflation
that you would have otherwise experienced
over the next four or five months with inflation maybe going up to like five five and a half percent
then coming all the way back down to sub three percent um and then foaming the runway for the
fed to not do anything at all and obviously assets will love that bitcoin included um
all of a sudden you have the risk of the fed um needing to cut all right needing to raise rates
or at the very least the risk of an inflationary recession which we haven't seen since the 70s
where prices have just risen way too much over the last half decade uh remember we had 9 inflation in 2022 If we have another bout of high inflation as a result of the straightforward moves remaining closed for the rest of the year
you're gonna see 10% inflation
before the end of the year.
And in that event, you see a huge recession.
In that event, you see everything sell off.
And then you see the Fed slam rates to zero.
So the two scenarios going forward for Bitcoin
are either we just take one more leg down
for the heck of it into the low 50s
where there's just a completely insane amount of support,
such a huge confluence of not just buy orders on the order book, but also a ton of on-chain
indicators like signaling that's the freaking bargain basement floor. We just take one more
leg down for the heck of it and chop around until October. Or we have an inflationary recession
before the year is out. Everything sells off because of that. Bitcoin goes much lower than
expected. But then on the other side of it, the Fed cuts rates and prints into oblivion to salvage
the economy and prevent massive deflation. So that's sort of the way I'm viewing the macro
backdrop going forward. Iran is still the number one concern. But like always keep the back of your
mind between now and midterms. They need the stock market to go up. They need it to go up and they
need price inflation to come down. And they're going to do anything they possibly can to do it.
One other funny thing is like if the straightforward moves doesn't close, I'm betting on stimulus
checks because even though it's totally counterintuitive, like what else are you going to
do if price inflation remains where it is. Trump is already talking about like gas stations
lowering their prices and taking a loss voluntarily, right? So if they're willing to do that,
if they're willing to subsidize gas stations so that Americans can see lower gas prices so you
could buy some votes, like nothing's off the table. And so if the straight remains closed,
I wouldn't rule out stimmy checks. Well, okay. Bunch to unpack there. I love the breakdown.
Sorry about that. I went for like 15 minutes.
Like I said, never any apologies for rants, tangents, digressions, or deep dives on this show, Joe.
So put your saris in a sack.
Throw them in the river with a bunch of rocks.
Let them drown.
I did see that just today I saw that, I forget what they're calling them, like freedom stations or something like that.
They are rolling out these gas stations that are, and I looked into this just a little bit.
I haven't gone deep down the rabbit hole, but I looked in.
Apparently they're privately owned still.
There's an let me let me find what they're called. It's Freedom Fuel. Freedom Fuel gas stations.
They're selling at like a 50 percent discount to prevailing market rates, which was interesting to me because I'm pretty sure the typical margin, the typical gross margin for a gas station operator is like maybe 30 cents on the gallon.
like you know maybe so i don't know how they're basically and trump the administration is claiming
there are no there's no subsidies being given right now uh i don't know how this could continue
without some sort of subsidy but okay they're coming there's no subsidy given right now it's
owned by some private llc i i don't know if people are just doing it for branding and then they're
trying to mark up the already higher margin items within their store you know they're going to sell
Snickers bars for 10 bucks a piece or something like that. I'm not sure what the plan is here,
but it's interesting to see. And I think that that really supports your point.
Also sort of on the, I want to, I want to take a jump back to the Fed piece there,
because I think that a lot of people, when Warsh was coming in, the prevailing narrative that I
never totally bought was that Warsh is actually pretty hawkish, you know, he's pretty, pretty
hawkish or he's a, he's, what was the, what was the one they heard? Like he's a balance sheet hawk,
but he's an interest rate dove or, you know, or something or the opposite.
I forget exactly what it was.
But I just never quite bought the narrative that Warsh was going to herald this even more hawkish administration at the Fed.
That just never quite sat right with me.
And it sounds like you're saying the same sort of thing.
Like, look, we know he was put in there to do a job.
Yes, the Fed is, of course, independent.
It's a public-private institution.
It would never be influenced by the administration.
But, of course, I believe that Warsh has breakfast with Besant like every week, which nothing wrong with that.
You know, I think they're buds.
But, I mean, it seems like that's just improbable that Warsh is going to herald this very hawkish Fed term here.
It just doesn't seem like that is going to be palatable.
And as you said, going into midterms, one of the biggest determining factors as to whether the incumbent party in power, which is already at a little bit of a disadvantage typically going into midterms.
But what really puts them as a disadvantage is if people think the economy is shit.
And if people think the economy is shit, they get smoked.
Like you can look back at this data.
So, I mean, do you think that, do you think that, Warsh, you talked about one rate hike now being sort of priced in.
I mean, do you even think we see that?
Or do you think it ends up being maintain, maintain, maintain, and then, oh, you guys, we got to cut.
We got to cut.
We got to cut to save the American economy.
And we're going to change our – because we've actually started looking at inflation differently.
We're going to look at trimmed mean PCE or whatever that is.
Maybe you can explain that one a little bit.
But what's your read on that?
Do we actually even see a cut out of Warsh?
Or excuse me, do we see a hike out of Warsh before he starts inevitably cutting?
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Yeah, I don't think we see any hikes because the only thing hikes will do is hurt the consumer.
And ultimately, at this point in time, the consumer is all that matters.
The end user is all that matters.
Every four years, every two years rather, more importantly, every four years.
but we're coming up on midterms now.
The government pretends to care about you.
Like what I've begun saying is like,
I've evolved a little bit in my political thinking.
I used to be like, oh, I don't really care.
And then it's like, oh, both sides hate you.
And now I've evolved to the reality that like,
you must play the game or you will get killed.
One side hates you a little bit less.
You know, both sides hate you.
One side hates you a little bit less.
So vote for the side that hates you a little bit less.
And so, but ultimately every two years of show,
they pretend to care about you.
And this is one of those times.
