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.
Jeff Walton, welcome back to the show.
Thank you. Happy to be here.
A lot has changed since the last time you were here.
It was eight months ago.
And I believe, if I recall correctly, you were telling me off air that you were about to leave your reinsurance business to jump full speed ahead into the Bitcoin world, to the Bitcoin treasury world.
and it's apropos that we're meeting here September 23rd.
Yesterday, September 22nd, you tweeted out,
eight months ago I was selling reinsurance this weekend.
The entire Strive team worked tirelessly to acquire a company
that holds 5,021 Bitcoin in a cashless transaction
that will be in M&A case studies for years to come.
The world is changing fast.
You can just do things.
You're doing things.
I'm doing things.
Let's talk about the journey from January 29th
when we published the last recording of us meeting to discuss Bitcoin treasury strategies.
And today, a lot has changed for you personally.
Yeah, a lot has changed for me personally.
Yeah, I was previously selling reinsurance.
So I was a reinsurance broker selling insurance to insurance companies,
which a lot of people think this is an insurance role,
but it was really a capital markets role.
I was effectively selling volatility of insurance company balance sheets
to hedge funds and capital providers across the globe.
So there was a very clear opportunity and synergy for me to focus on what was happening in the Bitcoin ecosystem in the Bitcoin world, because it's effectively capital markets transactions, working with investors, creating structured products, volatility tranches, thinking about risk and risk profiles from a probabilistic framework.
Literally every single thing that I was doing in the reinsurance world was applicable to what was happening here in the Bitcoin world.
It's very funny.
When I left my job in reinsurance, I told them I wasn't doing anything.
I was taking a break.
And they're like, what are you talking about?
What do you mean?
What do you mean you're not doing anything?
I'm focused on Bitcoin.
I don't know what yet.
I don't know what I'm going to do.
but I need to spend my time and energy in this area to figure out what's what's next for me.
So, yeah, it was a bit of a confusion that they were bewildered. Let's just say they were
bewildered when I when I told them I was entering the space. And so fast forward to where we are
today. I was exploring different opportunities in the market and just continuing to have
conversations, going to different events, in conversations with Matt and the Strive team,
they had added me to the independent board to help grow their future Bitcoin treasury company.
This was last May when they announced the reverse merger transaction that they were entering in.
And after further conversations, there became a very clear opportunity for me to work in a role
S drive and have some synergy and be able to spend my energy in an appropriate place.
So I had a ton of conversations with them, their team and Matt and understanding like,
what is this opportunity here?
And is this where I, where I want to, uh, want to hitch myself to, to this horse.
Right.
And ultimately this was exactly what I was looking to do is I wanted to work within a
company and buy as much Bitcoin as humanly possible, structure capital markets transactions,
work with investors, continue with education within the marketplace, think about risk and
structured credit and finance and volatility. And this became a very apparent win for me personally.
And the alternative is, you know, thinking about trying to go do some of this stuff on your own.
And the reality of building a Bitcoin treasury is really difficult and you need a strong team.
Like, for example, we just went through this M&A transaction and folks were working all day, every day, overnight.
And we've got a team of, I don't know, 10, 12 people that were touching different pieces of this.
And that's really hard to build from scratch.
and joining a company that was already focused in putting energy in this direction was really the
lowest hanging fruit, like the best, the best place to park my time and energy.
Yeah. Again, it's, uh, it's been fun watching, um, from the sidelines you've been doing this.
And I think you're following your dreams to be a little corny, but really going after something
that, uh, that you're passionate about. And it's, uh, I love to see people doing things that they're
passionate about. And I think the last time we spoke, obviously, the conversation was focused
heavily on strategy. I believe they just launched Strike, that preferred offering. And obviously,
since then, they've issued more preferreds. And we can get into that. But I think really
jumping off the conversation as it pertains to treasury companies, I think one of the
topics that we discussed in January is like who is going to win in this market? What is
just going to be strategy? Is it going to be winner take all? Are people just going to copycat
what strategy is done and see some success? Or is there going to need to be a diversity
of companies deploying different strategies as it comes to acquiring Bitcoin? It looks like
what you guys are doing at Shrive is definitely differentiated. And I think
this agreement to acquire similar is an example of that. So I think jumping into how you guys at
Shrive view building a treasury, how that compares to strategy and other treasury companies out there.
And I guess diving into the similar deal specifically to sort of highlight how you guys
may be different differentiated. Yeah, let's let's set the landscape a little bit. There are
in the United States, there are 4,800 banks, there are 4,900 credit unions, there are 5,800
insurance companies. Just to put that into perspective. So right now we've got what in the
US, maybe 100 companies that have put Bitcoin on the balance sheet publicly. And maybe it's double,
triple that privately. But in terms of where this can potentially go, I think there's a significant
room. There's significant room for many publicly traded companies to hold Bitcoin on the balance
sheet and then offer securities that are providing lower volatility or reduced volatility Bitcoin
like exposure with different kickers. Right. You could think of similar being, you know,
Bitcoin exposure with a healthcare kicker, or you can think of, you know, other different companies
that have different operating businesses providing a little bit of a different risk profile and a
different flavor of Bitcoin correlated equity. Ultimately, my perspective is every single
company on the planet will eventually be holding Bitcoin on the balance sheet. So they will all
have Bitcoin exposure here in the future, particularly when you think about the architecture
of the equity market and the risk profile of existing equities, most existing equities are
leveraged to their future cash flows. So an unknown future cash flow. And you think about
Bitcoin treasury companies and they're leveraged to money that they already have and the future
return profile of the money and the asset that they already own. So they're fundamentally two
different risk profiles and different risk metrics against the existing equity market
and what's happening with Bitcoin treasury companies.
