You've had a dynamic where money has become freer than free.
You talk about a Fed just gone nuts.
All the central banks going nuts.
So it's all acting like safe haven.
I believe that in a world where central bankers are tripping over themselves to devalue their
currency, Bitcoin wins.
In the world of fiat currencies, Bitcoin is the victor.
I mean, that's part of the bull case for Bitcoin.
If you're not paying attention, you probably should be.
Ryan, thank you for joining us.
I think this will be an interesting discussion because I think you've been heavily immersed in what many would deem to be the TradFi world for years with Embry Asset Management.
You founded it in 2008, so I think you've been through a couple of TradFi cycles.
Interesting, founding an asset manager in 2008 when the world was a bit more chaotic.
So I think to really set up this conversation is, let's go back to 2008,
starting Empery Asset Management, being very successful in that world,
and then coming to find Bitcoin and really lean into it full bore.
Yeah.
It's really through conversations like this that makes me think back to what that was then,
because 2008 was a fascinating time, right?
It was a true financial crisis, right?
Driven by finance, consequences to finance.
It was just financial all around, right?
money markets trading at discounts to, to their, uh, you know, par value or a dollar, right. That's,
you know, hard to fathom that cash is trading below cash. So, but you know, we managed to get
our, uh, funds together and we were supposed to launch with 50 million bucks. Uh, we ended up
launching with five, uh, cause everyone just panicked, like literally like had signed subscription
agreements and just panicked. So, you know, we've seen it. We didn't hold people to, you know,
their subscriptions, uh, because everyone was just too nervous. And we just said, you know,
hold your money and watch us perform and come in when you're comfortable.
Uh, cause everyone was scrambling for every dollar they could sort of secure at the time.
Uh, so it was interesting. And then when we first started, the biggest risk was we held cash,
right and depending on where your cash was and what bank it was in like cash was at risk if that
bank went under so we had multiple bank accounts we had goldman we had jp morgan we had jeffries
and we had like td uh and we i every morning i had wire instructions with the balances in the
accounts to be able to move them out based on, you know, the bank potentially collapsing.
So I could just quickly move. And that was, you know, you couldn't do electronic wires. So it
was sort of like you're faxing or scanning wires to the prime broker to get the funds out and trying
to be ahead of everyone else. Because, you know, if you were a little bit slow, you were going down
with the ship, right? And then you got to go unscramble the eggs and get your money back,
which could take a decade in worst case scenario or maybe long case scenario.
So that's what we were dealing with.
Investing was almost secondary.
It was protecting our cash and then finding interesting things to do.
So we've seen, I think, the worst right out of the gate.
And then we performed well.
We stuck to our discipline and we made money.
We effectively were doing and still are doing private equity style investments
in the public markets, structuring transactions with public companies
and funding whatever their mission to growth was.
And we've been doing that for almost two decades now.
Generating good returns.
What's it like structuring these deals?
Is it sort of white label, go in depending on what the particular company is,
what their goals are, really sitting down with them and getting it done?
Or is there some formula to this?
So it's very much a bespoke market.
Every provision, every aspect, every term is negotiated with that issuer based on what the risks are there, what we're seeking for upside.
How much risk tolerance do we have?
Are we structuring as equity or structuring as a convert?
We'll go all the way up and down the capital structure from senior secured debt to just plain vanilla common with no rights whatsoever.
So we'll go depending on what the situation is, right? Because that's kind of what investing is. It's fitting your structure and the capital to their needs if you like the situation.
So, you know, hundreds to sometimes thousands of pages of documents for each transaction.
We've done over 2,500 in the last 18 years.
So we have a machine, but it's a very cumbersome machine.
And then it's also organizing all the investments you've made and understanding all those provisions, which, you know, the current iteration of AI and all that stuff is helpful with that.
but you've got a big file to manage as well.
So you have to have a good operational team for that.
So doing this since 2008,
as you're describing that,
I'm thinking in my head,
how much has the scale of these individual deals changed
as you've had QE1, QE2, COVID, stimulus?
How much more money is being demanded by these deals?
I'm just curious specifically.
I mean, back in 2008, it's a good question.
Back in 2008, it was very spotty transactions.
Like very little was getting funded.
And it was only things that, you know, made a lot of sense that were like distressed.
Like Heckler Mining was one where it was like the biggest silver producer in the country.
It was on the verge of bankruptcy.
So you go in, you fund that and you kind of resurrect that asset.
and you take bankruptcy off the table and then it really performed really well.
It was very kind of niche things like that that made sense to finance in that environment.
And then COVID was the exact opposite, right?
COVID was people were throwing money at everything because liquidity was crazy and performance
was crazy and you could manage a ton of money and recycle that money with returns.
I mean, I don't think you could get more of a disparate time than from financial crisis to like COVID.
And then it's, you know, it's the risk capital has been off since the end of COVID, really until the last 12 months.
And even that's been spotty, right?
Biotech's come back.
Obviously, the AI boom.
There's different sectors that are moving, but we don't have a broad market rally.
There's some interesting things going on within the market that has kind of kept it from being broad, right?
There's just a lot of change happening.
Do you think this is over-indexing on the AI boom specifically?
I think that's attracting a lot of capital, right?
And then you have this whole, like, what's happening to the middle management world, right?
Within all these corporations, AI is sort of replacing a lot of the mundane work, right?
As a senior person, how many middle management and junior people do you need when you can just get your information from, you know, a chatbot, right?
And when you have the smartest person within each sector available on an AI engine, at least to start your work and, you know, initially educate you on that, how, you know, how much work do you need from your middle management?
And how much of that can you slice out?
And I think we're seeing that across the board.
And a lot of, you're going to see it in law firms.
You're going to see it in accounting firms, right?
You're going to see it in even companies like Amazon and, you know, all these, you know,
cloud computing companies, right?
You can eliminate a lot of that data analytics because that can just be automated.
So it's a, the economy is kind of trying to figure its way through this.
Employment is trying to figure its way through this.
Right.
Because it affects the different ends of the spectrum differently.
Because I think about here a media company of four or five people, what it's allowed us to do to extend our productivity and efficiency.
It's been miraculous over the last two years, really leaning into it.
But then you have these behemoths with tens of thousands of employees where they're going to meet in the middle.
So I've been very vocal about this.
