← CRYPTO 101
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- [00:00]
Bryce Paul
Foreign, everybody. Welcome back to another episode of the Crypto 101 podcast. I'm your host, Bryce Paul. As always, joined by my good buddy, Mr. Brendan Veeman. Brendan, how are you doing?
- [00:20]
Brendan Veeman
I'm doing great, Bryce. It is another solid day to be in the crypto markets and we got a lot to talk about.
- [00:26]
Bryce Paul
No doubt, man. It's. We're in the thick of what feels like a really big bull market. Just, you know, it's not just the price action, but it's really kind of the things that are driving price action. The fundamentals, these, you know, bitcoin treasuries that are, you know, buying bitcoin hand over fist. Now we're seeing it for, you know, Ethereum and Solana. We're seeing, you know, institutional acceptance of just crypto as an asset class like we've never seen, except at a clip that we've never seen. We're seeing regulation and legislation start to come down the pipeline to provide clarity for, for stable coins for DeFi. The SEC gave a big long speech the other day. So it's like we're getting hit at all angles with just positive, positive stuff. So we thought, no better way to dive into some interesting strategies here in the, the particularly in the bitcoin market with Matt Cole, who's the CEO and CIO of Strive Asset Management. So Matt, we are so pleased to have you join us. And how are you doing?
- [01:26]
Matt Cole
I'm doing great. Yeah. Thanks for having me, Bryce. Brendan, great to be here. And like you said, it's, it's exciting times and you know, at least with, with regards to the price of bitcoin and crypto, I mean, I couldn't be more, more bullish. I wish we were doing more things to tackle the deficit in D.C. but as, you know, as, as an investors, we can only invest in the world that is not the world that we wish it would be. And I think all things site, you know, point to long term bullishness.
- [01:51]
Bryce Paul
Yeah, no, that's actually, that's a great quote. We should write that one down and send it out in an email blast because I think that that really does encapsulate kind of what the job of an investor, job of a trader is, is to kind of play the hand that you're dealt. And we've got just these expanding, you know, fiscal deficits across the world. We've got so many things to talk about, obviously AI being potentially a deflationary force as people are going to not, you know, really be active in the labor markets anymore. That's going to have all sorts crazy things, we got interest rates. But I want to actually take a step back from, from all that macro stuff and just let's focus on kind of you, your core business here at Strive Asset Management in the future of Bitcoin. But, but first I want to just, you know, get you acquainted with our audience. You know Matt Cole, who are you and what are you building? How you get into crypto have you.
- [02:43]
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- [04:26]
Matt Cole
Yeah, so. So like you said, I'm The CEO and CIO of Strive. I actually come from an institutional investment background. So before Strive, which was founded in 2022 by Vivek Ramaswamy, I was part of the day one team. Before that, I was actually at Calpers for 16 years. And for those that don't know what Calpers is, it's the largest pension fund in America. It's about half a trillion dollars. And I was an active portfolio manager there running about $70 billion of fixed income strategies. Part of those were structured products, which, for those that don't know what they are, they're just the most complex fixed income instruments out there. And the other half of my book was US Treasuries. And so I was actually one of the largest buyers of U.S. debt in the United States.
- [05:09]
Brendan Veeman
Wow.
- [05:09]
Matt Cole
So I did that for, you know, on the PM side for about 11 years and saw all the problems, saw the Fed printing money, M2 rising, saw treasury not doing anything, the US treasury not doing anything to tackle the deficit. Right. The deficit kept rising and you kept seeing this continual cycle that is literally still playing out to this day of they would raise the debt ceiling, they would say that they're going to fix it on the back end and that this is the last time and it's never the last time. And then like an addict. Exactly, it is. And, and I mean, I view quantitative easing as drug. And anytime you use quantitative easing, you have to use more of it to get the same impact, just like any drug addict out there. QE and money printing is a drug, but yet you would talk to the Fed or the treasury and they say it's not money printing. That's still their stance to this day. We're not printing money. And there's some technical definition on why that's accurate, but everybody knows it's printing money, right? And so it was just staring at this problem buying debt, you know, clipping my little alpha in my portfolio and, you know, I did every year, but, you know, was really picking up pennies in front of a steamroller as, you know, buying debt in a debt crisis. Was not a bitcoiner initially until about 2016, was following Bitcoin historically and finally decided to go down the rabbit hole in late 2016 and, you know, invested in it in a personal way, in a major way towards, you know, into 2017, early 20, end of 2016, early 2017, have been a bitcoiner ever since and really just, you know, changed, you know, once you start understanding the concepts of bitcoin and even some of the defi Protocols, you just realize the power of this innovation. And I felt drastically short. Bitcoin. I still feel even having pretty much now my net worth, my personal career, everything tied to bitcoin, I think when you understand where we're going, you always have this. I think bitcoiners and why they save is that you have this kind of feeling of being short because you understand the opportunity here. And so that's where I am to this day. Briefly on Strive. Strive, founded in 2022, was always about financial freedom and value maximization. So we started pushing back against some of the ESG constraints in capital markets and really how that was constraining both capitalism, but also freedom. Similar. You know, I think there's a high degree of overlap between people that like that mission and are bitcoiners. But I was a bitcoiner there. STRIVE was not initially a bitcoin company. And as we kind of won that battle against ESG way faster than expected, you know, bitcoin became the contrarian thing that we believed in to fight for. And part of that became us becoming a bitcoin treasury company ourselves and then leveraging our asset management background to actually have true differentiation in the space.