So where we're at today, I think, is incredibly early days.
I think the goal is to acquire a Bitcoin war chest as big as possible.
We're in the digital capital gold rush.
And us at Strive, we're aiming to be the meta planet of the United States with a clean balance
sheet offering what is an equity in an amplified equity product today. And then in the future,
a perpetual preferred equity providing, you know, to Bitcoin back Bitcoin back credit and amplified
Bitcoin. So that is our goal. And I think there's significant opportunity to grow drastically in
that space. Yeah. And so one thing that I've seen over the last 24 hours since the announcement of
The Semler deal is sort of the structure of the deal.
The fact that this was cashless, all stock deal,
where that's what's being negotiated.
How is this different than what somebody like Strategies done?
We saw NACA buy a big chunk of MetaPlanet,
the company just mentioned as well.
But it seems like you guys, by acquiring Semler
and their treasury, by extension, not only that,
their operating business? How does that compare? And why did you guys decide to go down this route
specifically? Yeah. So thinking to the base of how our incentive structure is structured
corporately, our incentives are to increase Bitcoin per share. And this transaction is
accretive in Bitcoin per share terms. So there was, you know, 40 hours plus and five different
brains working on the art and science of the deal behind the scenes that understood the accretion
potential of the Bitcoin per share. But I think there's significant synergy and opportunity
moving forward here as well. There's this construct of the increased credit quality
from the two entities combining that I think is incredibly interesting. You almost achieve this
one plus one equals 2.1 sort of credit quality. So Semler's already got a $100 million convertible
bond. We have intentions to issue a perpetual security into the future. And if you look at the
Bitcoin rating, effectively the collateralization rating of the two entities combined,
you see that the collateralization rating actually improves by over 200%
on the convertible bond when you combine the two entities in the Bitcoin back balance sheet.
And your ability to issue larger forms of perpetual preferred securities,
it increases drastically as well. And you think about how the marketplace works and the equity
market works. If you're looking to access different pools of capital, certain pools of capital have
limited thresholds on investments that they will take based on the size of your company.
So to the extent you could take, you know, one company, you've got a limited number of
capital that can come in the door.
And if you've got two combined companies coming to one, that access now, you now get access
to pools of capital that are interested in buying equities and different types of preferred
securities because of that increased credit quality, effectively the size of your company
and the balance sheet of your company.
So I think significant synergies there. And then the healthcare side of things, if you do a little bit of research, our largest shareholder is Vivek Ramaswamy, and he's got a significant background in healthcare and biotech.
And there's preventative health care is a major theme.
And in this make America healthy again movement, I think there's significant opportunity to
clean up the existing operating business and provide a little bit of a cherry on top in terms
of valuation accretion by leveraging existing expertise, Ben Pham, our CEO, Matt Cole,
and Vivek into spinning that into a value accreting transaction on the back end too.
So we think there's significant opportunity in this entire transaction.
Yeah, that's the, because I don't want to beat around the bush, the paper Bitcoin summer,
there's been a lot of, there's been a lot of blowback on Bitcoin treasury companies specifically.
this summer was not incredible from a performance perspective for many companies deploying a Bitcoin
treasury strategy. But I think it's a bit too early to put a nail in the coffin or even determine
that whether or not these are successful or not. What would you say to the naysayers that would
say that these strategies, whether it's strategy, Strive, NACA, what's happening over in London,
Metaplanet, they say it's too good to be true. You can't just acquire Bitcoin and expect good
things to happen. Yeah, it's equivalent to saying, you know, I bought Bitcoin at $100 in 2011,
and then it goes down to $3 and it's dead.
And what I'm trying to emphasize is this is very early days of these things.
And it's so funny, like the people that are the loudest,
maybe the Bitcoiners,
they take a four-year perspective when holding Bitcoin.
Like I buy every single day, I DCA,
and I've got to hold it for four years.
If you're not holding it for four years, what are you doing?
And now that then they look at the equity market and think it's this like overnight get rich scenario.
Maybe maybe that's non Bitcoiners that are thinking this is an overnight get rich quick kind of scenario.
But I don't see why you wouldn't be taking the very same perspective that you would with holding the underlying Bitcoin of holding for a for like a long term for your horizon.
You think about the incentive structure of these companies is to increase Bitcoin per share.
And if you're aligned with that narrative and that story, then you think that taking a longer term perspective and longer term timeline would be the most appropriate framework to take here.
So I think this is such early days.
At the end of the day, the companies that hold Bitcoin on their balance sheet hold real money.
And you can do things with that real money.
Now might some of these companies be hamstringed at certain points in time and not be able to do anything Sure But that OK Like you could sit on your hands and focus on your operating business
And as long as you are managing the volatility and the structure and the risk of your balance sheet, you can just wait things out.
or look at strategic opportunities to hitch your wagon to some other Bitcoin treasury company via
MA transaction to, you know, get on a different path and a different trajectory. So I think
there's significant optionality here. And even looking at similar and where they were a year and
a half ago before they started their Bitcoin journey, they were a self-proclaimed zombie
company. And then they started buying Bitcoin and ended up accumulating over $500 million of Bitcoin.
And that provided them significant optionality to operate, not only operate their business,
but focus on other accretion, other ways to provide value. And it provided them effectively
downside protection on their balance sheet because they would be interesting to any
Bitcoin accumulation company. So yeah, this, I think that the market is evolving drastically
and it's going to take time. It's going to take time to explain the risk profile.
