C (4:01)

Yeah, we've seen very little movement when it comes to their earnings. I think we had basically the last two years where we were watching those things like a hawk, expecting the market to make a move around them. They seem to shrug it and I think part of that is because they know the answer in real time already. There isn't really a surprise to this once you understand the accounting. But what I think is really impressive about what strategy's done and what you saw, particularly during the last month, is they sent a message that they're completely undeterred by sentiment. Right. They've told you what they're going to do and they're going to continue to execute on that no matter what's happening. Doesn't matter if people are tax loss harvesting. If they have a way where they can raise capital, deploy that capital out into Bitcoin. You saw them finish off bolstering the reserve. I don't know if this is the end of it, but it was a much smaller US dollar reserve. So I would guess they're getting closer to where they ultimately want to be. But they've been telling the market this is what we're going to do, this is how we're going to do it and we're not going to be deterred, we're not changing the strategy. This is our strategy. I think that's a big message to send largely to the institutional investment crowd, I think that's really important is they want some level of certainty about the way that you're going to execute this. And they want to know that they're constantly moving forward. They've proven that they can do that even in times where the sentiment's bad and people are upset with them. And we've had this really long drawdown in the treasury sector space over the last six months. You know, they just plowed forward and you get to the other side of tax loss harvesting season, you get into the new year. I think amongst the institutional crowds, their consensus was kind of that the trading and the volumes would return on January 5th, which was today. And sure enough, you know, there was a lot of capital that was flowing around the market. So I just think what they're doing has been very, very impressive. And I think they got themselves in a position where they now have the structure. They want to really push the throttle on the digital credit side of things. I think it was important getting into the end of 2025 to get that reserve into a position that they wanted in. And I think you're going to start seeing a pretty heavy push onto the digital credit side of their capital raising.

D (6:15)

Yeah, I completely agree. To me, the story the last three weeks is they're gearing up for, for a massive 2026 in digital credit. And I think for all of us as people that I would say, even though some of us come from institutional backgrounds, on a personal level, when it comes to bitcoin and bitcoin treasury investing have been on the retail side prior to our time at Strive, that this is an institutional story because retail already feels comfortable with strategy and the risks that they're taking. They're already all in on strategy, but, and I would argue that the cash levels are much greater than are needed in any reasonable bear market. And maybe later we can get into like a little bit of the outlook for 2026 and, and beyond. But that's not the case when you're trying to sell tens of billions of dollars of digital credit to institutions. And that is where strategy is as a company, right, that they are all in on digital credit just like we are. But they have to go sell it, ton of it. And so they have to tell a story. And to tell that story that on the slowest couple weeks of the year, we just raised multiple years of interest payments with almost no impact on the market during a kind of a bare winter, crypto winter for bitcoin treasury companies. It shows that they're ready, they're ready to tell an institutional story and I don't know who they're talking to, but my guess is a lot of the biggest fears were just squashed the last couple weeks from what they've done. And they put themselves in a massive position of strength to accomplish what has to be their goals for this coming year. And it's extremely impressive and I think that you're seeing a very interesting start to the year. Ben, you were talking about how people were saying January was it January 5th is going to be the start. I mean look at the move that we've seen on risk assets tied to bitcoin to start the year. I mean bitcoin, the first five days of the year is up every single day. You have not had a red day yet for 2026. And then Bitcoin treasury companies are acting like levered bitcoin bets that have been underperforming. And this gets into, I was kind of trolling some of the haters with you might have an illness if, if you've, you know, if you've missed this and, and look for biases because you see this when, when you see bare markets of, of you know, retail traders that have a short term mindset capitulating and, and meanwhile, you know, we're sitting here saying, you know, things have never been stronger from a fundamental perspective that well run Bitcoin treasury companies, which I'd argue like we are, are well set up for the future and, and just chill and zoom out a little bit and if the thesis is right, it's going to work out and, and then you see like in two days like our stock is up over 40% in two days and, and who knows if it's, you know, continues to go over the next couple of days. But these are the types of moves you see in risk assets. So when we talk about being amplified Bitcoin and obviously bitcoin treasury companies, that's what we're trying to do here. These are going to move in the period of like days to weeks in a massive way. And if you're not set, you're not, you're not on the rocket. And, and I think that's what we're seeing right now. And I think it should show people the convexity that we're playing with here. Right. And I think that's, that's really important as, as we start the year is, it's, it's not something that you can say I'm just going to sit on the sidelines and when the water's safe I'll get in. No, you, you get in and you get conviction or you, you stay out. And I think that's so far, what we've seen this year.