And so you sort of, I like that you brought up like,
Warsh and Besant eating breakfast together every week because those guys used to work together
for Stanley Druckenmiller and for George Soros. And so it's like, you know, George Soros, like on
the, not on the political front, but on the investment front. But either way, like working
for Stanley Druckenmiller, working for Soros, breaking the Bank of England, that was just,
that was just Besant. That wasn't Warsh. But either way, like they know what they're doing
and they're a good tag team and both of them know it. And so like ultimately Besant's job is to make
sure that it can fund the U.S. government, but the secondary and perhaps more important job in the
long run is making sure that you secure U.S. dollar hegemony. And one of the easiest ways to
ensure that is making sure that the Fed chair that gets elected, the Fed chair that gets nominated
rather by the president, is one that will do your bidding, right? We're in a situation now in this
country where it is like the notion of Fed independence, it's something that everybody
already knows is fabricated. It's like it doesn't exist anymore. It really never did, but now the
mask has been fully off. And so like, we're not even trying to pretend anymore. Number one,
that the Fed is an independent institution. But number two, and this is the more important reason
behind it is because we're at a state in our country now where a debt to GDP ratio is just
so high. It's the highest it's ever been outside of wartime. The amount of debt that we have to
roll over at the current interest rate levels is completely obscene. You have the 30 year yield at
5% still, like you cannot do that for a very long time. And so what you need is basically a new Fed
treasury accord where the Fed decides to work with the treasury and make it so that policy rates are
always accommodative of the U.S. Treasury so that yields don't drift too far high and it's much
easier to fund the government that way. So why do I say this? And how are they going to accomplish
this? Well, it's quite clear that that is why Trump picked the person he was going to pick. He
said so many times that rates are too high rates are too high too late Powell whatever um whoever
he picked and he picked Warsh was going to cut interest rates and do his bidding it obviously
stands to reason that the person who gets nominated would pretend that they're going to be balanced
you're not going to go in there and then throw a MAGA hat on and do the YMCA dance and say
yeah I'm gonna you know cut rates right now right um you know the thousand year MAGA republic or
whatever right and so it's like obviously you're going to get up there put on your tie and like
Warsh does seem like a pretty balanced dude, but the reality is that like, you know, all of it's an act for the most part.
He is working with Scott Bissend.
It's not even like remotely conspiratorial to suggest it because he's now come out and done two things.
Number one, he is he's sort of foaming the runway to justify rate cuts, even if the inflation data doesn't really necessitate it.
For one, he's talking about using a new measure of inflation called trimmed mean PCE.
And I'm glad that you brought it up.
basically trimmed mean PCE, what it does is it's like a rank order of all of the things,
all of the price increases to the basket of goods that they set over the last month.
And then they strip out all of the edge cases. So all of the stuff that massively inflates and
actually impacts your life, they cut it away. So to make it so that they're cutting out the
extremes, they can get a more accurate beat on inflation. Even if let's say, for example,
gasoline prices go to, you know, 15 bucks a gallon, guess what? In trimmed mean PCE.
And, you know, some might argue, I was on Mark Moss's show yesterday. Some might argue that,
you know, whatever did cause gasoline to go to 15 bucks a gallon was transient. It's temporary.
Chances are a price spike like that will resolve very soon. And so it makes sense to remove the
edge case. But regardless, like what if it doesn't? What if gasoline prices remain elevated for a very
long time and you have persistent you know two percent monthly inflation or something like that on gasoline prices which would translate to a crazy amount of inflation on an annual basis 30 40 percent Trimmed to be in PCE basically what it does is it would remove that entirely
So like the argument is that it makes for a more reliable measure of inflation.
But the counter, and this is sort of the one that I believe, is it simply makes for a measure of inflation that can say whatever the Fed wants it to say,
to do whatever the Fed wants to do and what the Fed wants to do lines up with what the Treasury needs to do and what the Treasury needs to do is cut rates.
so that's basically all it is so that's the first reason he gave and then the second reason he gave
to sort of foam the runway and lay the groundwork to justify and rationalize rate cuts down the line
is that he said uh ai is going to have a big disinflationary impact uh chances are we are in
he said um like beat for beat this is the exact quote he said we are entering into an era of uh
um systematically falling prices which is something that uh a fed chair has never said as far as i can
recall. But it's also the reason that the Fed has this dual mandate in the first place. The reason
it wants inflation in the first place is because in their mind, in the Keynesian mind, all 70 IQ
points of it, learning disability threshold, by the way, they basically are of the belief that if
prices didn't go up forever at a reasonable pace, then people would stop buying things, which is
like such a stupid thing to think on its surface. Like, let's do a thought exercise, everybody.
Let's say a mother can't breastfeed.
If the price of baby formula is going down, do you think the mother is going to say, oh,
gee, I'll wait until next month to buy the baby formula because if it's going down now,
it's going to keep going down.
So then she just never feeds her baby and the baby dies.
Obviously not.
Beyond a certain point, of course, people will delay their purchasing of some things.
But it's like for mostly everything, no.
If you see prices go down, you're actually going to buy more, right?
Anyway, that's the way that they rationalize inflation.
And that's one of the reasons that, you know, ironically, they're trying to make it seem like inflation is actually lower than it is.
Using trimmed mean PCE and then also justifying rate cuts by saying that AI is going to have a deflationary impact on prices.
I agree with the second point.
I actually do think that that's the case.
Like, you know, just in my own work, like AI has been massively helpful in my day to day.
In my mind, it will have a massive disinflationary and deflationary impact where it will drive
the cost of goods and services and everyday life lower.
But on the other side of that, as I mentioned, Keynesians can't have that.
And so they're going to use it as reason to print a crap ton of money.
So, yeah, that's basically in a nutshell, the sort of the new Fed Treasury accord being
assembled.
Why?
I don't think we're going to see a hike out of Kevin Warsh.
And if anything, we just see rates on hold until a crisis occurs.
And then you see him cut like every other Fed chair does.
Well, the one thing that's always guaranteed is another unexpected crisis, right?
That's the nice thing is that you always know there's going to be another completely unexpected crisis.
And it always requires, you know, some sort of extraordinary measures that seems to be kind of the...
Two weeks to slow the spread, everybody.
Oh, dear Lord.
Yeah, digression.
But I mean, it is just I don't know if it's it's incredible to me that there was never any like admission of, you know what, guys, maybe all of us who were like really freaking out about this and said that, you know, anybody who didn't follow our exact dogma was like the worst person in the world.
maybe we overreacted just like a little bit.
But I don't think that that's possible.
Like, you know, in the modern political climate,
I think it is untenable to admit that you are wrong about something or were wrong.
Because then it's like, well, what if I'm wrong about this other thing?
No, no, no.
Better to shut out those scary thoughts and I'll just keep doing what I'm doing.
Even though it's like communism, right?
It's like you just try it again and again.
There's 100 million plus people dead over the last century.
But you just push those inconvenient facts away.
and you just, we're going to do it this time
because look at how good our new guy,
our new commie is at social media.