If you're a small team starting up right now, it's never been a better time to start a business.
But if you're a large corporation with a bunch of headcounts and SG&A, there's going to be some tough conversations moving forward.
Yep.
Like my son runs a 3D printing.
He's like 15.
He runs a 3D printing business out of our basement.
And I could have never even dreamed about doing that, right?
Because everything is automated.
He gets all his own and he can run a full business while in school, right?
Just the ability to leverage that technology and leverage automation, leverage information, right?
He's like, oh, I want to buy a new 3D printing.
Hey, ChatGBT, compare these two models.
Tell me what's better for this and that and that.
And it'll categorize all the areas where different 3D printers are better, different engraving machines are better, right?
from the community it has to the, how you repair it with, you know, uh, YouTube videos and who has
more YouTube videos to be able to make a repair on something or replace a part or whatever.
It's just, it's a different world. And like you were saying, it's not just that you lay people
off. It's that you never hire them in the first place because you can leverage your internal
resources and grow. Yeah. So it's fascinating. That's funny. We had, um, a 15 year old on the
show last week, Stella, she's at the Alpha School in Austin where they're really leaning into AI.
And she was showing her Masterpiece Project, which is some game storyboarding app that'll
eventually become like a gaming application all built with Claude Code. And speaking with her
made me very encouraged for the younger Gen Zs and Gen Alpha because it seems like they're
leaning into it and it's going to be massive for them. Right. They can leverage it. We're
We're not smart enough to be able to do that because we didn't grow up with it.
We're just trying to survive.
Speaking of survival and transitioning to Bitcoins,
I think that's one thing I'm into Bitcoin for.
I think we're in this transition into the digital age,
and we've sort of got to shed the skin of the incumbent system,
a big part of that incumbent system being the financial system,
which is riddled with debts and perverse incentives, depending on where you look.
And I view Bitcoin as a solution to a lot of these problems, particularly the debt issues that exist.
I think we need to recapitalize the system with better collateral.
And obviously, what you're doing in Empree Digital, it seems like you have come to a similar conclusion.
So what led you from what you had been doing to really, I don't want to say drop everything,
but like look at bitcoin and say oh i need to lean into this pretty heavily so i will say out
of the gate you say shed the skin i think that's a really good comparison because uh in this world
that we live in today let's just say tradifies the snake skin that doesn't want to come off
right it's not it's not like the snake skin where they voluntarily shed like here bitcoin's trying
and insert and the skin's like i'm not letting go i'm hanging on to the snake right uh so it's
the transition's tough um because there's a lot of fighting overtly and covertly right i see that
on a daily basis um especially coming from trad fi and understanding how it works um but my our
transition started because for the longest time, we were a registered investment advisor with the
SEC. And SEC was enforcement, enforcement, enforcement. They were going after anyone
in the digital asset world, whether you're doing something right or whether you're doing something
wrong. And like any industry, a lot of people are doing things wrong and some people are doing
things right, but it didn't matter because they just, they had a blanket approach to,
if you're in digital assets, if you're in Bitcoin, if you're doing things within crypto,
you must be doing something wrong. That was kind of the approach. And for us as a registered
investment advisor that could be audited by the SEC you know any given day right They come in every couple of years or every few years and they could do it at any time And you know I didn want to be in the position where I was even having to address that
right? I got enough problems, you know, organizing our business as it was and,
you know, presenting it to the SEC in a way that gets them comfortable.
And then you go and you add this whole thing on, right? And then you just give them this avenue to
just dig and explore and put the radar off. So under Gensler at the SEC, not something that we
were willing to dabble into as much interest as we had in it. And I did struggle with it, to be
fair. I struggled with the purpose. And the purpose is a lot easier to describe when you don't have
all these bureaucratic hurdles, right? Once the bureaucratic hurdles drop and you can actually
see the thesis playing out, which is the ultimate store of value, right? And fighting the debasement
of all these currencies, right? Take away that bureaucratic ceiling and then have that thesis
and starts to look really interesting. And that's when we were like, okay, like administration is
clearly behind this. Gensler's out. All the enforcement people at the SEC were eliminated,
right and everyone even if you were involved in fraud related to crypto you were still getting
closing letters from the sec saying we're no longer pursuing this matter it's closed
right you start seeing stuff like that and you're like okay this this is safe zone for someone like
us who's trying to stay on the straight and narrow and we like it but how can we actually get in it
And the DAT was a very fast way to get a ton of exposure to Bitcoin, you know, kind of overnight, right?
As principles of a fund, as investors for our fund, we thought that they should have exposure to it.
We as individuals wanted exposure to it.
And then we're capital markets guys, right?
Like I started out describing, we do transactions in the public markets, investing in all these public companies.
That's what a digital asset treasury is, right?
It's a capital market strategy to try and cheaply raise money or efficiently raise money in the public markets with all the relationships that we have to add Bitcoin per share.
And if you're right in that sweet spot and you like the Bitcoin asset, it just seemed to make a lot of sense to just kind of take our team.
Don't take the risk of building a new team.
We had our hedge fund team.
Plop the four people in that had the skill set to be able to execute that capital market strategy within the public markets.
And boom, you're off to the races.
Then the trade blew up.
But that's a separate discussion and probably a longer discussion.
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slash TFTC. Let's dive into it because I think it ties in. I think there's a lot of broad
skepticism of the digital asset treasury play, obviously, since really going back to beginning
of the year when strategy started coming off its highs.
And then obviously in the summer when things really accelerated and now probably 28% to
30% off Bitcoin's all-time highs.
People are asking the question, was this just a fad or is there something here?
And so I think starting with the debt strategy at a high level, does it actually make sense?
Obviously, I think you do.
Why does it make sense?
to deploy a strategy like this,
and then we can get into the sort of incentives
that have been introduced with individuals and companies
like Empree Digital leaning into this.
Is it viewed as a threat to TradFi,
and are there moves being made to quell the threat?
Yep. Yep.
does the, that thesis make sense? Um, it does under very specific circumstances, right?
Like I understood that this was a big fat trade when we started on the journey, like from, from,
I literally, from when I came up with the idea to when we closed in the $500 million, it was six
weeks. Like I, we banged it out, right? We had the thesis, we identified the bankers, we identified
the public company that we would go into. And then we put our roadshow together, our presentation
materials together, refined the strategy, figured out where we wanted to live within the debt world.