C (10:04)

Well, if nothing else, there's an acknowledgement about the cycles of the year that you see tax loss harvesting is a real thing. And so if you're participating in a sector that's had a massive drawdown for six months straight, you got to put yourself in the position of a lot of the other investors and go, what would I do right now if I was coming to the end of the year and I was sitting on these massive losses? I might take that and take that tax loss so that I can carry that into my taxes and then I'll re enter the markets in the next year. I'll rotate it to another equity in the same space. The end of the year is where you can see some of that momentum and people look at it and call it capitulation a lot. And I think some of the times it is six months of getting beat down the way that this sector had. I'm not surprised by the amount of capitulation that we saw. But there's a natural cycle that happens in financial markets. And so having kind of a lackluster December was not overly surprising or concerning because you had the capability to go and take these losses and move into the new year kind of fresh. And I think a lot of people ultimately did that. And some of that, yes, to your point, Matt, I think some of that was losing hope, right? I think there were a lot of people that actually exited the space. And most of that time you've got to really see if this is an emotional reaction or a reaction to the fundamentals. Because the minute that you are in that mindset, you can bet that there's a lot of other people that are as well. And so when you reach the end of that cycle and the capital starts coming back into the markets, things move a lot faster than people think. And it's why you see most of the moves in bitcoin happen in 10 days out of the year. It's why you can see these massive moves like we just saw in the matter of a couple of days, right? You just don't want to be offsides when that moves. So if you are going to move out of a position, you've got to have a real fundamental reason for why. Because if you still believe the thesis, you look at the fundamentals, you. You see a mismatch in value versus price in the market. That's usually when you have to convince yourself to sit on your hands and not do something rash.

B (12:10)

Turn and burn baby. Here we go. I'd like to zoom out just one step even further and think about what was 25. 25 was year zero of digital credit and I was doing a little base analysis over the weekend. About 70% of the digital credit that was issued in 25 was issued with a Bitcoin price greater than like 105,000. So thinking about, there's been a lot of sentiment about there's no demand for these perpetual preferred equity products and I would encourage people to look at like what's actually happened in, over the last six months and really the collateral value has dropped 20 to 30% for most of these issuances. So there's no surprise that some of these have gone down since they've been issued because the collateral, you know, the value that's sitting behind it is, has gone down in value. However, if you start to look at some of the other instruments like Stretch, I think today finished in after hours is at 99.95 and their ex dividend date is in 7 or 8 trading days. I wouldn't be surprised if over the next seven to eight trading days we start to see ATM issuance from strategy as it starts to bump up against 100 and you have that flywheel start to kick in where they have capital coming in the door on the perpetual preferred equity and that excess risk and return is start to transmute over to the common stock equity. And really the balance sheets aren't over leveraged here. It's not like we're talking about companies that are 100% leveraged, that there's a lot of financial strength on the balance sheets that are operating this, this strategy and, and a lot of health there. So and, and on top of that you now have got USD dividend reserves from strategy too. So you could see how they're really gearing up for like Matt, like you said, a massive 2026 in selling digital credit. And, and the big question, the, the big question is going to be like how do you value a common stock equity of a digital credit company? That's going to be the big question for, for 26. Like how do you value the, how do you value excess return and excess risk on a leveraged bitcoin balance sheet?

C (14:35)

Well, what's interesting is you got a partial answer in the last quarter of the year, right? They showed you kind of how they're valuing these in a better market when everyone's incredibly fearful and shaken out Right. They pushed a lot of them down. The difference is when you've got digital credit as a part of your arsenal to go and raise capital in the markets, you're not out of the game no matter what happens with your common equity during a short period of time. And I think that's huge in building the resilience around the company and making sure you've got a model that can perpetuate into the future. For a lot of the companies, there's been a huge reliance on common equity only and that gets completely shut off during those time periods. And you have to wait. And that's not necessarily the worst thing. Sometimes the answer is wait and do nothing. The market doesn't always like to hear that, that that is an option.

A (15:27)

Right.

C (15:28)

There's this bias towards constant momentum and constant activity, but it's not always the right answer for every company. Sometimes companies are going to get in a position where they get the right leverage on and then something turns against them. And what you have to do is wait. You don't do something drastic that ripples out into and could cause issues for you. But I think what we've seen this year is that digital credit is an incredibly unique product. And because the demand is coming from investors that have a different lens on this, they're not all looking for the high amplitude. They want cash flow. These are cash flowing products, they're fixed income products. And you're appealing to a different type of an investor there. But what's even more unique is you've already got the assets, they're on the balance sheet already. You can see that. So it's a very different product than what they're even used to. Right. They're used to dividends, they're used to yields, they're used to going out and comparing those. What they're not used to is getting rid of that reliance on a future projection of what this company is going to do. That'll probably tie into some of your talking points here in a little bit, Jeff, but you're taking some of that unknown away. You have a ton of upside in this model to be able to continue to execute into the future and to push that strategy forward, raise more capital, strengthen the balance sheet over time, which just strengthens the reserves that are behind those dividend payments that you're making. But there's a learning curve. Like you said, this was year zero for digital credit. The fact that there's even a conversation about whether there's demand for these products is almost a little humorous because there's been billions of dollars of demand for these products and most people still don't know they exist. So I would say 2026 is going to be the year of digital credit marketing.

B (17:11)

Right.

C (17:11)

People are going to become aware of these products over the next year.