So it'll be fine now, guys.
Don't worry.
It's all good.
Yeah, this commie leader,
instead of being Asian or Russian,
he's a Muslim now, everybody, right?
Like, you know, the minute, stupid, silly differences,
like, oh, we threw the word democratic
in front of it this time,
which means, you know, rainbows and sparkles
while we send you to the internment camp, you know?
Yeah, it's like, you know,
that democratic socialism might just lead
to a little more national socialism if they're not careful.
But they probably don't even know what that means.
So it's okay, we can make jokes about it.
They have no idea.
They have no idea that that's,
yeah, they've never heard of national socialism before.
They may use the word Nazi every other day,
but they've never heard of national socialism before.
Books are hard though.
So you have to read them.
Well, actually adult literacy is,
it's only 30% these days.
Is it really?
Not 30%, excuse me, 70%.
30 i have the stat yeah yeah it's still crazy illiteracy is 30 in adults yeah dude that's if
you look out this is we're taking this digression because it's too interesting that first of all
that's like that's just insane right like we we got up to a point where basically everybody was
literate and then now we've just been on a decline and guess what you look at childhood it's worse
oh i know that that's the crazy thing see this is the fundamental problem with democracy like
democracy is kind of like communism in that it sounds really good in theory but then it's like
like well maybe the whole maybe the athenians had like had something had had something right in terms
of how they structured their democracy like you don't just let anyone vote because like some people
are really dumb and shouldn't probably be trusted with these sorts of things but that's the problem
with democracies it's like it doesn't matter if you are a you know 160 iq or if you're a 40 iq
Like your, your vote is still your vote. Like you're, you're all equal in the eyes of the ballot
box. And by the way, those ballot boxes can be stuffed. Uh, but I digress. Um, I want to,
I want to shift gears slightly cause I want to make sure that we get into this. Uh, and this is
another thing that you covered in this video from yesterday and people should go check it out. Uh,
if you want the, the very much TLDR on this show, you should keep listening to this one,
of course, but go check out Joe's channel as well. Joe Consorti on YouTube. Yeah. After this,
to make sure you understood the concepts use it as a quiz for yourself but you were talking about
the strategy sale of a pretty good chunk of bitcoin i've seen a lot of different takes on
this the primary take that i've seen is a lot of like teeth gnashing and saying but you know but he
said never sell your bitcoin and now he's the strategy is selling the bitcoin yeah and it just
like it just feels really like very reductionist and i i i get it but like i don't understand how
that people don't have a concept that like he has a fiduciary duty to his shareholders. Now,
granted, the share price may not have been performing super well lately, but like everything
he does needs to be in service of that, right? It's not in service of your opinion of what you
think he should do. That being said, everybody should, let me clarify this again, because I've
been called an MSTR show a lot recently, because I do own some MSTR. I would never recommend that
anyone else buy anything but Bitcoin. So I will recommend that again. Don't buy anything else but
Bitcoin or do. I don't care what you do with your money, but that's all I'll recommend. Not financial
advice, just monetary advice. Now that we cleared that up, can you unpack what you think is the
biggest misunderstanding around what strategy is doing right now? Yeah, it's a really important
thing to discuss. And look, here's the thing. I don't even own any MSTR. I don't own any STR. See,
I'm in a really high growth phase of life, so I could stomach MSTR. But the thing is, I have a
pretty fat Bitcoin stacking goal that I'm about to hit and I'm not going to buy anything else until
I do. And it's like, you know, and so for me, the reason I don't own any STRC is like, I'm in a
really high growth phase of life. I am not a fixed income person as of right now. I was even talking
to Mark. I just mentioned a moment ago, he's 51, 52. He doesn't even own any STRC. Like even he is
not in the, you know, cashflow phase of his life. And so it's like, but why am I staunchly defending
these instruments well it's like i just am allergic to retarded stuff or in my language um
you know and when people are coming out like really you know prominent bitcoiners who i respect
are coming out and saying things like oh my gosh guys so the arguments vary right some people say
it's either micro strategy or strategy is in a death spiral um which we'll talk about in a moment
why definitionally that is demanded just completely demonstrably false um number two uh they're going
to be a forced seller of Bitcoin, and that's going to create a ton of systemic risk to Bitcoin.
And then number three, they're marketing shit coins at Bitcoiners. So let's attack all three.
Number one, the whole strategies in a death spiral notion. Basically what a death spiral is,
you've had James Lavish on before. If you haven't, you've obviously spoken to him. Most people have
talked to him. Death spiral has been a term in markets for some time. James Lavish is the guy
who sort of introduced it into the Bitcoin macro space lexicon. Basically what it is, is when,
and this is specifically about the United States Treasury,
we have a ton of funding needs.
All of a sudden, when rates are as high as they are,
you have a really big interest expense
on your outstanding debt.
So to finance that, what do you need to do?
You gotta issue more debt.
But then guess what?
With rates staying where they are,
that's an even bigger interest bill.
And so it's an exponentially worsening spiral
where you have to accelerate your debt issuance, right?
And so you're basically eating yourself.
And then the marginal buyer of that debt
becomes the Federal Reserve.
So the debt-debt spiral, that's what it is.
You're basically a snake eating its own tail.
You issue this thing into affinity to find your own obligations, right?
Now, it doesn't make an ounce of sense for the MSTR complex.
Speaking specifically about stretch.
So for one, stretch is a perpetual preferred equity.
Perpetual, keyword, meaning there is no due date.
There is no maturity date.
There is no convert by date, right?
So the debt never comes due.
Number two, it's an equity, so it's not debt, right?
It functions similarly to fixed income in that there is a dividend yield.
Dividend yield, not a rate, but a dividend yield.
And guess what?
Because it's an equity, that dividend yield can be set by the committee.
It can be brought all the way down to zero if they needed to, but they won't need to.
And I'll explain why in a moment.
So because of that, they're not actual obligations that they are entitled to make.