Because a lot of the stuff we were looking at from the hedge fund side was everyone seemed to
have a lot of expenses associated with their debt, whether it's this asset manager agreements that
were like between like 1% and 3% for doing what? Like the public company was outsourcing
the management of that asset to a third party for some exorbitant amount of fees.
That didn't make sense for us because you're like, as the public company, that's your job,
right? You're the fiduciary over that asset, manage that asset to the best of your ability.
And if you don't have those capabilities, probably shouldn't be in the strategy,
right? And you got to keep all those expenses down. You can't have big corporate overhead.
You can't have big salaries, right?
So we came in really cheap, right?
Low salaries.
And we're put $25 million from our hedge fund in.
So we're like, okay, now we are all aligned with the investors and we got to run this
thing really efficiently, right?
Keep the corporate overhead down, the salaries down, keep the option packages.
So you're not issuing more options.
You're not milking this.
This is not like a lifestyle public company, like a lot of these smaller public companies
are.
We're like, so when does this make sense?
And I think it makes sense. And we did it because we felt that we could make it make sense. And a lot of them are just too bloated. And when the trade collapses, right, when you come near NAV or below NAV, how are you servicing all those expenses? Because are you selling Bitcoin, right? Because you can't sell your stock anymore because that's, you know, you're diluting Bitcoin per share. And are you selling Bitcoin?
you're slowly going to bleed out Bitcoin to service the public company. That's not a good
scenario. Do you have the internal capabilities to be able to trade derivatives and get some yield
on that stack? Can you sell calls? Can you sell puts, collect that premium? Can you do put spreads
and call spreads? And can you play that game without risking your stack and actually generating
value for your investors. And I think if you can't do all those things, then it's a stupid trade.
It doesn't make sense. And even if you can do all those things, who knows if the market even
cares. Maybe they just rather own Bitcoin directly. So we remain with the thesis that
I can protect your Bitcoin because I can have multi-custodial relationships. I can have it in
cold storage. I can have insurance at each custodian. I can have an overlaying insurance
product that protects the Bitcoin generally. I can trade derivatives around it to generate cash
flow to offset corporate expenses. I can do capital markets transactions like buy my stock
back to add Bitcoin per share and modestly leverage against that stack. So there's a lot
of tools that you can pull from. And I think if the public debts are set up like that, where you
have the flexibility to use your stack to borrow against it, where it's not leaned up right out of
the gate, where you have a senior secured convert against it, and it's sitting in some account
control agreement where you can't touch it, you can't post it for collateral. Because as you
probably know, if you're going to trade on Darabit, you're going to trade with these market
makers like a Falcon X or a Gemini, you got to post your BTC. And if your BTC is stuck in an
account control agreement, you can't post it. So you can't trade derivatives around it. So you're
kind of like stuck. So if you've got the right setup, I think it can make sense. I think a lot
of people get nervous about holding their Bitcoin. So I can hold it and protect it for it. I can trade
derivatives around and then I can do capital markets transactions to add Bitcoin per share.
If I can do all that, then I think you've got something, but you also want the asset to work,
right underlying the whole thesis is yes it's got to work right and so you got to believe in bitcoin
and you got to start there and that's we started there and then we built it behind it and
you know it has been a difficult asset for the last call it three months right started to break
a lot of people's confidence in the asset.
And I think that's a topic worth exploring
is we got all these tailwinds,
but something's not right.
Yeah, a lot of tailwinds.
It was interesting because we posted,
it doesn't make sense to a lot of people
what's happening.
Obviously, the administration,
you mentioned the SEC,
the bureaucratic morass
that the industry has been subjected to
for many years seems to be behind us.
we want to be the Bitcoin crypto capital of the world.
Executive order around a Bitcoin strategic reserve.
You have banks announcing, it seems like daily at this point,
some sort of integration with Bitcoin-focused products,
allowing their customers to buy, trade,
and ultimately use Bitcoin as collateral.
The ETF, despite the fact that Bitcoin was down
however many percent in November
And for much of this month, it still has net inflows outside the US.
You're seeing a bunch of positive headlines in relation to the mining industry and UAE and other countries buying exposure to Bitcoin.
And to your point, a lot of people are sitting here scratching their heads.
Like, why isn't the price reacting appropriately?
appropriately and obviously you have um this confluence of events too where the price did
run up to 125 000 we saw looking at the on-chain data it looks like a lot of people have been
holding bitcoin for over a decade said okay market's liquid it's valuable enough i'm gonna
take some chips off the table famous so we had galaxy facilitate the sale of 80 000 bitcoin for
some estate sale that was uh demanded by um the estate owner who had passed away i'm pretty sure
and so I think we're at this point where it seems like it's all systems go but the price
is not it's not uh reflecting it's not reflected in the price going up yeah if I were to you know
do what you just did articulate if we didn't have the benefit of being able to see the price right
and I would articulate all those reasons that you just articulated genius sacks table coins and
top of all of that. And I said to you, okay, so start of the year, Bitcoin was at 100,000,
or Trump administration comes in, Bitcoin moves 90, 100,000. And I were to tell you all these
things that happened over the last 12 months, you would say, oh my God, it had to have doubled,
something like it had all those tailwinds. But don't forget the efficient market theory.
right as a trad fi guy the efficient market theory basically says that all that stuff is
priced in in advance right so that hundred thousand dollar price that you saw back at the
beginning of the year right that was pricing in all this great stuff that was likely going to
happen because of the position the trump administration had taken so you could have easily predicted that all these things were going to happen and some of them were delayed like the legislation you know uh you know through uh the Senate has been slowed down
It's not going to get done before the end of the year. And the SEC coming out and saying that it
was going to get done before the end of the year. That was, it's just not how the congressional
process works. It's not that fast. Right. But I think people were hoping for that, but,
so there was some stuff that was slowed, but a lot of stuff happened. Uh, and you could say,
that that was predicted back then. So we're sort of where you would have expected from a
tailwinds perspective to be, right? But then you have this whole thing happening under the surface,
right? Which is the banks are scared to death of this asset. And I truly believe that because
if you just play it out, right? Banks rely on deposits, right? Deposits, that's their fuel for
everything they do, right? They got to get spreads. They got to collect that money.