D (17:14)

Yeah. One of the interesting things from the last three months is just the beginnings of a track record for issuers of digital credit, which right now there's effectively three. Even though Meta Planet still working on theirs being public. But Strive Strategy and MetaPlanet. All three issuers in Q4 bought Bitcoin, none sold bitcoin. That is a contrarian position to the overall bitcoin treasury market. What you saw across the broader market was a few bad debt terms end up not working out. So non digital credit, shorter term loans, loans where you have to post margin kind of come to, I would say wound but not kill. So I think that's an interesting learning right of okay, how does digital credit react in a mini bear market? How do other forms of debt things that shouldn't be surprising to people that are following this closely but even to institutional investors that are learning about this space, these things are not intuitive or obvious that that one worked out well, the other did not work out well. And in the midst of this mini bear market the largest issuer further shored up their balance sheet. And all three of the issuers of digital credit maintained basically an M nav of around 1 or greater through most of this. I know the planet below a little bit but, but no, substantially, you know, big negative M navs and they're obviously just beginning the game on the press. But you know we maintained a positive M nav throughout this. And so I think you're, you're seeing that I think retail understood, stood this and liked amplification, liked buying the dip through amplification did not place a big negative and also that there wasn't any forced selling. And so I think that those track records in difficult times age well and tell I think interesting stories and I think the, the story that would have been told or could be told if there's you know, not anything close to a base case but if we actually did go into a bear is that those companies. I, I don't, I mean I can only fully speak to us but like, like we're, our balance sheets are extremely strong and there's still no encumbered bitcoin and the ability to ride out waves if, if it was needed. Although right now it's hard to say that's the most likely scenario that we're not in more of a big positive scenario this year.

B (19:53)

I think one of the important pieces there is the trait of perpetual preferred equity is that it's not debt. There is no principal maturity that comes due as soon as the capital comes in the door for the instrument. That capital is now permanent capital and there's no repayment obligation. And that's the fundamental trait that makes all of this so much more unique than convertible bonds or issuing straight debt is that this is permanent capital and it's equity that's on the balance sheet. And you create this effectively trust instrument that you are going to provide the dividend that you say you're going to provide into perpetrator and that it's like restructuring and rethinking a fixed income product for the market. That's really attractive.

C (20:49)

And Matt, could you talk a little bit about. So you talked about the track record that's starting to be built, but I know in your old seat that was actually a really big deal. And there were some timelines around track record before a lot of these institutional investors would even be willing to consider something. Can you talk a little bit about that?

D (21:07)

Yeah. So where do track records and the need for a history come from? They typically come from what's called investment policy statements. So these are either guidelines or policy, sometimes a mixture of both for portfolio managers at institutions that they have to use to run their portfolios. And so for many institutions there is a requirement. Sometimes it's a hard requirement, sometimes it's a guideline for at least a 3, 3 year track record before you invest in a new product. And so this gets into the dynamics of building. You know what I think we all think is like the biggest story in all of finance, but that what is happening over the next few years is track records are being developed that once different milestones are hit, different doors are opened. And so one milestone could be getting a rating from an agency that's going to open certain doors. There's other milestones that could be market cap driven. It could be the price of your stock, it could be the performance of your stock, it could be the performance of your digital credit, the volatility of it. All these different metrics drive and open doors. And so if you think about a large issuer like strategy that's trying to issue tens of billions of dollars of digital credit and obviously all of us lower our cost of capital over time, you have to really systematically open doors and know what needs to happen to open these doors. Right. And so one thing that will open a lot of doors will be a three year track record for institutions. People that write big checks that they could then say, you know, look, you may not understand this to maybe a board member. Some of the board members at these institutions actually surprisingly don't have deep institutional experience. So you may not understand this. I'll explain it to you like five. But look, there's been multiple 30% plus drawdowns of Bitcoin over this three year hypothetical period. Strategy has paid their interest every single time and we think this is a strong credit and it has a double digit yield. And they say, okay, well, has a track record. Okay, check. It's extremely important. And it's why in ETF space you see a lot of ETF issuers talk about what they call a hockey stick pattern where successful ETFs. What you'll see is they'll typically start for the first three years having somewhat linear growth. And then in somewhere between years three to six, you start to see exponential growth. So they call it the hockey stick growth. And the reason that you see that is because of the track record that has been developed over that time. Right. And so for the first couple of years, you're going out there, you're telling the story. You're basically doing the world tour like Michael Saylor's doing, right? And just telling the digital credit story day after day after day, sometimes very similar with, you know, a couple different, you know, bangers dropped in there. And then over time you develop that track record and people have heard the story, they've now seen the payments and now they can write the, you know, whatever billion dollar plus checks into the product. That's just, that's just how the real world works.

C (24:23)

And it tells you how early we are along this trajectory.

D (24:26)

Right.

C (24:26)

When you're opening some of the largest doors that exist. And you need things like that track record over time, the importance of year zero, you know, that really puts a stake in the ground for all the issuers that are issuing this digital credit. It starts that clock and allows them to continue to execute over time. And you expect over time to see that demand grow and grow and grow as new doors are open. So I think that's a really important point that a lot of people probably aren't aware of in this space.

B (24:53)

2028-2030 will be electric. The hockey.

C (24:58)

I think it's going to be electric before that, before kerosene on the fire that started.

B (25:04)

Yeah, exactly.

