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.
We're bringing in a housing expert to talk about the real estate market and Bitcoin,
corporate adoption, and the crazy frenzy that's going on right now in public markets.
Leon, welcome back to the show.
Thanks for having me back.
It was great seeing you, even though it was briefly in Vegas last week.
I caught you literally as I was running to the airport off the stage.
Yeah.
And we can pull that back up because I think this is a good jumping off point.
We'll start with like a personal story.
I'm currently in the middle of a move right now, but decided to rent a house because I was looking at the prices for housing and the places I'm looking to buy.
And they were too high.
Not only were they too high, we put a bid in on one house and it wound up going a million dollars over asking.
And I think over here in the United States is a big topic of discussion right now, which is the real estate market.
It feels a little toppy. Prices are still very high, very sticky. Rates are still very high.
And that's one thing I'm trying to discern as somebody who would like to buy a house in the next few years,
a forever house for my family. What is going on? As we can see here, Redfin reported earlier this
week that there are 34% more sellers in the market than buyers. At no other point in records dating
back to 2013 have sellers outnumbered buyers this much. There are a total of $698 billion worth of
homes for sale in the U.S., up 20.3% from a year ago and the highest dollar amount ever. So it seems
like there's a ton of people who have rode the real estate market and they're being a bit stingy
on pricing and we're waiting for a correction is that your take on this yeah we definitely need to
wait for price equilibrium to build because since 2008 really since we had low interest rates
um prices were skyrocketing and now with a different interest rate environment
and what I personally also feel is that people are not willing to sell their houses for a price
that they believe is not what they could get because they still have the prices in mind that
they were able to receive two or three years ago and the buyers are not willing to pay prices that
people want because interest rates are higher meaning the cost of capital the cost of borrowing
went up so I think this is a healthy and a healthy development we need a price equilibrium we need
demand and supply prices to match, it's going to take a long time, I think. It also depends
on interest rates. If Powell is going to lower interest rates, which I don't think he will,
even though that's something that the president would like him to do, but I don't think he will
because it would cause inflation to go up again, especially in goods and services and groceries.
and judging by that I think interest rates will stay above three percent at least for the foreseeable
future meaning I believe that real estate prices will come down a little bit till we meet that
equilibrium but something that's important to to remember which makes it a little bit odd that
because as a bit corner when you look at housing I think you constantly think now it's going to
crash. Now it's going to crash. But the reason it's not really going to crash is as soon as new
money is being introduced to the economy or as soon as interest rates are lowered, that money
is being funneled into real estate. And also the existing system that is depending on real estate
as collateral has an interest in propping prices up. So this can go on for another 10 or 20 years,
I think. I mean, there could be, there's definitely a correction that we can see right now.
And I personally wouldn't get into real estate development at this point if you'll ask me from the perspective what's the better investment, of course, that is Bitcoin.
But I just want to make a point that this can go on for longer than we think because housing is limited, not as limited as Bitcoin.
But there's something called the 18-year property cycle.
And it says that every 18 years we'll have a correction in housing.
And the reason for that is if the money supply is expanded and that money goes into land, it's not going out of land because land is limited.
It's similar to Bitcoin.
But what happens is that after around 14, 15 years, prices start to come down.
And then they find a new price equilibrium, which is higher than when the cycle started.
And we are at the end of this 18-year property cycle.
And I suggest that prices will fall until 2026.
And then in 2026, if interest rates are lowered, I think prices can find price equilibrium and then possibly move up a nominal value.
Of course, if you start now accounting for real estate and Bitcoin, it's a whole different story.
I know it talked from the lens of a fiat-based system.
Yeah, that note on Powell and the Fed is interesting.
It is very obvious.
Trump's wanted him to lower rates since before.
he even got elected. But I was reading an article yesterday that made a lot of sense to me, which is
he's not going to lower rates for multiple reasons. One of which you mentioned, which is
it would reignite inflation, which nobody wants to see right now. And then number two,
profit margins are going up because the productivity increases due to AI. I mean,
And we're still at the early stages of that where you have many of the big tech, the MAG-7, beginning to lay off people because they're creating all these efficiencies via AI.
So we're able to increase productivity and profit margins.
And so there's no reason to lower rates from that perspective.
Agreed. Absolutely true.
Yeah.
Which is, it'll be, it's crazy the confluence of events that are happening right now,
whether it's real estate market looking a little toppy, at least temporarily,
the interest rate environment, the progression of AI and the adoption
by many large companies and small companies alike.
And then you have Bitcoin sitting over here, sitting over $2 trillion,
establishing itself as a $2 trillion asset.
And it still seems a bit fringe where we are certainly as Bitcoiners, individuals who get Bitcoin, decided that it is the best performing asset.
And that's where we'd like our wealth to sit.
But it seems like it's getting more popular, but it's still on the fringe.
And as it pertains to real estate market, do you think people are honestly beginning to weigh the opportunity cost of allocating toward real estate or Bitcoin?
I think it's starting.
People are starting also to understand what opportunity cost means.
Because in the fiat system, there was little reason to pay attention to that,
especially in the real estate market.
Because if you, for example, bought a property that was overvalued,
you got a cheap loan.
Let's say you got a loan at a percent or two.
You just waited another five years and the property then rose in value.
And due to the cheap money that you used to leverage into the property,
the bad deal that it was at the start over let's say five years became a good deal simply because
of monetary debasement so there was little opportunity cost when you were in real estate
because other than real estate there were little investments that performed better even though
maybe real estate wasn't the best performing asset bitcoin of course was since 2009 but
few were aware of the existence of Bitcoin.