And then they got to lend that money through all these different mechanisms, right?
Whether it's financing someone's jet or financing someone's home, right? Or financing someone's
apartment complex that they're developing, right? That spread is that that's their bread and butter.
Then they have the prop training desk and all other stuff they're allowed to take from a risk
perspective. That's a little higher on the risk spectrum, but the bread and butter is that lending
business and that lending business needs those assets. And if you can control your own wallet,
right? And we've been now transacting in Bitcoin for a few months actively, right? Because we got
the big stack and we can move it around between wallets and custodians and places where we're
posting as collateral for derivatives trading. It is so elegant and beautiful to move around,
right? You get your wallet address, you do your little test of 0.00001, you send it over,
it's received. You can see all the history in that wallet that's ever happened, right? All open
ledger stuff. And boom, Sunday night at 8 PM, I can move a hundred million dollars from one wallet
to the next. I can move it from Galaxy over to Falcon X. Like that's amazing. I've been operating
within the confines of the banking system and the Fed system for since I started my career where
we're doing wires, right? And I got to get my wire set up and I got to get it released before
the Fed cutoff and the bank's internal cutoff policies at 4 p.m. even though the Fed's closed
at 6 p.m. and then I'm stuck from Friday at you know 6 till Monday morning when I can't really do
anything so and you know you're financing transactions where it's really difficult for
me to send a wire over 5 million bucks right it's getting a ton of scrutiny from the bank
and it's going through this whole process and I just don't even know when my wire is going to get
out if it's going to be able to get there for the closing of the transaction. And so internally,
we have all these procedures in place to make sure we're set up for closing, that we're wiring
a day early so we don't mess it up. All that stuff is out the window with Bitcoin. It's just
such an elegant asset to move around. It puts all the control within the owner of that asset.
and that's a real threat to the banks, right?
And then as soon as the insurance
starts to make more sense, right?
And then you get the charters issued
so all these custodians can exist
without filing individual applications
on the state level
so you can get the federal charter
and then those federal charters,
although now you can't borrow at the Fed window
and you can't lend on those five charters
that were issued to the crypto custodians,
eventually you'll probably be able to.
And then it starts to look
much more like a traditional banking system, right? And Fidelity, you know, they're, they're
TradFi, right? They're within crypto, they're TradFi and now they have a bank charter.
So they're in a really good spot. Seems to me that they could be, they've already done a really
good job at gathering assets within their brokerage accounts. So they'll be able to
gather assets within their, within their crypto custodian accounts and do it on more of a
traditional system that people are accustomed to so it's a threat it's real and i think i checked
last week i think fidelia has something like 7.2 trillion in assets under management so to your
point they can definitely bring it in and so and they span both trad fi and crypto like they're in
they're in a sweet spot and they've been in bitcoin for 11 years now 2014 yeah yeah had them
in so you know what they're doing and so you say the banks are scared and as a part of the list of
headlines that i listed off earlier was that banks are implementing it do you think
they are in an oh shit like this is happening uh bitcoin's not going anywhere and so we need to
basically stave off the the sort of native bitcoin and crypto companies long enough while we implement
everything so that we can capture some of this market? Or do you think they still wanted to go
away? I think it's the latter, but they're pretending it's the former. And I'm not a
conspiracy theorist guy. I just, I see it happening, right? They're out front saying
they're supportive of it, just like they said they were supportive of the new charters.
but behind the scenes they're trying to kill it in every way they can right lobbying against it
fighting you know anyone who is in support of it and trying to you know convince them that it's
it's risky right the things they're saying publicly right versus the things they're saying
privately like they're literally telling people that are fans of it that it's too risky of an
asset that it's not appropriate for you know the masses to own and there shouldn't be charters that
help facilitate this because you're really, you know, you're allowing people to take risks that
they don't understand. But publicly they're saying, oh, we're building blockchain. We're
going to allow our FAs to buy it. Right. So the disparity between those statements that are
happening in the public versus the private, I think that tells you everything you need to know.
Right. They don't want to be the idiots who publicly were bashing it when the train has
left the station and it's probably happening, but they also want to slow it down and kill it as,
you know, and be like, I told you so, right. We originally told you so we tried to get on board,
but we told you this was risky and look what happened to micro strategy, right? That thing
got crushed. Everyone was a believer and that thing got crushed and you know, you shouldn't
have been owning that. Right. So in hindsight and the really powerful institutions with tons
of capital to be able to move stuff so they can make these Monday morning calls when they were
actually the ones on the field affecting the place. They can say, oh, I told you MSTR was risky.
We brought the margin requirement up to 95%. That's why we did that because it was risky.
It's like, no, no, no. The margin requirement going to 95% is what caused the asset to go down
and why you can now say that it was risky and you made the right move.
I told you so.
It's like, okay, you were pulling the puppet strings that made the puppet collapse
and you said the puppet was going to collapse.
So it's a lot of that.
Let's dive into this specifically.
We've been talking offline for the last few weeks
And I think that's one thing that made me really excited to have you on the show is because you've seen this.
You know how these large capital allocators can use their large amounts of capital to influence things.
And I think everybody is looking at MicroStrategy this year and going, oh, gosh, this is terrible.
But to your point about the margin requirements, I think that was a clear sign to me at least.
Like, hey, they don't like this.
why would they just ninja launch a massive increase of margin requirements overnight?
And so what effect does that increase have on people that not only own MSTR,
but had at that point been using it as collateral for a loan?
Yeah.
So if you were a longtime Bitcoiner and MSTR came along,
And you said, oh, wow, now I can, instead of just owning Bitcoin, I can sort of be a little bit levered to Bitcoin.
So I can own MSTR.
I can still love my Bitcoin and own Bitcoin, but I can also own MSTR and I can borrow against it.
Because you can post it in your brokerage account, in a margin account, and you can borrow cash against it and you can buy more MSTR.
So you can effectively use the bank's money to get more exposure to MSTR.
On top of the fact that they have the preferreds and the converts out there where they're effectively levering their own equity to it by using the preferred capital to juice the equity returns that you can get on the Bitcoin.
So it was a great thesis for the Bitcoiners because it just modestly increases in value.
It's a flywheel.