They will continue making them, but God forbid, if anything happened, they could suspend them.
and then most importantly they are perpetual so they run forever right now what has happened over
the last couple of weeks is pretty standard right so strc spent most of its life around 90 bucks
literally most of its life go back and look at the chart if you're one of the death spiral people
most of its life around 90 bucks guess where it is now right around 90 bucks something happened
over the last couple of weeks if you were sleeping if you were in a coma for the last few weeks you
wouldn't know. But to clue you in, basically what happened is as Bitcoin massively crashed,
STRC sold off quite a bit. It sold off from $100 all the way down to $72. Oh my goodness,
it cratered. But for those of you who are not in the know about how fixed income products work,
price and yield are inversely related. When the asset sells off, the yield rises. It is simply
the market telling you they want a higher yield. Now, there are two reasons the market could want
a higher yield. Number one, they think that you are no longer credit worthy and they want to be
compensated for the associated risk with your company. Or number two, the asset that you're
buying using the proceeds from this fixed income instrument is going to have higher forward returns
and they want a higher yield as a result of that. It's number two. The market literally is just
saying, as is the case with any fixed income product, that it wants to be compensated more.
Why does it want to be compensated more? Well, did strategy suddenly get less credit worthy?
no, Bitcoin is down 50% from its high. And so instead of its forward returns being like 25%
a year, 30% a year till the next cycle high, chances are since we're near the bottom,
the forward annualized returns between now and the next cycle high are going to be like 50%.
And so obviously if the fixed income product is going to be used to fund Bitcoin proceeds,
and then Bitcoin will be sold to fund the fixed income product obligations,
you want to be compensated more than 11 and a half percent. So the market sold off to 13%,
Roughly speaking, strategy said, hey, we're going to increase the dividend yield all the way up to 12%.
Boom.
It rises from 72% all the way up to 92%.
The death spiral people go silent.
Like it was crazy.
I went on a crypto show just to be like the MSTR person.
How dare you?
Yeah, right?
Oh, my gosh.
Cross-pollinating.
No, I think that's good.
Because there are a lot of people over there who need to know this stuff.
And the guy that I was like debating with, he just – he ignored all of the stuff that I was saying.
And like literally within four days,
stretch was all the way back up to $90.
And on the show, he made ridiculous claims like,
stretch is never going to go back above 90.
It's never going to come close to 100.
This thing is going to zero.
Strategy is going to sell all of their Bitcoin When strategy sells their Bitcoin the market going to tank Well the reality is guys a fixed income product going down in price simply means that the market wants a higher yield Chances are in the case of a company that literally has an 11 leverage ratio meaning
they have virtually no debt, they have a better leverage ratio than most of the companies
in the S&P 500 right now, for your information, right?
So the risk of a debt spiral, virtually non-existent.
Anyway, all it means is that they want a higher yield.
Not because the company is at risk, but in this case, because of their balance sheet, because the asset has higher forward returns.
So that's number one.
Number two, strategy is going to be a forced seller of Bitcoin.
I explained why they can't be a forced seller of Bitcoin because of the preferreds.
They're not technically debt.
Bitcoin isn't collateralizing those products.
But let's talk about their other debt.
What other debt do they have?
Well, interestingly enough, I do actually happen to have, I think I can pull it up here, MSTR Corp.
Okay, perfect.
We can look at all of their bonds right now.
And we can actually go ahead and see if any of them are at material risk of actually, oh my goodness, how do I pull up the bond screen? This is not good. Hold on. MSTR, I'm a fake fan. MSTR Corp. Okay, perfect. Let's pull up the bond screen. And let's see if they're at risk of a death spiral, guys, where they're forced to sell their Bitcoin. Let's take a look.
Okay, let's look at the interest rate on all of these crazy, crazy outstanding bonds.
They're going to make them forced to sell Bitcoin.
0.625%, 0%.
That one got paid off 0%, 0.625%, 0.875%, 2.25%.
Okay, well, even though they're super low, they literally paid off all of their super high yield debt.
Well, maybe they're due like tomorrow.
So then they'll be forced to sell Bitcoin, guys.
When's the nearest one?
And oh, it's not until September of 2028, 26 months from now.
Interesting.
So basically it boils down to this.
Strategy only has about an 8% leverage ratio,
meaning the convertible debt, the debt outstanding,
which is all convertible, it's all on screen right now,
is about 8% of their total assets on hand,
the value of their Bitcoin.
So in order for strategy to be forced to sell Bitcoin,
you can see right here,
the interest rate on their nearest maturing debt is 0.65%.
It's not due for 26 months.
And there's only about $1 billion outstanding.
They have a $60 billion balance sheet with the Bitcoin.
So basically what would need to happen is Bitcoin would need to fall by like 94%
and then stay there for 26 months.
At the same time, strategy would need to have already burned through this entire cash reserve.
But at the same time, they would have not, basically, they would have not been able to raise a single dollar from capital markets between now and then.
Then and only then would strategy be forced to sell any of their Bitcoin.
Obviously, that's not going to happen, right?
Now you can kind of see how ridiculous this forced selling of Bitcoin thing is concerned.
So that's number two.
And then number three is that they pose systemic risk to Bitcoin.
And again, for those of you watching at home thinking I'm like some bag holder who's trying to rationalize all this stuff.
I don't own any MSTR. I don't own any strategy. I've never told people to buy or STRC. I've never
told anyone to buy those things. But guess what? Right. Like I'm still followed on X by Saylor
and he's liked posts where I say I don't own any of it. And I just got followed by Fong after he
liked a post where I said, I don't own any of it. So the question becomes, why on earth is all this
happening? Why are you so staunchly defending them? Because it is such a stupid notion to say
that a company with an 8% leverage ratio where all of their debt is not actually collateralized by
the Bitcoin and their only existing obligations or obligations they could shut off if they wanted
to. Oh, and by the way, there's still only a fraction of a fraction of a fraction of the value
of their Bitcoin. To say that they're at risk of selling their Bitcoin or more importantly,
they're at a systemic risk of Bitcoin is ridiculous, right? I'm in the business of
telling my viewers and telling anybody, right, the viewers of this show, like the truth. I want
to equip you with the most accurate information. I don't want to lie to you. And so like anybody
who's been telling you, like, make note, at least mental note of the people who've been saying,
this is a debt spiral. It's like two years from now, three years from now, four years from now,
and Bitcoin's at 350K, they're going to be awfully silent. And then the third thing is
there are systemic risks to Bitcoin. Well, I just pointed out how they won't be forced to sell
Bitcoin. But what if they do sell Bitcoin? What happens when they choose to sell Bitcoin? Well,
they literally unloaded a clip of 3588 btc on monday or over the course of the prior week
whatever but the point is they announced that on monday and the market went up the market didn't
bitcoin didn't go to zero so clearly bitcoin isn't prop propped up by strategy even that 3588
bitcoin sale which they did over the course of a week and a half is still only like a fraction
of 1% of Bitcoin's daily volume.