And now people are aware of Bitcoin.
It's a topic that's been publicly discussed.
I think the strategic Bitcoin reserve also had a positive effect,
generally speaking, on the importance that people,
large institutions, capital allocators, but also households,
place to Bitcoin.
And from personal conversations, judging by what I hear
from people working in the real estate industry in particular,
they are starting to weigh the opportunity cost
of not putting money into Bitcoin,
but very few are able to comprehend the necessity
of quickly investing large part of the capital waste into Bitcoin.
So a good friend of mine who is a real estate broker,
who I've done deals with in the past
and they've done significant deals in Europe,
they started now to build a Bitcoin treasury.
And that's the first real estate developer
that I personally know in Europe
that wasn't into Bitcoin, let's say a year ago.
And now they are into Bitcoin.
They're starting to build a Bitcoin treasury,
but they're doing it very slowly.
So they're tapping into Bitcoin slowly.
And to really tap into Bitcoin with significance,
I think that's still rare.
But we do see also from the credit side,
products like battery finance and I see there's other products popping up that do make it easier
for owners of real estate and people that own significant amounts of real estate to tap into
Bitcoin without needing to sell their real estate because it is true that selling real estate and
putting that money into Bitcoin is the better savings or investment options but it's not that
easy because think about it a property is actually a capitalist structure if we can if you take it to
the abstract level real estate has been priced away from its utility value now it's being treated
as a store value meaning that large institutions that develop and hold real estate they treat it
not as a good that's used for utility but as a capital structure and within that capital structure
you have different parties with different interest on the credit side you have banks that lend money
And then on the borrowing side, you have different partners that either provided capital or knowledge in developing a house.
And these different parties have different preferences.
And from personal experience, I know it's very difficult to juggle these different preferences.
So I think it's important for the real estate sector to start to understand Bitcoin as the new hurdle rate and the opportunity cost of not participating in Bitcoin, that we have products on the credit side that make it easy to refinance existing structures.
And then over time, as people become more aware of how great Bitcoin is performing, they will likely also sell off their properties and that should create more sell pressure on real estate.
But the fact that Bitcoin is a superior store value to real estate is a little bit shadowed by the fact that it's easier to obtain credit to leverage into property developments than it is to obtain credit to buy Bitcoin.
But once we reach the point where we have products on the credit side that do allow to also receive credit to buy Bitcoin, I think that will help real estate professionals and people in the real estate industry to consciously be aware of the necessity to include Bitcoin more aggressively in their capital structure.
Now, I think you highlight a couple of really important things here. I was talking to some people at this intersection of real estate credit and Bitcoin. And there's some interesting anecdotes out there where you'll have a real estate developer that'll typically raise a fund and they have LPs behind them.
And the developers really into Bitcoin, but the LPs aren't on board.
So the developer desperately wants to get some Bitcoin exposure.
And so they're creating unique structures where they themselves will get Bitcoin exposure,
but they'll keep their LPs only exposed to the real estate because they don't want to deal with the Bitcoin.
And so you're beginning to see these different dynamics at play.
And I'm interested if you're willing to share just for some actionable advice for anybody in real estate who may be interested in dipping their toes in Bitcoin, your friend or the colleague that you spoke to that is beginning to allocate to Bitcoin.
How are they doing that?
Yeah, I'm going to the same problem.
So also myself, I'm at the development side.
So we are actively doing the development.
And on the credit side, we have banks, of course, that work with us.
and then we have capital partners.
And our capital partners are not as bullish on Bitcoin as I am, for example.
So I had to find ways to stack Bitcoin both in the company
and also on the private side that is in line with what the LPs expect from us
as the people that receive the money and do the development.
So there's risk in giving us the capital and the money.
So I want them to feel comfortable, of course.
So what we did was once we started to sell properties and we sold, this is three years ago, but I've been doing this for five years now.
So I'm going to share some stuff also from three years ago.
So three years ago, we sold a property that we held together with LPs.
And then we very simply and kindly explained to the LP that the profits that we made, we do not want to reinvest it into another property with the LP.
We are going to put it into Bitcoin.
So they went forward, they invested into another property, we invested into Bitcoin.
Now after three years, they saw that the property that they invested in actually fell in nominal value.
And the Bitcoin that we purchased, I think went from 35,000 or 40,000 to whatever the price is today.
So around 100k.
And the interesting thing is that this was a tax-free event.
because in Germany, the way that Bitcoin is treated,
if you hold it for longer than 12 months,
there's no capital gains.
So we had a better deal going into digital real estate
and this helped our LPs to understand
the significance of Bitcoin as the new benchmark
and of Bitcoin as a digital and scarce,
absolutely scarce store value
that's superior to real estate in that perspective.
And now step number two is
some of the properties that we own with our LP
for the past, let's say eight to nine years,
there significant cashflow significant free cashflow And we are in charge of managing the cashflow because we are also managing the property So we are doing like a 360 degree deal where we find property we secure financing from
a bank, we get in a capital partner that puts in the money that we need as equity, we execute the
property development and then we manage the property. And the property management side,
we are responsible for managing the cash flow that comes in. And as long as everything is paid for
and there are enough maintenance reserves
and we pay the debt off.
Our LPs are happy and they don't ask many questions.
So what we did is we took some of the cash flow,
around 20% of it,
we put it into Bitcoin in the depths of the bear market.
So of course, these are favorable timeframes
that I'm referring to now.
But if you have a long enough timeframe,
let's say five years minimum or 10 years,
the numbers will look similar.