It's going to take time for the market to understand the risk profile. It's going to
take time for these things to mature aside from strategy. Most of these are, you know,
under $2 billion companies or $3 billion companies. Like what other $3 billion company do, do people
have significant interest in, in the equity market. We're talking like lowest 1000 companies
in the Russell 2000 in the United States. Like that. These are these are small, tiny market cap
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There are obviously people on the sidelines commenting on this.
It's not Bitcoin. Just buy spot Bitcoin, which I wholly believe buy spot Bitcoin.
But I think strategy is proven.
Me too, by the way.
Yeah, there's definitely appetite for Bitcoin exposure via these equities and preferreds.
And I think that's probably where the signal lies in this whole discussion is what are the allocators saying about this?
What is their interest doing as more of these offerings are coming to the market?
Is it increasing? Is it waning?
What have you seen in terms of institutional appetite for more of these offerings?
Yeah, I think on the equity side, I think there's obviously some hesitancy. There's a lot of shiny things in the market right now. You've got companies, a lot of AI buzz in the marketplace. So I think a lot of capital is flying over that direction.
So I know that the equity side has tightened a little bit.
But on the debt side, there's multiple different types of debt.
So there's convertible bonds.
I think that market is wide open for business and additional capital is interested in issuing
and providing convertible bonds.
That being said, the terms are tighter than they have been historically.
And I think they're particularly tighter than anything that strategy can demand or get in the marketplace.
So it's just something to be aware of that the terms associated with convertible debt are worth a review.
And in the perpetual preferred equity space, there's there's opportunity for a second mover here.
And I think there there's significant interest in this type of instrument provided to the market.
And yeah, I'll leave it at that. I think there's enough interest for additional IPOs in this space.
And one interesting thing that I've just kind of heard through the grapevine is a majority, maybe not a majority, but a rough percentage of the participants in the perpetual preferred IPOs that strategy has done is they haven't necessarily been interested in the risk profile of the product themselves.
They've just been interested in the arbitrage of the repricing event.
So you can almost think of like every single one of these IPOs having their own merger arbitrage capital that's coming in the door to buy these at a discount and sell them at par.
And so the question then becomes, who's the buyer on the other side? Is it retail? Are fixed income capital managers buying these products? Or is it retail investors looking to bolster returns in their retirement portfolios? What exactly is that? And I think that's evolving.
And the reality is these securities are so new.
They're only six months old, seven months old.
It's going to take so much time to explain the risk profile and what these can do.
What are the benefits?
How do I rate these?
What's the credit quality?
What are the risks, et cetera?
Yeah, that makes sense.
and turning conversely to the uh the effect companies like strive strategy
knock a meta planet have on bitcoin i think it's something we've talked about
um before and something that many people are believing is that like if you have
a critical mass of companies going out there attempting to acquire as much bitcoin as possible
on their balance sheets it's going to have an effect on the bitcoin price in the long term
I'm going to going back to what we said earlier.
I think people have looked at Bitcoin price action through the summer leading into fall.
And to many, it's been a bit lackluster, despite the fact that we're up almost 100 percent year on year.
And there are many people saying there's a paper Bitcoin summer.
Like these companies are buying Bitcoin and the price isn't going up.
So there's got to be some price suppression somewhere.
I don't know. I don't think I buy that.
And I really like James Chex analysis on chain data.
I think it's been pretty clear that there have been a number of whales have been selling into the Bitcoin price running up to 124,000.
And that's to be expected.
People have made billions of dollars and they want to secure their financial future and fiat.
That's their own decision.
They can do that.
And I think we just have to be sort of agnostic market observers and just recognize that this is happening.
But I think long term, I mean, I was in Nashville, I was telling you before we hit record at the Imagine If conference, I was speaking with Andrew Hones from Battery Finance, talking about private market structure credit and this forward duration curve that can be built out.
If these products hit critical mass, you'll know that there's a certain amount of Bitcoin locked up for certain periods of time.
And I'd like to believe and I think it makes sense to me fundamentally that this will have a positive effect on price.
Yeah, you think about the behavioral aspect here.
If you've got an individual that sold 80,000 coins, right?
Those coins are moving from weak hands to strong hands in these companies that are holding Bitcoin as permanent capital.
Like what we're trying to do and what strategy is doing is build a corporation that can last a century.
And how do you do that?
you hold capital that can last a century and and taking intelligent leverage against that capital
to continue to add those assets over time. It's effectively a long term carry trade or a swap
of USD for Bitcoin like exposure. So I'm very, very bullish on that future of these companies
helping to improve the overall long-term Bitcoin price.
And I think the reality, the sad reality,
is that it's going to take a long time
for more of the general population to buy Bitcoin itself,
like the hard commodity.
And I think we're bumping up against like critical mass
of people that want to buy the hard commodity.
So because there's this educational component,
There's this need component.
There's this educational component that makes Bitcoin unattractive.
And then you also got nominal bias.
So I think that from the psychological perspective, we may be bumping up against some caps there.
But where you can bring this capital in the door is through these alternative like instruments that are provided to people in ways that they typically hold their assets.
So I don't know, there's probably 75% of Americans in the US, maybe like 60, probably hold equities.
So now if you can provide them a high yield savings account in equity format with a dollar sign ticker in front of it, that becomes incredibly attractive.