And so I totally get why all the Bitcoiners were really into that debt. And it also made them vulnerable because inside these big institutions, you can see how much money you're lending against MSTR in the aggregate.
it, right? You can say, you know, there's 10 million shares held of MSTR with inside JP Morgan.
And you can say, okay, we've lent 5 billion against it. If we increase the margin requirement
from 50 to 95, you got to basically people got to post, you know, $4.9 billion, $4.8 billion.
So you know the effect that things like that will have on the asset.
And they called it a risk department call.
The risk department decided that they had to bump up that merger requirement.
But that doesn't make any sense.
It doesn't reconcile with anything that MSTR was doing at the time or Bitcoin was doing.
Right. But then because you have so many Bitcoiners that own MSTR and people associate Michael Saylor with Bitcoin, when that thing starts to come down, right, when it goes from over 400 to under 200, you're sort of breaking people's confidence in Bitcoin.
And I think that was part of the overall strategy was to hurt MSTR, hurt Bitcoin, hurt the confidence and thesis in the asset, bring the vol back up, right?
And then put this narrative out there that seller could potentially have to sell Bitcoin and they own a large percentage of the Bitcoin that's issued.
So then start to panic people, right?
And then it's selling begets selling begets selling.
And that's how history always plays out.
No one wants to catch the falling knife.
No, but let's dive into this too.
The risk department too.
It's like, okay, our risk team has determined
that we need to increase the margin requirement.
Just playing through the thought experiment.
Okay, what are they protecting their clients from?
It is a case micro strategy goes down and they don't want them to have to sell their positions.
But conversely, if that's your whole goal of managing risk for your clients is to make it so they don't lose their assets in the form of this security, the stock, the shares in this company isn't increasing the margin requirement.
And doesn't that end up with the same goal?
Because you're just going to have to force people to sell or post collateral.
And if they don't have collateral to post, they're going to have to sell down their positions.
That's the irony.
Yeah.
That's the irony of the whole thing.
And let's be clear.
They're not increasing the margin requirement to protect their clients.
When a risk department increases the margin requirement, they're doing it to protect their own balance sheet.
because they say, okay, if we go from 50 to 95, that means the stock can basically go down 90%
before we, 95% before we start to get in problems with the loans that we have out against it,
right? So if they move it to 95%, they're effectively expecting a 90% move in the stock,
right? Which that only happens if the asset collapses too. And were they predicting a 90%
move in Bitcoin down, predicting it goes back to 10,000, right? That just didn't seem to be
on the table. None of it seemed to be on the table, right? The stock was pretty stable.
Bitcoin, the underlying asset was at the lowest of all as it had ever been at,
right? On a trailing period. MSTR's volatility was declining, not increasing, right? You would
increase margin requirement when the vols go up
because the higher probability of a big move.
Underlying asset vols down MSTR stock vols down Didn make sense Yeah didn make any sense There no risk model where unless they have some AI bot that you know is predicting things that no one ever seen in
their life, which AI doesn't do that. AI can only work off data that exists. That's why it's not a
good predictive model, right? And yeah, that's where you need humans.
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I guess my other question is, like, how long is that just one shot?
Is that, like, one arrow in the quiver that they have?
because I imagine you bump up margin requirements to 95%,
and then anybody who was engaged in sort of using MSTR as margin to get leverage,
you'd have sort of the books clear,
you'd ultimately find another equilibrium,
and then go from there.
People who were overextended get wiped out.
People who were not overextended are fine.
and you just sort of find an equilibrium and things can reset from there.
Or is that how you view this playing out?
Or is this like a sustained quote-unquote attack, for lack of a better term?
I think it was their first, not their first.
I think it was one of their more public attacks on the asset
where they thought they could really have a financial impact
and an emotional impact.
and the emotional impact.
You cannot discount how powerful that is.
People, big Bitcoin believers
start to question everything.
Is this asset subject to manipulation?
And am I exposed to that?
And just starting to conspiracy theories swirling.
Has it been hacked?
Is there more asset out there than we understand?
sand, like all these crazy things were happening because they tapped into people's confidence in it.
Once the confidence breaks, right? Because that's what all these things are,
right? At the end of the day, any currency, right? What's the USD worth?
Worth what people are willing to believe it's worth, right? Because you've got a huge leverage
balance sheet that, you know, if that was any corporation, it would be bankrupt,
right but usd is the best currency in the world so it's just confidence and people say well you
know bitcoin is you can't articulate what it's worth it's just you know digital a digital asset
it has no actual value no currency has actual value like people who say that are just missing
the mark it's all confidence so jp morgan adopting that theory i think was like okay
So if we break confidence in it, like any currency, whether it's Japan or Argentina, if you break that confidence in that currency, then you damage the value of that currency.
And that doesn't go away overnight.
So I think that they took a big shot across the bow.
They probably got a leak in the boat.
And then they kind of were in there trying to make that hole a little bigger.
by saying, you know, going off the NASDAQ 100, going to get kicked out of the MSCI,
like pulling back, you know, pulling old, you know, articles and data and statements
and kind of making them in the headlines.
Like that's part of that coordinated attack.
Like why is an analyst at JP Morgan talking about it being removed out of the index
and talking about MSTR as a risky bet when he doesn't even cover the company.
Like, pretty sure the analysts are pretty busy writing research and publishing on companies
and doing update notes on the universe of companies they cover.
But yeah, he's going off on some MSTR attack for a company that has no research coverage at JPMorgan.
right so it's just and it's at the end of the day that move was detrimental to their own clients
they wiped out billions of dollars of value in their own clients portfolios right that was the
ultimate result of it they basically attacked the stock by attacking their own clients because
they knew that they couldn't post the billion dollars of collateral so i think it's just
confidence, confidence, confidence. And they, that, that was what they were. That's what they
were firing at. How do you counterattack this? Um, you call them out. It's the only way to do it.
You got to go to the mat with them. I think that's the, it's the only, and a lot of people
are afraid to do that. Right. Cause it's a big, massive institution and people have exposure.
Like we, as a fund, we have accounts with JP Morgan, right? We have accounts all over the
street, but we were prepared to get the phone call saying, we're going to shut your account down.
Right. Okay. Shut my account down. I'll post about that too. Right. So I think that's the only way
you beat them is you have to have a voice. Uh, you have to know what you're talking about, right?
