Hey, welcome back to the Bitcoin Matrix. I'm your host, Cedric Youngelman.
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Links in the show notes. Nobody could explain how we actually get from today to a Bitcoin standard.
Maryland HODL 21 and Chris Reed just mapped it out.
And now, let's enter the Bitcoin Matrix, episode 268.
Bitcoin's iPhone moment, stretch, and the conversion of the financial system with Maryland HODL and Chris Reed.
What is real?
How do you define real?
You can't jump into cash.
Cash is trash.
What do you do?
You get out.
Maryland HODL and Chris Reid have been putting out some very interesting pieces on the conversion of the financial system.
Stablecoins, Bitcoin, understanding the MNAV cycle, the apex carry trade, BitBonds,
and how Michael Saylor's company strategy and capital markets are discovering the Bitcoin capital curve
and potentially creating a sovereign flywheel very few see coming.
Marilyn Hoddle and Chris Reid, welcome to the Bitcoin Matrix podcast.
How are you guys?
Good, sir.
Thanks for the input.
Appreciate this talk.
Yeah, man.
Gentlemen, I'm super excited to get into this.
We're just going to go right into this.
I'm not even going to ask you about your inspiration because I think it's obvious.
So what is going on with STRC or stretch, right?
Put out by strategy and the conversion of the financial system.
Most people are looking at stretch as just a yield instrument.
And so I'll kick it to Marilyn Hato.
What are we collectively missing?
What's the point that we're missing here?
So I think it's important to take a step back.
Everybody, he has safety and they came out and had the Bitcoin standard.
and but nobody can describe how we get from today to the bitcoin standard and i think that there's a
i think not a lot of people attack it because it's overly complicated people can barely understand
what's going on in the existing system so you know i've asked at random times throughout the
last couple years and whether it's lawrence lapart or um shooting other you know thought
leaders in the space, you know, DMs and messages to say, Hey, what does it look like? How do we get
from here to there? And after a while, nobody was really answering the question. Um, I was like,
well, I'm going to take a stab at it. And that's kind of when I started the journey last year
of really putting thought and time into what does that transition look like? And for me,
everything, you have so many distortions happening in the existing system.
and the vibrations are continuously getting more and more violent,
whether that's financial or societal breakdowns or geopolitical breakdowns.
And it's not just in the U.S. It's spreading across the world.
A lot of the historical norms that have been around for decades,
generations are starting to break down.
Financial, bond market, gold, dollar, right?
Those are starting to become disconnected from their historical trend lines.
And when that starts to happen, you know, negative, you know, real rates and so forth with bond markets dynamics, it's like, yeah, everything's driven by incentive.
Right.
And the question is, if we're going to be able to do a successful transition from this system to the next, then it has to be incentive driven.
And we have to realign incentives throughout the transition period.
And that's where I spend a lot of my time thinking is how do we realign those incentives by reading the tea leaves of what's happening in the industry and what product sailors are putting out or what articles.
um bitcoin policy institutes putting out and just trying to understand the general underlying
dynamics and how that could fit into essentially what a transition would look like so and i think
there's some really interesting product lines that are being discussed you know last year it was bit
bonds um bpi put out an article last february and when strc came on the page almost on the landscape
last July, August.
It took a little while for me to fully understand
the complete impact of what it meant.
But I think Saylor was right when he came out
and said, you know, this is MSTR's iPhone moment.
And I can actually make the argument
that it was Bitcoin's iPhone moment,
at least for an adoption perspective,
like an acceleration perspective.
So I'll pause there.
Chris, you have any thoughts?
yeah um you know we as bitcoiners whenever it clicked for us whether it's a year ago five years
ten years you know we realized that bitcoin is the best money for human beings for our civilization
and so we as you're i'm alluding to you know what you said earlier there's two financial systems
happening at the same time and most people don't see it that way um they're kind of mixing
thing together, but we truly have two separate financial systems that one is built on inflation
and one is deflationary. And we can go on and on how opposite they truly are. But in the end,
humans are going to converge on the best money. You can look back thousands of years. That's what
humans do. Once they understand what protocol to store their wealth and their time and their energy
in, they move over to that system. And you can call it an asset if you want. And they're going
They put their time and their effort into that And so just to your point this bridge obviously has been built from one financial system the fiat system to Bitcoin And they two separate protocols
And in the end, it might be a duration thing.
Eventually, a lot of us, that's what we believe, that eventually the global reserve currency, baseline money for human civilization, will be Bitcoin.
But then to your point, how do we get there?
What does the bridge look like?
Because you have two separate landmasses with this gaping, huge hole between.
There's this in-between.
And what happens between the gap?
And STRC truly, you know, once STRC in July, and you go through just the mechanics of it,
and it was like, this is part of the bridge.
This is part of the bridge that gets capital from one system to the next.
whether they truly realize that's what's going on as far as transfiguration units from one going to
the next yeah yeah cedric i think it's it's also important you can't look at this transition
independently of the productivity boom that's going right there's a transition happening
the industrial air has been built on debt and human productivity or industrial productivity,
right? We need to have perpetual growth, perpetual debt, money expansion, perpetual debt.
AI changes all that, right? We are an industrial air society on a jet plane heading into a
deflationary mount side that is AI and they do not operate well together, right? They actually,
they're antithetical to each other. The dollar-based system will not function
when AI starts to demonetize kind of the economic calculation, more specifically
the productivity portion, which is labor, right? Right now it's doing it to white-collar jobs
and software type of industries.
You could see the early signs last summer
when college graduates who were kind of the marginal hires
of the old system couldn't find jobs.
I mean, I think the number is 46% of college graduates
over the last five years are either underemployed
or not employed at all.
That was a warning sign.
Now we're starting to see it in all of our industries
it's having some level of impact, especially if it's white collar, right?
Well, fast forward another five, seven years,
and we have intelligence, AI, much more advanced than where we are today,
pushed in with robotics,
and they're getting close to having that functionality
where a robot can function fully like a human.
And you embed AI into that, now you're taking out the blue collar.
and your entire economy starts to change overnight.
For instance, a house, okay?
I had a huge issue when they came out
with the idea of the 50-year mortgage, okay?
My thought around that was, all right,
maybe it's exit liquidity for kind of the aging,
you know, boomer generation, fine.
um but my issue is the average housing stock and you have to fact check me on this but the
average housing stock is like 40 years or something like that across the country
and you know it only you know i think it's 19 years but then you have an average life of like
60 years or something like that so when you add the two together you're basically looking to have
a house that's going to be have to almost be completely rebuilt by the end of the term of
that loan. And that's not a huge issue to me. I'm like, all right, we can get around that.
We're perpetually kicking the can down the curb anyway. But the big issue for me was what happens
in five years when they drop two robots across the street, drop all the materials there, and then
they build a house in a tenth of the time and for a tenth of the cost, and it has much better
features and functionalities. What happens to the house across the street that you own, that you have
a 50-year mortgage on. It demonetizes and you lose all that equity, right? So that's the type
of things we have to start thinking. The two systems, again, are antithetical. And I do believe
AI, you have to look at both paradigms happening at the same time. Like we're having two paradigm
shifts, which is very unique across kind of history in general.
so what i'm i mean i really like the way chris talked about sort of like we need to bridge
between these two uh land masses that are very far apart and one of them is obviously having
structural issues and i like this idea and i think this was maybe the way sailor talked about this
pre sort of the preferred but of sort of strategy being a refinery a bitcoin refinery
So I want to talk more about the bridge, maybe what problems need to be fixed, right?
Where we're leaving.
I guess we're leaving on one, we're trying to leave one landmass, cross a bridge, and then we're trying to figure out.
So I want to talk a little more about the bridge and maybe what, or how, why is fixed income broken?
Or what does it mean to monetize Bitcoin's long-term growth on a balance sheet?
And how does that monetization anchor a financial system?
Yeah, so I'll talk about an input number. And right now in the fiat system, we have the risk-free rate, if you will. And so the risk-free rate is roughly 4% range.
when we actually, well, we know that if you add monetary debasement and the cost of goods,
so that combination of monetary debasement, inflation, however you want to package it,
it's not 2%. It's not 4%. It's probably more like 7% to 8%. So what that's telling you is
you have all this trapped capital, all this trapped fiat, all those units that are getting
the risk-free 4%, but what if the input's not 4? What if the input is 8? So you have a negative
4% delta between 4 and 8. And so there's a negative carry with the risk-free rate in the
system that's inflationary. And so you have to be sold, you have to believe that 4% is the risk-free
rate. And if it's not, if it really is 8%, what that means, if it's really 8% and that number's
correct, think about all the debt and all the instruments that kick off 1% in betting accounts,
4% in T-bills, 6% or 5% investment grade, maybe 6% in jump bonds. And at that point,
All of those are negative yielding.