If you're able to move in and out of this capital quickly in just a brokerage portfolio that you check every day, that becomes incredibly attractive.
So I think that that's effectively what these Bitcoin treasury companies are doing are providing these products in locations that people typically interact in.
And I think that market is enormous.
Well, yeah.
On that note, I think it's important to dive into what those products are competing with from a risk profile perspective, from a return profile perspective.
What are products like strategy, strike, strife, stride, stretch, ASST now, XXI coming to market.
Like, what are these providing to that large pool of capital that is for better or worse,
just conditioned to access capital markets via accounts like this?
Yeah, and this has evolved tremendously since last time we talked.
I think last time we talked, they just announced Strike, I think an hour before we hopped on.
So we were like diving through it in real time.
What's incredibly interesting here.
So let's just focus on strategy, right?
They've got five instruments. They've got four perpetual preferred equities, and then they've got
MSTR, which is the equity. So you can think of MSTR as amplified Bitcoin. These other perpetual
preferred instruments, they sit senior in the capital structure of MSTR. So in the event of a
bankruptcy or liquidation, the seniority in the capital structure gets paid out first if there's
any money left, and then all equity holders get paid out last. So the real novel thing that
strategy has done here is that they have monetized and collateralized the positioning within the
capital stack into different risk return trotches that are appealing to different capital pools.
So this is a monumental idea has never really been done before, or it's never been done on a
offensive perspective before. Typically in the past, perpetual preferred equity has been a
defensive move. And this is an offensive move by strategy. And the if you think about let's say,
let's focus on STRF, the most senior one first. So STRF pays $10 perpetual dividend in into
perpetuity $10 per share priced at $100 par currently, it's trading at 110. So it's about a
nine and a half percent, all right, about a nine percent interest rate on STRF.
And what that provides is seniority in the capital structure. I believe STRF is around
eight times over collateralized. So they have eight times more assets than they have on the
balance sheet than they have notional liability for STRF. So their ability to pay off just the
interest alone is drastic. I think they could pay over a hundred years of STRF dividends if they were
to rely on just the existing capital structure alone to pay off dividends into the future.
So the other strategy instruments are different flavors in different risk profiles and different
different tranches. So you think about the second one, and I won't go through all of them,
but I'll focus on STRC because I think this is the most unique, there was the most amount of
demand and interest in the equity in the market for this is STRC So STRC is a effectively like a high yield
savings account. And it provides it provides the goal of STRC is to provide stable principal value
and provide a dividend each month to people that are holding this particular instrument.
So that's what I mean is it's supposed to be an alternative to a high yield savings account.
You park your dollars there, you get paid a dividend each month.
And strategy has the unique ability to peg that instrument into a target zone to keep it stable.
So if the price goes above $101, they have the ability to ATM,
effectively issue more shares to the market to bring it back down to 100 and or drop the interest rate.
And if the price is below 100 and where it's at today, 97, they have the ability to increase the interest rate to boost the effective price up to 100.
So they have mechanisms in place to keep the principal stable while being able to get that dividend into perpetuity.
Go ahead.
Well, I was going to say, I think stretch is really fascinating, too, because you see like a free market response to Fed Treasury dynamics.
here. Yeah, you see a free market response to Fed's treasury dynamics and the relative risk
is an interesting dynamic. So you look at, you think about risk profile, these different
instruments, and you start to ask, what is the risk? So there's two questions. What is the risk
and how do the dividends get paid? Those are the two big ones that the market has been particularly
really interested in. And the risk is Bitcoin risk, volatility risk. So the risk is the price
of Bitcoin falls 80, 90% and stays there for an extended period of time for eight years.
And then strategy wouldn't have the ability to pay out dividends into the future. If that were
the case, anybody that's listening to this podcast and is interested in Bitcoin would
likely have bigger issues, bigger, bigger issues at play. And so that's, that's kind of the risk
profile. And it's this evolution of risk that I think is particularly interesting. You're not,
you're not taking on physical risk, you're taking on adoption and volatility risk of a,
of a new technology that's already a two and a half trillion dollar asset. And thinking about,
okay, what is my probability that the price falls 80%? What's the company's ability to pay off the
dividend in that particular point in time? So there's a mathematical formula that can be
calculated 24-7, 365, which makes these products incredibly unique. Whereas typical fixed income
instruments in the fixed income market rely on quarterly earnings reports to understand what the
risk profile is. So that makes these instruments illiquid. Now you have this new digitally Bitcoin
backed credit instrument that where you can calculate the credit 24 seven 365. And there's
no physical risk. And the yield is significantly higher than anything else in the fixed income
market. It's easy to see very quickly, the discrepancy in the risk return metrics between
the physical world and the digital world. And the digital world is providing a significantly
better product to the marketplace than the physical risk world.
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deride the treasury play and I'll admit I've been critical of it. I don't think to the point of I
I think it's completely stupid, but I worry that the long tail of copycats are going to have a hard time.
I think I've been pretty clear.
I think there's going to be a parade of distribution of those who succeed and succeed massively
and those who sort of taper along and get acquired.
Yeah, and get acquired ultimately.
But to your point about Bitcoin being introduced into these unique capital structures
that were once being used as defenses measures but are now being used,
as offensive measures the the idea of bitcoin trading 24 7 365 being the most liquid market
in the world because it is always open um i think that value prop and that feature of bitcoin shines
very bright in these examples um you don't have to you don't have to wait for cordley financials
you don't have to assume what's going to happen you can just look at the look at the market look
at the price, look at the depth of the order book, look at the ledger, see blocks coming in and
understand what's happening at any given point in time. Yeah, there's just so many fascinating
things about this. And maybe I'll give like a little like history background. One of the
reasons that the reinsurance market exists today is because the insurance companies hold assets
relative to future liabilities. And if there is a catastrophic event that happens,
the insurance companies don't want to liquidate their illiquid assets to pay off the claims.