So 20% of the cash flow that we put into Bitcoin
is now worth more than the 80% that we did not put into Bitcoin.
And the 80% we did not put into Bitcoin actually lost around 4% to 6% purchasing power year on year.
So by gradually tapping into Bitcoin and doing it in a way where we don't erode the trust with our LPs
and our capital partners, specifically the banks that lend us the money to develop,
we are helping them to sort of build a consciousness for what Bitcoin is.
And at the beginning, I was a little bit stressed about it
and I wanted to tap into Bitcoin more aggressively.
And I saw other people, for example,
like Michael Saylor doing it so fast.
But I think it's also important to remember
everybody's in a different situation.
So if you are the founder of a company
and you hold more than 50% of the voting rights
and the board is on your side,
if you're publicly listed,
you can do whatever you want.
But if you are a smaller company
or if you're a publicly listed company with a board
that's not on board with Bitcoin,
I think it's important to consciously help everyone understand what Bitcoin is, not missing the opportunity, but doing it in a way where you can align incentives.
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Yeah, incentive alignment is extremely important.
And you're not the only one who senses that urgency,
looking at what Michael Saylor's strategy are doing,
what other Bitcoin treasury companies are beginning to do in public markets.
You look at that and you say, oh, my gosh, I'm falling behind.
But I do think in the long run, being very patient, very methodical,
and somewhat risk averse and how you get in this is going to be the best play.
And anybody out there who feels the FOMO, don't worry.
Leon and I have been in Bitcoin for a while and we feel it too.
But I think having been in for 12 years is falling back to the age old adage of stay humble,
stack sats and just stay in your lane, blinders on, just work on your personal accumulation
strategy or your business accumulation strategy is wise.
Don't get over your skis. Don't get crazy overextended because it is a volatile market at times.
And it's important to just have a plan, stick with it.
And as you described, it seems to be working pretty well for what you're doing.
I think so. It is. And also there's something in having Bitcoin in self-custody.
So if you're a publicly listed company, you can stack quicker.
But the Bitcoin are not held in self-custody.
I'm not taking anything away from that strategy.
And I'm happy to discuss how public companies are tapping into Bitcoin later.
But there's also something in owning a private company and owning Bitcoin in self-custody.
So there's something to that that I really like.
Also, when it comes to privacy, of course, or privacy in general.
So there's space for both.
There's space for individuals and households stacking.
There's a place for smaller cap companies and privately held companies to stack.
And then there's a place for publicly listed companies in the way that they approach Bitcoin.
I completely agree.
It's a good segue into the next topic.
We were mentioning opportunity cost earlier.
And I think opportunity cost becomes more front of mind to people when there's more options on the market for different types of exposure.
We've been touching on it, alluding to it.
companies like strategy bringing new structures to market where that's strike strife and now
stride which they launched i believe late last week and um chris drishga drishga chris sorry if
i'm uh mispronouncing your last name i saw on your twitter account you retweeted him uh yesterday
based off of a conversation you had on the Block Rewards podcast.
But I think this is an important topic to bring up as well.
Bitcoin is rapidly outcompeting real estate as a store of value due to its superior properties.
And now with products like Strike and Strife,
investors need a great reason why they would allocate capital to management-intensive illiquid assets.
And so I think when you look out at the ways in which you can acquire Bitcoin,
like you mentioned, you can buy on an exchange, move to self-custody.
Obviously, the ETFs launched within the last two years with massive success.
And now we have these publicly traded equities with proxy Bitcoin exposure like strategy.
We'll have 21 coming to market potentially later this year.
A similar scientific.
You can throw Tesla and Block in that basket as well, I guess.
But as the optionality expands and these products get more unique, how much does this opportunity cost rise in your mind?
and how should people be thinking about it? Yeah. So first of all, I just want to state that nothing
beats Bitcoin in self-custody. Just so people understand, when I talk about strife and strike
and stride, I don't talk about it because I think they're better than Bitcoin, because I don't
believe anything is. When I talk about it, what I find interesting is that they're tapping into
money that is held by people who not yet are willing to hold Bitcoin in self-custody,
either because they don't understand Bitcoin fully yet,
they have not comprehended the significance of the paradigm shift that Bitcoin brings,
or they have their hands tied because they are regulated in a certain jurisdiction
or they're not legally allowed to own Bitcoin.
And also, I think it's part of a greater monetary reset
where Bitcoin is becoming the new standard,
where every investment product, for example, fixed income,
has to now also compete with Bitcoin.
If you look at the payouts, the distributions of Stride and Strike, which are between 8% to 10% on par.
So in Strike, which is a preferred stock with a conversion option,
in Strike you have the option to convert 10 strikes into one MSTR common share if MSTR hits $1,000.
and that would be a conversion price of $100 per strike.
And based on that, you get an 8% payout.
If strike goes up in price, that yield goes down, obviously, percentage-wise.
And if strike goes down in price, that yield goes up percentage-wise.
And with strike, you have a 10% yield on $100 par.
There's no option to convert into common shores,
but the payouts are cumulative.
Meaning if the payout is not happening, they have to be paid out at a later time.
So it's almost like an investment grade fixed income product based on Bitcoin.
And then Stride, which I'm aware of since yesterday.
And I did watch the clip of Sailor explaining how it works.
It's non-cumulative.
So it sits below Stride and Strike in the capital structure.
and it's almost like a junk grade fixed income product based on Bitcoin.
So now you have three fixed income products based on Bitcoin.
One has a convertible option, which is strike,
and they are all yielding higher returns than the average bond.