They do not hit that 8%.
And so what that means to me and should mean to other people is that all of those instruments that are laid out, they're defective.
And you are losing wealth in all of those instruments.
You add up all the units in those instruments.
What is that?
Hundreds of trillions that are negative yielding.
But we don't say it that way because we're told 2% is really the input, CPI is inflation.
anything above to your positive carry.
So I think about it like that.
So when we say the system's broken,
there's a lot of layers,
but that from a fixed income,
getting dividends, all of that concept,
and getting interest rates,
if the input's anything less,
it's dilutive to your wealth.
And so that's why people,
and also they feel like they can't get ahead
if they in the rat race all the time in the fiat world And so input number is really important because then when you bid the bridge as STRC then what do you do Because if it really eight I getting four
what do I do? I'm losing 4%. I'm on a fixed income. I'm on social security and I can't get
above the hurdle rate. What instrument is out there that will help me protect my wealth,
but actually get above that 8%? And that's when the preferrers have come into point.
over the past 15 months.
And that's why they're so interesting
because it does create that bridge conflict.
Yeah, and Cedric, what Chris is highlighting
is a real rate of return.
The Fed has suppressed rates for such a long time
in order to continuously fund the debt service
related to the ever-growing exponential kind of debt load
that we have acquired, especially since 2008.
And it's not showing any signs of slowing down.
And I can actually make the argument that you have two issues.
There's fiscal dominance in Washington.
They're going to continue to spend.
They're not going to get fiscal conservative, right?
And then on the other side,
countries around the world are starting to not buy our debt, right?
We're having VCs and hedge funds doing carry trades out of the Caymans,
you know to buy our debt you know tether has moved up to in the top 20 as the top holder of u.s
uh treasuries um so we have these new entrants coming in but we have along with the geopolitical
risk and potentially bricks um the world is not looking at u.s debt anymore as a a neutral kind
a reserve asset or the pinnacle financial collateral.
I mean, when it comes down to it, the system's trying to recolateralize.
I think that's why gold's been going up.
But that leaves, okay, so looking back at what we have in front of us is, if I'm correct
about AI, and it certainly looks like we're heading in that direction, we're going to
have to go through.
And I believe, you know, the world is starting to fall back to different hemispheres.
Like we're going to focus on the Western hemisphere.
And I think that's by design.
I think we're also going to have to win that productivity race I was discussing with China and other areas around the world.
In order to do that, we have an aging power grid and we have to produce more power.
We have to, you know, revamp the grid entirely.
And we have to build all these data centers, right?
And I think that's what we're ultimately heading towards
is setting up a wartime economy
to start building out the infrastructure
around the United States and the Western Hemisphere
in order to win the AI race,
which is ultimately having robots
from a productivity perspective.
And to do that,
they're going to have to spend so much money.
Okay, so that's where we get to
what I believe is coming
from a treasury perspective,
we just crossed over $38 trillion.
Or was it 39?
I think it's 38.
Okay.
A year ago, it was $2 trillion less.
What's a trillion, right?
Oh, man.
People don't really owe this money.
Every 90 days.
You know who it falls on?
It falls on our kids.
That's one of the reasons I'm doing this,
is to try to figure out this mess
or at least provide some thought-provoking ideas
that maybe somebody that's in charge could.
But with that said,
is the Fed is trapped.
Now, I believe that there's a war going on
for monetary control
between the Fed and the Treasury.
I think the Treasury's ultimately going to win
like they did in World War II,
where the two powers were consolidated
underneath the Treasury.
And I think the Treasury,
is going to push us into yield curve control.
So the 10-year right now is sitting around 3, 4.
It's been hovering here for a year in this range, right?
So what happens when the treasury,
the risk-free rate defined by the market,
gets controlled and set at 2%?
And then inflation starts picking back up
because we start spending as much money as we possibly can.
in order to fix distortions that are breaking the system,
but also try to revamp the electrical grids,
the power infrastructure, and fund everything we need to,
because whether we like it or not, AI is coming,
so why not lead it, right?
And if that's the case, where does that leave the consumer?
The individual, the American.
And that's why I have all theses around,
like, Bitcoin is going to happen just as much as AI is going to happen.
And the pivot, there are no other options.
The U.S. has to make the pivot.
Can't tell you when, but I can tell you that's coming.
And it's going to be a top-down approach.
And I think the administration's kind of positioning for it.
Now, that goes back to what Saylor's doing here from a bridge perspective.
Because he's using Bitcoin as collateral,
he's trying to find out what the real cost of money is
in the free economy.
And I believe that's ultimately,
we've had a lot of discussions.
Chris hosts a great space on Fridays and I partake,
as well as a couple other people and Chad Hoddle's one.
And basically we've been talking a lot lately.
It's focused around STRC,
but it's also focused a lot around what STRC
kind of the significance of it is.
And if we are heading towards yield curve control, and what Chris has indicated is inflation plus debasement ultimately, say on average, is 8%.
Well, the Fed drops the risk-free rate down to 2%.
People have a negative room rate of return at that point of 6%, right?
Two off of six or two off of eight is six.
and Saylor has figured out how to game the system
using a different type of collateral.
And what he's doing is he's essentially bringing value for.
And that rate of return that he's able to offer,
which we think ultimately is going to go to 12,
that right there, as inflation starts to spike back up,
is going to drive people in masses,
especially if the underlying collateral value of the Bitcoin securing it
doubles or triples or quadruples in value in relatively quick order, which is completely
possible. Yeah, I want to break this down more. You know, you talk about sort of the rat race,
Chris, and it sort of really struck personal now with me because this portion of the show
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Think about maybe the Red Queens race you know you running fast and you not really getting ahead of your peers or you just not gaining any ground or you kind of I have those dreams you know like where you you going from like first to second on a baseball diamond and like you you just
kicking sands and you can't go any further, but no matter how fast you move your legs.
And I think there's like, you talked about the negative carry trade there, which sort
of the real rate of return and sort of first whatever assets you're able to get on the
market. And I think you have like sort of two negative carry trades there or that you're
fighting. You think about your salary, maybe if you're a W-2 employee and you only get a two or
three or 4% raise. So you kind of negative carry against your increasing expenses, right?
Then there's maybe the assets you own and the assets you want to buy, right? So you're hoping
assets you own kind of increase your purchasing powers so you could buy these. And so maybe you're
thinking, you know, camp went up 8%, my salary went up 4%, toothpaste went up 6%. These things
aren't really that material. You could probably get by with a credit card, maybe even to just kind
of kite your way through it. But it's really like what Michael Saylor talked about, it really feels
like real inflation on these bigger things that are more capital intensive and sort of more
important to living on a longer term basis, like healthcare, housing, education is going at like
10 or 20% a year. But you really only talked about a negative carry trade. What is a carry trade?
And maybe we'll talk about what happened with LTCM, a long-term capital management,
and get into the yen carry trade to explain like, what is a positive carry trade? What are people
trying to do out there? How are the pros like getting around the negative carry trade? What
happened with LTCM? And then we'll get into the yen trade, yen carry. Yeah. So the LTCM,
They were basically the de facto hedge fund back in 94 to 1998.
And the short, ironically, is they were short volatility.
They bet on things in the fiat world, which is interesting.
They bet on things converging.
They bet on things being calm.
they bet on things being steady which sounds so antithetical to us bitcoiners when you look at
the fiat world in fiat instruments uh it you know in debt in sovereign debt all of those all of
those variables that go into markets and how volatile they can be ultimately they were shorting
volatility and they were doing it with 10 20 25x leverage and in the end russia defaulted
it created contagion within their fund itself and they they had only had about 5 billion in assets
i mean this is no yay which is a lot back then but still 5 billion but the problem was
notionally, they had $120 billion.
We're talking more than 20x leverage
on their positions because the spread
or profitability of the trades in and of itself
from a one-to-one basis, there wasn't much there.
There wasn't much juice.
Just a couple of basis points, I would say.
But when you put on 25x leverage,
then you can make some money, right?
And so just as long as everything converged and everything, the water was calm, you're on the sailboat, you're in the boat, there's no waves, you're good.
But as soon as something out of the ordinary happens, everything blows up.
Their models basically said it was like multiple lifetimes, no chances would ever happen for the Russia to fall.
But as we know, God's volatile.
So that's ultimately how I explain what happened back then.
Then if you compare that to, we can go into this a little bit deeper.
Actually, when you look at it, when I look at it just deeply, what Saylor is doing and what strategy is doing is actually the opposite of shorting volatility.
Their long fall, their long Bitcoin fall.
And so I've done like a side by side comparison of the two.
And it is so fascinating that, you know, there's no liquidation risk with MSTR.
There's all the things that happen to LTCM that mechanically, you know, more than likely that it can't have.
There's some things that can't happen on the MSTR side.