So you guys, strategy has proven
they could sell a fat amount of Bitcoin,
their biggest sale ever,
and Bitcoin will actually go out.
Like Bitcoin won't care.
And I just explained in no uncertain terms
why STRC is not a Ponzi scheme,
why it's not going to zero
and why strategy is not at risk of a debt spiral.
They won't become a forced liquidator of Bitcoin.
It's ridiculous.
Make a mental note of anybody
who's chimping out over this thing.
Do you think, and great breakdown
first of all do you think the sort of i know what what fong and i think sailor has said as well
talking about inoculating the market against the idea of strategy selling i mean that that thesis
seems to be playing out that's the fact that we didn't see a massive sell-off on the news that
strategy sold a fat stack seems to be indicative of the fact that the market is at least somewhat
inoculated to this like the market seems to have responded positively to it which goes against again
everybody every doom and gloomers predictions that well when strategy sells it's all over man
like and it just it's like that's just that's just not reality right yeah so it's like it's funny
like we use the word inoculate it's probably the only time in bitcoin circles you'll hear us use
the word inoculate positive anyway the the the whole notion of inoculating the market um basically
came around early this year. One of the major things, and it has to do with something that's
much bigger than strategy. One of the major things that has been sort of a hang up as far
as strategy is concerned is they're included in the NASDAQ because the NASDAQ adds big companies
in the US automatically. The biggest 2,000 companies get thrown in there, right? Automatically
based on market cap. That's it. But the S&P 500 is a little bit different. Even though it tracks
the 500 largest companies in the United States based on market cap, it can actually choose
whether or not to exclude companies at just at their win. There's a committee, not a lot of people
know this, called the S&P Global Committee. And they decided to not include strategy in the S&P
500 despite being big enough to do it and profitable enough to do it because of the FASB
accounting rule change last year, making it so that they can mark their Bitcoin unrealized gains
as profit. So then why weren't they included? Well, there were three reasons that the S&P Global
Committee gave for not including them in the S&P 500 and also assigning them a B minus credit
rating, making it so that a lot of the funds that might want to hold something like STRC cannot hold
it. Now, this is extremely significant for Bitcoin. Again, this isn't about strategy.
This is about a one quadrillion dollar global asset market having indirect proxy access to
Bitcoin via this company. The three reasons that S&P Global gave for giving them a B minus credit
rating despite having 60 billion dollars of bitcoin in the balance sheet is threefold i think
i just said the three reasons is threefold i gotta drink some more caffeine anyway reason number one
is that uh the s&p global committee said that they don't have a strong u.s dollar reserve their
reserve is only bitcoin they want to see at least 24 months of dividend obligations in a u.s dollar
reserve number two they said that they have too much of an over-reliance um on uh convertible debt
And number three, this is the biggest point, they have a reluctance to sell Bitcoin and specifically to sell Bitcoin to fund a dividend.
So basically, the moment S&P Global put out that report, Saylor and Fong hit the podcast circuit and started talking about, hey, we're probably going to sell some Bitcoin.
We're probably going to sell some Bitcoin.
We're probably going to sell some Bitcoin for literally three months straight.
And they said, we're going to do this to inoculate the market.
What does that mean?
inoculating the market simply means that we're going to um slowly but well the idea of a vaccine
in principle not in practice unfortunately put a bunch of aluminum and other stuff in it but
in principle the idea of a vaccine is they give you a little bit of the bad stuff so that your
body becomes used to it and it doesn't have an adverse reaction down the line now this is great
for stuff like polio and other stuff um anyway i want to talk about vaccines now but i know we'll
We'll get into it.
We'll get into it, yeah.
Maybe another time.
But that's the idea of the vaccine.
And so by inoculating the market, what seller means is sell a little bit of Bitcoin so that
the market can obviously have a crazy reaction and scream and go, but then get used to the
fact that, okay, strategy sells Bitcoin now, right?
You pivot from never sell your Bitcoin to, okay, this entity is going to sell its Bitcoin.
And then all of a sudden you've made it to that one day down the line when you choose
to sell a bunch of it to fund your dividends, the market doesn't have an adverse reaction.
But all of this is to get included in the S&P 500.
So what did they do?
They immediately built a US dollar reserve.
Then they retired all of their convertible debt.
That is non-zero rate.
I just showed the highest rate,
or actually they have one that's 2.25%, whatever,
but it's due in 2032
and there's only $800 million worth of it.
They retired all of their high yield convertible debts.
They address point number two.
Point number three,
they have a reluctance to sell their Bitcoin.
What did they decide to do?
So early June, early mid-June, I think it was early June, they decided to sell 32 BTC.
The market went crazy.
I don't think it sold off because of Saylor.
But regardless, the price tanked like 6% or 7% over the next week.
Oh my gosh, mania.
They sold 32 Bitcoin, which is literally like, you know, three seconds worth of volume for Bitcoin.
The market went crazy.
And then after all of the dust settled, after everybody stopped screaming,
and then as a result of that, MSTR collapsed in price.
STRC collapsed in price.
Everyone, every strategy, doom and gloomer,
went out and adjusted their bow ties
and tipped their fedora and said,
I told you so, everybody.
And then all of a sudden, everything's fine.
A couple of weeks later, right?
STRC recovers because they announced
they're increasing the yield.
MSTR recovers, Bitcoin goes back up.
And then what does strategy announce?
After it has formally inoculated the market
and they've allowed the market
to have their temper tantrum,
they sell 3,500 Bitcoin, almost 3,600,
and the market closes green.
So that's basically what happened here.
All of this is very intentional in order to do two things.
Number one, and this is why it's so important to Bitcoin,
to show to the S&P Global Committee that they've addressed all three of these concerns
and increased the likelihood that they're included in the S&P 500
and that strategy has a higher credit rating so that more people can own SDRC.
But more importantly, right, and obviously that's going to open up strategy
if they do get included and if they do get a better credit rating,
that opens the floodgates as far as capital is concerned.
Imagine every retirement account that allocates to an S&P 500 index fund, which is a lot, passively allocating to strategy every two weeks, therein giving them the funding needed to buy more Bitcoin.
So they are indirectly buying Bitcoin.
So like every American retirement account funding Bitcoin, crazy thing number one.
Crazy thing number two, SCRC being the beneficiary of a higher credit rating from S&P Global would mean that all of a sudden, instead of mostly retail investors holding this thing, all of a sudden, like massive fixed income desks, family offices, institutional funds that have fixed income mandates.