- [08:02]
Bryce Paul
That's incredible. And I think a lot of people kind of join the show here as a viewer to really, you know, get more knowledge about whether their own personal investments in crypto or all that kind of stuff. And of course, nothing that we ever say or any of the guests say is ever to be construed as personalized financial advice or anything like that. But at a very high level, if you kind of take a look at Bitcoin particularly, and you know, sometimes we'll talk about other cryptos, but we'll stay focused on Bitcoin. What kind of is that investment case that is being made around the world by, you know, maybe financial advisors or by just your. In your own opinion, what's kind of the. The reason that people are finally starting to buy Bitcoin and you know, maybe it's different for individuals relative to institutions, but is there kind of a through line?
- [08:49]
Matt Cole
Yeah. So the. To cut to the chase, and I'll go a little bit deeper after cutting to the chase, is I think bitcoin is the fastest asset to take advantage of the money printing. The rise of M2 globally and the fiat debt crisis that exists around the globe, and the fact that there is not a single answer to that crisis. The biggest risk to bitcoin historically was regulation. Risk that has been written off in the US Effectively to zero in my view. And I think, you know, you alluded to the comments from the SEC yesterday and you know, it's clear that Bitcoin is going to be part of America's future. The right to self custody is part of America's future. So that risk has gone down, but the risk of the, of the fall of fiat currencies in the debt crisis has only amplified. And you know, I think there was a lot of people, myself included, that thought that if there was going to be a way to make a dent in that, it was Doge. And in just a few months, Doge has not been able to do anything. And even their savings, let's say that they've saved a couple hundred billion dollars. Well, this new, you know, big beautiful bill is going to add a couple trillion dollars to the deficit. So it's already ineffective at even attempting to tackle that. And so I think the, the way we have to think about the future with the cards that we've dealt, were dealt is that, listen, we're in a debt crisis and the dollars years of the reserve currency are numbered. I'm not smart enough to predict exactly when that happens, but what's happening for sure is that the reserve currency strength is weakened and it's weakening over time. DXY has been in a downward trend for several decades and I think it still has downward pressure to go. And I think part of that is the decrease in the dollar as a reserve currency around the globe. But this is a global fiat debt crisis. So you're kind of comparing the dollar versus other fiat currencies that are also printing money. And so that kind of makes, confuses things a bit. But even when you, when you zoom out from that, it's just as simple as M2 is rising and Bitcoin benefits with when M2 rises. And so you know, you kind of have this, this problem if you're an investor. So imagine you're a financial advisor and for the last 40 years you've, you've deployed a 6040 portfolio, 60% equities, 40% fixed income. Well, from 1980 to 2020 there was a 40 year bull market in US treasuries. So what was happening was rates were going down and as rates go down, the price of bonds go up. So bond returns were really good for this period of like 40 years. But then Covid happened and interest rates hit zero. Well by definition, unless you think that interest rates are going to go negative, which happened for a short period of time. But that was crazy. The reality is that, that interest rates had flatlined the future was either going to be a flatlining around zero or it was going to be interest rates rising, bond prices falling. And so in that scenario, the 6040 portfolio starts to break down. And it's starting to break down at a time where debt levels for nation states are unsustainable. And so there needs to be kind of a rethinking of portfolio management. And that rethinking is, you know, in a inflationary period. And listen, I think AI is going to be massively deflationary. So we could debate inflation versus deflation. But what we, I think what's going to continue to be true is that there's going to be an inflating of M2. And so even if goods continue to stay relatively contained, I think that's actually the wrong way to measure inflation. I think what we've really seen through M2 is the rise of financial asset prices, home prices, stocks. I mean, bitcoin being the fastest horse. And when you, when you look through that, you know, a lot of people in the bitcoin and crypto ecosystem have done well for themselves, but the average American, they can't afford a home, they can't afford the basics. I think most, over half of American Americans can afford a $2,000 payment. They're, they're effectively screwed financially and they need an opt out. And I think that opt out is Bitcoin.
- [12:56]
Brendan Veeman
You know, on top of all of that, I've seen some data here recently that's talking about how bitcoin supply on exchanges is shrinking, but also that it's, you know, in the OTC desk, Bitcoin supply over there is shrinking. And so what people have is what I would say is a perfect storm event where bitcoin from the having is becoming increasingly more rare. You have all of these external kind of trad five factors and then you really do have a shrinking supply. Whether that's bitcoin being lost, whether that's just through sheer demand being accumulated off of exchanges and off of desks. But how do you factor that in to maybe your strategy or your price predictions or just your approach in general?
- [13:42]
Matt Cole
Yes. So I think there's a, there is a race to accumulate war chests of bitcoin and that races. You know, you're seeing it at the corporate level with corporate Bitcoin treasury companies that look, there's a handful of large players in this space right now and most of us are all friends. But like, you know, to use a golfing analogy, we're all trying to shoot the lowest score and all bullish on all of our success because we view it as very early. Less than 1% of companies have purchased Bitcoin. But I also think that's true at the nation state level. And I'm very, very focused as an American that really cares about America's future, about America really taking the strategic Bitcoin reserve seriously. Because I do think that nation states are going to be having a race to acquire Bitcoin as well. And the ones that purchase the most Bitcoin I think are going to be in the biggest positions of strength going forward. So this is a race. And while that race is happening, the Bitcoin rewards continue to go down through havning cycles. And then you have ETF flows. I mean even Wells Fargo did an analysis I think yesterday that looked at Bitcoin, Treasury Corp. Companies balance sheets and ability to buy Bitcoin and estimated that at over 50% of the inflows of ETFs that they've seen to date. And so reality is there's just not enough Bitcoin to go around from large players. And so with this, this gets into something that's actually pretty important. So when I was on the fixed income desk and when the Fed would do quantitative easing and they would announce these purchases of Treasuries and mortgage backed securities there would be an initial pop just from the knowledge that there was going to be a non economic buyer of these securities for the next couple of years. But then as they were actually buying the flow of the purchases it continued to drive those spreads tighter and asset prices higher. Like it wasn't like it was priced in initially and then it was just, you know, that was it. And I think that's what we saw with the ETFs right? Where the ETFs were not a sell the news event, it was actually a flow, a demand to push pull in Bitcoin for ETF buyers. You're going to continue to see the same. And so I don't think this has been front run and I think the tailwinds towards higher prices are massive. And I mean I think, you know, the reality is I think that the price, the fair value price for Bitcoin is somewhere between a million and infinity. And infinity is not a scenario that I personally want to see happen. I think it depends on how, you know, how serious the government is about constraining spending. And anything over the last couple of weeks has not made me bullish on their ability to do that. So I think really the sky is the limit on Bitcoin but I'm actually advocating for policies that would actually constrain bitcoin's price because I think that would be better for America and the world.