And that's when it's so fast about it.
And it's very almost exact opposite concept.
But what's interesting is people overlay what happened to funds and talk about liquidation risk and leverage and all of that.
but you have to flip it upside down when it comes to coverage for the preferreds.
You know, what's the runway for coverage to pay the dividend and things like that.
So it's very fascinating.
Yeah, I think I was a junior in college or maybe a senior in college when LTCM happened.
I remember we were talking about it.
I remember the Russia thing.
I didn't really realize it was short volatility and the Russia thing caused massive contagion.
That's a really interesting connection there.
What about the yen carry trade?
Can we just kind of, because I want to get into maybe just Maryland, maybe just real high level, what that is and how much money was involved in that.
That one I'm going to let Chris run with because he's closer to that one than I am.
Yeah.
Oh yeah.
Well, it's the same concept really.
You borrow, like for example, you borrow, you're borrowing cheap yen.
You redeploy that.
Let's call it 0%.
You borrow 0% in yen and you redeploy the capital in the U.S. more.
Asset or something.
entity there, some vertical, and then you, and then you capture the sprint
between zero and four or zero and five or whatever it is.
And then you ramp up the leverage or pull the leverage back down based on
button profile, things like that.
And that's basic.
Yeah.
Go ahead.
Now in Peruvian bull, I think he goes by Roberto now, um, has done a really
good job, uh, mapping that over the last couple of years.
Um, and it's, it's fascinating.
You know, one of the things I heard was that direct trade that Chris was discussing right
there, basically funded majority of like our software investments from the 2000s, late
nineties, two thousands.
And that's how the U S was able to kind of build out its entire tech industry.
so it's just interesting how you have these self-financing mechanisms that have worked out
so well both on the upside and the but we haven't seen really the downside yet but
i do believe that's coming at some point because to your point chris it's volatile
it's bound to happen at some point and so if i could add yeah you basically just as an allocator
you look for a mark like you look for inefficiency or you look for spreads you look for you know if
you know what i'm talking about you know what i'm talking about it's like you're just looking for
those spots if anybody plays poker like years ago whatever you know back when it was really hot you
look for spots you go to the table that puts you a plus ev's position like you want to be plus ev
at all times and so ultimately there's carry traits happening all over the market and you're just
looking for the best asymmetric situation and the best spread with the least amount of volatility
like you don't want you know and i think the most important part of what you're trying to
to represent here is if it plays into the conversion of the system too right if the
conversion happens faster and bitcoin becomes the black hole which is ultimately what say
once strc hits par he is scraping every last bit of that volume off and buying bitcoin with it which
is you know i i can make the argument that there's been a lot of monkey business by market makers
um in the bitcoin markets and they've used paper bitcoin and i know that there's many
out there that disagree with that premise but i believe that they have basically
inflated the Bitcoin supply through paper Bitcoin over the last year or two, definitely
within the last eight or nine months, and have suppressed the price.
Well, yeah, I'm going to jump in because a lot to unpack here.
So Peruvian Bull, a.k.
Roberto Rios, last guest on the show, I recommend people go back to that.
We did get into sort of this promotion collapse of Japan's bond market.
Now silver is finally breaking free from decades of paper price depression.
And we cover, I mean, he's just sort of like, oh man, so much signal, very quick.
And we talked for two hours.
You know, famous carry trade or infamous, and I don't think it's true.
SPF was known for the Korean kimchi trade, where he was able to buy.
Somehow he was able to get access to the Korean Bitcoin market and zap it over here and sell it for more.
And somehow he was able to build this sort of flywheel that he was able to protect.
Because any sort of carry trade that's in the fiat world will be attacked by competitors.
No one's going to get a free launch.
It's going to collapse eventually.
It's going to be, you know, even Japan couldn't defend the yen carry trade forever.
It's a tough thing to do.
And I'm sort of Bitcoin.
I would say in price suppression and paper, Bitcoin, I speculate all that stuff is happening.
I'm kind of certain of it, but I will say just even flatly, just not your keys, not your market price.
So, you know, ETFs can have pros and cons.
I don't think it's self-custody.
doesn't have any sort of the benefits of pure Bitcoin, but you get price exposure.
But some of the cons with that is that gives a lot of other entities influence over a price.
I just, you know, and they, you know, their markets, ladies price, they set the scoreboard.
They literally write the scoreboard.
They know the order flow.
They can kind of manage the ins and outs.
And there's non-cash, there's non-Bitcoin settled instruments being used.
Maybe less and less, whatever.
But, you know, I want to talk about stretch, though.
So one of the things, Cedric, real fast, is what happens when the Fed moves interest rates down to 2% and then the cost of money in the TradFi system decreases from where it's at today?
And say you or I could go and borrow at 6%, right?
once the market understands that strc stable that's the carry trade right and it's it's not
going to start with consumers and it actually might be arbed out before consumers can even
really pick up on it in mass but ultimately institutions are going to start running that
i think that's one of the points that chris has been getting to is that is the institutional carry
trade once they fully understand and grasp what strc is and that it's stable and that it is not
going to essentially be attacked by you know market makers or over trogers because there's
still some theories out there that ultimately you can long str and short um or long strc and short
mstr and play nab differentials and so forth like there's a lot of theories about how that could play
out and it could very well play out this cycle or the next. But if STRC is proven as a solid
mechanism that works, and really the proof of that is going to be how Bitcoin reacts to the volume
that's coming in from STRC to buy more Bitcoin. And if Bitcoin's price scarcity actually returns
back to Bitcoin, then the machine's on stuff.
And that carry trade, whether it's the individual
or the institution, that's how you convert the entire system
because that becomes a black hole
and it sucks all the value of everything into it.
And that's how you start realigning incentives
and transitioning.
So I think Chris kind of touched on this before.
Obviously, Marilyn, you, well,
But it seems like stretch breaks this sort of carry trade pattern at a molecular level.
I think that's Marilyn's words from this piece.
Let's get the name of this correct here.
Stretch and the conversion of the financial system.
So it seems like, you know, we're with Bitcoin and stretch your long volatility.
and nobody can really mess with the positive nature of the carry trade
as long as Bitcoin's cager stays higher than the interest rate you're borrowing at
or providing through the preferreds.
Yeah, I don't think we're...
Chris, correct me if I'm wrong.
I don't think that's the actual mechanism of the carry trade that we're discussing.
is it it's the it's the it's i think it's the other side so okay there's like two concepts
the concept is you can borrow at a rate like at five percent or four i think this itself or goes
down to three or two and then you can redeploy at 12 or 11 at strc so you might have a nine eight
seven hundred basis point delta but capture like i was from strategies point of view where they could
They're carrying the Bitcoin at a higher rate than they're providing and distilling the risk and the rate too.
But yeah, there's both sides of that, right?
There are being Bitcoin's growth rate with what they're paying down.
Correct.
But it breaks all traditional, it's like a paradigm break because normally you're on the negative side,
or even if you're on a positive part of this fiat carry trade, you can't maintain it,
or other individual actors can interfere with the trade.
With Bitcoin, no one's going to be able to debase it, print more of it, get a better location than you, these kinds of things.
Maybe there'll be regulatory benefits depending on your country, I guess.
But it's sort of a defensible, it's permanently defensible as long as Bitcoin's cager is higher than what strategy is delivering to their customers who they prefer.
Am I thinking about that correctly?
And to your point, I'll put a couple of puzzles, pieces together we've done already.
because we believe, we talked about the beginning,
near the beginning,
Bitcoin's the best money.
If Bitcoin's the best monetary protocol,
then human beings will figure it out.
We don't know the duration.
So that's where the fiat price of Bitcoin,
we don't know.
We have no idea the next year or whatever.
But over, I'd say, a decade,
adoption is going to be a heck of a lot higher
if people think like we do
that Bitcoin is the best monetary protocol.
right i mean the fiat units will keep being printed they will keep going up and those units
will shift over to the most efficient protocol so then so that's failure's delta that's what he
believes that's what us as bitcoiners believe that's what he believes and so then he has to
put a number on it so he's put out the number let's say 29 year as the as the caker like people
can argue is it going to be 25 is it going to be 30 over the next decade nobody knows of course but
You've got to have some type of input number.
We talked about the 8% input.
Well, his input's 29 for Bitcoin.
And so if that is true, then if he can have a vehicle like STRC where it pays out, which
it started at 9%, it's increased now every month, 50 bips, 25.
Now it's up to 11.5.
You have 11.5 versus 29 is what he thinks.
So rounded to 12, 29 minus 12 is 17.
He has a 17% positive carry, to your point, Cedric.