Fixed income is a $300 trillion market, by the way, more than double the size of the equity market.
All of a sudden, they could buy SCRC.
They could buy any other debt instrument or preferred stock instrument that Strategy issues down the line.
And all of a sudden, Bitcoin has its first major break into the global bond market.
That's why Strategy did what it did.
And more importantly, this represents an evolution in their business model.
And this is something that I've been discussing.
I've said for a very long time, I want Strategy to sell their Bitcoin.
Why is that?
Well, because of the business model I just explained a moment ago.
once the Bitcoin ETFs came out,
MSTR sort of became relatively irrelevant
for a lot of equity investors.
They originally were kind of like
a levered closed-end fund for Bitcoin,
but then the spice is kind of gone
once you have like 20 Bitcoin ETFs
that you could buy instead.
So they needed a new funding mechanism.
That funding mechanism became STRC.
There are the preferred equities
to tap into the fixed income market instead.
STRC specifically is now going to be offering
a 12% yield, right?
So your funding source has a 12% yield.
The asset you're buying on a forward-looking basis
has anywhere between a 30 and a 45% compound annual growth rate.
You use this to buy this, and then you sell enough of this to fund this, right?
And then you keep the spread. That is a carry trade. That is financial engineering. That is what every hedge fund globally does. They're pivoting from just buying and holding Bitcoin and doing nothing to becoming an active Bitcoin capital manager that is creating pseudo Bitcoin backed bonds for a $300 trillion market while a ton of the Bitcoin OGs cry and get upset for some reason.
despite this being a massive development as far as Bitcoin is concerned
from a structured finance perspective.
And look, one of the main,
and so that's basically the TLDR of why they did what they did
and why it's so important.
And I understand, like, a lot of people,
the other point of contention I forgot to bring up
is that many people will say, well, MSTR is not a Bitcoin alternative.
I know.
Anyone with two brain cells to rub together knows.
Anyone whose IQ is higher than the room in the temperature, the temperature of the room
they're sitting in knows it was never marketed as a Bitcoin alternative.
Neither was STRC.
They're not shit coins.
They're targeting an entirely different corner of the market than Bitcoin.
I've never claimed it's Bitcoin.
Walker has never claimed it's Bitcoin.
Anybody who owns MSTR or STRC doesn't think it's Bitcoin, right?
A lot of the people who are STRC detractors and MSTR detractors, beyond the death spiral
garbage, they'll say, well, you know, people don't know what they own. People don't know what they
own. Okay, wonderful. Like, do you think that they think they own Bitcoin? Do you think that
they're morons? I mean, potentially, but it's a pretty low likelihood. And furthermore, do you
think that basically anybody who buys anything in the equity market every two weeks passively
through their employer managed 401k, do you think they know what they own? Do you think it's more
responsible for them to own a random basket of goods and that that's extremely overvalued right
now, by the way, versus a fixed income product that's yielding an extremely conservative amount
relative to the asset that's underpinning it. Like, which is more responsible? You know,
you can take issue with the marketing, whatever, AI generated ads, sure, fine, whatever, you take
issue with that. But all of the other stuff, all of this death spiral, forced liquidator garbage,
like it's just so silly. And a lot of people are going to lose a ton of credibility over the next
couple of years. And we'll be awfully silent when it turns out that as I'm explaining now,
strategy's fine. Bitcoin is fine. It lives to TikTok next block another day. Anyway, I digress.
No, I really do appreciate the breakdown because you're speaking right to my soul there. And I think
to a lot of people who have actually been paying attention to this and have a couple of brain cells
rubbed together who have thought that the criticisms have just been like, yeah, lukewarm
on the IQ scale at best. Because the other thing I think that people, I think there's a couple of
cohorts that have really been coming out hard against Saylor, right? There's like the Tardfi,
you know, excuse me, Tradfi folks who just like don't like what he's doing because it's got
Bitcoin involved. There's the crypto people who don't like that Saylor just did financial
engineering on top of Bitcoin and created stuff that was way more successful than any of their
like fraudulent financial engineering schemes where they printed tokens out of thin air.
So they don't like it. And then there's the Bitcoiner crowd of Bitcoiners who are either
confused because they think that people think that mstr is bitcoin which it's not uh again joe made
that point very clearly here i am making it again it's it's not nobody thinks that it is guys like
and if if you do like i don't know like probably pretty dumb um but i think that a huge part of
some of the bitcoiners getting really like hot under the collar about this has been they feel
like somehow the messaging has changed or he or sailor is not he's not talking the way he used to
And what I say to this is it's like, first of all, you have to realize he's not trying to appeal to you, the Bitcoiners, who are just buying Bitcoin anyway.
He's trying to appeal.
Bitcoin's a little over a trillion dollar asset.
He's trying to appeal to the other $999 trillion worth of capital floating around in the world.
He's not trying to appeal to the trillion dollars worth of capital that's already in here that isn't going to buy MSTR anyway.
That's not his goal.
He's not trying to speak the Bitcoin or language.
He's trying to open up a wider net.
I also think to the people who are like, oh, you know, he's clearly, he's clearly like lost.
He's not thinking like a Bitcoin or anymore.
He's like, well, insert whatever thing, whatever problem they have with his language.
Right.
It's like, Sailor's like a very intelligent guy, like highly, highly fucking intelligent.
If you've talked to him for more than a couple of seconds, that becomes very clear.
If you've listened to his, any of the bajillion podcasts he's been on, you should probably
know that.
When God made sailor, he took all of his social skills down to zero and then ramped the intelligence
up to 99 and stuff. The guy's off the charts, right? Like an outlier from an intelligence
perspective. Now, people seem to think that somehow sailor like changed. And like, I encourage
you go back, listen to his, when he was first getting into Bitcoin, the way he speaks was
speaking about it then Yeah He changed the way he speaks about it now because he also trying to cast a wider net but it also the fact that he created something that is very very very very large now and very I would say significant and important
He knows that he needs to, you know, be mindful of his public relations, let's say.
Go back and listen to the way he used to talk about Bitcoin.
I guarantee you the way he feels about Bitcoin and what he thinks it is going to usher in has not changed.
he's changed his messaging around it because he's smart enough to realize that you need to be careful
of what you say sometimes and you can't be out there being like bitcoin is going to end the you
know end the dollar and usher in a glorious orange revolution when you're the he's faced with the
same intensity but he's not he's not going like bitcoin's gonna grow a million dollars tomorrow
and you know like he's not saying that stuff it's almost measured right yeah exactly it's like a lot
The people who are saying Saylor is not a Bitcoiner, like after you watch this, type in hope.com.