Cause if you're wrong, they'll destroy you. But if you're right, how do they really deal with you?
Like as a TradFi guy, I'm like, okay, I know enough to be dangerous about how all of this works.
I've seen this in different asset classes for my entire career, right? These big banks attack
based on the knowledge they have under their umbrella, right? There's so many examples of
when banks have attacked hedge funds, right? Hedge funds used to generally custody all their
assets at one institution until in the late 90s, early 2000s, the prime brokers or the banks were
figuring out that we see exactly what this fund's exposure is, right? And they're my custodian,
but they can use that information against me. And there are so many examples where they did,
right? There's a case out there where basically a fund got taken down by a top five institution
because they did a similar thing. They basically were shorting all the stocks that were in that
fund's portfolio and they were smaller names so they could just lay on them and short them and
short them and short them. And then they wouldn't increase the margin requirement on those securities
because they said, they're under a lot of pressure, the vol's up on these things, and
we got to increase the margin requirement. The fund was like, well, we don't have the capital
to post for that. You are our prime broker. You know that because we keep all of our assets with
you. And the response from the bank was, okay, we'll come back to you with a solution. Their
solution was, we will bid you for your entire portfolio below market, right? Now you have that
bank that's short, and this is a public case. You have that bank that's short, you have the hedge
fund that is long, all that stuff. And the bank to cover their shorts, if they can buy it down here,
right? They can pay below what they shorted it. That's great trade for them. And so they can
basically go to that fund and say, you can't meet your margin requirement. We'll bid you for your
whole portfolio. Just take you out of it and fix your problems. And so that's what happened.
They ended up taking them out, right? They shorted it up here. They bought it down here
from the fund, funds wiped out and this bank had a great trade, right? Shorted it, took the positions
from the fund, wiped the fund out, bought it all really cheap, wrote it back up, right? That,
I mean, that happens all over the place. And that is why all these funds now have multiple
custodians, right? We keep your shorts in one place, keep your longs in another place,
you trade your derivatives in another place. No one can see, no one has transparency into what
your overall positions are so no one could take advantage of them.
And that was sort of what people started learning through your instance like
that. And they're really manipulative,
but if you read your prime brokerage agreements,
most of it's allowed because you ultimately give them control when you take on
margin. Right. So that's the prime.
Well,
that was another detail that emerged from JP Morgan's posh ring towards
MSTR and the margin requirements too, is that there was a bunch of people stuck in that trade
who said, well, if you're going to raise the margin requirement to 95%, I can go over to
Fidelity or someone else who has not raised the margin requirement. And I would like to do that.
Can you please send my shares over to this broker? And they were not able to do so in a timely
manner, which although you explain it, this would signal that, um, they didn't have the
shares because they were locked up in, in short positions.
Yeah.
And we'll, we'll never know exactly, you know, the nature of those shorts, but there,
there are multiple incidents that I know of where that happened.
And one very specifically, uh, where I got all the details, I think you're familiar with
a similar one where this guy who had a pretty decent position of MSTR at JP Morgan, when they
increased the margin requirement, he's like, I can't meet that, but I'll move my stock out to
a place that doesn't have margin requirements that are that ridiculous. So at that point,
it's in JP Morgan's interest to not let those shares leave, right? Because that kind of hurts
their thesis. And two, maybe they can't let them leave because they don't even have them.
because either they put a short on themselves or they're shorted,
or they lent it out to some hedge fund on the street that's willing to pay for it,
and they can't get it back.
They don't want to recall.
These prime brokers never want to recall.
They never want to have a track record of recalling shares that they lent out
because then whoever put that trade on,
it blows up that trade at the time when they want it to work.
So they basically just try to hold out as long as they can
and try to find stock from other places to be able to deliver out on behalf of clients that are requesting to do transfers.
So there's a lot of information to be gleaned, like them not being able to deliver the stock out,
regardless of the reason, the exact reason why, it tells you they were either directly short or indirectly short.
They're short the stock.
have the stock to deliver. So it's curious, increase the margin requirement, don't have
the stock to deliver. Those two things pair together, plus making statements down the line
after you already wounded the animal, right? After the ship has a leak and it's starting to sink,
and then you start to hit it with MSCI stuff and NASDAQ stuff. It's just too much, right? Just
too much to be a coincidence.
Yeah.
Where was that statement a month
ago when that MSCI
report came out?
It didn't do him any good then.
No. Right?
Do you think
again, how do we
get out of it? Do you think people just need to move
their money off of J.P.
Morgan if they think this is
a
believable thesis that they're attacking
this and sort of just take their control of the margin specifically away from them.
Yeah, I do. I think people should move their stock out of MSTR, out of JP Morgan, move their
MSTR stock out. I think, you know, places like Fidelity or, you know, I think they, although
they are a TradFi institution at the core and at their founding, I think they are one of the more,
crypto intelligent firms.
And I think they could benefit
from the big guys taking a hit.
So it seems like a good, safe place to go
because they seem to be on the right side of things
as opposed to the more just deposit collectors.
Fidelity is less of a deposit collector.
It's a brokerage firm, right?
So the deposit collectors are the ones
that are most vulnerable.
So I think those are the places
where you move the asset out.
I don't know if you want to fight this trend, right?
Because although like we spoke about,
the banks are publicly saying that they like blockchain,
they like Bitcoin,
the systems that they're building,
that's not really blockchain, right?
That's not a decentralized network.
It's a centralized network.
It's a centralized blockchain that they control.
They're calling a blockchain to be on trend, but it's just a ledger system that JP Morgan will control.
And it has some blockchain technology, right?
Whereas the Bitcoin network is a true decentralized network.
and so that they want to say they're in favor,
but the things they're doing are just like everything else they've ever done.
Control the asset, control the knowledge, right?
Be the center of the system so you can control the system
and so you can be aware of what's on the system
because it's part of your network, right?
It's not, it's totally disingenuous to suggest that they're adopting, you know, a true blockchain philosophy of a decentralized network.
That's not what's happening at all.
They're saying smart contracts and loans.
Yeah.
It's bullshit.
It is.
And it's funny.
It's old as new again in this space.
Digital ledger technology is back in the news, back in vogue.
But it's too.
So interesting topic too,
which is like,
it seems clear to me,
I'm going to go back to like,
the system needs to be re-collateralized with better collateral.