That the other side of the carry trade So you have actors doing the other side of the carry trade of getting cheap fiat for four percent buying strc collecting the 800 basis points from that carry trade then sailor
carry trades that with bitcoin's catering 29 and he pays out 12 so he collects 17 that's what's going
on you know i was thinking about this um earlier today and we're still looking at it through a
trad fi lens right like everything about these returns we're still looking at it in economic
returns related to fad so if in you know um jeff booth has spoken it's it's very difficult to
to peer through a paradigm shift and see what it looks like on the other side.
So my argument is, and everybody's like,
oh, how's this seller going to become a Bitcoin bank?
How is he going to monetize this?
How is he going to come up with a cash flow mechanism?
And I'm like, that's fat thought processes, right?
That's this side of the paradigm.
And if the system is breaking down and people don't trust each other,
the only thing that matters is collateral right i mean back in the 50s and 60s the balance sheet of
financial statements actually really mattered a lot more than they do today and the way i look at it is
what sailor is doing is he's figured out how to trojan horse the incentive structure
in order to take advantage of the distortions that are happening on the side of the failing system
and funnel as much money that he possibly can or value, not money, value out of this system.
Because it's pulling from everything.
Like it's going to pull from real estate, you know, wherever credit cap rates are.
STRC is going to be higher than, you know, most standard cap rates out there.
It's going to pull from the sovereign debt market when they go to yield curve control
and, you know, grandma's only getting 2% on her bond portfolio.
and as her kids start and her financial advisor gets more comfortable with an strc profile
then all of a sudden she starts moving her money like it's going to be this mad rush of capital
that is going to be starving for this real rate of return and from my perspective
saylor's never going to monetize at least in fayette terms the bitcoin he's never going to
come up with a system that makes sense to this side of the paradigm shift.
He is just going to secure as much collateral as possible as we go through the paradigm.
And then on the other side, systems, processes, how we evaluate things.
Maybe it has to do with Bitcoin per share, right?
And maybe that's ultimately a derivative of how you're evaluating value creation against his ultimate equity dilution that he's doing in order to help kind of fund this side of the system's leverage ratios between preferred interest rate expenses as well as a collateral base, right?
Because as right now, I don't know what it was after the last couple of weeks, but two weeks ago, he was like a six-time coverage ratio on the STRC outstandings, right?
With a 30-month run rate on the interest reserves.
That's great.
But as STRC starts sucking in more value and he just reloaded the ATM, those values are going to start to come in again, right?
So what's his mechanism?
Because he has to make everybody happy.
like wall street still looks at his products as they're trying to understand it from a trad fi
lens and they still want to hit the metrics right so he still has to manage to that i think that's
why he came out with the whole idea of digital credit and you know i make the counter argument
that's just a conversion mechanism just nobody can see it or understand it because the true value
lies on the other side or once momentum starts building that's when everybody will understand
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In college, one thing to that, because we talked about volatility, and if you compare this to the S&P 500, you go side-by-side comparison.
And I know it's a triadified lens, but to your point, Marilyn, this is how they see it.
We've got hundreds of trillions of dollars in the legacy system.
There's those units still there, and they're looking for a home.
and if sulfur goes to 2 and strc is paying 12 or 11 or 10 that's 800 to a thousand bips
of delta they're going to figure this out eventually and that's just too wide of a
so what so when they when they do that that's why the sharp ratio is so high
yeah and the vol yeah and the vol is already down to five four three and the return profiles
call it 12% it gets raised two more times so you have a three 30-day realized vol a three vol
and a 12% return the S&P 500 is like a 12-12 so people that run models and that they're you know
have a CFA level three and you know blah blah blah they're at this level and fine they've been
20 years these are the numbers that they should know a 12-3 versus 12-12 it's not even a comparison
Because that thing, as far as the Sharpe ratio, the risk you have to take to the 12%, there's no comparison.
And it's only a matter of time before the smart analysts wake up.
We just need more track record and history here.
But when they do, two things are going to happen.
They're going to get smacked in the face because everything they've built their entire understanding and careers on is basically virtually a lie.
And they have to go through the wake-up call that most Bitcoiners have to go through.
when you truly understand the asset.
And what, because, you know, I position it as a Bitcoin lens.
Once you have Bitcoin in your life and you start really understanding what the asset is,
it changes how you view the rest of the world.
It's almost like you can finally see what the incentive structures look like
with everything that you're involved with, whether it's politics or economics or family life.
Like, it's an interesting concept that I fully believe in.
And I've seen it and discussed it with a lot of Bitcoin, Bitcoin maxis.
But with that said, when Wall Street, there's going to come a point where they cannot argue against the numbers that are being pumped out, like the Sharpe ratio and so forth.
And when they finally wake up, that's when the spark happens.
That's when we kind of pass, in my perspective, we'll pass the reflexive equilibrium.
And that's the point where Bitcoin starts to go in perpetual upswing.
Because the buyer of last resort, or the buyer of the floor, is STRC.
And it's perpetually pushing Bitcoin's price up.
And just a more point on the STRC is, it's a tool.
And look, as Bitcoiners, Bitcoin's the apex asset.
If you had to pick between Bitcoin and STRC a 10 outlook Bitcoin it not as close This isn even a conversation as to what you want to hold for a decade
I think Bitcoin, we all agree with that
because we believe that this transition is happening
from once the units are going from the legacy system
to the Bitcoin system.
So Bitcoin's the best money.
It's going to go up faster in fiat terms
than an instrument like STRC.
But the point is,
there's capital crap that can't buy Bitcoin.
This is the biggest thing in my opinion.
There's just capital that they,
even if they love Bitcoin,
even if they're like Bitcoiners,
boards, these investors,
they can't, those entities can't buy Bitcoin.
They can't even buy the ETF.
They can't buy a strategy.
They can't buy those instruments.
They can only buy correct.
So that, and it's hundreds of trillions of dollars.
And so this is what that engine is.
That's what STRC is.
It's an instrument.
It's a tool that allows the capital to actually participate in basically
say we're stripping the vol off the 29%.
You know, it's 29% K-Taker.
It's a 40 vol, 45 vol.
He strips the 45 vol down to three and gives you 12% if the instrument does
what it's supposed to do over the next several years.
And so the capital is allowed to participate, you know, albeit in a,
you know, what is that, a third Bitcoin's performance?
but it's 12% of the S&P 500 performance
with about a fourth of the volatility.
Yeah, and there's...
Wow, so...
Yeah.
There's also another source,
multiple sources of capital,
like insurance companies, right?
They have huge gaps.
State pension funds, you know,
they have huge gaps.
You know, all of these old system vehicles
that are no longer solvent, 12% can do a lot to help close those gaps, right?
So again, once the comfort level comes into place,
and we're going through that kind of proof of concept stage right now,
but it's looking extremely promising, you know,
popping off a par, coming back to par, the discount, you know,
the delineations from par on a monthly basis are getting less and less.
um we're getting back to par faster and i think right now if we get back to it tomorrow we're
basically on par with last uh last month with health after the x dividend date how fast we
basically moved from um sell off back to par so we get a couple more months of that and we go through
a summer and then bitcoin's price starts reacting and the confidence level starts increasing around
the collateral that's supporting this product like we could we could go into the fall or early
next year and people could start writing in this into investment mandates as potential opportunity
at least for a portion of their you know investment income portfolios for some of these
large pension funds it's possible and that'll get you know i chad's chad's brought this up chad auto
as well as Chris, you know, STRCs, it's going to be really telling on May 15th when
the F13s come out for STRC and we get to see what pension funds have been playing,
not pension funds, but what like large tier investors have been playing with STRC or making
investments. I think that's going to be a really good early tell. I don't think we had
too many significant ones the last go around of reporting.
But I think this one, especially with this volume that we've been seeing,
could end up hitting some records and really raising some eyebrows.
Yeah, I mean, what was interesting there,
I mean, you talked about balance sheet strength
and how important that was in the 50s and 60s
and how that's kind of, I do agree, it's really gone away.
and I think that you know bitcoin is like the holy grail of balance sheet strength um it's
really like almost indestructible on your balance sheet it's probably the best thing you can have and
so but thinking about maybe banks I mean you guys think banks here could pivot to stretch strc to
kind of like I mean banks right now fighting with stable coins and crypto and the clarity act to
kind of provide yield and they're having a hard time getting yield.
I mean, that would be a lot of capital or strength coming into the Bitcoin ecosystem
through strategy.
I think so.
I mean, I don't know what the regulatory environment would be, but I think if I'm correct about
establishing a capital curve, it's ultimately establishing new cost, you know, capital or
cost of funds and strc is kind of establishing that real rate of return for the market then
i could see banks starting to structure things like this i think it's probably more likely that
they they'll be pulling catch up but start trying to develop these products on their own as well um
i think that that ultimately but they're going to try to i think they're going to try to do it
derivatives which probably won't work as well and ultimately if there's a blowout at some point
going back to like dark side it has big long concepts um you know that entire derivative
complex falls apart um and bitcoin goes to 10 million bucks um that would bring down a lot of
banks so i i think yeah i mean i think strc is going to be for everybody ultimately um i think
the next layer that comes above that is going to be bit bonds which is when you embed volatility
harvesting mechanisms inside of a sovereign debt structure um it's essentially going to do
some of the same things as strc um it'll just sit at the sovereign level and have principal
guarantee and protection at least from a fayette perspective as well as you know tax exempt status
But Saylor's a genius.