So they buy reinsurance from reinsurance counterparties across the globe to reduce
the volatility. And so they don't have this liquidity shock of having to go liquidate a
bunch of corporate bonds that are paying 7% and there's no buyer on the other side of them.
So that's why the reinsurance market exists. And now, if you understand this framework of how this
is evolving, if this marketplace 10X is, if the perpetual preferred marketplace 10X is 20X is,
and they have credit ratings on these instruments moving forward in the future,
the reliance of these insurance companies on liquidity in those, you know, in those catastrophic
events, that changes, that entire equation changes. And there should be a premium on these
highly liquid digital credit instruments, as opposed to, you know, having a higher,
a higher cost. So I personally think that there's going to be a repricing of physical risk relative
to digital risk at some point in the future. It's going to take probably a decade, but
the entire financial world, as we know, it can be recalculated and restructured with these
different instruments in different ways. So that's incredibly appealing to me. And then the
other really unique nuance with how strategy is paying these dividends, which has been a
a big controversy into the future is that their operating business makes a little bit of money,
but it's not the operating business doesn't cover the entirety of the dividend liability
moving into the future. So you've got multiple ways that you could go pay the dividends. One,
you can raise capital via the ATM. So if there's premium in your equity,
you can go issue shares to the market and use that those premium dollars to pay the dividend.
Just to put it in perspective, I think strategy's annual dividend liability is around $600 million.
Just a couple of weeks ago, they raised $500 million in a week on their MSTR stock.
So their ability to raise capital in MSTR ATM is very high.
And if you think about the structure and the dynamic of this, is you're bringing in this capital today to buy Bitcoin.
And you incur the dilution over time via the MSTR ATM, whereas the alternative forms of debt in the market, like a convertible bond, if you issue a convertible bond, the convertible bond holder is shorting your stock by 70% of the notional value on day one.
So you actually incur the dilution on day one.
So when you think about the form of leverage and the behavior of the holder, the perpetual preferred equities are a far more effective form of leverage, and that should compound to the MSTR equity product over time as the excess return and the excess risk of these perpetual preferred instruments is returned and delivered to the MSTR shareholder.
So it provides more amplified Bitcoin exposure to the MSTR shareholder.
So that's one way they could pay the dividends into the future.
The other way is other capital markets activity.
So these companies, because they hold so much capital, you have the effective ability to
go refinance at any point in time.
And so you can go if they ever needed to, let's just say the price of Bitcoin fell 50% and MSTR starts trading at a discount to NAV.
They still they still have an incredibly good credit profile.
So they would be able to go issue convertible bond if they needed to, to go pay off the dividend for the next four years and withstand any market volatility into the future.
alternatively, one of the real big unlocks with these perpetual preferred equities is that they
put ATMs on top of them as well. So what they created is effectively a refinancing mechanism
that can refinance daily. And you can bring that capital in the door daily, which is monumental.
historical. Historically, if you wanted to refinance any of your debt, you would need to
put together a presentation, get your credit profile, thinking about pro forma financials,
go take it around the market, go run to New York, run to Bermuda, run to all these different
capital places and find somebody that's willing to give you good terms. And now you know,
and you can tap your cost of debt capital daily if you like the terms. And that's not priced in yet.
I don't think people quite recognize how how powerful that is.
And I think that will just continue to grow.
So this is something they just baked into the design of the product and the prospectus that.
Yeah, they baked it in.
So they have the ability to issue more shares of any of these instruments at any point in time.
If if they like the if they like the terms of these instruments.
And so that that's the again, to the uniqueness of the liquidity profile, the interest of people that are trading these instruments in different ways or identifying risk arbitrage across different risk markets.
And I think that the way this world evolves, like this world is getting more digital.
That is that is a that's just a fact.
And I think these typical fixed income instruments are very illiquid because they're not digitally traded.
They're over the counter.
And I think that will start to change and evolve as capital structures of corporations evolve over time.
because nobody's going to want to buy JetBlue corporate debt,
junk corporate debt at 7% interest
when they could buy 10x over collateralized,
perpetual preferred, highly liquid,
Bitcoin-backed digital security from strategy
that's paying more, it's more liquid,
it's less risky, more collateralized,
no risk of future cash flow.
So, you know, like just the entire risk profile is completely just in every every single aspect you look at it is way better.
Yeah, it makes a lot of sense.
And again, it drives back to one of the core value props that Bitcoiners have been talking about for well over a decade, almost two decades now.
Bitcoin is this neutral, uncorrelated asset that's not beholden to the whims of corporate boardrooms and management decisions.
And it may short term be affected by broader market movements, but over the long term, it's proven to be uncorrelated.
And if you have this neutral, scarce digital asset, it makes sense that you would want to design and construct products around it, financialized products around it.
And I think it scares a lot of Bitcoiners like, oh, the suit's taking over Bitcoin.
But I think I like to flip the framing.
It's like, no, actually, Bitcoin is taking over financial infrastructure, which is a good thing.
We're beginning to recap the whole financial system with Bitcoin, which is something that you should want.
This is what living on a Bitcoin center looks like.
Yeah. And Sandler said this really well the other day at the conference.