Bitcoin is the best collateral,
most pristine collateral that's ever existed,
scarce,
divisible.
As you mentioned earlier,
trade 24,
seven,
365.
It is not collateral like real estate or even shares in an individual
company,
which come with their own,
which come with their own hair.
It's very hard to move a house.
The value of a share in an individual company
is dictated on how well that business is being run
and how profitable they are at any given point in time
where Bitcoin is just this neutral reserve asset
that is relatively simple and dumb, which is a good thing.
And many people, myself included, think there is room
for Bitcoin to intersect with traditional finance,
I think particularly in structured credit where you use Bitcoin as collateral to help you buy a house or get a loan to invest in a business or something like that.
And I think that's sort of the period we're in right now is we're sort of feeling out where this intersection makes sense and who are actually the good actors within this intersection that are going to build products the right way that actually give individual Bitcoin holders value and increased utility of their Bitcoin to actually be able to do things in the real world.
And that's where I think the J.P. Morgan positioning towards MSTR and Bitcoin by extension is really unfortunate because there's massive opportunity here if done the right way.
And it will come down to I think everybody's going to be hyper cautious of rehypothecation and how these products are structured is going to be very important and should determine whether or not you interact with them in the first place.
but there is a way to do it right.
Particularly with like multi escrow and being able to validate that your Bitcoin is where you think it is at any given point in time Like there is a way to do this 100 Will it happen And who actually going
to drive that? Yeah. Yeah. We've seen that because we borrow against our Bitcoin a little bit to buy
our stock back. And if you, you know, you can enter into all these different structures of
these loan agreements. And like you say, multi-sig account control agreement where you have a wallet,
right and you have the capital provider and you have the you know lender right because because
it's an alternative market the capital provider is not necessarily the lender right you have the
lender who's getting their capital from you know some bank or some foreign institution or whatever
and then they're lending it to the borrower and but you should have an account control agreement
that's a tri-party between the capital provider the lender and the borrower and that bitcoin
should be locked in that account, uh, in that wallet and not move. And as you said, you can
monitor the activity in any wallet address, right? So there are very good ways to do it without
letting that Bitcoin get down to that capital provider and then him, you know, re-hypothecating
it to, you know, 10 different parties because he re-hypothecates it and then they re-hypothecate
and then they re-hypothecate it.
And as the person who's Bitcoin that actually is,
you sort of start to lose control over that, right?
You could have a bankruptcy, you know,
10 steps down the road
and your Bitcoin could fall into that bankrupt entity.
And then you say, okay, yeah,
but I could get it back from the person
who lent it to them,
but then they file bankruptcy
or I get it back from the person who lent it to them
and then they file bankruptcy, right?
So it's, you know,
once the cascade of liquidations or bankruptcies start to happen, it's very tough. I mean,
they were unscrambling the Bear Stearns situation, the Lehman Brothers situation,
Lehman for 10 years. Bear Stearns, that is why they saved it because they knew that unscrambling
those eggs when you have all those different swaps and collateral agreements and all that
mess out there in an operating institution could take 10 years, right? So same things for Bitcoin.
Once you have that network out there, if you're just allowing that Bitcoin to move around and
allowing those assets to move around, you got to do it the right way. You got to do it smart.
You got to learn from the mistakes that TradSpy has made over the last 100 years.
So account control agreements, but you got to have a sophisticated party who understands
what they're negotiating.
Maybe it's like legislation where you have smart contracts
that just dictate how it works and you literally prevent
rehypothecation, stuff like that, where you can protect the system a bit.
Because like when you lend stock out, when you lend
Bitcoin out, you lend one Bitcoin, it gets rehypothecated, rehypothecated,
rehypothecated. That Bitcoin can be sold 10 times.
short, short, short, short, short, short, right? So although there's only one Bitcoin,
it cycled through the system and created the selling of 10, right? And that happens in equities.
So re-hypothecation is dangerous. And posting as collateral when people can do that is dangerous,
right? They're not aligned with the borrower. No. And there's no lender of last resort in
bitcoin too somebody lose i mean we learned this in 21 22 with three arrows right gemini and their
yield products with genesis lending it out to people obviously block five celsius ftx go down
the list like there is you got it a very high potential i mean the counterparty risk isn't
worth it at the end of the day that's like i'm not even sure how you get your hands around what
the counterparty risk is when you can re-ipothecate because you don't even know who ultimately has it
Yeah.
And that's what, like, these Tri-Pari agreements,
I think they need to be table stakes for anybody doing it.
Yeah, they should be industry standard.
They should be.
And that's what, like, companies like Unchained, Debify,
that's what they're working to bring to the market
and the private sector.
But that's my biggest worry as the banking sector
is at least feigning interest in getting in.
Are they just going to port their rehypothecation engine
in equities onto Bitcoin
and their end clients are none the wiser.
And I think we should demand the transparency
and the sort of products that are possible
with these multi-sig trilateral agreements.
Like if you're not using this,
like I'm not going to use your product.
Right, right, right.
And I'm not sure how you would draft it
into legislation other than preventing it,
but do you really want to, you know,
have bureaucracy you know dictate the terms of these agreements i don't know the answer to that
but i i think people have to be wiser to the different mechanisms and why hypothecation
re-hypothecation is dangerous uh and all these like when we started negotiating our agreements
the
most clear
tell about the value
of re-hypothecation
to the people who are lending us
money against our Bitcoin is that
if you allow
if you do it in an ACA
it's
10.5%
interest. If you
do it such that we can
hypothecate and re it we do 8 interest Right So as the consumer you like oh I don care what they do with it at all I don want to pay the other 2 right I don want to pay like 40 more or 20 more
That, I don't really care
because I'm saving the 2% on a big asset.
I'll save the money, right?
But in that 2% is a message, right?
which is what are they doing with it that they want it so bad that they'll give it to you for
two percent less right and that's that's where you got to be wary if they're if they're if they're
making more money than that which they are otherwise they wouldn't give you that discount
then how are they doing that and how is that gonna hurt me yeah right as as the borrower
and so that's the message yeah it's a very strong message that people don't pick up on
either and to your point about legislation um i don't think it needs to go that path either i
think it's going to be more dictated by the market like you need something like a fidelity
the brand cachet there's a fidelity um to step out and say hey no like this is how we're doing it
yeah this is the way to do it if you're pledging bitcoin as collateral here's where it's going to
day and here's how it's going to work and you can validate that it's not being re-hypothecated
um that is i think the ideal path for forcing the market to to adopt this what i would deem to be
i mean actually objectively safer market structure yeah what uh we're ending the year here it's
December 22nd.