D (25:06)

Yeah. Typically how this would work is obviously the best total returns are in those years. Right. Where you're Buying into something that's emerging. But it's also, I think, an important reason why you see the collaboration amongst bitcoin treasury companies, why you see panels of the digital credit issuers talking to each other, talking about different ideas and that it's more friendly than competitive. Because if you take us as a massive issuer of digital credit, one of the few, if strategy blew up, which they're not going to do, but if they did, that would be really bad for us as an issuer of digital credit. Right? Like, like we don't want to see it and conversely, they don't want to see it with us. And so you're, you're constantly, you know, using the approach of iron sharpening iron amongst each other because the, the industry is so new that you really, you need multiple issuers, you need to go tell the story and you need to ultimately have a handful of firms at least that are actually meeting these obligations and doing this from a responsible manner. And that's how you institutionalize a multi trillion dollar idea, which I think this is.

C (26:16)

And it's going to be fascinating to see who comes out next and steps into the digital credit space. You don't hear the same rumblings that you used to. There was a lead up to what metaplanet launched. I think a lot of that was there was a lot of Japanese regulations and hurdles that they had to get over there. So it took some time, but you knew it was in the process. They talked about it, they talked about that desire. Now you've seen that kind of quiet down. But what I think is really going to speed that up again is if we start seeing Bitcoin do exactly what it's doing now. We've seen how companies with digital credit perform during bear markets. We haven't seen how companies with digital credit perform during a ripping bull market. And I think it's going to be what starts to separate this sector and you're going to start to see a divide in the types of companies and the paths that they take. And ultimately the market will tell us what they like better. But right now, having gone through the last call it three months, right now it seems digital credit's the one that allowed the companies to continue to move forward.

B (27:16)

It's the most efficient capital allocation. Because bitcoin is the hurdle rate.

C (27:22)

Well, we had a conversation earlier. We have to decide if it's Bitcoin still or if Caracas is the hurdle rate because their market was ripping today too. So we had to compare against the Caracas hurdle.

B (27:31)

Right?

D (27:32)

Yeah, I think the Venezuelan stock market was up 17% today on, on the news of Maduro being being captured and, and, and I mean wow, wow, what a, what a mess of a country they've been. I think I saw their inflation rate has been. I want to say it was 150 million percent or something. It doesn't matter the number even.

C (27:58)

It's unfathomable.

D (27:59)

Yeah, it's unfathomable. I mean they're, they're the classic story, the classic country that bitcoiners talk about. Right. Of, of places that are dictatorship, lack of freedom, uncontrolled inflation, inability to get your capital out and how you think about that. And it's why there's been a lot of talk about bitcoin in Venezuela because they've lived this problem and you see all these crazy rumblings which I can't really opine on the legitimacy of. But Venezuela having 600,000 Bitcoin and did the US seize it and just secure the one of the largest bitcoin governmental sovereign bitcoin treasury, who knows. But you can see how that could happen in a country like Venezuela and how just removing that can have it behave like a bitcoin treasury company on a big update. But it's obviously not the hurdle rate. Although it did have a good day today.

C (29:03)

When you look at the country level there might be some volatility that isn't vitality. You know, there might be a distinction that needs to be made there today.

B (29:10)

It was good.

C (29:11)

I mean it obviously shows that there's some optimism returning into that country again and probably capital coming back into that country again. So see where it goes.

B (29:20)

Yeah. And they're sitting on a lot of oil which is valuable. 100%.

A (29:26)

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B (30:12)

Shall we shift gears, Talk about capital allocation. I've got some pension, pension fund research that I think is interesting and worth worth sharing and I think ties into what we were talking about a little bit earlier with track records and things like that. But I went to a bitcoin party this weekend, a Genesis block party over the weekend, and I was chatting with a couple of people and this gentleman mentioned to me his pension fund from his prior employer, which was a healthcare company. And he was talking to me about their allocation of assets. And what he shared with me was that private Equity made up 60, about 60% of their assets. And then private credit, high not, not private credit, high yield debt made up 17% and then public equity made up 13%. And then the rest is like another 5% on other whatever. Anyway, it was, it was a fascinating discovery because there was zero capital and investment grade debt and last year the fund returned like 4%. So the question is, all right, so you've got all of these illiquid assets in private equity and you've got high yield debt and you're only returning 4%, right? Like what, what am I, what am I missing here? Like, you've got all these high returning assets. The s P did 15 and a half percent last year. What, what's going on and what's the problem? And the guy I was chatting with was, was pretty concerned. He was like wanting to figure out how to get out of the pension system. He's like, I just want to take my money now. Because this seems egregious. Like the risk taking here. How much risk is this pension fund taking on for the relative return in these illiquid assets in the illiquid markets? And starting to think about, well, what is the future value of that? What is the likelihood that I actually get my pension? What's the likelihood that this isn't there when I want to draw on it? And it was a fascinating analysis. We talked a lot about digital credit and how, you know, the, the relative risk profile of these things is, is a perfect fit for something like this, a pension fund, a state, state pension fund or something like that that needs a little bit higher yield and is generally underfunded. And I, I did a little bit of analysis before this with perplexity. And public pensions in the United States on average are 17% underfunded. And the bottom quartile of public pensions in the United States are 40% underfunded. So you've got a huge gap. So that huge gap is a problem because one, the people that work there want their pension, they want their retirement. But that results in poor incentives and misaligned risk taking. And that opportunity for digital credit to fit into this is so large, it's so vast. And to put this in perspective, like how big this system is in the U.S. the U.S. pension system is one of the world's largest pools of retirement capital, managing approximately 45.8 trillion in total retirement assets as of mid-2025. Local government pension funds alone hold approximately 6.1 trillion in assets, serving more than 15 million active workers and 12 million retirees. So, like on the world of AI, you start to think about some of these private companies and the private credit market and the high yield credit market, and you look at the risk profile of some of these things and it's hard to understand how some of these companies don't just get eviscerated from AI if you have the ability to, you know, like we were talking about a couple weeks ago, like recreate Spotify's entire business model in a weekend and download all of their music and all this other stuff. So yeah, it was, it was just a, it's a fascinating data point. I was excited to share it. And then also over the weekend we got some information that I think Saks Fifth Avenue is filing for bankruptcy. They were close to filing for bankruptcy in 2024. They went out to the market, they issued $2.2 billion of debt in December of 2024. So about a year ago, that debt is currently trading at a penny. There's nobody buying that debt. And because they are filing for bankruptcy and now they're, I think they're going back out to market to raise another $750 million so they can file for bankruptcy. And it's just starting to put this stuff into perspective. I can't believe they were able to issue $2 billion. Like going back to the earlier thing we were talking about, people are saying there's no demand for the Strategy product yet $2 billion were issued to Sachs in December of 2024 and it's now trading at a penny and they have no money, they have no assets, like there's got no revenue coming in the door. It's a crazy landscape when you start to piece all this together and you look at it side by side to everything else in the market and somebody's