He said, well, Bitcoin fixed the money and you can't just sit on your sit on Twitter and tweet about this and, you know, fix the rest of the world.
You need to you need to fix the capital markets.
You need to fix the credit markets.
You need to fix the insurance markets.
You need to fix every single aspect of finance in different ways.
You need to reconstruct the entire world of the capital market in order for this to infiltrate.
This can not happen If you want Bitcoin to be successful this can not happen It needs to be pervasive and everywhere in all capital markets And I think a lot of people really miss that
Sup freaks, guess what? We launched a browser extension. It's called Opportunity Cost,
and it helps you see the true cost of everything in Bitcoin, convert prices to Bitcoin as you
browse the web. Opportunity Cost automatically displays fiat prices in Bitcoin or sats,
helping you think in a Bitcoin standard.
It works on Amazon, Zillow, X, your bank account, QuickBooks.
You can convert everything to Bitcoin.
It's really cool.
It's also 100% open source, MIT license.
We don't collect any data.
All of the conversions happen in your browser, on your local device.
It's a great way to recalibrate your life and begin thinking in sats.
Go check it out at opportunitycost.app.
that's opportunitycost.app
Not only that, I think
and I was definitely guilty of this
especially in my early days of Bitcoin
where I thought financial system
was going to collapse
we got to go to Bitcoin
we'll let everything collapse
and we'll build back up
but I think
I said this on stage with Andrew
in Nashville on Saturday
I've been saying it a lot
I think the meme of the soft landing
that was put out there by Janet Yellen
and others during the Biden administration and at the Fed,
particularly talking about how we're going to sort of manufacture a smooth landing of the economy
after all the stimulus that was injected into the economy post-COVID.
I don't think that the Fed, the Treasury sort of have the ability to do that,
certainly not without Bitcoin.
And this is the way I view the Bitcoinization of finances.
You have the free market sort of creating the soft landing by refining and recapitalizing the system with better collateral.
Yeah. And that better collateral will just infiltrate everywhere because you can't not you can't not hold these things.
And I think that will that's going to play out over time.
So I was talking about this a little bit earlier.
you've got all of these folks that manage fixed income portfolios for retirees or pension funds
or whatever. And let's just say they do things the traditional way and they make their, you know,
five and a half percent interest annually. And then their competitor across the street
has fully adopted the Bitcoin backed credit treasury model. And they provide seven points
of return annually and outperform the other fixed income instruments by 150 bps,
capital will move to where it's treated best. And so that capital will then move to the better
capital manager that's leaning into these new types of products. And there's a, like understanding
the risk return profile there, the crazy part is that new investment manager that's adopting
Bitcoin-backed credit and outperforming the existing fixed income money market manager
is probably doing so with significantly less risk as well. And if you think about the scale of
the entire capital world, the fixed income market is one of the biggest pools. It's a $300 trillion
pool of capital. You think of the equity markets, about 130 trillion. You think about the money
market, it's, I don't know, 22, 22 trillion, something like that. And so if you want to make
the biggest splash in Bitcoin, you make, you disrupt the fixed income market. And these,
these products that are hitting the market now are disrupting the fixed income market.
And as they start to bounce around different parts of the fixed income world, they're going to make more noise and more noise and more noise, more adoption.
And that will be probably a similar adoption curve to Bitcoin, where you see it just like slowly, like gradually, then suddenly sort of thing.
Whereas just a few people have these in their portfolios and five years from now, probably 10x, maybe 20x.
and then 10 years from now, it's probably 100x.
Yeah, that dives into a good question,
which I mean, I won't say I'm asking good questions here.
But at what point do you think companies
that aren't Bitcoin-focused,
the thing that really gets me going is operating businesses
that really get this and go to execute on it.
And I think we had a good example of this with Figma's IPO.
Obviously, their S1 had disclosed their financials.
We came to find out that they had $70 million of IBIT exposure, I believe, and the intent to buy $30 million more of spot Bitcoin.
To me, that was an incredible validation signal.
You have this darling in Silicon Valley that is a really incredible product used by millions of people that people love.
And the sort of leadership there decided to build a Bitcoin treasury.
I believe it was more than 10% of their cash and cash equivalents was in Bitcoin, which is incredible to see.
And what I'm curious to see is at what point do companies that nobody would suspect that really aren't Bitcoin first and led by Bitcoiners
are thinking about this treasury strategy and really going after it aggressively sort of from a Bitcoin perspective.
But at what point do we begin to see the figmas of the world begin to leverage these type of credit instruments and utilize capital markets in this way?
Do we see it?
And if we do, what does that mean for the normalization of this?
Yeah, the great part is they don't have to.
If they have a good operating business and they are adopting a treasury strategy and keeping Bitcoin, you're de-risking your balance sheet.
you're storing your energy in a commodity that can withstand the new digital future and not losing
purchasing power of your stored treasury. And I think this kind of comes down to these weird
incentive structures in the existing equity market. To your question, I think those companies
will see it as opportunity that they need to take advantage of. I'm sure people will approach
companies like Figma that are holding Bitcoin on their balance sheet and say, hey, look,
you could go raise X amount of capital and go 10X your operating business if you go issue the
security and you've got the security of your balance sheet to cover it. There will be pitches
to those companies that just make so much sense that they can't nod to it. So I'm incredibly
bullish for what that looks like. But one unique incentive structure that I'm seeing in the equity
world, I truly believe that risk is mispriced globally across equities and fixed income.