So that means that Bitcoin as a near perfect form of money
that has a compound annual growth rate of around 50%
is starting to become the new hurdle rate
that all other financial products have to abide to
and it's setting a standard.
So instead of buying a regular bond issued by a nation state,
now as an allocator of capital,
you can actually buy a fixed income product issued by strategy
and you have a higher return on that.
And I, as somebody that comes from real estate,
and I've tweeted about this multiple times
and I'll explain it again.
I find Strike extremely interesting
and a light bulb moment happened for me.
I was at Strategy World
and I was listening to Feng Li
and he was explaining how he has neighbors.
He was telling a story about his neighbors.
It's a couple that retired
and they have real estate
and they are not developers.
They're not particularly interested
in managing their properties
and keep them intact,
but they have to
and they bought the property
because they wanted cash flow after stopping to work.
So there's a lot of people that get into real estate.
They are kind of unaware of the tax benefits.
They do know about the leverage and the upside,
but they are primarily there for cash flow.
So if they are there for cash flow, they could buy Strike
because Strike has a similar cash flow year on year like a property,
but obviously it has less upside.
You can't buy it on leverage.
there are also no tax advantages. I'm aware of that. But let's say you also want some upside.
You are not just interested in real estate because of the cash flow. You're also interested in real
estate because you want some upside. Stripe also has upside because you do have the option,
if MSTR common stock hits $1,000, you do have the option to convert 10 strike into one
as MSDR common stock.
And that option becomes particularly interesting
if we go through a bear market
because Strike was sold at a price of $85, right?
I think now it's trading above $100
because there's large demand for it.
But now let's imagine there's a 60% drawdown in Bitcoin
and Strike goes down to $60.
That's a possibility.
I'm not saying it's going to happen today or tomorrow.
I'm just saying this is a possibility.
if that happens the way I would look at it is the following if I'm a real estate investor that
did not 100% understand bitcoin I'm looking to generate upside and cash flow I want to make a
good deal so now I'm looking at the possibilities in real estate with high interest rates high cost
of capital the leverage becomes less interesting and now I look at strike and I can buy strike for
let's say $60, which is 40% below the conversion rate of $100.
And I get still $8 in distribution.
So now I bought an instrument.
Let's say I buy 10 strikes for $600.
That cost me 40% less than if I would buy it on par.
But I still get $8 cash flow.
And if MicroStrategy then in the next bull market goes to $1,000, I do have the option to convert Strike into MSDR.
I don't have to.
Maybe people don't want to because you sit higher in the capitalist structure.
Meaning if Strategy goes bust, the holders of the preferred stocks are being paid out first and then the holders of the common stock.
But let's say I do want to convert.
I could.
and that is for me coming from the world of real estate and applying how I was told to think about
real estate a better deal than the average real estate deal because I can buy an asset 40 percent
below its value so to say and I still get distribution so I still have the cash flow
so there's an upside potential here there's the cash flow element and I think that I don't know
in particular, but I'm assuming that Sailor is very much aware of this and Fong Li as well,
because they discussed it on stage at Strategy World, that this is a product that could potentially
tap into the real estate market. And I'm not saying that 80% or 90% of the people that invest
into real estate would buy this product, but if it's just 1%, that's 3 trillion, that's enough.
and I think that the bond market
of course
will now
be faced with the reality that there
are products that yield a higher
return because they are based on
Bitcoin which will lead to people that
invest into bonds to start considering
also these
products like Strife and Stride
that are fixed income products
based on Bitcoin. They will start to ask
why can they yield higher returns
than a nation state and then they
start I think also to understand maybe Bitcoin and the Bitcoin network which is the central bank of
Bitcoin as an analogy is more trustworthy than a nation state because they can yield higher returns
and now if you say they tap into one percent of the bond market that's three trillion which is a
lot that's more than the market cap of Bitcoin and now let's assume there's also half a percentage
of the people that would put their money into real estate now are willing to put their money
into a strike. That's 1.5 trillion. So I don't think that the amount of people that invest into
real estate and hold their capital in real estate needs to be that large to have a significant impact
on the ability of MSTR to raise capital and then put that money into Bitcoin.
The U.S. now has a strategic Bitcoin reserve. That's not clickbait. It's a policy directive.
Unchained and the Bitcoin Policy Institute just dropped a new report and are hosting a live event
to unpack it. It's called the Strategic Bitcoin Reserve Era Begins. We've got Congressman Nick
Bejic, Matthew Pines, and Joe Burnett breaking down how the first hundred days of the new
administration flipped the policy script on Bitcoin. Go to unchained.com slash TFTC to register
and read the full report That unchained slash TFTC A few questions here One comment and a few questions One comment being like bond investors looking at these strategy products I mean like why are they yielding higher than the nation state debt
And then you look at the size of strategies, Bitcoin treasury.
And I think in aggregate, it's larger than all nation state treasuries combined.
And so we're in the beginning stages of them amassing enough economic or an amount of economic power that will rival nation states at some point down the road when Bitcoin gets mass adoption.
We're going to manifest here.
And then two, what are the risks in terms of that income, that cash flow that really appeals to you as a real estate investor?
Where can that slip up?
How is that cash flow being produced for strike investors?
And is there any potential for that to dry up?
Sure.
I do have to state, though, for me personally, I don't own these products and I just own Bitcoin, to be honest with you.
And I'm not interested in the cash flow because the year on year growth of Bitcoin outperforms any rate of cash flow.
So I think it's important to state that so people are aware of how I look at this.
But I do have like in my back of my mind, I have the education of a real estate investor that things like that.