C (35:57)

going to give them $750 million so they can declare bankruptcy.

B (36:01)

Right.

C (36:01)

Someone's making that investment to go see the capital stack.

B (36:06)

And what's the analysis that goes into that? I mean, it's just totally absurd. Is there analysis that goes into it?

C (36:12)

It's a lot easier to look at a balance sheet and go, do they have the money? Yes, that's a lot easier analysis to do.

B (36:18)

Yeah. And Matt, I would get, I would Love to get your perspective. I mean, working at Calpers, I know you guys ran a much tighter ship there, but I mean, how, like if you were to put your old hat on, I mean, how would you start to see this landscape start to start to change here? Like how did, yeah, I'd be curious.

D (36:42)

There's, there's multiple steps here. So I completely agree with you that this is a product that fits a massive need. So, so what are the actual needs of a pension? Most pensions have actuarial return assumptions of somewhere around 7%. Some of them are in the 6 handle, I think, I don't think there's any in the eight handle, but typically around seven, sometimes in the sixes. Okay. So you have to earn. Your, your hurdle rate is 7%. Okay. They're not a bitcoin hurdle rate. It's not an S&P 500 hurdle rate. It's a formulaic 7% hurdle rate. Just for simplicity's purposes. Okay. So that is, that is what is in the mind of, of these pensions. And then their incentives are simply to get that right. So you, then you're probably sitting here saying, okay, well digital credit, 11% or whatever it is like ding, ding, ding. Like this is so obvious, right? The problem with them and why I think we're still. So there's a couple of rounds. One is you have the investment policy statement that likely requires a three year track record, right? So you're, you're still two and a half years down the road if two and a half years was when they likely allocate tens of billions. And I think that there are pools of capital that will, I think pensions will be slower on, on the movers than other asset managers that I think will be kind of waiting for that track record is that if they're going to allocate in a little over two years, they better be basically ready right now because that's how slow they move. Like, and they're not ready right now. Right. They're still bewildered. And so we're probably talking about a scenario for them that's probably four to five years out minimum. And I don't mean from a single pension to do it like maybe like the Ontario teachers or something like that. There's a few pension funds that tend to be kind of at the forefront of innovation and they move faster, but the average one is just like saddled with bureaucracy politicized boards. Like as an example at CalPERS. The majority of the board members at CalPERS are not elected by the retirees or the members that are still working, that will retire, that are appointed by California politicians. And so think about California politicians that have no experience at all in finance controlling the board of the largest pension in America. That is the reality. And so as an investment staffer, if you're going to go tell a story to them like, and this is not even the story of digital credit, just the story of anything. It's like you have to prepare it. Like you're talking to someone that's five years old, okay? And not only are you talking to someone that's 5 years old, you're also talking to someone that's politically minded, not financially minded and has political biases. And you have to convince that person to allow in the investment policy statement for a real allocation to something like this. Uh, so for a place like CalPERS, the, it would be difficult. And, and then you take another bias that they have. What's another bias that they have? Another bias is that they actually want to have their. They're sometimes more focused on Sharpe ratio maximization than total return maximization. Right? And I think all of us, and I hammer this all the time. Like you get people that will talk about strategies, average costs, and I'm like, dude, the thing that matters is total return or the volatility is like all I care about is, is the total return potential going forward good for us? Is it, is it better than Bitcoin or not total return potential. It's the only thing that matters. But for them, they're not total return minded. And this is a big problem there. They're sharp ratio minded. And why that matters is it actually increases the attractiveness of private equity and private credit. Why? Because they get marked quarterly. Like, like that's almost like a laughable statement. Like, like, like. So you're telling me that, that they buy these assets that have a questionable, better risk adjusted return profile and they're going to go up there and they're going to explain to the board and I'll tell you, like one of CalPERS old CIO literally went to the board of CalPERS and said I like private equity. And he called it accounting alpha. Accounting alpha. Like, like this is like a public document, like public presentation to the board of Calipers because it's marked quarterly. Like that, that was a feature, not a buck. And you think about someone that's actually thinking from a principled perspective, which is what you were talking about when you're like these things have worse liquidity, you know, like, like what is, what is, what are they thinking about? They're Thinking about the fact that they don't have to get a mark for three months. And so when you then look backwards a year for them, why is the return diverge from the s and P500? Well, likely, I mean, who knows? They might have invested in horrible things, I have no idea. But let's assume they invested in something that's half decent. The returns will lag because the equity markets were up. Their returns haven't even been properly assessed yet. So then this coming year, they'll likely realize some of the returns that public markets saw this last year. And then they'll have divergent technical, divergent risk return profiles, which is all just baloney because it's actually extremely correlated. It's not diverging. You're just diverging. When you market, then you take strategy and they've gone the other direction. Increased liquidity, increased transparency. Well, from a principled perspective, that's an amazing thing. From a pensions perspective, if they're not principled but are bureaucratic, right? Like think about like a bureaucratic managerial class leader versus like an entrepreneurial crusher that's just going to outperform. The bureaucratic class will be afraid of that. The entrepreneurial class that actually understands things will be attracted to that. Right? And so those are the people that are going to be the movers. And you just don't see a lot of people like that at pensions. And so, and so I think it's a, it's a difficult story and I think it's going to require, you know, multiple years and then also to have a couple leaders take positions early and prove it and then have those people win, like, you know, pension fund of the year outperform, and then they're like, oh, digital credit, digital credit. And then the, you know, the big pool is several years behind. And that should not be the case. But to your friend's point, it's why he probably should get out of his pension. Because is that really a system that you want to be banking your, your life, your family's retirement on? It's, it's not. Especially when they're underfunded.