This will be released on the 29th.
So leading up to New Year's Eve,
obviously it's been a year of scratches, bruises,
punches to the face for the Bitcoin market.
What are you looking forward to in 2026?
Do you think we're going to continue on this trend
or do you think the tailwinds are simply too strong
that the punches have been eaten
or we're getting back on our feet
and 2026 is looking like a good year.
How are you viewing Bitcoin in 2026?
So there are still more tailwinds, right?
Also, because of the efficient market theory,
a lot of them are understood and probably priced in, right?
But I think the one that's not priced in
is you get legislation through Senate, right?
And you have a true framework
where digital assets, hopefully specifically large digital assets like Bitcoin, maybe Ethereum will
fall in it, maybe Solana will fall in it, where there is just a very defined framework for them
to exist within the system. And once that happens, I think there will be more broad adoption,
right? Because at the end of the day, there's still a very, very small percentage of the
world consumer that owns Bitcoin. Very small. Outside the US, I don't think there's any
country that's above 5%. And the US is still arguably between 15 and 20 for any ownership
of any digital asset whatsoever. So there's still a long way to go. But I think the catalyst that
really gets it going and breaks all of the naysayers is a massive buyer. And there's no
more massive buyer than U.S. Treasury and treasuries around the world. If the legislation
goes through, I think that'll happen. I think there will be, right now, U.S. can own it.
If they seize it, they don't have to sell it. New Hampshire, same. But if they actually
acquire it, right? As part of a reserve where they're saying five, 10% of the treasury value
should be in digital assets or Bitcoin or whatever, then that's massive buying, right? And then
other jurisdictions around the world will follow, right? That's just the nature of the beast.
and then you should really start to see the assets stabilize.
If the legislation happens in Q1 or Q2,
I could see that happening in Q3 or Q4.
I think that's in the administration's interest.
It's in their interest financially, personally, right?
And it's a large part of the way this administration works.
And then I actually think it's in the interest of the country
and many countries around the world
because it will stabilize their economy, right?
I mean, you can get rid of this whole inflation disaster,
all this currency debasement, right?
If you owned one USD in 1920, right?
By 2020, it lost 96.6% of its value.
That's shocking, right?
When you look at inflation that way,
you really understand what's happening and if you have a fixed asset uh then you can really
stabilize everything and i think if we can get there that's when we go to the next level like
that's when this asset can really move uh and i don't think that's priced in okay strategic reserve
market structure it's i mean it seems like the uh the tailwinds of that the late tailwinds
begin to bubble up.
I mean the UAE stepping in I think don have any hard information on this but just perceptively looking at some of the headlines and having been at conferences around the world where some government officials attend It seems like everybody on the geopolitical stage at least is sort of looking behind
their shoulder at others and saying, OK, who's going to be first to do this?
And that's another black swan positive tailwind is if you have some country, it's like, OK,
I'm not going to wait for the US.
I want to go first.
and the environment as such,
the pressure to do that is rising.
I don't think it's going away.
I mean, the thesis is there.
I mean, Argentina,
they've been chasing their currency
for the benefit of their citizens for decades,
and this could be a really quick fix for them
to just stabilize it, right?
Instead of making your currency based off of
gold to like peg it to bitcoin it'll work yeah you can just peg it to bitcoin well they're starting
can't be more volatile than their currency you can see like they're starting with bitcoin mining i
know there's government initiatives to um survey how mining can can be incorporated into their
electricity system down there who knows what happens with venezuela um obviously tensions
are rising there, but it's a very oil and gas rich nation.
If you have the Madura regime fall,
whether it's naturally the will of the people
or some regime change, who's going to replace them?
Are they going to be looking at the state of the country
and saying, hey, we can use these energy assets and Bitcoin
to get ourselves back on our feet quicker?
That would not surprise me.
I think all these factors and these variables
are just pointing to somebody's got to jump at some point
because the incentive is too strong.
Yeah, the thesis is 100% there.
Someone's just got to make that jump.
And I agree with you that someone should make that jump before the U.S.
because the thesis is stronger for other countries
like potentially Venezuela if the regime falls
or when the regime falls.
And then countries like Argentina,
like it's it's a no-brainer but if the u.s does it first it makes it so much easier for them because
then it's stabilized right if they're the first to jump in it's a little more dicey right but if
the u.s does it and then it starts to be a real trend and then if every treasury around the world
owns some of it, then you have a commodity that's parked. Are treasuries going to sell it?
No. Then you essentially suck up the float. That starts to look really interesting. Then you can't
manipulate it as much. Now you can swing it around. I don't know if you call it manipulation
or whatever you want to call it,
but for an asset that's $1.8 trillion,
you can move it around with a few billion,
which that's probably going to change
once you have treasuries start to suck it up.
Yeah.
Yeah, we need to move into the deck of trillions,
cent a trillion market cap
to make it so you can't move the market with billions.
Yep.
Ryan, this has been incredible. Where can anybody who's so curious learn more about what you're up to, learn about Empree?
Yep. You can follow us on X, Empree Digital. And then we're on Instagram and we're on all the other socials as well.
But I think a majority of our presence is on X.
I post a lot about this TradFi stuff and the way the two worlds are starting to integrate together and the good and the bad that comes with that.
And this is going to be interesting to watch it play out over the next 12 and 24 months.
Whether this works or doesn't work, it's going to be really interesting.
There's going to be a lot happening overtly and covertly.
Well, that's the beauty of Bitcoin at the very least.
No matter what the price is doing, it's always very interesting.
Yeah.
Marty, I really appreciate you having me.
Thank you for coming on.
I was going to say, I was just going to say we should do this again at some point next year,
do a little update, see how things are progressing. Agreed. There's going to be a lot to talk about.
There is. All right. Well, you enjoy your week at the end of the year, and we'll see you in 2026.
Sounds great. Happy holidays. All right. Peace and love, freaks.
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