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- [00:00]
A
Welcome back to the hurdle rate, episode 44 for the week of Monday, January 19th, 2025. I'm Tim Kotsman. I'm here with Jeff Walton, Matt Cole, and Ben Workman. We have a few things on the dashboard for today. SATA hit par, so I'm intrigued to hear more about what's going on there. STRC returning to PAR within a day and a half after the X date. You guys are going to have to explain what the X date is to. I don't think it's an expiration date, so we'll get to that. The Semler acquisition, MSTR hit piece from the New York Times. Always a fan favorite and likely an enormous buy from Strategy, but as of recording Monday morning Eastern time, we don't have it. So, Jeff, I guess my first question for you as the Chief Risk Officer of Strategy, Are we at risk of not hearing from Strategy until next Monday, or do you think they'll publish tomorrow or later today?
- [01:09]
B
Yeah, I think we'll get an update probably tomorrow morning by time this is published. I'm sure we'll have an update from Strategy once they file with the sec and have an 8k go out tomorrow morning. So I suspect it's probably a pretty big buy. This last week was pretty enormous from a volume standpoint. On the common stock strc, we have reason to believe that they were likely raising funds on both Monday, Monday, Tuesday and Wednesday, I believe on STRC, and then it returned to par on Friday at 100. So we have reason to believe they probably raised a little bit of capital there on Friday as well. So, um, and I. I believe Wednesday Strategy was the seventh largest publicly traded stock in the entire equity market. It's been averaging around top 20 or about the 20th to 25th. And then there was a massive day on Wednesday. So I, I would be curious to see how much capital they've raised in the last week, but I think it's one of the bigger weeks they've had in, in quite a while, probably since like middle of 2025. So, yeah, will be exciting times. I. I think they. They bought the dip, and we'll. We'll have some more clarity tomorrow morning.
- [02:20]
C
First, Tim, I just think you can't throw being the Chief Risk Officer at Strategy on Jeff's plate. I think we've got him busy enough over here. You know, he's got his hands full with us.
- [02:29]
A
Strategy.
- [02:31]
C
He said strategy. Like, don't throw that on Jeff. He's busy, man.
- [02:34]
B
He's got things to do.
- [02:35]
A
We need to clarify this before it gets filed with the sec.
- [02:38]
B
So, yeah, there you go.
- [02:39]
C
Yeah, exactly. It's going to be a little confusing about what Jeff's role is there, but. But yeah, it's been incredibly impressive seeing the strength. It wasn't too many months ago where it sold off to what, 94, 92, stretched it after they'd announced a dividend and everyone declared there was no demand for it and it was dead and it was a failed project. And here we are and it bounces back immediately after declaring the dividend. And the ex dividend date just means the first date it's trading where if you buy it, you're not getting the dividend. Right. So you have to own it before that in order to get the dividend. And what typically happens in these cycles and what you'll see if you pull up even the stretch chart is a lot of times right after they declare that dividend and everyone holds it through the ex dividend date, then you were seeing a sell off occurring. And in the past it was going a lot deeper. And this time was the first time where it was a really shallow sell off. And what can be happening there is people will go and buy, buy it in advance, hold it through the date when they're going to get the dividend. So they'll get the dividend after that, whether they're holding the shares or not. They'll sell those shares, they'll move on to something else and they'll just redeploy that capital. But now you're seeing less and less of that. And I think it goes back to a conversation that we had a while ago kind of about the IPO turnover moment in all of these equities when they come to the market initially you have one set of holders that are holding these, and as it starts to perform from that IPO price, some of them have other deals that they need to move capital to and so they'll start moving out of those positions. But the investors that they're selling them to on the other side of that, you're starting to get more and more that are holding this exclusively for that ongoing dividend for that rock status that they get on that and they're starting to hold these shares. So when you get more and more people that are holding the shares and they're not looking for that capital appreciation component that came out of the IPO where you're buying it effectively at a discount, you're waiting for it to trade up to par. When it's trading up to par on a product like Stretch and you know that above par, Saylor's a seller. So you're not going to be seeing the capital appreciation on the other side of that. You know, now the people