C (43:36)

As the wave of retirees coming up, is that going to amplify this issue over, call it the next decade? Right. When do these underfundings, you know, come up?

D (43:46)

So, yeah, yes, you, you, you just scratched on one of the biggest un. Under misunderstood parts. So take a pension that's 80% funded, okay? The boomers are pulling out 100% of their pension from a pension that's 80% funded. So that 80% isn't equally distributed amongst all the retirees. Right. And so, and this, like no one will talk about this, but it's just a true statement. So if the boomers are taking out 100%, that means that millennials and younger, they're not 80% funded in this example. They're substantially less funded. How much? It's extremely difficult math and you can't actually get the data to do the calculation. But I tried to do it on not a napkin, but I tried to do it on basically a napkin one time and it penciled out somewhere around a likely 50% or less funded ratio for millennials and younger. If it's 80% because of the time value of money and people taking out 100% from a pool that doesn't have 100% for them. Right. And so then that, that problem and this kind of gets into the, the classic kind of like Ponzi scheme, you know, discussions of, you know, that theoretically, if you have an 80% funded pension, current retirees should only be able to get 80% of their money out. They shouldn't be able to get 100% out. So how do you backfill that? It's not being backfilled at this point by workers because the baby boomers are a massive generation that's retiring. Right. So you have a lot of these pensions and CalPERS is like this, that for the first time in their history in the last couple of years have more outflows than inflows. So that's a massive change. Right. For their whole history, they had more inflows than outflows. Now that's shifted and they're underfunded. The backstops, ultimately the states and the state's actually bailing out these pensions. And so again, not all pensions are created equal. Pensions that are tied to a city's finances, substantially riskier than a state's. But then states, you look at California as an example and this gets where I'm just so glad to be out of California at this point and I still have my small pension that I probably should just pull. It's not really that material to me at this point, but I probably should just do it and like, just like yolo it into Bitcoin. But I've had bigger things going on. So anyways, that's my, that's my next buy the dip opportunity to finally cash out my CalPERS pension. But you look at kind of just the what's going on in California. And over 50% of California's tax revenue comes from capital Gains. And what just happened in California, you had Ro Khanna tease out a wealth tax and Newsom's office tease out a wealth tax. And then what happens? The other sacks, not Saks Fifth Avenue, but David Sachs flees and other billionaires flee because, like, why am I going to sit here when you might seize my, my, my, my assets that I've already paid taxes on? And so if that migration continues, you're now threatening over 50% of the, of the actual, you know, tax receipts in California. So then what happens? And, well, now you got to up the wealth tax even higher because now you have even a bigger hole to fill. Right. So it's a, it's a massive hole that these pensions face. And I think it ultimately ends in a bad way. And the bad way could just be debasement, that, that the real, the real, you know, receipts of what you get is just worth way less than what you thought. That's probably the, the most likely scenario. But the unfortunate reality is, I think for our generation and younger, retirement is going to be a difficult thing. Unless you're really thinking terms like in Bitcoin and something like that. That's actually a hard asset because I think people are under illusion. They have more financial security than they do.

C (47:42)

Just reminds me of the saying, right? People find Bitcoin when they need to find Bitcoin. Pensions will find digital credit when they need to find digital credit. And it sounds like that window is shortening rapidly in front of them.

B (47:53)

Yeah, it just blew me away that this healthcare company had 60% in private equity. And I looked at CalPERS. CalPERS is 15% private equity.

D (48:07)

You see, CalPERS has had a problem where I don't know what the size of this pension that you're talking about is. I don't know if you.