He's figured out how to do return of capital and provide tax beneficial ways for people
to invest and withdraw their interest from STRC.
I think, Chris, you can probably speak better to that than I can.
I just know from a superficial perspective.
Yeah.
I mean, and Saylor talks about this.
Really, in December, it was the first time I heard him talk about the kind of the third step of the progression of what he saw them do in their operational level, like digital capital, digital credit, and digital money.
I think he was at the Miami Economic Forum talking about that in December.
And essentially, those entities, those banks, they can direct that 11.5%, pay their clients 7% or 8%, and then collect the delta based on what they've paid out versus what STRC is kicking off.
And again, this is another quasi-carry trade.
Once you understand a carry trade, they're all over the place.
like do you cedric do you know where i think it's probably going to be more
chris you have some is it roxon that's starting to sell strc to its platform yes um and they're
doing it internationally correct it's chris can do you have any insight into who they are
what their platform looks like yeah i'm not speaking on behalf of roxon um and i'm not sure
who they, their platform per se, like it's for,
but they had it to where you can create
a specific security that's based in Bitcoin.
I think it's like a DeFi platform of some sort
that can be traded around the world.
But the and I not supporting it it just a concept that I saw They been putting out stuff about we bought a thousand more SDRC today right And then it showing all the different countries that those capital actually came from to buy that
This is where I was trying to go with this comment was, ultimately, the kingmaker would be Tether.
if tether wanted to take some of its and it has some um latitude and what to invest in
right if tether wanted to take either a portion or carve off and do like an interest bearing type
of account they could offer side by side with its tether um usdt product and basically take
and invest in STRC and then offer 6% and keep 6% or some variation.
Because last week when we saw some things that were going on with X
and Elon turning it into kind of a money center,
it was an interesting idea.
Let's take X and you can use stable coins on it.
You can set up a savings account, just invest part of the proceeds in STRC and Elon keep papers, you know, give out 8% and keep three, right? Like a lot of this stuff, as we start to move interest bearing accounts outside of the banking system. And I know the banking system is really fighting hard.
I don't think they're ultimately going to win.
Maybe they win this round of the process.
But I think when you have an entity like Tether outside of the system that's going to be offering interest, ultimately that's going to drive the internal system to start offering interest at some point.
And it's not just going to be the banks.
And once the banks lose that competitive advantage of a moot, then their primary, and they do a lot of other things, but their primary source of capital outside of creating money themselves dries up, right?
Gets demonetized.
So, but I think there's something to, if Tether decides to start to pivot and buy STRC, that's when things could really start getting interesting.
because that's also driving us international demand and that's TRC.
Just piggyback on that just real quick.
It's, you know, gang theoretical.
It's pure gang theory at that point.
Once someone does it and the mandates fall in place
and the instrument is used
and they start pulling in more clients
or, you know, attention starts coming to them, you know,
and you're some of the only players doing it,
what do you think people are going to do?
or do you want first set or do you want to people are going to eat people are always going to follow
the incentive the stronger incentive yeah and sailor a sailor has figured out how to do that
um now again looking at it from this side of the paradigm shift through today's lens
it very much resembles a potentially a ponzi-esque type of structure because he's ultimately having
to dilute for the interest expense right um equity shareholders or he could carve off a
portion of the proceeds that he brings in from strc and basically put that in a cash reserve to pay
future interest payments.
But, you know, if you take a step back
and ultimately what's happening
with the failures in the current system
to where we might be going
from a recolodilization perspective,
it's the perfect incentive, church and horse.
Yeah.
Well, you know, Tether,
none of this is financial advice.
I think all this that we're dissecting here
is not to encourage people to buy Stretch
and I'm not against it.
I think it's a great product.
This is where they kind of examine the financial system and this bridge.
Tether, though, you know, is, I guess, trying to help people sleep at night
because they did buy Sleep8, the mattress company.
Oh, they did? I didn't know that.
And maybe they'll roll out yield.
I love it.
And, you know, yield and your mattress being digital,
maybe, and the AI they're investing in will all help you sleep at night.
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You know, but Marilyn, you put out a piece,
because, you know, stretch is really, you know,
one piece of the, let's call it the transmission,
or one of the products that's spitting out of this Bitcoin refinery over at strategy.
And there's different parts of sort of the capital stack there.
And it seems like the underlying theme or subtext of our conversation is,
is stretch going to become sort of the benchmark rate or the risk-free rate?
Or, you know, where Bitcoin goes with this and where strategy goes with this and the Bitcoin refinery.
So kind of looking at their ecosystem,
Merrill, you put out a piece called
Understanding the MNAV Cycle
Inside Strategies Capital Flywheel.
So, I mean, the MNAV is a big, you know,
because like, do you look at strategy as price to earnings?
Or, you know, a lot of people will focus on the MNAV
and try to compare it to an ETF.
And some say, you know,
maybe it should be worth less than one
because it's not as clean as an ETF
and you have salaries and you have risk
and you've got lawyers and you've got bigger compliance or whatever,
but maybe everyone's not seeing the big picture.
So let's talk a little bit about like an MNAV regime, right?
Like how maybe at a high level,
how strategy thinks about going through,
like how they do things based on where their MNAV is.
And we could talk about whether we think MNAV will ever expand again.
Yeah, from my perspective,
um yeah this isn't financial advice but the that's my thought process if i'm looking at this is
sailor believes he he's buying bitcoin like a madman okay and he's using stretches finally
starting to kick in but he's been going pretty intense and hard at the atm all fall right as
Bitcoin's perpetually been kind of in a downward trend now for six, eight months.
I think he looks at, I feel like he's working towards something.
And I don't think the rest of us know.
I think he has asymmetric information of some sort.
Again, that's just my theory.
understanding that he's allowed the MNAV to basically adjust from I don't know I think it
was around three or four down to hovering around one depending upon the calculation you could say
it's actually below it or slightly above it I think Saylor is completely fine with doing that
Because from his perspective, if you're looking into the future, Bitcoin's the
cheapest it's ever going to be to, right?
Or if it goes down another 10, 15%, it's the cheapest it's going to be
from a future perspective.
So for him, he's trying to de-leverage the future balance sheet.
And it's all about acquiring as much collateral any way you can.
And he now knows that he has a product such as S2.
STRC that will ultimately, if scarcity truly exists, or even if it's being suppressed,
is going to return because there's going to be so much buying demand from a product like STRC
that he knows at some point he's going to basically have to have perpetually more collateral
or as much as he can get. And if he believes the prices are suppressed right now, he's going to
buy as much as he possibly can and drive the MNAV down. He could even take it down to, you know,
0.8 MNAV. And to him over the long enough timeframe, that makes sense. So let's play it out.
Because if, say, a CRC starts putting in a couple billion dollars, you know, a week at some point,
or a $10 billion a month.
And at some point, Bitcoin's price is going to react.
The rest of the market's going to wake up
and realize what's going on.
They're going to start buying Bitcoin.
Bitcoin's going to perpetually start rising.
And it's probably going to be violent.
It might be a one turn.
It might be a two turn.
It might be a three turn.
I mean, it's sure there's characteristics in the past.
At that point, the market starts waking up
to what power of SCRC is from an accumulation perspective.
And then it realizes that ultimately that value
falls back to the MSCR shareholder.
And the price should start to, the MNAV should start to expand.
It expands because Saylor allows it to expand.
He stops diluting as much.
I believe that's going to be a decision that's made by him and his team
to stop diluting because they don't need to deleverage because they just did a bunch of
really cheap buying of Bitcoin by hitting the ATM so hard over the last couple months
that they can let it expand a little bit. Now, the benefit of that is the ATM is the primary
mechanism for paying those preferreds, the interest on those preferreds in the future.
Well, it's much more effective and cost efficient for equity, you know, MSTR shareholders, if he allows the MNAV to expand and then dilutes at a much higher MNAV.
It takes less equity issuance in order to pay, you know, the same amount of interest payments and so forth.
So I think ultimately he goes into managing future interest expense on the preferreds as well as deleveraging because he's still going to have to deleverage as SCRC grows by an MNAV regime, management regime.
Similar to what he kind of launched or tried to launch back in August last year where he gave us some direction, but two weeks later he kind of reversed on that.
I think there's reasons as to why he did that.
But I think ultimately we're heading into an MNAV management regime.
And that's basically how he is going to capture the true value.