See what comes up.
Do you wonder who owns that domain?
It's Michael Saylor.
It is a Bitcoin website.
He pays for hope.com.
And I guarantee if you look up GoDaddy.com, whatever, I guarantee it's like a million a year at the very least.
So this guy is forking over seven figures a year at least in order to create a website that talks all about Bitcoin.
Hope.com, right?
like it's it's almost it's very like his messaging on bitcoin has changed his intensity and the way
he speaks about it is no different right he's trying to cast a wider net it's almost like i
don't know if walker if you remember the clip of trump and there may be some libertarians watching
so i'm not trying to offend walker i don't know if you're a libertarian but it almost reminds me
of the clip when trump went to the libertarian conference and he was pining for votes and he
was talking about ross elbrich and all this other stuff and then he said something that upset them
and then he like like he snapped for a second he's like oh do you guys just want to vote for me or do
guys want to keep losing? You know, like you guys get, do you guys want to get 1% of the vote over
you? And it's like the same thing here, right? Like sailor is simply trying to cast a wider net.
He's put on the suit. I mean, he always wore a suit for the most part. Sometimes you wear t-shirts,
but it's like, he's put on the suit. He's changing his messaging around because he's trying to cast
a wider net, right? Not everybody is going to listen to the cyber Hornets, cyber Manhattan
stuff. Okay. Like we might love that. We eat that up. You were watching the Bitcoin podcast after
all. Like we eat that up, you know, but most people don't. And so it's like the question becomes,
okay, this guy's a Bitcoiner, like unabashedly a Bitcoiner. There's really no argument there.
So do you want to, like, you can take issue with his marketing or whatever, but like,
do you want to win or do you want to be like principled? And then Bitcoin, you know,
never actually penetrates these markets. It becomes, I don't think anything bad will happen
if strategy doesn't succeed, but it's like, why on earth wouldn't you get behind the guy who's at
least attempting to do this you know anyway yeah no i mean great points all around it's like i think
that sailor has been hugely positive for bitcoin i think anybody who thinks otherwise has some sort
of axe to grind that's fine you're entitled to your opinion but i just it feels pretty objectively
clear i'm curious do you think uh we didn't touch on this but a lot of people also seemed very much
thrown for a loop by the fact that you know sailor was like well we're gonna sell some bitcoin you
know, we might sell some Bitcoin, but we'll buy more than we sell. And people are like, well,
how does that work? And like, do you think, can you, can you, can you, can you explain that a
little bit, how, how that could possibly happen? And do you think strategy, let's say 10 years from
now, 20 years from now is going to have more Bitcoin than they do today? I absolutely will.
I'll explain it for those who might not know. So this is a calculator and I'll go ahead and
explain how they could be a net buyer of Bitcoin forever. So let's assume, let's just even assume
like bear case. Bitcoin only does 20% over the next 20 years. That would really stink, but it
would still be a desirable asset over the S&P 500. So let's do bear case. This is how strategy does
it. Ready? Bitcoin's doing 20%. And in order to fund that purchase, strategy offers an asset,
STRC. Let's just say it stays at 12% right now. It doesn't decrease, which it likely will during
the bull market, right?
It likely will.
But let's say it stays at 12% regardless.
So Bitcoin's rate of growth is extremely low,
historically speaking.
STRC's rate of growth is extremely high,
or its yield is historically high.
So you've got a 20% asset on one side
and a 12% funding mechanism on the other side.
Now, I want people to look at that number there.
You can see that there is no negative sign
to the left of that number.
That is what strategy would make in this scenario.
And then guess what?
You roll those 8% proceeds into Bitcoin purchases, rinse and repeat, that 8% is the Bitcoin you keep, right?
That 8% differential is the Bitcoin you keep.
So that's my demonstration on how a strategy could remain a net buyer of Bitcoin forever.
You could send donations to me.
I know that was a very, very complex explanation.
No, but to be in all seriousness, the way that this would work is sort of how I described.
And it all boils down to like,
if Bitcoin continues doing what it always has done.
And so arguably, like if you remove
all of the corporate risk with strategy,
of which there are unique corporate risks because they a public company and they a company generally Bitcoin is not But if you exclude all of those the risks to STRC and strategy ability to buy Bitcoin
forever are the same risks to Bitcoin, which is that it drastically underperforms or does
nothing, right?
Strategy can only continue buying Bitcoin so long as its CAGR outpaces the yield on STRC
and its other products.
And even if it does underperform, they could always lower the yield, right?
You offer an instrument.
you are funded in an instrument that has a lower yield than the growth rate of the asset you're
buying. And then you sell enough of the asset that you're buying to fund the yield. And then
you keep the spread, right? So that's how they generate free cashflow. They have now moved into,
like, as Fong said, an active capital management company. I've described as a Bitcoin transmutation
machine. You have people who either don't want to hold Bitcoin because they're older, they're
retirees or fixed income, whatever, right? Or you have people who cannot own Bitcoin because they
have mandates to hold fixed income or mandates to not hold commodities or Bitcoin or anything else.
And so that's what SGRC is serving. That's the market that it's catering to. And so effectively,
what they're doing is they're taking Bitcoin's high growth properties, transmuting them into a
very high yielding, but still a fixed income asset that is delivering a fraction of what this thing
is doing. And then they're keeping the difference, right? They're selling enough of this thing to
fund this thing. And then they keep the difference. Then they sell more of this thing to fund this
thing. They sell enough to fund this thing, keep the difference, right? That's the flywheel.
And now the Ponzi argument is officially dead. They have said that they want Bitcoin sales to
be their primary funding mechanism for the dividend. I don't know what CoffeeZilla is
going to make a video about. He interviewed Jeff Walton. I don't think it's ever going to show up
in a broader video. That was painful. That was so painful to watch. Because he killed the Ponzi
argument, right? He killed it, right? He has demonstrated and he has stated outright that he
wants to sell Bitcoin. And that was my explanation of how they plan on doing it while remaining a net
buyer. Do you think MSTR ends up making it, getting that S&P 500 inclusion anytime soon
with these recent moves? No, I think they're going to keep moving the goalpost. So I think
this was really huge. And I think if there was an ounce of integrity with the people at S&P Global,
than they would, right?
But I think they're gonna keep moving the goalposts.