- [16:34]
Bryce Paul
Interesting.
- [16:36]
Brendan Veeman
You mentioned that there is a bit of a war. Maybe a race is a better way to put it. Because like you said, we all like each other in the crypto space, at least for now. Maybe that'll change once bitcoin gets a little bit harder to accumulate. But you know, you put forth this unique idea of there's a lot of different people in the race, so who do you think has the best chance of winning the accumulation war? Is it a nation, is it a company, is it a trust like the ETFs?
- [17:04]
Matt Cole
Yeah, yeah. So I don't view the ETFs as actually in the race in the sense of they're just providing a wrapper for people to buy bitcoin themselves. So BlackRock does not own the bitcoin. Just like how in our ETFs, Strive does not own the equities that our clients purchase through our ETFs. Our clients own that and BlackRock clients own the ETFs. But for companies, it's different. Right. And so you look at what Strategy has been able to do. I don't think anyone's going to be able to beat them in the aggregate amount of bitcoin. They just have such a head start. I think you'll see a handful of players, I think Strive is one of them. 21 Nakamoto, Metaplanet, that are going to be able to accumulate large war chests of bitcoin. And I think for investors, the question becomes really more of like, what is the differentiator and, and the ability for me to outperform bitcoin and investing in one of these other companies versus strategy. I think the wrong question is that any of these companies will likely ever have more bitcoin than strategy itself. But, you know, you could see it's kind of similar to how in, you know, in corporate America, there's value companies and there's growth companies. And if you want the highest returns, you typically do better to buy the smaller growth companies than the value companies. Strategies got a war chest. I mean, I think what they've done is, is absolutely amazing. Big fans of all the innovation that they continue to do. But I think that, you know, when you look, zoom out, less than 1% of public companies own bitcoin. And I think the number should be 100%. But I think that's going to be a long time before you get to that point. And in the meantime, early adopters are going to benefit in a major way.
- [18:47]
Bryce Paul
Yeah, no, those are, those are some great names that you, you rattled off there between Nakamoto, MicroStrategy, Meta Planet, and, and these companies are all kind of doing a similar sort of liability management in a sense, where they're issuing, you know, preferred shares or, you know, convertible bonds and that kind of thing, whereas Strive is an asset management company, not really a liability management company. And maybe that's not the right dichotomy there, but, but tell us how Strive is just markedly different than any of these other sort of maybe household names in the bitcoin community like MicroStrategy and Meta Planet.
- [19:24]
Matt Cole
Yeah, yeah. So the way you need to think about Strive is it's not a. That Strategy and Meta Planet are doing balance sheet management, beta strategies, and Strive's only doing alpha strategies. Strive's going to do both. So we are going to leverage what has been done on the, on the beta side by players like Strategy, Meta Planet, all the, all those, you know, components, competitors out there. But then we also have capabilities to generate alpha. So, you know, when I was at CalPERS, my, my job was generate alpha over a benchmark and, you know, like any benchmark. So bitcoin, you know, we call bitcoin the hurdle rate, and I believe that that is the hurdle rate for capital deployment and it's how we're going to run our company. When I was a portfolio manager and my, my hurdle rate there, when I was doing fixed income was the Bloomberg ag, the fixed income benchmark. Equity portfolio managers might have a hurdle rate of the S&P 500. In any of these hurdle rates, the future return is unknown. No one knows what the future return in a year from now will be of the S&P 500, the Bloomberg AG or Bitcoin. Right. We're like all bitcoin bulls. So we think bitcoin's going higher, but is it going to be up 25%, 50%, 100%, 200%? Who knows over the next year? No one knows. Right, Right. But how we think about generating alpha is how do we outperform bitcoin into this unknown future? Right. That is the job of an active portfolio manager trying to generate alpha. And so we laid out a handful of strategies that we're going to start with, but we can go in as depth, as deep in them as you want. But generally acquiring biotech companies, leveraging Vivek's background, or CFO's background from Royvant and kind of our deep connections in the biotech industry to buy some of these companies where they're actually trading, they're publicly traded at a market cap below their net cash position after like, after all their liabilities. So you can effectively do the work. It's just like do the work and roll up your sleeves, use your connections to acquire a dollar for 90 cents on the dollar. So that's one strategy. That strategy will likely be around for a couple of years. Another strategy is buying bitcoin claims. So we did a partnership there to have massive access to deal flow of like claims like the Mt. Gox claims or there's still billions and billions of dollars of claims out there to again buy Bitcoin at a discount. The trade off there is that you're, you're actually tying up your capital, you're buying a less liquid instrument. So you buy bitcoin at a 20 to 30% discount but you don't get your Bitcoin for a couple of years. But that still is, is alpha. And this is actually a strategy. So forget the claim side. But just like what is this? What it is is it's actually saying, hey, a bitcoin treasury company like strive, we have permanent capital. We're not an ETF where someone can just sell the shares. We are going to, we have assets, we have money that we will have forever. And because we can do that, we have money forever. We can actually say give us the Bitcoin in two years for a 20 to 30% discount. We'll take that all day because then we can buy discounted bitcoin and leverage the fact that we have permanent capital. So we'll do that with the percentage of our portfolio. We talked about some things with structured Bitcoin, leveraging my structured products background to actually generate some alpha on, on taking some of the bottom tranches there. But this is kind of one of the things about alpha. You know, when I was at pers, what we used one year to the next to generate alpha changed. No alpha strategy typically persists infinitely into the future. What you really need to find is and build a team of people that can source and execute on alpha strategies year after year after year after year. And when you look at traditional hedge funds, that's what they do. And so you could think about within our operating company using a portion of the balance sheet to deploy alpha strategies and building the right team where in five years from now, if I'm on this show and I'm talking about the alpha strategies, you better expect that I'm going to be saying different Alpha strategies than I did right now.