And when you look at these companies' balance sheets, well, their operating businesses
are leveraged to future risk. So you look at a company like NVIDIA with a $4 trillion valuation
only holds $54 billion of capital on the balance sheet. So that's a significant risk gap between
the amount of actual capital that the company holds relative to this reliance on future cash
flows. And there's a significant list of risks that can disrupt those future cash flows. And I
think that the market in general is mispricing that risk of future cash flows relative to actual
capital stored and the value stored on the balance sheet. And I think there could be a really big
concern, particularly in frothy markets with high PE ratios and high price to book ratios,
on these tech companies where there's a blow off top and the equities see a correction
and they don't have strong enough balance sheets to ever regain that position, that position of
strength that they were previously in. And I think that risk is probably mispriced globally.
Yeah, it's something I've been discussing on this show last few weeks specifically,
is I don't think people are looking at forward-looking P.E. ratios
approaching, in some cases, surpassing .com era levels.
And I don't think they're taking the risk seriously
and just looking at just Google Finance.
They have their beta.
I guess they've implemented Gemini, so I can ask a question now.
As of September 23rd, 2025, the trailing P.E. ratio from NVIDIA is 50.95.
I'm just 51, which is pretty high.
and then people are complaining about mnavs of bitcoin treasury companies being one and a half
yeah it's like it's like what what you're it's trading at 50 times so how far how forward looking
is that right i mean that's uh there's the company has value right they're they're i don't know what
their revenue is like 100 billion dollars a year which is huge but one of the unique reasons that
these companies are valued so high is because they're doing these stock buybacks as well. So
they'll take that excess cash and do a stock buyback. And what they're indicating at that
point in time is I have no better place to put this cash. So I'll buy the stock back.
And alternatively, they could be buying Bitcoin, which is effectively
buying Bitcoin and de-risking their future balance sheet with something that has significant
growth potential and can provide long-term longevity for the company. So it's a,
I think a dynamic that is, that will be really hard to break because all of these institutional
holders of these equity instruments, even the design of the passive
market structure is going to be difficult to get anybody to tell them to not do share buybacks.
So I think this movement from these smaller companies that are adopting Bitcoin treasury
companies is kind of what needs to happen here because the incentives are not aligned for a,
you know, a hundred billion dollar plus company to not do a share, not do a stock buyback and buy
Bitcoin instead. So I really think this, uh, this, you know, shift of, uh, capital is
happening over the longterm. Yeah. And just, I mean, when you, when you talk about stock buybacks
in my mind, the, I don't want to say worse, but the, I mean, the most aggressive company that'd be
by buying back their stock is Apple. And just did a quick search, uh, estimates range to,
according to Google Finance LLM, between $604 and $704 billion in the last 10 years.
And I think it was like going back to Bitcoin in 2016.
Obviously, it would have been patently absurd for Apple to do it in 2016 at the time.
But in retrospect, it would have been a great decision.
But imagine if they were able to put 70% of a trillion dollars in a Bitcoin between.
Yeah, when you reframe your entire world from a Bitcoin lens, these numbers look absurd.
And the one thing that I've been looking at recently, and we're kind of building out a little bit of a technical perspective on is.
Go look at earnings of all of these companies priced in Bitcoin at the point of time where they release their earnings.
So if you look at earnings priced in fiat, everything is going up to the right.
But if you look at historical earnings priced in Bitcoin at that point in time, there's actually a lot of volatility and all of them are going down into the right.
So it's the same concept of like looking at a price of a home over time in price in Bitcoin.
Do the same with quarterly earnings of corporate balance sheets.
And you're like, wow, there's actually a lot of volatility here.
And they're all going down for the most part, you know, except your leaders in AI like NVIDIA and a couple others.
But I guarantee you could go look at 99% of equities in the market.
And if you were to price their earnings in Bitcoin, they're all going down to the right.
yeah that's that's an interesting that's an interesting perspective to take oh one other
thing on the buybacks uh chevron 2000 2021 uh did a 70 billion dollar buyback was doing some analysis
on this if they would have spent 25 of that on bitcoin the value of the bitcoin today would be
worth more than their market cap today that's insane yeah so it's uh when you start to do the
math on some of these it looks uh pretty blatantly obvious yeah well that's um that's why we launched
the opportunity costs uh browser extensions to help people recognize this this sort of bitcoin
depreciation in their everyday lives in the fiat debasement but i i think from a medic from a
memetic perspective and from a marketing perspective of something over the last year i think particularly
in the realm of Bitcoin treasury companies and strategy, most importantly, really beginning to
drive that home Bitcoin per share. And I think pricing earnings reports in Bitcoin and tracking
that over time is going to be incredibly memetically powerful to really drive home to
people like you are actually not doing as well as you think you are. It's so funny. You look at a
company like CrowdStrike, CrowdStrike, I don't know what their market cap is today, but it's around
110 billion. Okay. Over the last 21 quarters, they've technically in Bitcoin terms, they've lost
18,000 Bitcoin. In that same time horizon, strategy has acquired and accumulated 638,000 Bitcoin.
Strategies priced at $94 billion market cap, CrowdStrike's priced at $110 billion market cap,
and crowd strikes in the S and P 500 and strategies not in the S and P 500.
And you start to look at that. And again, my,
my brain goes to risk is mispriced globally, right? This is a,
these are fundamentally different risk return metric products that just the
market just broadly doesn't understand.
No, not at all. I mean, on that point, that was one question.
I wanted to make sure we cover, and obviously it's top of mind for a lot of
people. Um,
strategies, lack of inclusion in the S&P 500? I guess, what is the justification
for them to be in it? And why haven't they, they joined the S&P 500 yet?