I think at some point there'll be a tipping point
where it's like, they're such a large company.
They're like, you know, $300 billion in size,
half a trillion dollars in size, five, 10 years from now.
And like, they have to, you know?
But I think they're gonna keep moving the goalposts.
And the reason I say that pretty confidently,
despite strategy fulfilling these three objectives,
is because these are the same people
that gave the banks who are yielding subprime mortgages
in 2008, like AAA ratings, right? They were giving all of these garbage fixed income products that
was literally like shit with shit layered on top of it and then smeared in between. And then they
were giving those AAA ratings and like, yeah, there have been reforms, whatever, but it still
winds up being a committee reforms, right? They bailed out the banks after all, and not you.
There continue to be, you know, there's still a committee involved. There's still a committee
that has the final say.
And as long as they hate Bitcoin,
which is kind of the popular thing still,
I don't know how,
they're going to continue rejecting strategy.
But you can only grow so large
and be so successful for so long
before the demand for it
becomes so widespread
that at some stage they will be included.
I just don't know if it'll be this year or not.
Yeah, it's fair.
We don't have a crystal ball
and never underestimate the ability of
fiat regulators and rule makers to continue trying to protect their own moat as much as they can,
right? Joe, we're getting a little close on time. So I do want to ask you kind of to round things
out a little bit. I mean, you mentioned earlier, sort of think that, you know, let's say we're
either near a bottom or bottom is going to form sometime. I think you mentioned like October,
December timeframe. It's an interesting year. You know, we've got sparkling conflicts in the
Middle East because of course they're not wars because we haven't declared war since World War
II. So just sparkling conflicts. We've got midterms coming up. I think a lot of people are
feeling uncertain right now, just broadly. I'm not even talking about Bitcoiners,
not even talking about Bitcoin price, just on a larger level. It seems that, you know,
entropy is doing its thing right now. What's something that sort of grounds you? Because
you're clearly someone who has a continues to maintain a high level of conviction in Bitcoin.
And I think you're a very, you're, you know, you're a very hopeful guy for the future.
What helps ground you?
What what gives you that conviction?
What do you look for as sort of that that, you know, guidepost for yourself?
For sure.
Well, I mean, I think from a Bitcoin perspective, like I, I have such high conviction in this
asset because I have done I've done my 1000 hours of podcasts.
No but well it like you know this asset was sort of uniquely designed in such a way to hedge against the very thing that we can prevent here in the West which is the slow and gradual monetary debasement the slow you know this financial repression of
keeping interest rates artificially low to inflate away the debt because that's the only thing we can
do. Bitcoin, its monetary properties are such that it's designed to benefit from that more than
anything else. And so as long as like the machine keeps humming, which it will because it can't stop,
then Bitcoin won't stop either.
So as far as a Bitcoin perspective,
that's sort of what grounds me,
is that reality that the problem's never going away
and nothing has killed the solution yet.
Nothing can really kill the solution
other than the problem going away, and it won't.
So that's sort of the way that I like to explain it.
And then as far as other stuff,
like grounding myself generally,
just like an insurmountable faith in God.
Like for those of you who might sort of be on the fence,
like I want to let you know that God loves you
and he wants to be in a relationship with you.
And like, he wants to know you.
Like he created you, he formed you.
There's a reason you're here.
And it's, part of it is to watch the Bitcoin podcast
and part of it is to listen to the show.
But like you were put here for a reason, right?
And so like, he loves you.
He created you for very, very important things.
And he wants to get to know you.
So like going to church every single Sunday,
serving there, reading my Bible,
praying relentlessly, like that has been the major force in my life that's grounded me despite all
the chaos. Because I know that like, if this world goes away tomorrow, right? So long as I, you know,
I'm as faithful as I believe I am, you know, and obviously we're all sinners. Then like, if everything
went away tomorrow, I could be fine. Like if I was living under a bridge tomorrow, it wouldn't be
ideal, but I'd be okay because this is not my home, you know? So that's sort of what grounds me,
It's sort of like the exact opposite of the nihilistic stuff.
The nihilistic stuff is like, well, nothing matters.
But then like the Christian stuff is like, nothing matters, right?
Because it's like, it's the same phrase, but said differently, because it's like, we have
an eternal home in heaven.
We were sent here to spread the gospel.
We were sent here to live like Jesus.
And so it's like, you know, come what may, I'm going to be all right.
Because at the end of the day, like all of this stuff, my flesh and bone is going to
rot off my body within a hundred years.
And like, I won't be here anymore, you know?
So you can either take that in a very nihilistic way or in an eternal way.
So, yeah, that's sort of kind of what grounds me, I suppose.
I don't know if that's what you were getting at the question.
It was, actually, on both counts.
Well met there.
Now, Joe, I really appreciate your time here.
This was a blast.
We're going to have to do it again.
I know you'll be back on BitCast.
You're becoming, you know, a regular feature there, and the chat loves you.
Thumbnail.
Thumbnail, that includes me.
We really, I've got to talk.
Nathan's on vacation or something, thinks he can just take time off.
Absolutely ridiculous.
There are no days off in Bitcoin, Nathan.
But no, tell people where they can find you.
I'm sure that there are going to be, if they didn't know about you already,
hopefully some more people want to check out your work.
You talk about a lot of stuff on your channel as well.
So where can they go find your channel?
Where can they like, subscribe, and follow and all that jazz?
Absolutely.
Well, Walker, thanks so much for having me.
I really do appreciate it.
And for those of you who want more of what we talked about today, minus the vaccine stuff, unfortunately, because I don't want to get demonetized.
We'll get into that next time.
Just search Joe Consorti on YouTube.
If you're watching this on YouTube, just click that collab link that's down right there.
Click on that.
Check out some videos.
And if you like what you see, hit subscribe.
If you're watching this on Noster, wait until the very end of the show.
And then just search up Joe Consorti and you can find my videos on YouTube.
That collab link thing is the most useful thing YouTube has done in a while.
It's fantastic.
Absolutely love it.
Well, Joe, thank you for your time, man.
Love picking your brain.
Love the work that you do.
So keep it up, man.
We need more of it.
And guys, make sure to go subscribe to Joe.
Thank you for those who joined on Noster.
Thank you for everybody who's watching this after the fact.
I appreciate each and every one of you.
Joe, it's been a pleasure, man.
Hope we do it again soon.
Likewise, Walker.
And that's a wrap on this Bitcoin Talk episode of The Bitcoin Podcast.
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