- [23:23]
Bryce Paul
That's awesome. And I know many people are probably foaming at the mouth. They're like, how do I get exposure to that? Because somebody at home's thinking, I can't manage all these hedge fund kind of algorithms myself. I don't want to go do all the day trading. I just, you know, want to buy shares and you know, someone, you know, that's really smart, that's, you know, doing this stuff and you know, you're not soliciting any sales or anything, but like, is strive like a publicly traded vehicle or do you have to go to your website in order to like sign up for one of these strategies? How does it kind of work for the person at home who's at least interested in learning more about it?
- [23:58]
Matt Cole
Yeah, so, so just to be clear, we have not deployed any of these strategies to date. We announced a reverse merger with the publicly traded company Asset Entities that we are going through the process of getting that transaction closed. So a couple of weeks ago we actually announced a $750 million pipe for proceeds in to finance the company and buy Bitcoin with potentially an additional 750 million through warrants. So up to $1.5 billion to kind of get our, our initial war chest going. That's contingent on the close of the transaction. Right. And so as we, as we look towards the future, we're looking to do everything we can to close this transaction, buy the Bitcoin, deploy the alpha strategies and continue to accumulate a larger and larger war chest, both through deploying the alpha strategies, but also through the beta side, additional equity issuances, fixed income issuances when we think they're attractive. And so just importantly, you know, we did not do a convertible note as part of our initial transaction. We just didn't feel, you know, myself with the fixed income background, that the terms were attractive to a creep value and really risk adjusted value to our common equity shareholders. So we're watching all these things and making sure we manage our balance sheet appropriately to outperform Bitcoin over the long run and make sure that we persist as a company over the long run and don't take unnecessary risks as long a company.
- [25:30]
Bryce Paul
Yeah, no, that makes, it makes a lot of sense. And yeah, my mind's going in a million different ways. But you, you mentioned, you know, using Bitcoin as a benchmark and I see, you know, Michael Sailor, he, he's always posting like all of these bitcoin denominated benchmarks. Whether it's bitcoin yield or volatility per share and like all these different kinds of, you know, bitcoin denominated things. And you know, most people in the financial world are kind of used to seeing dollar denominated metrics and so on. How do you guys kind of think about any key bitcoin denominated metrics? And I believe you, you mentioned that bitcoin's a benchmark for your capital deployment, but how does this kind of guide your, your long term strategies?
- [26:11]
Matt Cole
Yeah, so there's really two components to this short term, increasing bitcoin per share in ways that we deem to be accretive to common equity shareholders. And so, you know, I think like, why would you buy a bitcoin treasury company versus just buying bitcoin? You should need to have a thesis that two things are true. One, you'll own more bitcoin over time and number two, that you'll do better in this company than just buying bitcoin. Because if those two things aren't true, then you should just buy bitcoin. Right. And so then you have to look at the company, what are they doing? What are the risks that they're doing? Do you think that they're actually going to be able to outperform bitcoin as a hurdle rate over time? And, and each company is going to have different opportunities, different risks to them. And, and this space is evolving extremely quickly. So we talked about some of the things that we're doing and you're going to see competitors, they're going to have other things that they're doing. And it's kind of one of the reasons why I actually launched, you know, a podcast a few months ago with the guys called the Hurdle Rate Pod is that this space is going so fast that you really need to like, be in the weeds of what's going on to even understand the different risks and opportunities across the ecosystem. And I think it's super exciting. But I mean, think about how often right now strategy is coming out with new products. You know, they're coming out with new financial beta and beta products. But like these beta products are very innovative. I don't mean beta in a derogatory term. I mean what they're doing with these, with, with these products are fascinating. Right. And, and, but you have to also understand what are they, how should they be priced? Like, are they interesting to actually buy as an asset? And I think some of them are actually interesting. And, and kind of some of them can bring potentially interest back to fixed Income as like, as like an income instrument relative to what I think is uninteresting and going on in traditional fixed income markets right now. But then also what it does for companies like strategy on the equity side.
- [28:13]
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- [28:43]
Bryce Paul
How do you kind of think, you know, Wall Street's thinking about these sort of bitcoin treasury companies and are they valuing them correctly? Are people at home kind of like valuing them correctly or is there kind of like this major inefficiency? There's going to be this step function re rating over, you know, this next bull cycle. How do you, how are you kind of thinking about this?