Yeah, I'm not, I'm not surprised. The companies typically when they,
some companies, when they first get qualified, they do get added, but it's some of the more
controversial companies have, it's been a couple of quarters before they've gotten added to the S&P
500. You go back, look historically, like Tesla, I think they first qualified after Q2 in 2020.
They didn't get included until Q4. So it was, they got skipped by a quarter. Some other companies
looking at like Applovin and Robinhood were not included in the S&P 500 for various different
reasons. And I think ultimately it comes down to the fact that there's a committee, there's people
that have to make a decision onto whether or not a company gets included or not, which is so funny.
ironic for the S&P 500, right? Like the S&P 500 is supposed to be a passive index.
And then you have people that are actively making decisions about what goes in and out of the index.
And there, if you look, it's interesting to compare the performance of like the Bloomberg
500 relative to the S&P 500, which doesn't have this active committee component. And the performance
is interesting. And I think that's also why we've seen a significant increase in
the index funds like QQQ getting a lot more popularity and growing in popularity because it's
more technical. There are technical considerations on whether a company could get in or not and no
committee. So it removes this element of lack of understanding what's happening in the market,
Right. It's it's more of does this company qualify?
Yes it in as opposed to does this committee that has an average age of 60 understand what happening in the digital market and how quickly things are moving and evolving and adopt and advancing into the future So yeah it unique I do think they will be included You already got two companies in the
S&P 500 that hold Bitcoin on their balance sheet. So I know it's not just the Bitcoin. They're not
going to not include Tesla. They're not going to not include Coinbase or even Block. Oh, so Block.
So there are three. And so, yeah, I think it's just a matter of time.
And there will be dozens, I think, within, you know, four or eight years.
Yeah. And I think we talked about this in January when we last met.
But just to reiterate, what does getting included in the S&P mean?
And I mean, you mentioned it's a passive index, but that does unlock significant amounts of passive flows for for companies that are included.
Correct. Yeah. Yeah.
That's a. I will caveat this with everybody is front running everybody all of the time.
So in terms of whether or not these passive flows that come into any one of these individual equities, you have no idea when it's actually coming in the door.
but structurally i think this is a very important consideration for a multitude of reasons for a
company like strategy because the the architecture of these funds as the market cap of these funds
increase even if you subscribe to bitcoin is going up as the market cap goes up relative to
underlying bitcoin holdings the amount of passive flows that are coming in the door on that
particular instrument don't increase linearly, they increase exponentially. And so that results
in more reflexive positivity of capital that's coming in the door. It enforces the premium on
the underlying equity and continues to push it higher, although there is reflexivity in the
opposite direction as well. So there's a multitude of different factors at play here. And the other
component is as that balance sheet grows, as the market cap
grows, so does the credit quality.
And I think being included in the S 500 is a is a bit of a trophy to put on your wall and also helps with communication with credit agencies with the S being one of the largest credit rating agencies in the market
So if you're included in the S&P 500, then you start to need to look at what are the ratings
of the potential preferred equities of this company that's included in the S&P 500 that
helps in conversations with Moody's and Fitch on the instruments.
You've got a significantly larger capital base.
The committee has approved you as a company to be included in this index.
So I think the narrative and the story, the story goes a really long way.
On top of the forecasted cash flows that would be coming in the door.
Yeah.
Wild times.
When we met in January, you called it the most hated rally, the most hated trade strategy
specifically.
But now the market for Bitcoin treasury companies has expanded.
Do you still hold that belief that it is the most hated trade out there?
Yeah, I do.
This is so hated because people don't understand.
So many people don't understand Bitcoin in the traditional financial world, but they understand leverage finance.
And then so many of the Bitcoiners don't understand leverage finance.
So you've got these two worlds that are kind of colliding and you've got everybody outside
of the Bitcoin ecosystem that's looking at everything they've already known.
And you're trying to turn their world upside down.
And they can't even conceptualize why a company that's accreting value consistently should
trade at a premium to the underlying holdings on their balance sheet.
It's just then you look at the then you look at the risk profile of everything else out in the market.
It's just none of this makes any sense.
And it's the reason I think it will be the it will be the most hated rally.
I think that the next decade of these will be the most hated rally is because you're literally turning everybody's world upside down and reshaping it.
And these companies aren't going to stop.
Strategy is not going to stop.
We not going to stop There should be dozens of other companies that are doing this and they not going to stop And this is why I say risk is mispriced globally is I think there will be a risk repricing over time that is just going to confuse so many people
and require accelerated educational periods for different corners of the marketplace to understand
this. And they're going to hate it at first, and then they're going to think about it and then start
to understand it and that's just going to take a really long period of time yeah rebuilding the
world around bitcoin freaks gonna be hated at first it's been hated for 16 years yeah and uh
no the bitcoinization of finance is upon us and jeff you're at the forefront again congrats on
all the success you've had this year your life has changed drastically since we last met in january
like i said it's been fun to watch um so i thank you for taking some time out of what i'm sure is
an incredibly busy week for you to come discuss this with us.
You should look at my calendar tomorrow. I think I've got a 12,
12 calls tomorrow. It's pretty crazy. It's back to back to back to back.
Um, a lot of things cooking.
All right. Well,
make sure you get some good sleep tonight and hopefully we can do this again at
some point next year. Peace and love freaks.
Thank you for listening to this episode of TFTC. If you've made it this far,
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Okay.
Thank you.