And then I try to evaluate how other people that are in real estate think about that.
Right. So they don't understand that the compound annual growth rate of Bitcoin beats any cash flow that you can get.
You can receive. And the idea of having cash flow is actually kind of also based on the idea of outperforming inflation.
Like in the personal conversations that I have with people that are really interested in cash flow.
there's two people now one it's people which also applies to me i guess um when we do talk about
cash flow once you stop working um you need to have some cash flow right and it's and then real
estate becomes interesting in that regard but but generally speaking from an investment uh standpoint
people that want cash flow often think in fiat terms and they want to outperform the rate of
monetary inflation you don't need to do that with bitcoin so you don't necessarily need cash flow on
Bitcoin. But people want cash flow, right? And how is the cash flow being paid? How are the
distributions on Strive, Strike and Strider being met? They're being met through the issuance of
equity. So actually, I was looking into it yesterday and I made some notes on that. So if
you think about it, that strategy has enough Bitcoin holdings to cover the dividends on the
preferreds for over 200 years. So at the moment, it's around 250 million on a year by year,
but it's going to grow because there's a plan to issue 21 billion in fixed income. And then it will
be obviously significantly more. But at that point of time, the Bitcoin stack will also be worth
significantly more. So assuming it would take strategy, another cycle in order to really fill,
I think that will be very fast
but let's say in the next cycle
the next four years
strategy is able to fill demand
for 21 billion in fixed income
by that time their Bitcoin treasury
will be worth
now it's 60 billion
it will be worth maybe 200-300 billion
and then they won't have 200 years
in BTC holdings to cover the
dividends of the preferred
maybe it's 10, 20, 30, 40, 50 years
but they are still significantly
in a good position
to issue stock to pay the distribution and payouts.
And also, and that's important to mention,
strategy is a company with a business line that is working.
So the credit rating of strategy is also tied to its ability
to generate cash flow to its main line of business,
which is business intelligence and AI services.
So I think it's important because if you come as a Bitcoin treasury company and MetaPlanet works a little bit different and I still believe that they have a good strategy.
Same goes for Strife, A.S.S.T., for example, who only focus on Bitcoin.
But if you are a zombie company, because strategy was kind of a zombie company, actually.
If you are a zombie company that only buys Bitcoin and you don't think about having a major business line or you don't think about trading demand for your stock, even in a downturn, I think you might run into problems paying out those distributions.
And I think that in this bull market, even though I'm very much interested in the different offerings, especially of strategy and also the way that MetaPlanet is raising capital, there's a high potential that this bull market, the treasury companies will create a sort of a bubble.
and I believe that is because leverage, generally speaking,
always needs to be liquidated at some point.
And over the past two bull markets, the leverage took place on exchanges.
So we had in the last bull market, there's a number of exchanges that went bust.
All these different yield strategies that were offered on exchanges
and now we have the leverage in the equity market.
But just because the leverage now happens on, let's say,
The institutional level and in Treadfy does not mean there's no risk in it.
And the risk is specifically centered around the fact that the payouts and the distributions that are offered by Bitcoin treasury companies are met by issuing stock.
And strategy has such a large customer base and such a large Bitcoin base that even if Bitcoin now drops 60%, they can easily fill the distribution.
but companies and zombie companies that are just starting with a bitcoin treasury model they have a
very low bitcoin treasury and then maybe they have no line of business if they go in very very hard
if they over leverage they might not be able to pay the distribution and that could create a
cascade of selling pressure and that could then lead into the next bear market potentially
and is that only the case if they issue strike like preferred stock offerings with a cash flow
kicker i do i i would say uh the to the comment i just made i would say yes but i would think it's
very important that they have a cash flow kicker because if you think about it the only reason for
somebody from tretfi for example allianz an insurer from germany that's very conservative
the only reason for them to buy convertibles or preferred stock offerings of strategy
is because they believe that whatever strategy has to offer in that case the payout is higher
than what they can get somewhere else in the market right and that's tied also to bitcoin's
performance but if you're a bitcoin treasury company and you say oh i offer a convertible bond
without the option to convert at the premium
or I offer a preferred stock
that yields less than the bond of a nation state,
nobody will buy it.
So you need to offer a distribution that is higher
than whatever a nation state offers
for people to get interested in that preferred stock offering.
Yeah.
Crazy times.
It's a really exciting time to be in Bitcoin,
but also unnerving in a certain sense because the magnitude,
the order of magnitude of flows coming into these products is all inspiring.
And that's why when you consider something like 21 backed by Tether,
Bitfinex, and SoftBank, maybe that's a formidable competitor.
Who knows how integrated Tether's operating business will be with 21.
obviously that's cash flowing pretty heavily.
Yeah.
And in terms of the other question I wanted to ask,
in terms of like real estate developers
looking at the return profile
and the risk profile of these offerings
and allocating to it,
do you get the sense that they would literally
sell some of the real estate assets
to get exposure to this?
Or would they incorporate it
And in sort of like a multi, not a multi strap, but like last night we were at the Bitcoin meet up here in Philadelphia.
And somebody was saying like an easy ETF to launch would be basically an S&P index ETF with a 2% Bitcoin allocation.
Just the juice returns would.
Do you imagine a similar strategy arising in real estate where you have these real estate development funds with their typical real estate cash flows and return profiles with just like a 5% allocation to these preferred stock offerings or convertible notes to get a kicker on the returns?
I just had a conversation with someone that actually sent me a business plan for that.
So the idea was you could lend against your property, you invested into Strike,
which gives you upside option and you have a payout, a distribution.