- [29:07]
Matt Cole
I think that Wall Street's struggling on how to value them. And I just, I'll use the simple analogy of strategy itself. The biggest player in the space. Right. And you. And I have, I have Bloomberg. So before strategy's earnings call, I went in there and I looked at what are the analysts predicting for the returns of strategy before they reported. And not one of them had modeled in the impact of bitcoin, which is actually going to hit the balance sheet, hit the, hit the return line. And so you look at it just like, okay, like no one even is, is even forecasting this, but it's not even a forecast because if you're actually deep in the weeds, you actually kind of know what that number will be. It's, it's actually one of the easiest numbers to predict because you know what the price of bitcoin has been and their holdings have been. And so you really, you really kind of know. But yet no one had been factoring that into their analysis yet. And so I think the average Wall street analysts, the average institutional investment analyst is not doing that. And then you look at what they're doing on the preferred equity side, on the convertible note side. And the average investor just has no ability, institutional investor has no ability to keep up with the pace of these. And just giving you a sense for most corporate fixed income analysts and bonds, they're looking at individual companies about Once a quarter. Imagine if you look at strategy and then you close strategy and you look at it again in three months. What's changed with the company? It's, it's so massive that it just creates an opportunity for investors that are getting into the weeds. And like, look, there's definitely hedge funds, there's more nimble asset managers that are, and for those companies, there's actually a lot of, a lot of institutional interest. But I think when you look at it from more of the, you know, with like how much of the institutional community is following it, I think it's a small fraction.
- [30:58]
Bryce Paul
Yeah, that's, it's a really good point. And you know, one of the companies I'll give a shout out to, they've been guests on the podcast, you know, maybe a half a dozen times bitwise. And you know, we know Matt Hogan over there, another great Matt in the industry. And they're, and they've got a gentleman named Jeff park who's been doing some incredible alpha generating strategies through Bitwise. And so it seems like there's just a lot of, you know, a lot of really cool, novel different products that are, that are being launched. A lot of really cool, you know, asset managers that are out there, that are cutting edge, that are spending all their time on this, just like you are at Strive. But something I kind of picked up on when you were talking about the, you know, you'll log into, you know, strategy, you know, Bloomberg, you'll see what the analysts are saying. And nobody's like talking about like actually the price of bitcoin. They're like looking at, you know, core equity, you know, sort of analyst kind of stuff. But the price of bitcoin is going to be very volatile over time. And one of the things that I think might most impact it is like you mentioned, you know, how this accumulation strategy is not just with companies and individuals, but potentially even nation states. And there's a proposition, an executive order more than a proposition to get a strategic bitcoin reserve for America. And probably, you know, other countries are, if it goes through other countries probably will also follow suit. So I guess the question here to you is if you had the ear of Trump's administration who is tasked with building this out, and I believe they're saying it has to be done in a budget neutral way. What would, what ideas would you float them?
- [32:31]
Matt Cole
There's a lot of ways that things can be budget neutral. I really like the idea of bit bonds, which battery and Andrew Holmes have come up with. If you haven't had him on as a guest would, would highly, highly recommend him. He's a friend of mine and we.
- [32:46]
Bryce Paul
Would love to have him on.
- [32:47]
Matt Cole
Yeah. So definitely. And he'll, he'll, I'll nerd out a little bit with you. And he'll go, he'll go deep because this is his baby.
- [32:54]
Bryce Paul
But I, what's his name, sir? I'm just writing it down.
- [32:57]
Matt Cole
Andrew Holmes. I'll send it to you off. Yeah. But anyways, the concept is that if you, within a US debt instrument, a Treasury instrument, put a little bit of Bitcoin where the US Government and the investor of the debt share in the future upside of Bitcoin, you can actually bring in new buyer bases for U.S. treasuries and then also reduce the cost of debt. And so he has a whole modeling for how this could be done, but it's actually not just budget neutral, but budget accretive because it could bring down the cost of debt. And so anyways, it's a pretty fascinating innovation. I know that the government's looking into this pretty actively as we speak, but I love that as, as one way and then there's, there's a lot of waste, fraud and abuse. I mean if Elon and Doge, even though we talked about earlier how they, they didn't succeed in the way I would have liked them to and get trillions of dollars, but hey, if they cut 200 billion, that's 200 billion that should be able to use, buy Bitcoin. If tariffs are coming in, tariff income could be used to buy Bitcoin. And so what I would tell the administration, what I have been telling them when I, when I can talk to them is look like I would love for the dollar to be the reserve currency forever. I would, I would love for it to be. I think that would be the ideal scenario for America. But look yourself in the mirror and just understand that you're not doing anything to actually fix the deficit. And if you're not able to do that because you can't get something through Congress and I think it actually is really hard for people to actually pass a bill that reduces the deficit. I don't think it's possible. I wish it was, but I don't think in D.C. it was possible. So say, hey, if I'm in their shoes, I would one, one version of the world is, you know, you say, well this is, you know, the best we could do. It's a great bill. And then on the back end we're going to take the deficit seriously. The other is just be honest with yourself. Say, hey, like, we don't have the votes to reduce the deficit. I wish we did, but because we don't, we need to take the strategic bitcoin reserve more seriously. Because if the dollar loses its reserve currency status and we don't have actually a plan B and a meaningful plan B on our balance sheet, that, that could substantially reduce the power of America into the future. And we need to actually think about putting America first, not the dollar first. And so I, I do think that, you know, and a lot of people would talk about how adding bitcoin to the strategic reserve will be bullish for the dollar over the long run. There's some truth to that. And the truth I would say to that is that in a, in a race versus other fiat currencies, if one government's backed their currency by bitcoin and the others don't, that should strengthen currency A versus currencies B, C and D. The other is that I think bitcoin is directly competitive with the dollar. And you mentioned bitwise and Jeff park. And one of the things that Jeff park laid out that I think is really an elegant way to think about bitcoin versus the dollar is that the dollar has had price stability, even though it decreases in purchasing power over time because it doesn't have quantity certainty. The quantity of the dollars fluctuates up and down in a major way. Right? And that's how. And, but it's. It's up, right? It fluctuates up. They print $4 to provide price stability of. Of dollars, and then they do, you know, whatever they do with it. With Bitcoin, you have quantity certainty, but you have price uncertainty. It's like the exact opposite. Like, but mathematically that makes sense if, if one year, you know, controlling the supply to keep prices stable, and the other you're doing the opposite. It makes sense that it should be volatile by design, but. But through its volatility, it goes up in purchasing power because it's actually deflationary. And this is just like Economics 101. But one of the things they teach in Economics 101 is that when you have a deflationary asset, it encourages savings, right? Because you know that this thing, or you believe this thing is going to be worth more in the future than it is today, so you should save it. And I think that's one of the dirty secrets of the bitcoin ecosystem is people think it's just a bunch of people running around in lambos. It actually is a savings community. Looking to get rich over the long run by saving in bitcoin. And that's where you get all this innovation of like, bitcoin is a hurdle rate. Denominating bitcoin, bitcoin yield, all these different things. Because bitcoiners, they think about the amount of bitcoin that they have and they want to increase the amount of bitcoin that they have. And so all these things natively make sense to them. And for the outsiders, it's kind of like, feels like wonky math.