B (48:13)

Pretty substantial.

D (48:14)

Is that in the hundreds of billions?

B (48:17)

I think so, yeah.

D (48:18)

Interesting. CalPERS has had a problem of actually deploying capital into private equity. And there's multiple reasons for that. One is sizing. Another is they require private equity firms to disclose publicly, like all of their information. And so you have a lot of large private equity shops and B.C. shops. One example of this is Andreessen Horowitz that just said we're not doing that. Like we're not, we're not willing to make, let you invest in us. And so it's really an interesting industry. But 60%, that's, that's impressive.

B (48:56)

That seemed to. I. Yeah. Wow. All right. There's a lot to think about.

D (49:00)

You just re upped my bearishness on pensions, it's.

B (49:05)

That was a heater, Matt. I loved it.

D (49:07)

Love it.

C (49:08)

Yeah, well, it's going to impact so many people.

B (49:11)

I mean, downstream, the second and third order effects are just like so massive.

C (49:16)

Like once you start the can, they just keep kicking.

D (49:18)

Right.

C (49:19)

But eventually comes home to roost.

B (49:21)

Wait. And then you start to think about, I mean, for me, I moved, I moved to a new state and so I want to know, like, what's the health of my state financially and what, what are they invested in? What is this going to result in a, in something that blows up in my local economy and if it does, like, I want to know that's going to blow up before everybody else knows it's going to blow up. So I get, get out of here. Uh, or like, can I try to, you know, have conversations with the right people about, you know, planting the seed so they could start thinking about this two, three years from now and maybe that's something that's worth worthwhile. So. Whoa. Big, big problems here in 20. At the beginning of 2026. We're trying to unpack. Okay.

C (50:10)

But not in Bitcoin.

B (50:11)

Things are going great so far. Yeah, things are going great. I've got the green light going. Yeah, we're dialed in here.

A (50:18)

I like that. Green light. Was there anything else on the 2026 outlook or was it just. The 2026 outlook is pensions are underfunded. That's where we are.

D (50:30)

I don't know that that's. Well, that's been the outlook for the last several years. And it's kind of like that slow burning fire that you just, you know it's going to blow up, you know, it's not going to end well. And, and you're unfortunately watching it unplay and you know, play out. And you know, I know we're, you know, joking that it's, it's actually a really sad situation. Right. And, and I think the reason that we're probably laughing about it is that we've all in our different ways seen this and hedged ourselves and prepared for the future. But this is, this is, you know, you talk about things like social unrest and some of these geopolitical issues and this is, this is, you know, in the US too. And it's only going to, it's only going to get worse. And why do these, you know, and this, this is a 2026 outlook thing theme that you're seeing with the Venezuela situation and Maduro being captured and unrest in the United States. Major, major cities actually having protests for Maduro which is just insane. But you know, why are in, you know, mayor of New York coming out in and, and making his, you know, crazy comments. But, but why, why do those things happen? Right? It's, it's easy to, to, to laugh them off. But, but there's a, a root cause truth behind that and that is that people are not well off, right? And they're not well off in this country. And, and so it's very easy for them to just want to rip it up, right? To, to just say the system hasn't worked for me, it hasn't worked. I'm, I'm, I don't know how to fix it. So because I don't know how to fix it. Like anything that is chaos and disruption and uncertainty and unrest, I don't have a problem to support because you don't really have much to fall back on. And that's a, that's a sad state and it's a state that, you know, I always, you know, think that you can make more of an impact in the world by being an eternal optimist and moving towards an optimistic outlook. But that is a, a major headwind that we face in the world and in the United States specifically that's not going to go away. And just when we talk about the pension issue of like people are taking out their full pensions right now, that issue likely changes in our lifetimes at some point that's going to be more unrest as, as a country when, when that happens, right? As, as fiat currencies get to base more, that's more unrest. The, the good news for the outlook is that these things that are frankly like horrible things for society are great things for Bitcoin. And so that's part of the reason why telling the stories of Bitcoin amplified Bitcoin digital credit, finding the right risk return possibility for people. It's so important to go out and tell these missions of these companies, these are very worthy missions in a society that, that is hungry for cash flows, hungry for, you know, for the older generation, hungry for total return for the younger generation. Right. Of going out there and explaining this and giving people an opt out from a system that just doesn't work for them is, is so important. It's actually very rewarding work which is really interesting. Like really rewarding work in being a finance nerd that's all into Bitcoin and that you can actually go out there and you saw this last year. I mean to me the one of my memories that I just have in my mind from last Year was going to strategy world and seeing how many people had, had their lives changed from what Saylor had done. And like real people, these are not just people running bitcoin. Treasury companies are everyday Americans that saw this as an opt out, went in and they changed their life, they changed their family's lives. Right. And, and now the digital credit movement is going to do that for a different set of risk return investors that need cash flow. So when I Look at the 2026 outlook, I think from a fundamental perspective everything couldn't be stronger. I think the economy is strong, AI is strong. You have the stock market at all time highs, you have regulatory risk that's been diminished unfortunately you have geopolitical uncertainty. But that's, that's actually a bullish backdrop for, for bitcoin you have money printing, I'd say call it like quantitative easing, light turned on, which is, which is a net positive. And then you also have base, no capital gains overhang. When you have big up years, you end up having a lot of capital gains overhang that typically drag into the early point of the year. You have nothing. And so it's just fundamental. I just see it's like basically nothing but, but positives on the technical side you see, you know, the selling pressure. I saw some charts that were showing that maybe some of the longer term holders had substantially slowed down selling. So you know, who knows if that holds. But at least for now it seems like maybe some of that pressure has, you know, has lightened. Bitcoin's ripping further out the risk, risk curve. Bitcoin, treasury companies are ripping. And so I think it's hard not to lean. And I always think in terms of probabilities like you'll never hear me say I think bitcoin's going to 200k in 2026 because I don't know and my mind just doesn't work like that. I'm a poker player. I think in terms of bets and probabilities and the best I could come up with was I think I would put about 60% chance that we have a pretty nice green year up year, probably 30, 35% chance that it's a choppy year, not a negative year, but just kind of like a choppy year. And then you know, somewhere in like the 5 to 10% chance that something we don't see some kind of a black swan comes. But even in that scenario, I don't think we're talking about scenarios really anymore of like an 80% decline from the high. I think we're talking like 50% declines from the high. So I think that's the tell scenario. But even that, in that tell scenario, I think it's still a pretty contained rough year. And so when you add up those probabilities, you say okay on the downside. I think the downside is pretty limited. The upside is really high. Like that. That scenario doesn't exist most years. Most years, like, like, let's say next year, let's say we had a really big green year and we start 2027 and we're at $250,000 Bitcoin or $300,000 Bitcoin. Well, at that point next year, the downside is actually larger. It's harder to quantify. Right. The upside might still be great and you're in a big green year, but these are the kind of scenarios where you see a lot of room for upside, limited room for downside, some chance of chop that you actually want to really load up and go out the risk curve. And I think that that's what the market is seemingly doing to start the year.