So I think that there's different approaches for it.
But judging by the conversations I have on a day-by-day basis,
the people that are like hardcore Bitcoiners by now,
they have sold their properties or they sell their properties.
So over the past two or three years, I've met many Bitcoiners that own properties
because they saved in real estate and they had a fiat job, let's say,
and they stacked BTC as well.
But over the past 10, 20 years, they built a real estate portfolio.
These individuals usually sell off their properties quickly
and make the switch into Bitcoin because they are only responsible for themselves,
so to say and there are investors that invested their own money now talking about larger institutions
and larger companies where you have different lps and different partners i see that people number one
they use the cash flow from the rental properties to buy bitcoin to protect the cash flow from
inflation so i think bitcoin is the best store value for real estate and something i also see is
And that's something I came to realize.
If you look at high net worth individuals, when they make new investments, usually they don't sell.
They borrow against the existing asset base that they have.
And then they make that investment.
And with real estate, that works particularly well.
So I have seen a number of individuals, a number of companies that refinanced the properties that they own instead of selling it.
And then they took that money and allocated it to Bitcoin.
and now the question is if you understand bitcoin but you are not somebody that's in real estate
development because you bring the capital let's say you bring the knowledge right so you bring
the knowledge as a developer somebody else brings the capital you build a property and for the work
you receive 50 equity in the property right so that would be us for example for these individuals
I see that they are starting to incorporate Bitcoin and capital raising.
So I've been working on it myself.
It's pretty difficult due to regulation and banks not willing to take the risk.
But we are working on a deal right now where for the next development,
we are taking on additional cash, additional capital, additional money.
So we're raising more money and we're buying Bitcoin with that money.
And that's something I believe is like a very smart thing to do.
you add satoshis and not just fiat in your capital raising so you can build a bitcoin treasury from
the beginning and then it takes away the stress it takes away the reliance on interest rates and
on a central planner it gives a bit more freedom in the way you construct your properties and i
also see people that now are offering new real estate investment products where they also publicly
say that they take the money, put it into the cash flow, excuse me, and put it into Bitcoin
to juice up the returns.
So there's different practical ways of merging Bitcoin and real estate.
And if you want to stay in real estate because you're a good developer and you have fun,
I highly suggest to start now chatting with the institutions that you work with and suggest
to also raise some sets, not just fiat, for your next capital raise to build that Bitcoin
treasury because a bitcoin treasury by itself might be a business model if you're publicly
listed because you can leverage the ability to to issue stock to raise money and dilute your
shareholders which in this fact is not ad because you increase the btc per share so being a publicly
listed company having a btc treasury actually becomes a business model but if you're a private
company you can still hold a bitcoin treasury it won't be the main line of your business but it
it will support you in whatever you do. Completely agree. I mean, that's something we've done at 1031
since we launched is hold some of the money we raise in our funds in Bitcoin as reserves. And
that's benefited us massively over the life cycle of our funds and highly recommend. Particularly if
you have like a 10-year fund, at the very least, it makes a ton of sense to allocate a portion of
your raise to Bitcoin. I mean, it's something we advocate that any of the companies we invest in,
And they take a portion of the raise from the proceeds that we give them, put it into Bitcoin.
And we've seen just that simple practice of raising money, putting a portion into Bitcoin, depending on what your particular company is, where your revenue profile is, where your profit profile is.
It's different for everybody.
But I think even a small toe dip into a Bitcoin treasury has paid off massive benefits.
benefits. We have a number of companies that their Bitcoin treasury is now worth more than
all the money they've ever raised, which is insane to think. And they don't have to go back
to market to raise again because they have this treasury. That is great. And that will also allow
the founders to keep more of their share distribution. You don't need to dilute yourself
as a founder. Exactly. Exactly. Very founder friendly way of thinking about managing your
treasury in the long run. But beating on this topic of the intersection of real estate and
opportunity costs that exist between real estate and opportunity costs, you've mentioned it multiple
times. You're a Bitcoiner. You prefer to hold Bitcoin in cold storage. You get it and you are
allocating as aggressively as possible. I would put myself in the same bucket there.
Obviously, there's a spectrum of people and their comfortability with Bitcoin specifically.
But for the market overall, what do you think is the best path forward or the best outcome
moving forward with all these options on the table and all these strategies that we're
discussing Like to me what we been talking about what we been describing makes me incredibly optimistic because it paints a clear path towards a somewhat smooth transition to a Bitcoin standard where everybody not going out and dumping the real estate all at once crashing the real estate market which collateralizes a lot of the global economy
basically beginning to toe dip, whether it's doing a juice return profile by having your
typical real estate portfolio and adding something like strike or just a little Bitcoin allocation.
How do you see the optimal path forward? Is it everybody going to dump the real estate,
allocate to Bitcoin, let things reprice rather quickly? Or would you prefer a smooth transition
where people just begin slowly but surely getting a little Bitcoin exposure at first,
but increasing that exposure over time?
Yeah, most definitely.
I would also prefer a smooth transition.
I really like the article that you wrote.
So for the listeners, I would highly recommend reading that.
Marty wrote an article of the dual collateralization of Bitcoin real estate and the importance of that.
And that's also why I'm beating the drum on that,
because I do not want to see a state of the world of chaos.
I often go back to what happened after Weimar.
Being a German, I'm very aware of the negative effects of inflation
and the information problem and the calculation problem that can result from it.
People are not capable of making...
Once money loses value, most things lose value, including human lives, right?
People don't value things, they don't value themselves.
They make bad decisions.