- [37:42]
Brendan Veeman
Do you think that the countries that acquire a sizable bitcoin treasury or a sizable bitcoin reserve will also have a stronger fiat currency? Like, kind of the way that I look at it is, you know, let's say that countries around the world, you know, they kind of increase their, their bitcoin purchasing, they increase their bitcoin acquisition, and they're saying, hey, we're backing our currency with bitcoin in the same way that people do it with Treasuries and all these other things and metals. Like, could you see that being reflected into treasury strength because they have a sizable amount of bitcoin?
- [38:18]
Matt Cole
Yeah, I think it's definitely multifactorial. So just on that statement alone, yes, the US is in a more difficult situation than other currencies from the perspective that we are the reserve currency. Right. So there's a premium. Like, if you think about this in mnav terms, for a bitcoin treasury company, the US trades at the, at the highest M nav because it's the reserve currency. If the US is substantially backing their currency with bitcoin, does that, does that cheapen the reserve currency status of the us? Because bitcoin becomes the reserve currency and then you have the dollars backed by bitcoin. So we're still a very strong currency. But, but does the world need the dollar as the reserve currency? I think those are. Some of the questions are actually harder to answer. Like if you were, as an example, Japan or India or China and you backed your currency with bitcoin, I think it's unequivocally a positive for strengthening your currency. For the us, it may be a negative. But the, but the, the cold hard truth is that if you believe the dollars, days of the reserve currency are numbered anyways, then the best time to act is when you're still strong, not when you're weak. And so I, and I think that's true and I think we need to act now. But I think the result will be probably a weakening of the US's dollar as a reserve currency.
- [39:46]
Brendan Veeman
Yeah. You know, I think fiats by nature are a bit self destructive. Right. You look at them and they're ever inflating, they have problems. And there's a lot that can be maybe negatively associated with fiats, even though we use them every day. And I think that's what bring people towards Bitcoin in the first place is because you made this great analogy earlier of like Bitcoin and the US dollar being like almost opposites of one another and that, you know, one moves off of, you know, price and one has, you know, a set supply and one's constantly inflating. But I think that's what attracts so many people to Bitcoin is because they look at this and they say, well, hey, there are other alternatives. Maybe it's not the world reserve currency right now and this and that, but man, it sure helps solve the problem and answer questions that we don't have answers to, at least not with a lot of the fiats.
- [40:36]
Bryce Paul
Yeah. Matt, I want to get your thoughts on, on, you know, just kind of this ethos around, you know, people using Bitcoin as a savings vehicle and they kind of have, you know, historically self custody. Right. And now we're kind of turning Bitcoin into like public equity in a sense with these public treasury companies. How do you feel like that kind of affects kind of the core value propositions or kind of the ethos of, of bitcoin and crypto?
- [41:03]
Matt Cole
Yeah. So I'm, I'm definitely a freedom maxi, I think maxi. But, but, and that was why I got into bitcoin majorly in the first place. It's why I joined Strive, you know, after Covid and seeing a lot of what was happening around the world and around the US But I think on a relative basis the US is relatively free versus many countries. And so I think the question of how much do you value self custody versus owning something in an ETF wrapper? The ETF wrapper is the most direct comparison to self custody. Right. And then a bitcoin treasury company should be by definition levered Bitcoin. Right. Where you're trying to actually outperform bitcoin and so you're doing a trade off to potentially have better total return. I think every individual needs to do an assessment for themselves for having kind of money outside the system, which would be like having gold bars or silver coins. And I think paying attention to what's going on around the world and where you're situated and what nation you're in is going to really change your perspective. And this kind of gets into, why has there been such demand for tether? The demand for dollars outside of the US and the demand for stablecoins really is outside of the US Unless you want to have a stable coin to do some trading on DeFi or something like that, which I'm sure, I'm guessing that you guys talk about probably a good amount. But there's not demand in the U.S. i don't think in a major way for stable coins to be outside the system. I think it's more for trading within the crypto ecosystem. But if you're in China, as an example, there's Chinese billionaires that want money outside of China. They want the ability and they don't want the volatility of bitcoin. And so something like a tether denominator, stablecoin, massively appealing to them. Right. And then when it comes to bitcoin and kind of the reemergence of like a true savings vehicle, to me, it's this simple. It's that even if you bought US Treasuries, US Treasuries, the interest rate is not growing at the rate of M2. So you're losing purchasing power and financial assets, even if you're in U.S. treasuries. And so if you're in dollars, and the reason you're in dollars is not because you're trying to get outside of a dictatorship regime that might take your money, well, then what you really want is you want something that's going to retain value over time, and that's something that will retain value over time is Bitcoin. And it benefits while treasuries decrease in purchasing power.