B (57:15)

Couldn't have said it better.

C (57:19)

It does feel like we've finally got the backdrop where things can run, though. I don't go this year so far the way that it started and even the momentum that started building kind of in the last two weeks, 2025, it doesn't feel like a year where you're looking at an immediate drawdown and just staying at those levels to me. And I think that you're starting to see the AI play and the technology plays really start to accelerate this year. And I think that's going to bring a huge amount of innovation out into the markets, and you're going to see new companies that spin up that are driving a lot of value out there. I think that this is probably the year where AI is really getting integrated into businesses. I think you've had a lot of the chatbot type functionality that people are playing around with, but they don't really know how to integrate it. I think you're going to start seeing it integrated, and I think that's ultimately going to start showing up in some of the financials. But that can mean that there could be some headwinds for job growth. So we might see some negatives throughout the year. But as far as bitcoin goes, you know, I. I lean more towards the bullish side of this bet in a pretty big way. You know, I'd probably be at the 70 to 75% feeling, which is a lot. But that with the backdrop, we have. Even with the political unrest and the global uncertainty that's out there, I see those as positive catalysts for us here. I think that what Matt talked about earlier is something I think it's really overlooked. I think you've got this entire generation of people now where hope came out of the system. And when hope comes out of the system, effort comes out of the system as well. If I don't see a path to where I can create a better future for myself, for my family, why am I going to kill myself to not get that outcome? I think you're seeing that through the rise of things like all these betting sites and the gamification of prediction markets and everything else. I just. I think that that is going to be a really big overhang that needs to be breached. You have to get hope back into the system for people and that's going to unlock that ability for them to create. And I think that some of these stories about the way that technology comes in and really drives transformation from people that started with nothing, very little capital because you can just go build now. I think that's going to be a huge theme that we see persist throughout 2026. And on the other side of that, when that pertains to Bitcoin, I think that what you're starting to see now through companies like ours, companies like Strategy, companies like Metal Planet and some of the others, is you're starting to see ways that individuals can use bitcoin in more ways than just the long term appreciation, speculation aspect of it. I think you have a lot of people that don't have the luxury of speculation in their life, right? You're trying to figure out where that next dollar comes from. Where does that next meal come from? Are you going to be able to pay the rent? I think that's a reality for a lot more people than we actually would care to admit. And I think the fact that there are new solutions coming out that can actually resonate with people that fall into some of those categories where you start to do all the right things and you're finally getting ahead and you start to invest in your future and see that there's potential there, there's new products that are driven by an asset that's not tied to the system that you feel broke your opportunities in the past. And I think that that is a huge reason for optimism here moving forward at the individual level. You know, the business cycle, it looks pretty good to me right now. I'm not seeing a lot of warning signs flashing at the moment, but at the individual level. I think we're at a pretty pivotal, call it, two years here where this is really going to decide the direction for a lot of people's lives. So I'm glad to see that options are coming into the market for that.

B (61:13)

What a better year to reinstall hope than an election year. A lot of building was done in 2025, and 2026 is really the year to see, see how it works, see how it operates.

A (61:26)

Absolutely. No, I like that. Let's get hope back into the system. Digital credit for the win and 2026. Thanks, everybody, for listening and watching episode 42. I'm going to say it again. Seems auspicious for Jeff Walton, Ben Workman and Matt Cole. I'm Tim Kotsman. We will see you next week right here on the Hurdle Rate.