They start to vote very weirdly. Why is it that during times of high inflation, which is driven by central planners, people tend to vote for central planners?
There's this contradictory paradox where people kind of dig their own graves, so to say.
And now if Bitcoin is being included as a hard asset into the global financial infrastructure, it can create some resilience that we all benefit from.
And generally speaking, I do take like the Austrian perspective where I try not to judge how things are.
I kind of just try to look at it and understand it without necessarily judging it.
And I think Bitcoin as near perfect money is being used wherever it's needed most.
And in the less developed world, Bitcoin is being used as a medium of exchange predominantly because they are just very bad payment infrastructure.
In the developed world, Bitcoin is also used as a medium of exchange, but it's predominantly used as a store of value.
And I believe the reason for that is currency does not represent the bulk of the world's money.
First of all, the money exists on screens and in digits.
And then also certain asset classes like real estate, bonds, art and collectibles.
They've taken on a monetary role due to decades of monetary inflation that has decimated people's purchasing power.
And they now sit on corporate balance sheets.
So all over the world, companies store their productivity in asset classes like real estate and government bonds that are actually bad forms of storing value and productivity.
and now Bitcoin is kind of tapping into these pools of capital
and is demonetizing these forms of money.
So I think it's a net positive
and I don't think it's like it's not mutually exclusive.
In my opinion, Bitcoin can be both
a medium of exchange and a store of value
because it's just money.
Bitcoin is money and money fulfills these different roles.
We just kind of forgot what money is
because we were living on such a bad monetary standard for the past couple of decades
that sometimes it's shocking what Bitcoin is being used for.
But then when I think about it, I understand, wow, this is actually a monetary use case
that I totally underestimated because I myself had a distorted view of what money is.
Yeah, thank you for I'm glad you're reading the newsletter and that you like that one in particular.
Because, no, it's, again, I am similar.
I try to prognosticate and project forward, but always fall back to first principles of that's where I would like things to go.
But let's just dissect things as they are and make rational judgments based off of that.
The market can stay irrational far, far longer than you can say solvent and every other sort of disclaimer trope that you have there.
But it is, I've been talking about it for multiple years now.
And after having had many conversations with yourself, Andrew Hones, Kelly Lennon, others,
it just makes sense to me that if you want a smooth transition, the best way to do that
is this dual collateralized credit structure that allows the borrower to participate in
the upside of the Bitcoin.
Because I think if, God forbid, this train doesn't stop, nothing stops this train, and you do have some sort of high inflationary to hyperinflationary event at some point down the line, hopefully it's later rather than sooner.
and a sufficient amount of the market is engaged in these types of dual collateralized products,
that creates somewhat of a safety net for people exposed to those products,
which allows you to reorient and restructure the economy in a more regimented and less chaotic way.
Yeah.
there would be the greatest outcome for the greatest amount of people
i guess done through bitcoin and that would be good yeah so what do you think is this cycle
different than last i had a long very tense discussion with a very good friend of mine
yesterday he's anonymous but he's been in bitcoin for over a decade as well and he's he's been he
said Leon you're misjudging it now that's the point where we are going into some form of he
didn't call it super cycle but he said that the volatility can't be bigger than 60 percent
because large institutions and bitcoin treasury companies are buying so much bitcoin and they're
hodling it they're not willing to sell it that even if let's say the leverage is being washed
out at some point he can't see a drawdown more than 40 percent and I personally sort of have the
opinion that bitcoin is doing what bitcoin did and does every single cycle and it's a net positive
because it builds resilience so i wouldn't be able to pinpoint my finger into let's say it's
going to happen november december on the first quarter of 2026 but just judging by my intuition
i think that bitcoin at some point needs to wash out leverage and that creates like resilience
because in the fiat system we've got these boom and bust cycles whereas over time once the market
experiences a downturn new money is being created it's being funneled into the market
to stop the downturn from happening but over time there's a there's a bust like an 08 or you had one
in you know we had one in 29 that's also very known of course and you had various boom and bust
cycles throughout the years and throughout the last century and with bitcoin because bitcoin
naturally washes out leverage it builds resilience and we don't go through these crazy boom and bust
cycles we go through bull and bear markets and i think that's a net positive also for the mentality
of the stackers and the hodlers it wouldn't be good if bitcoin would just now go on an upward
trajectory but judging by also the last three years things are changing where for example in
about a year and a half ago we had a bull market in miners so if we talk about clean sparks for
example clean sparks i think in december of 2023 please check the timeline here but clean sparks
peaked around 23 24 25 dollars and now it hoovers around 10 dollars and some of the other miners
like Riot and Marathon, they went through a small bull market at that time.
Shortly before in the summer, we had an ordinance bull market.
So what is interesting is that in specific asset classes that are tied to Bitcoin,
like collectibles on Bitcoin or miners,
we have bull markets that are not in line with the general price directory of Bitcoin.
So that's something that I personally haven't seen before.
And I am paying attention to that because what it tells me
that the Bitcoin bull market is extended in a way.
Bitcoin is not crashing from, let's say,
90,000 to 10,000, right?
But it still has volatility
and it went from 100 to 30 to 82
just a couple of weeks ago.
And I do expect we'll have a 60% drawdown
at the end of this bull cycle as well,
just to wash out some leverage.
I'm sure bad players will enter the market like always.
So I don't believe in some sort of super cycle
or the liquidity squeeze or supply squeeze happening like immediately.
But I do believe that there's a change that we can see.
The asset is maturing.
The understanding of the asset from large pools of capital is maturing.
Like Saylor is not going to sell his stack, right?
