Transcript
A (0:00)
Welcome back to the Bitcoin Treasuries podcast. I'm Tim Kotsman. I'm here with Brian Brookshire. Brian, thanks for joining us today.
B (0:07)
Thanks for having me, Tim. Good to be here.
A (0:10)
So we all witnessed history yesterday evening with the Q1 strategy earnings call. What were your takeaways? I think there was a focus on bitcoin per share, potentially selling bitcoin and optionality. So I'll, I'll give you the floor for your reaction.
B (0:30)
Yeah, for sure. I think there are two main themes that I picked up on that were interesting to me. One is an optionality piece that you mentioned and you know, potentially the potentially selling bitcoin piece you see all over social media today, people freaking out, oh, strategy is going to sell bitcoin, it's going to end the company. No, it's not going to end the company. And actually we've seen a precedent for this before. In 2022, December 2022, Strategy sold Bitcoin. It's been done before. They did it for tax loss harvesting purposes, then did not end the company. And in fact from that point onward to the height of the 2021 bull market, strategy had a 36x bull run. So was not a problem for the company in the past. Don't think it would be a problem for the company in the future if they are more actively managing the capital stack. And just beyond selling bitcoin, we also saw them say that they might potentially have much more flexibility across all their instruments, potentially issuing strategies to pay down some of their convertible debt, which we've also seen precedent for in the markets we saw strive do that. Also potentially going back and forth between say stretch sales and common share buybacks and et cetera, et cetera, pretty much any combination of instruments to have potentially going back and forth between those. And I think some of the comments that I see, you know, the critiques I see of that are not well founded. You know, on paper maybe it looks Ponzi ish, but if you dig down to it, the fact is there are dislocations in markets. These instruments are not all accurately priced at any given time. And that's what gives you the opportunity for an arbitrage between them. And people also forget at the end of the day what all this financial engineering is going into is buying bitcoin. So it's not just strategy instruments trading around on the back end, it's going to buying bitcoin. The whole thesis is that you buy bitcoin for the long term, it appreciates in value and that's what makes all this financial engineering a valuable thing to do. Yeah. And then kind of the other theme I picked up on towards the end of the call is Saylor's outlook for what rates will look like. One of the things that we've talked about is kind of two different perspectives on this is what the long term rate trajectory looks like. A lot of the projects being built on stretch right now are really taking advantage of that high dividend rate though. But of course alongside that, you've had investors in the stock talk about how probably the long term trajectory is. You know, those rates come down. If strategy is able to actually able to get investment grade credit ratings or even just better credit ratings it has right now, then you would expect that dividend rate to come down over time, that credit spread to compress, which makes sense. I think a lot of people think that even today it probably deserves a lower credit spread than it has. Because if you think about it right now, it's kind of like an asset backed security with a 70% equity buffer, which is almost unheard of. So there's a lot of safety built into it, but it just takes time for the market to get used to the product. And one thing Saylor said that I thought was very important was that right now they are really focused on getting volume, getting network effects. And he would rather sell 500 billion at 11% than $50 billion at 9%. And he used the comparison of the early days of Amazon free shipping where they basically took a loss that for 10 years, but then they were the only player in the market and they increased prices and made a whole ton of money. And you see this common in banking too, that when you see a new banking product roll out, it will have a higher rate and early people do that, take advantage of it. And then later on down the line those rates tend to come down. So I think that's likely what will happen. I think it's a strategically sound play and it's good to hear them also say what their thinking is on the long term prognosis for rates.