- [43:43]
Bryce Paul
Yeah, I, I love that kind of illustration for us because, you know, people think, oh, yeah, like, I've never used a stablecoin here in the States. They might think, but in reality, a lot of these stablecoins aren't really for like, Americans. Therefore all these other countries, like, I, I saw, you know, I think Paolo from Tether posted something about how there's actual shops like in Colombia that are denominated in tether. So it's like they are, it's like an actual medium of exchange because people don't want to hold the Colombian peso or the Argentine peso or whatever. They'd rather hold something that's denominated in, in, like you said, the dollar. And so it's like, it's kind of, you know, a way to export, you know, more dollars all throughout the world, make them much more Liquid and all that kind of stuff, but extend the reach of the dollar. And I think that's kind of why treasury secretary Scott Besson was talking about potentially right now the, the stablecoin market cap's around 300 billion. But he really wants it to, to grow. He said he could see it being $2 trillion as some of this legislation is passed. And that $2 trillion, what would they be buying? Right. The, the tre. These, you know, stablecoin companies would be buying, you know, t bills and you know, government debt and all that kind of stuff. And so it would kind of potentially help us get a little bit out of some of the debt woes that America's facing. So it's. Yeah, it's very interesting what's going on. But I want to talk about, you know, kind of the risks maybe associated with your general bitcoin treasury strategy. And I know that like every company has their own degree of risk instead of risk that might be different from one another. But is there like a general sort of risk that you think of when it comes to bitcoin treasury strategies?
- [45:27]
Matt Cole
Yeah, I mean, it's definitely going to be bespoke to each company. But as a, as a general statement, most of these companies will deploy some form of leverage. And so you have to understand where the leverage is and how you break it and if you're comfortable with the leverage. And so you look at strategies. So let's just rewind for a second before they started doing these preferred equity offerings, when they just had convertible notes and they had convertible notes that, you know, matured over a series of years. So they would ladder their maturities and you would ask people like that were haters and say, you know, oh, they're so over levered. The next time bitcoin goes down, if bitcoin goes down to $20,000, they're done. That's just not correct. That's a bad analysis. Because these bonds were not callable. They had fixed maturities at set dates into the future. So what you really needed to do was do a directional analysis of how far does bitcoin need to go down, which tended to be around 80%, and then it needed to flatline at 80% down for a period of like five years. Right. So like if, if Bitcoin goes to zero tomorrow, strategy is fine. There might be as long as it rebounds back up. Right. Like if we had some Covid crash, like, you know, remember when oil prices went negative for a couple days and then it rebounded and it's fine. Like that happens to bitcoin strategy is fine. Now other bitcoin treasury companies may or may not be fine. You would have to actually understand, like, do they have callable features to their debt? Like, could they be forced. Liquidated. Right, that we see in traditional crypto markets all the time. Right. These liquidation washes, I could say, like, for, for us, like we took no debt in our first offering. Like I mentioned, like, so we don't have debt. Right. There's not a callability feature, but that may not be the same for every company. So it is bespoke. But you have to really understand the leverage and where the leverage lies. Is there negative convexity in some of these companies? And my, my best guess is that there will be in some of them as we go. I think that actually should be the case. Not because. Because if you think about capitalism and free markets generally, there should be a risk spectrum. That emerging market that companies do. And this, this has happened in crypto how many times, right, where a crash happens and you find out, you know, when the water goes out, you know, who has a swimsuit on and who doesn't, you can do the analysis beforehand. I think it's very possible with all the public filings, because this isn't, you know, traditional crypto where there was a lot of opaqueness. These are publicly traded companies, they have to file what they're doing. And so I do think that if people get their hands dirty, they can understand which companies have more risk, which ones do. They don't. But, you know, it will be a, you know, in the next bare market if and when it comes, you know, what is, you know, which companies are most exposed and how to break them. And that's why I think it's so important to be in the weeds when investing in these companies.
- [48:26]
Bryce Paul
Love it. Does AI come to bear on any of this? Maybe AI come into bear by accelerating the need for a bitcoin strategy.
- [48:35]
Matt Cole
Maybe. How do you think about that? It does. So this gets into broader public companies and companies at large. And so, and taking a learning from the Internet and the rise of the Internet. And so from 1990 to 2020, there was over a 50% turnover in the S&P 500. And that turnover was largely because Internet companies and companies that were technology focused rose and the ones that didn't, they fell up. Right. And so that was a period of 30 years with 50% turnover. My view in technological innovation is that every cycle they go faster than the previous cycle. So if we had 50% turnover in 30 years, 10 to next 10 to 15 years. We probably have 50% turnover in the S&P 500 because of AI. And you can look at some of these companies and you can see risks to their business modes. And one of the, one of the companies I like to call out because they keep censoring Bitcoin and crypto is into it, they keep censoring with mailchimp. So I like to call them out. But they're not the only example.
- [49:41]
Brendan Veeman
But call them all out, drag them, blast them all.