And he's holding over 2%, I think, of the total stack at this point.
And as these companies are stacking, volatility will dampen.
But I don't think it will go away.
And that's a beautiful thing.
It really is. And I would agree. I think there's definitely going to be a correction at some point.
Is it going to be the magnitude of 2017 correction or the 2013 correction, 2014 correction?
Probably not. But as you mentioned, humans are incredibly social beings.
Their mentality does take over. People make bad decisions and leverage has to get wiped out.
But one thing I mentioned in that piece that you brought up and was actually tweeting about yesterday,
One of the things I'm looking at, whether it's these dual collateralized credit structures with longer durations or now bit bonds are becoming more of a topic of discussion.
You had the mayor of New York City announced that he would like to launch a municipal bit bond in New York.
And yesterday you had Russia's largest bank, Spur Bank, launched a structured bond tied to Bitcoin.
And that's one thing I'm trying to wrap my head around, get a better understanding of is if you have these structured credit products and bond products, bit bond products come to market and they reach a critical scale and they reach scale.
like that has to do something for volatility because you have this forward looking duration
curve that you can point at and say, OK, I know that X amount of Bitcoin are locked up for Y
amount of time. So that supply is unlikely outside of bankruptcy to come to the market to be sold.
And that has to give institutional investors some peace of mind from a volatility perspective,
saying, all right, at least I know this portion of the Bitcoin supply is going to be locked up for
this amount of time. And so then you try to calculate what the free float is beyond that
and what effect that could have on price. And I don't know if there's a question there, but just
something I'm paying attention to is this forward looking duration curve begin to affect the
psychology of people and their comfortability with Bitcoin. Yeah, I think that is in line with
Bitcoin being part of this greater monetary reset where as near perfect money, it finds its way into every capital structure, basically.
Yeah. It's exciting times.
And then it's something I've been jokingly tongue in cheek saying SuperCycle for a year just to trigger people on Rabbit Hole Recap.
But we've been saying it on that show for years, too.
It's like when Wall Street comes, like if you thought DGENs on BitMEX and Binance trading at 100x leverage where we're degenerate, just wait till TradFi gets in and tries to create products around this.
And I think we're at the very early days, but I don't think people should discount the levels of degeneracy to which Wall Street and high finance can engage in as well.
That is true. It's a very good point because sometimes people make the argument saying Treadfire is not coming to Bitcoin.
And then I would say, well, that's not a good thing necessarily.
It's definitely a good thing that you have companies, Bitcoin treasury companies, that are buying Bitcoin in large bulbs and they're holding it.
Sure, there's also custodian risk to that.
It's another topic that is worth a discussion.
But Treadfire coming to Bitcoin, I think Bitcoin will give Treadfire a big slap in the face.
And that is being done through washing out leverage.
And that means downside volatility.
yeah you had sorry there's somebody mowing the lawn outside so I want to make sure I'm on mute
when you're talking but you had uh you had a pretty long tweet um and I won't read the whole
thing but I think probably a good point to end on uh it's your tweet the truth stings at first
I've been on building sites since my teens and I've spent my early career turning dirt into
concrete cash flow. And as I told myself, lasting wealth, it took years as a bruised ego to accept
that no asset, not even prime real estate can compete with Bitcoin's long term performance and
absolute scarcity. Markets don't care about our feelings and math won't bend to sentiment.
The sooner we face the reality, the sooner we can position ourselves to benefit from Bitcoin.
Then you explain how you see it. But to any of the real estate developers who are listening or
watching this interview because they're interested on your perspective as somebody in real estate
who has gone all in on bitcoin or incorporated bitcoin into your strategy what would you
say to the skeptics out there how do they get off zero or what questions should they be asking
themselves i think the question you should ask yourself is start measuring your your wealth in
Bitcoin. Take the value of the properties you own year by year, month by month from any time that
you would like to choose four years in the past until today. And I can guarantee you, you'll be
shocked by how rapidly the properties that you own are losing value. And I think that's what you
should do. You heard it here first. Should we tease the book at all? Are you keeping that close
to the chest?
Not at all, not at all.
I'd be happy to.
Yeah, so I'm writing a book by the working title,
Digital Real Estate.
Hopefully it'll be released by the end of this year.
I've been working on it for around three years.
It's just taking a lot of time.
I'm spending a lot of time on it, thinking about it a lot.
And it's going to be released with Bitcoin magazine.
And the idea is I have three chapters in the book that I also have smaller paragraphs, of course.
The first chapter is explaining Bitcoin as digital real estate, the investment thesis behind real estate and Bitcoin being very similar.
And then the second chapter, I take you deep into very practical strategies for using Bitcoin in the real estate industry,
for real estate development, for protecting cash flow, using mining to generate heat and also
offsetting increased energy costs. And also eventually, if you want to, going into the public
markets, tapping into that and the effect of corporate adoption on Bitcoin. And in the final
chapter, I go into the socioeconomic effects of Bitcoin replacing real estate and then becoming
the bedrock of the global financial system and becoming hopefully the new hurdle rate.
Well, Leon, thank you for your time. Thank you for writing this book. I can't wait to read it. It's always great catching up with you. I think you're on the cutting edge of this intersection of real estate, Bitcoin, and then just beyond that, thinking of Bitcoin generally more broadly and thinking of ways to dip your toe in, get more exposure in a somewhat smooth transition.
so thank you for coming on having this conversation uh i hope to see you in person at some point
soon i know you over in germany but hopefully next time i not running out of a conference when I see you in person Yes I hope so too Thank you for having me on
I appreciate it.
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