The ARB that Chris was just discussing is basically by deleting in higher MNAVs.
And I think the market allow it to move that high to higher MNAVs because they're going to be looking at the future value of his collateral.
of what it could be if Bitcoin was five, ten times where it is today.
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Yeah, and it's a city plan.
look, it's a bear market
never too low to begin selling
and never too high to begin buying
at the reminiscence of a stock operator
quote
probably the greatest financial market book ever
it's a hundred years old
but it's a must read for anyone
and
motions run high to the upside
they run high, run down to the
downside for bear market than bull market
and bull markets will come back
convexity will come back and all that
All that means is people will start playing the bull market game.
There's going to be blood in the water and shucks go after the blood.
And so if players think market makers are offside and they sold a bunch of calls and they have to get delta neutral and having to get into the market and buy shares and all that reflexive things happen, then those people then buy because they think they're buying because they're offsides and they're having to get neutral.
And the same thing happens to the downside too.
You know, equity went down $1190 to $104 in like a couple of weeks.
That reflexivity happened to the downside.
So it happened in markets for decades.
You know what this is.
So that's nothing new.
So convexity will come back to the equity at some point.
Nobody knows when, but to your point, then that's going to be on their decision.
That's their decision point of how to, what levers to pull at what time.
They are constantly pulling a lever of pushing, and it's a push-pull mechanism with both of the ATMs on top of the equity itself and also on STRC and how they manage that.
But it's going to be really fascinating to see when that price discovery to the upside comes back to Bitcoin, but also to the equity and then how they manage from utilizing the ATM perspective based on, to your point, how much collateral they already have and then what leverage ratio they want to go at.
And ultimately, it's their market.
That's kind of something I've said for a long time.
It's not a great term.
You don't really like this, to be honest with you,
but they're kind of a quasi-market maker.
They made the market.
They made this.
And they didn't know.
So many things that Saylor talks about over the years,
they didn't know about STR.
They didn't know about STR.
He came right out and has said this stuff.
We didn't know what we had until the market told us.
But that's like with anything, though, right?
With a product or a startup,
you really don't know what you have until you get the feedback from your users or from the market
right it's kind of the same thing people are like oh they didn't know what they were doing well who
really knows what they're doing until they get feedback from people or your users and so it's
kind of the same with these products and if someone asked me like should you came out with strc first
he goes well we don't really know like we came out with strike then strike and stride you know we were
creating the yield curve and then we came across you know this constant of you know a floating
variable rate um which in and of itself is a dynamic that you know they didn't have on the
others and and three weeks ago they really didn't mention any other preferreds in the whole conference
that they did yeah xcrc i think it's an iterative process sailor has discussed how it's a journey
that he's gone through and he's been open about how he's worked with ai to kind of develop these
He's an engineer. He's doing financial engineering.
And he's been using advanced LLMs basically to design these products.
He's force-fed it to try to find lawyers and investment bankers that have brought this product to the market.
And he's faced resistance at every step, right?
But he's just continued to push through.
And some of the preferreds structurally have issues, right?
and I think he's come out with the next iteration to kind of improve or better or make up for
whatever the last preferred kind of downside was.
And I think as he gotten smarter him and his team have gotten smarter as they advanced through this process and now he knew what he had when he came out with sdrc like you could see it on his face
he was excited because he understood and he's probably game theory this thing out um over
months before they actually brought it to market so he is fully aware in my opinion of what this
product is and what it represents and what it's capable of doing.
And in my opinion,
say I was playing for keeps.
He wants to change the entire system.
He's going to convert the entire system over into a Bitcoin standard.
And whether it's STRC or STRC is a gateway to the next product.
Like I don't even,
I can't even make the argument that the last couple of preferreds are ultimately
being a part of a yield curve.
I thought that originally,
but I think what he's doing now
is this is the base layer vehicle.
And from here,
he's going to build other products
and maybe some of the other ones
he revives and brings back.
But his focus has definitely shifted away
from the other preferreds
that were created earlier on in the journey
to STRC and what it represents now.
Yeah, just to add to,
yeah, he even mentioned,
Like there's the duration risk aspect with the Stripe.
Like, for example, you're a retiree and you put $10 million in Stripe,
but the Fed decides to, you know, raise interest rates.
Well, what's going to happen to Stripe?
Stripe's instrument is going to go down if interest rates go up,
the inverse relationship.
So a retiree doesn't want to see their principal go down 10%, right?
So the duration, he stripped the duration risk off of the others, you know,
and then create an STRC with a stealth healing mechanism
being able to increase or decrease, you know,
25 or 50 basis points each month for the interest rate.
Do you think, Cedric, do you want to know what's going to melt basis?
Two things.
The Fed lowers rates
or the Treasury goes into yield curve control
and Saylor continues to increase his rate of return.
Okay.
You mean on stretch, the offer?
On stretch.
Yep.
Yeah.
On STRC.
And he continues to do it.
Okay.
And then the other one that's going to really melt faces is if MSTR, they come out, their rating companies come out and increase MSTR's rating.
And that'll probably happen after Bitcoin two or three times, right?
The collateral base grows and the coverage gets up into like the 10, 15, 20 times potentially, depending upon how SDRC grows.
And so the rating agencies come out and assign them a higher rating.
Well, you would assume that his rate should go down.
But what if Saylor keeps on raising the interest rate, the rate of return, right?
And I think that is ultimately the night's move is when Saylor says, hey, TradFi is going to continue to suppress the rates.
I'm going to give you a real rate of return.
Now I'm going to start tracking my interest rate to a defined CPI that me and my team define as to what the real inflation rate is in the market.
And I'm going to target a real rate of return above that.
And that, I think, is what changes the game across.
Yeah, I mean, in a way, we'd have freely floating priced money.
And we might even see an environment where the Fed's lowering rates and banks are not lowering rates either.
and the spread grows not just for Stretch,
but some of the underlying or parallel type products.
I think that Sailor is a financial engineering genius.
I agree with you that it's a journey.
I've spoken to him about it.
I think he's been iterating as he goes.
I think there's nothing wrong with that.
I think it's also both a personal
and sort of a global journey for him.
my speculating. I think there's the personal part, which is you want to be the richest,
smartest man in the world. You feel you might be, and you want a proof of work, right? It's,
you know, I can only relate in the sense that when I was 22 years old or 24 years old,
I saw Facebook come out. I was like, this is where it's going to go. It's not like I had capital to
deploy to, you know, these kinds of things as a young person, 10 years go by and you're like,
I, Hey guys, I was right. Hey, you know, I called it and yeah, where's your portfolio?
Young man who was right. If you were right, like, you know, I could, I don't know if you're right.
You say that now, you know, it's great story, but, and so I think there's sort of like 500
million dollar melting ice cube and getting blown up here i think somebody needs graph paper in the
house um you know this is the personal part of the story and the journey where you know you're
trying to save your company and live another day you got the 500 million dollar melting ice cube and
then you start thinking well you know on the personal slash global journey here with the
company we could not just save the company maybe we can go beyond just sort of building out our
reserves, but maybe we could do something in this arena that's different than just the regular
operating company we already have in software, and we can pivot and become a Bitcoin refinery.
I think that's a huge aha moment. And then, you know, Chris, you mentioned sort of before, you
know, the analogy I'm thinking here, though, to talk about what my take is that, you know,
you can be the best quarterback in the world, but you don't know when the other team is going to
call blitz you you know you you know you could be a great playmaker you could be babe ruth and call
your shop but you don't know if they're gonna throw it over the plate even for you and i think
stretch is sort of he he called it right away he's like this is our iphone moment and so i want to
run through a little bit of this mnav regime thoughts here because to go past it um so there's
two mnav regimes there's sort of the compressed mnav regime around 1x and the company is still
sort of trying to add to the balance sheet and sort of you describe Maryland in your piece,
it's like equity ATM, buy the Bitcoin, you prefer to issue instantly buy more Bitcoin versus the
regime too, which is expanded MNAV, it's around three or four. And you have more, the flywheel
there is more preferred securities, buy Bitcoin, equity ATM, service to preferred dividends.
um and but what i you know um the critical question remains though what causes them to
expand again and i want to talk about this more so historically the answer's been simple like
bitcoin rallies and people get excited and they want to maybe leverage it not leverage they see
bitcoin um strategies a levered play on bitcoin but what you're getting at here is with the iphone
moment is maybe they're moving more towards Goldman Sachs and being a market maker and just
being the most pivotal part of the Bitcoin ecosystem, not in the sense that they
control price, but the capital structure evolves into something else, a different driver of value,
just who they are and what they become. Marilyn, maybe you can expand on that.
And to be honest with you, we can't see it yet. Ultimately, what they become.
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Sure.
Sure. They could go out and one of the things I had around XXI was that they could go out and do help structure big bonds for sovereign governments.