- [49:47]
Matt Cole
But take a look at TurboTax as an example. I've used TurboTax historically to do taxes. It's a great product. But in the next year, year or two, ChatGPT can be TurboTax for most Americans. It's not that complex. It's very pattern based, it's rules based. And when ChatGPT becomes as good as TurboTax for most Americans, it doesn't matter if intuit leans into AI innovation, the competitor cost to their product is $0. Like you just can't charge for that product into the future. So it's going to disrupt them as a company. And there's many, many companies that fall into this to varying degrees. But the reality is that most corporations, business mode and ability to generate revenue at the current rates is at risk. And so when that plays out, you're going to have massive turnover. So like if you were to look at The S&P 500 and say 250 companies are probably going to be displaced in the next 15 years, let's just say what should those companies, what should corporate America do today? They need a hedgehog, right? And the head should be bitcoin. Because if you, while you can, right now, they have, they're very cash risk, their market caps are high, they can deploy equity to buy bitcoin, they can develop a bitcoin war chest while still trying to lean into AI innovation, right? Because it doesn't take a lot of people to acquire a bitcoin war chest. Strategy has like 2,000 people and about 10 people on the bitcoin side of the business, employees. And you can deploy a bitcoin treasury strategy, right? But then on the back end, if you're a loser, you now have capital and that capital could be deployed in the future to reinvent yourself, right? And so that gets into the need for capital expansion right now. And I think it's very distinct to AI. Why? Because even if, let's just say, let's say the Fiat crisis didn't exist, let's say that bitcoin didn't exist, but we had AI innovation and AI risk. I would say that in that scenario, corporations should load up the amount of investment cash that they have on the balance sheet in Treasuries because they're at risk and they need to have capital deploy in the future. The reality is that bitcoin is a savings vehicle and the first reemergence of a savings vehicle. So it's actually a bitcoin that is the place that this capital should be stored. But there's a need for capital on the balance sheet of these companies.
- [52:07]
Brendan Veeman
Well, that makes sense. You know, I got one more question for you. Looking into the future, let's say five years from now, what would success look like for strive? Is that getting more bitcoin on the balance sheet or is that something else?
- [52:23]
Matt Cole
Yeah, it's acquiring a bitcoin war chest. So as large of a position in bitcoin as we can while outperforming bitcoin as a hurdle rate for our investors. So if we're not doing strategies that if we were just using the ATM as an example and just continually diluting and that was the only thing that we were doing, we'll do that for what it's worth, when it's accretive to shareholders. But if that was the only thing we were doing, then we would likely acquire a bitcoin war chest. But the bitcoin per share or the bitcoin returns for common equity shareholders would likely not be attractive. And so it's kind of a, it's a dual mandate here, right? Is the constraint will be of bitcoin accumulation, will be making sure that we achieve the goal, the long run goal of outperforming bitcoin over the long run. And to be fair to clear on that, we're not going to be trying to outperform bitcoin every day. That's not possible. I wish it was. But it's over the long run. And this is how hedge funds and portfolio managers operate. It's over a cycle. And in bitcoin the cycles are generally a 4 year cycle, 3, 5 year period. Outperform bitcoin while accumulating a bitcoin war chest.
- [53:33]
Brendan Veeman
And you know, I like that whole idea, I like the saying of, you know, we're going to outperform bitcoin because a lot of people, they compare themselves or their company and they say, you know, our goal is to outperform, you know, maybe the S and P. We're going to outperform nasdaq. We want to outperform gold. But by saying, you know, hey, the goal here is to outperform bitcoin. Especially with bitcoin. Bitcoin, it is a bit more unique. And I think for a lot of people, you know, they, they kind of have the same idea these days. They say, well, you know, I would hope that I'm outperforming something like the S and P. And I think that's a lot more achievable. But I think it's a whole another factor to look at bitcoin and say, hey, you know, we're going to set the bar high. We're going to outperform bitcoin. And that is something that is, you know, again, very, very possible. So it's an exciting time. And yeah, thank you.
- [54:23]
Matt Cole
I'll just say, like, if I felt like if, if we would say the S and P or the s and P + 3% was our benchmark, to me that would be a grift because it's super easy to beat like, like when you're investing in bitcoin strategies over time. And I think that there historically has been some of that in the space and I've always called it out and to me it's, it set the highest hurdle rate for yourself and for your company. And because if you're not actually beating that hurdle rate, then what you're doing is not actually interesting. Interesting.
- [54:52]
Bryce Paul
Yeah, that, that's, it's crazy cool to hear about and to see, you know, people like yourself taking on that challenge because, you know, bitcoin has been like this best performing asset, kind of the apex predator and to be able to say, you know what, we're going to tame this beast maybe, or, you know, domesticate. We're not taming it, we're, we're capitalizing on it. That's all it is. I'm, I'm super excited to see how it plays out and where can people kind of follow along. Mr. Matt Cole on your Jo journey kind of personally or the company, and maybe some of the potential, you know, news announcements that might be coming out this year, next year. Where's the best place we could put in our show notes?
- [55:33]
Matt Cole
Yeah, so my Twitter is at Cole Macro. Our company's Twitter is at Strive funds and then strive.com wonderful.
- [55:42]
Bryce Paul
Well, we really, really, really hope to have you back on again soon. You know, I know there's a million more things that we could talk about about, especially as the merger kind of finalizes at some undisclosed period. We can't wait to get more details on that. After it hopefully goes through. But until then, I'm hopefully everybody who's listening to our podcast can go toggle over to the Hurdle Rate podcast as well and and keep in touch with Matt. I know I'll certainly be adding it to my rotation of podcast alert listen to. But until next time, Matt, we'll see you soon. Thanks for coming on.
- [56:17]
Matt Cole
This is fun, guys. Thanks.
- [56:30]
Brendan Veeman
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