Strategy could do that.
Strategy could help do with the Bitcoin balance sheet, ultimately help to structure products for the banking system.
You know, to help right size kind of their cost of funds or sources, their use, their sources of capital.
Like they could help structure that with Bitcoin and ultimately provide a lower cost of funds for them.
Similar to how I presented the idea around bit bonds.
He who controls the collateral, controls the world, basically, is ultimately the regime we're heading towards.
And Saylor's going to have the biggest stack, unless the U.S. government actually gets its act together.
There's even theories out there that strategy is the U.S. government's reserve.
I don't know if I fully believe that, but you can't rule it out.
Yeah, I don't know what that looks like.
What I do know is the mechanics from the standpoint that if the collateral increases three or four times, the MNAV is going to expand.
I can't see or understand the mechanism how it won it or why it won it, especially if Sailor isn't hitting the ATM.
That's his lever, right?
He's ultimately, by hitting the ATM and diluting shareholders, he's providing unnecessary pressure, or he's providing pressure in order to keep the stock price down.
But at some point, if you, if Bitcoin goes into a bull market, and I think it's partial, right?
Because I think with a product like STRC, when we go into that bull market, it could potentially not stop for quite some time.
like it could go up to a million and a half or two million bucks and then it could
maybe reset down to like 1.2 and then start its climb back up again like everything changes if
we go to 200,000 or 300,000 then we keep going the MNAV is going to expand especially if Saylor
is not constantly relentlessly hitting the ATM because he has a product like STRC that's adding
Bitcoin to the balance sheet.
Yeah, it's kind of a going down through, almost kind of hard to get the words, but it's almost
like he's hitting ATF, front running the run STRC is going to produce in a bull market.
He's deleveraging the future balance sheet.
There you go.
By buying collateral now.
You say it that way.
Exactly.
You can say it those two ways.
and then you let off the pedal on the equity ATM.
And to all the point, if you tell the MSTR for one to five years,
you know what November 24 was like, you know what 2021 was like.
And when it goes, it goes.
You also know what pain is like, too.
You also know what pain is like.
Yeah, absolutely.
You know, both directions, convexity in both directions.
So, you know, it's going to be really because, yeah, because if Bitcoin goes to $200,000 in interest rate, again, back to the point with if sulfur goes to two, but STRC stays at 12, now you've got a 10% difference between sulfur and STRC and capital is going to be, I mean, I can't tell the future, but I would just think capital would be flooding into an instrument paying you 10% ROC.
especially as the collateral base is expanding,
becoming more valuable.
Like to Chris's point,
like it's very difficult to look at the ecosystem,
like with anything like STRC by itself,
without looking at the rest of the ecosystem
or what's going on within TradFi
and the markets in general or the economy.
And that's all we can do is pontificate
on what could possibly happen
based upon what we currently have said,
where we're coming from
and where we think we might be going
and try to game theory it out.
And I think we have a pretty good direction on it, but anything could happen between now and six months from now.
It's amazing.
If Bitcoin's running, he doesn't have to hit the equity ATM.
And I think people don't that.
I don't hear that rhetoric a lot.
It's like they think the other way around.
Like if it goes to 150, 200, you know, he doesn't have to the equity ATM, which almost sounds anathetical or something.
And he's going to hint it because it's going to be a wine.
He might.
He can be like a stop, go, stop, go situation.
He'll hit it to deleverage.
Like if he gets a couple billion-dollar months,
like tens of billions of dollars,
and say his collateral base has expanded to the Bitcoin and the balance sheet,
it's gone to $140 billion, right?
And STRC just added on $10 billion.
Okay.
Depending upon what his overall leverage ratio is, he might hit the equity ATM in order to kind of deleverage the overall business profile of the business.
Or if he's like, all right, well, we've issued so much STRC that our roadmap or runway of 30 months of preferred interest and reserves has decreased down to 16 months.
all right well let's hit the atm and kind of re-up that so our credit profile looks good
with the rating agencies let's let's hit the atm and bring that back up to 30 right um again it's
just a lever and he can hit it anytime he wants i think he's just going to become more strategic
with how he's doing it right now he's absolutely without a doubt looking at bitcoin being the
cheapest it's going to be in the future and he is just trying to accumulate as much as he can
and he doesn't care about the Mnet.
But at some point, he will start to care about the Mnet.
And the other layer is obvious.
This is a very general principle,
but we all know with interest rate come down,
risk on goes up.
And risk on will come back to Bitcoin,
which that's just acceleration on all we just talked about
with the dynamics of what they're doing and the instrument.
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onchain.com code matrix 10 oh it's i mean really interesting here i mean again i'll go back to
sort of i mean he gets to be the willy wonka or the genius right and he's he's pushing out these
products, he's iterating, he's finding what's work, he's reading the field, he's reading the
reaction, he's reading the room, giving the room what it wants. He's got a vision.
He also has to, I think he's done this amazing job of not making missteps that have been,
you know, on the level of an Achilles heel or something, right? I mean,
you have to manage probably greed throughout this, right? You want to sort of build your
collateral base as fast and as quickly as you want, but you got to manage all these levers
around debt and ratios and the credit agencies and all, you know, you get to make your move on
the field and the other team gets to play their hand, right? And you have short sellers and you
have all these different factors. I want to read a bit from one of these pieces. So one way to
interpret the company's equity insurance today is that it is not reacting to current balance
sheet stress.
Instead it may be preparing for future balance sheet expansion If the preferred layer continues to grow the company dividend obligations will also grow Issuing equity now can accomplish several things simultaneously Increase Bitcoin
holdings, strengthen liquidity reserves, reduce leverage against future obligations. In this sense,
the ATM can act as a forward deleveraging mechanism. Rather than waiting until dividend
obligations become large, the company can gradually expand the equity base in advance.
this improves coverage ratios and increases the resilience of the overall capital structure
what's also interesting on this journey is we started off with the uh the strategy journeys
we started off with the 500 million dollar uh melting ice cube and i think you know he's a
genius and he's in that position but i think sometimes you don't solve problems that you
don't have right and so he had the melting ice cube and it being really big he was fortunate
that he grew a business to have such large reserves.
If they had no reserves,
maybe he's not even trying to solve this problem, right?
So it's kind of a good problem to have,
but he figures it out.
But, you know, I don't think he's really made
any serious missteps,
except for maybe the communication
around the ATM issue back in November.
I'm going to move on to reading a little more from Pisa.
Hopefully I get my final part of that point back.
But you're going to write,
In other words, investors may begin pricing the financial engine itself from Bitcoin treasury to Bitcoin capital markets platform.
So different investor groups participate at different levels of the capital stack.
Income investors buy preferred security, growth investors buy equity, and the company uses those capital sources to accumulate Bitcoin and expand its financial operations.
The structure begins to resemble a Bitcoin-focused capital markets machine.
In that scenario, the company's valuation may reflect not only the Bitcoin it holds, but also its ability to continuously attract capital and deploy it into Bitcoin-backed financial products.
That dynamic could justify persistent MNAV premiums.
And that's where I kind of get like bolt-hearted.
And I'm like, MNAV, who cares?
Like this is more like P to E ratios.
And I can almost see like 5, 10, 15, 20, 30 multiples here on the stack, the Bitcoin stack.
Because of what that gives it the ability to do.
And when a company gets valued not on its assets the way Google, we don't care the assets of Google.
Google has competitors and you could say, oh, DeepSeek is going to destroy Google's capital, CapEx and all that.
But in terms of you don't value Google by the furniture and by the building it owns and all these things.
It's a multiple on sort of future value.
You know, at first when Taylor came out with the whole concept of Bitcoin per share, I just, I didn't get it.
It was kind of annoying to hear it.
And the True North guys kept on going on and on.
But that might be the only financial metrics that matter because what it's truly representing is value per share, right?
Like a store of value per share.
and i think that's ultimately and you take it from a capital markets perspective like it becomes
a capital market engine like he's structuring products in order to acquire more bitcoin which
is acquiring more value to put on the balance sheet right and ultimately that's probably why
m nav expands in the future because it's that value component um that he's basically actually
generating real value we care less about kind of the fair returns and you made you know one
one concept is your thought process is salo doesn't have kids right he he's very much a stoic
um he's a deep thinker and i think i think this journey to him is about legacy
if you look at the the stoics throughout history um it's it's always comes down to legacy right and
if you don't have kids his legacy is going to be the impact he leaves on humanity and i think he
wants to leave humanity he looks at all the distortions across you know the system as it is
and the breaking down from when he probably was younger to where he's at today and he's read
history um you know he talks about his library and reading chronicles of history there's a book
series that he's he's discussed multiple occasions but he understands the the constant cycles and
collapses and so forth and i think he truly sees what bitcoin is and understands i mean he he made
the the predictions around the mobile wave you know he wrote the book the mobile wave right which
ultimately became spot on, you know, you know, several years before it actually happened.
So he has this gift of seeing things from his lens using his kind of engineering perspective.
And he understands history.
And I think ultimately he doesn't have kids.
I think this is about leaving humanity a gift, right?
and helping it kind of transition to the next portion of our evolution, right,
whatever that might be, by helping us kind of re-collateralize on the best collateral in the world.
And I think it's about legacy.
I think that's what he's doing here.
Yeah, I mean, I agree.
I had Jeff Walton on the show in January of 2025,
and they've been talking about it since.
I mean, I agree with him.
I think risk is greatly mispriced in the world.
My point about Saylor with the $500 million melting ice cube,
I got it back.
So the irony here is he's got a $2.5 billion cash reserve now.
But everything's changed.
And so, you know, you could look at it one-to-one and say,
what a hypocrite.
We've got five times the amount of cash that he was solving before,
but he also has, you know, well, he went from zero to one from Bitcoin, but he's got
$50 billion in Bitcoin. And he's developing products that, you know, are really bridging
fiat and Bitcoin, refining Bitcoin, like Rockefeller, applying oil. And, you know,
you have a different capital structure. He's a much larger entity. So, and part of,
when he explains, you know, the thinking around reserves, I mean, you gotta, you have customers,
you gotta guarantee you're going to provide your service for decades for the customers,
grandchildren who are going to run the company one day, third generation. And you got to keep
the lights on. You have to pay bills. You can't just return all reserves to shareholders. You
have to manage reserves. You have to manage your balance sheet. And I think sort of like what
families are doing with Bitcoin or individuals strengthening their balance sheets.
One of the most interesting ways to think about Bitcoin.
So also you mentioned stoicism.
I'm going to have Connor Dolan from Unchained On to talk about Bitcoin and stoicism right
after you guys.
Yeah, it's really, and with Saylor, you know, I remember, I think he studied historical history.
I started scientific history.
It's getting late.
Scientific history.
History of science at MIT.
and one of the most interesting comments
I think I ever heard in life
I'm watching him on the Sailor Series
with Breedlove
like first nine minutes
and he's like nobody fights fair
like not even the mountain lion
he's looking for the weakest, youngest
most vulnerable animal in the herd
and then maybe he's diving
at that animal's ankle
and trying to like send that animal
to kill itself you know
tumbling down the mountainside
and he's not looking to fight fair at all
I moved to Florida
these alligators
they're looking for the dead fish
and the dead birds lakeside
they're lazy
they're not looking for a fair fight
so he's a brilliant man
to see what comes of this. Talking to you guys has been fascinating. It's been so dope. I'm going
to kind of leave it to you guys for any final thoughts here. We kind of see this emerging
flywheel. And if the model works, three reinforcing forces begin to emerge. Preferred market demand
funds Bitcoin purchases. Equity market demand prices the growth of the platform and Bitcoin
appreciation strengthens the balance sheet each component reinforces the other the result is a
financial structure capable of expanding alongside bitcoin adoption um this kind of brings us you
know you teed it off a bit and we'll probably bring you guys back but you know there's bit
bonds which is sort of like the sovereign evolution of this and it's it's not just an extension of
stretch though you know it's sort of bring sovereignty maybe the nation so uh i'll leave
you know each of you guys maybe some final words parting words and let us know where we find you
and your work maybe we'll start with chris i'm not you know it's funny i didn't sign in bitcoin but
in 2015 i read rich dad poor dad take away finally it figured out 11 years ago is you have to ask
you're not inflation slash debasing of the money of fiat and they ask what's the best ask
And then that's the Bitcoin radical.
Once you learn enough about Bitcoin and its monetary properties,
you can't unsee it.
You've taken the orange pill and it becomes your money
and your standard as an individual.
But then there's the next layer of like corporations
or entities that can't buy the Bitcoin,
even if they wanted to,
even if they have the votes of everyone,
all the shareholders or whatever.
And there's like one or two votes that said,
No, they can't get through the gatekeeping to buy the Bitcoin.
They can't buy Bitcoin in those entities.
Then this is what's happened.
What's going on right now is that a bridge is being built to create instruments to help those entities face monetary inflation and debasement.
That's the biggest picture of what's going on right now.
And it going to take time It is difficult depending on how you look at it conceptually It can be as simple or as difficult as you want But it something you know you put a duration on this
Eventually, people will see the delta between what the fiat risk-free rate is,
especially if that risk-free rate goes down and that delta increases.
And eventually, they're going to get on the bridge
because they can't make it on that landmass of fiat.
They can't make it.
They're being outran by the money printer.
And so we've done that as individuals,
corporations are going through,
and then sovereigns are going to do that as well.
So we're just seeing this happening in real time.
Marilyn, before you jump in,
Chris, you wrote a great piece,
Stretch the Apex Carry Trade.
So I just want to note some things here.
You know, I love the,
of. I personally love the refinery sort of analogy. I think these are pioneering and important
products, but none of this is financial advice, right? We've been talking more of the philosophical
or sort of imagining how this bridge is playing out and what the future will look like and so the
impacts here. If people are thinking about sort of investing in these things or allocating to them,
And, you know, I would go dig further, do your own research.
These are fascinating, groundbreaking products.
But Chris, you did kind of talk about a little bit about a risk framework here.
So just for people kind of thinking these things through a little bit to just see it off, there's Bitcoin price risk would stretch.
There's dividend suspension risk.
There's regulatory risk.
And there's concentration risk.
There's liquidity risk.
and you know chris's conclusion here is the carry trade is the oldest strategy in finance borrow
cheap collect the spread so that's really what we've been dissecting in a lot of ways here
that stretches becoming the ultimate carry trade outside of maybe bitcoin spot bitcoin in self
custody i don't think we're making you know these sort of layered arguments we're talking about the
carry trade in the traditional trad fi world and for centuries the architecture has remained on
This is Chris is writing.
For centuries, the architecture has remained unchanged
and the failure mode has remained unchanged.
Leverage amplifies returns
until volatility destroys the position Stretch is attempting to rewrite this architecture By substituting soft leverage for hard leverage the structure eliminates forced liquidation By backing the carry with
Bitcoin rather than traditional credit instruments, the structure replaces credit risk with monetary
conviction. By embedding a reflexive flywheel where issuance strengthens the very fundamentals
that enable further issuance, the structure creates compounding where traditional carry
trades create fragility. By positioning long vow rather than short vow, the structure converts
market dislocations from existential threats into fuel. Stretch is not merely a better carry trade.
It can be seen as the carry trade we imagined for a monetary error where the foundational asset is
Bitcoin rather than sovereign debt. If Bitcoin is the apex monetary protocol, we are living through
the transition as you read this article. There is no historical analog. Actually, we are living
through this transition as you listen to this podcast and interview. Marilyn Howell, you're up.
Yeah, Chris's great article. I read it this evening. So I'm going to give it one more pass
and then put some thoughts and send it out. This is, let's start here. Bitcoin in self-custody is
the way to go. Okay. Hands down, if you're a maxi, or if you're curious about Bitcoin and investing
in Bitcoin, understand what Bitcoin is and put Bitcoin in self-custom. Okay. We're not promoting
STRC or I'm not promoting it. From my perspective, I find STRC to be a very interesting vehicle,
right? And the implications of what it could represent. And we all have to live in the Fayette
world. And there's certainly opportunities where I think SCRC might make sense for me if I'm trying
to park short-term cash for a period of time. But everybody has a different profile. In the end,
make sure you have Bitcoin and have it in self-custody to ultimately provide yourself
with the protection for you and your family in case something in the system goes wrong.
Okay. With that said, I just want to say thank you to the community, to Chris, to you.
Cedric is you know we all part of the kind of the hive minds and we collectively on this journey together and we using critical thought and applying it here at a level that most of society isn right we we identified that potentially
something's wrong and we want to try to fix it now my part in this whole thing is and my incentive
structure is basically my family right and my son i want to try if i can make a you know at least
have one idea that might make a difference in providing him with a better future for society
in general, the society that he's going to live, then I left my mark. And that's my ultimate
objective here. You know, and I appreciate everybody that's looked at my work and enjoyed
my work and criticized my work and helped me, you know, iron sharpens iron and we all get stronger
and better together. But this has been a fun journey and I've really created a lot of great
friends so far and I look forward to the future friends I get to make and you
know you'll find my work on Maryland HODL on X and it's gonna continue to
evolve just like this industry in the trade-fi markets continue to evolve and
break down but I just want to say thank you to the community and to both of you
all right oh oh Maryland HODL Chris Reid it's been a pleasure
We'll roll out.
Maybe we'll hang on for a minute afterwards.
Hey, hey, that's a wrap on another episode of the Bitcoin Matrix.
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