that are holding and the ones that are buying at these levels, right, you're buying because you want that dividend. So it's taking away those shares that are available out there for people. And so what needs to happen is as any new demand comes in, and I think that got smaller and smaller the amount of actual demand that was necessary to push it back to par. Now they've got to find that seller in the market and that seller is strategy. So they know they can go into the market and they can market by around $100. And Saylor's going to be on the other side of that, ready to issue them shares. And I think we're starting to see that strength really pick up. This feels like one of those months where it's a turning point and this is what starts to show the market the stability. I think people saw what was happening in the early days. You see the sell offs after the dividends or are declared and after the ex dividend date and you started to see those sell offs, people thought, well, there's still gonna be a lot of volatility in this product. It's always gonna go down right on the ex dividend date. And people, I'll just buy it back then at a cheaper price and then I'll get a little capital appreciation and I'll hold it until dividend, then I'll sell it again. I think you had a lot of that gamesmanship going on, but now that you're seeing these shallow dips, that play's not really gonna be worth it anymore. It's gonna be more valuable just to hold for that dividend. And so I think you're getting now a long term alignment in the shareholder base that's going to mean we see shallower and shallower dips. We're going to see highly compressed volatility on this. You know, it's moving more towards the vision of what Saylor had for this. And quite honestly, it's happened at warp speed a lot faster than you'd expect. I mean, on the Internet we expect things to happen yesterday, but in reality, you know, this, this could have taken a while for the market to digest this product, particularly because they do have quite a bit of it out there. Right. This has been a very popular. There's billions of dollars of stretch that's out there already and in a pretty short time frame. You're seeing that vision start to come into focus. And I'm pretty excited to see how it keeps trading here in this next week to see if that momentum maintains and if now we start seeing that effectively living in that $101 cents to $100.15 where it seems to kind of float above that as they're pushing it back down. But really impressive performance and a lot of demand out there for it.
- [07:05]
D
Absolutely. I think the for me, just as coming from my fixed income background, the way I look at Stretch or SEDA is kind of a combination between ultra short maturity funds, which basically have almost zero duration, and how they trade over time. And even though I think the credit risk is investment grade to triple A depending on how you do it, the fact is that these are paying 11 to 12% dividends. And so that's a substantially greater dividend than high yield. So the market as a whole does not understand the credit risk of these instruments yet. So, you know, they're pricing it like it's high yield, but it has a short effective duration. And so it's important to kind of think through, well, how does high yield trade and how do short duration funds trade in different environments? And so what you'll see if you look at both of them is that in stable times, both high yield and ultra short funds actually don't have a lot of volatility. They tend to hold a very consistent. So that might be for people that aren't familiar with the fixed income space, maybe a surprise that high yield generally has less volatility and then in credit stress events. And so for, you know, backing this by Bitcoin, you're going to see Bitcoin have volatility sometimes to the downside, obviously mostly to the upside on downside volatility events. I think that what you would see in the fixed income markets is both on the short duration credit side and the high yield side is a dip that then comes back and stabilizes. And so the question will become in these environments, as kind of to your point, Ben, we get shallower dips into the future, which I think is a, an assessment that I would agree with is how shallow are they and how do they end up comparing to things like high yield? Because where I think this ends up going is that in risk off events that they will have that short term dip, they probably go outside of, you know, some of the ranges temporarily. But if they have less volatility than high yield with effectively a double yield, think about that on a risk adjusted basis, it's Just off the charts from a yield per unit of risk and any different type of a metric. And the other thing that I think is worth is important is that traditional high yield is fixed interest. And so the high yield issuer does not have the ability to defend its issue in the risk off event. The variable rate securities have the additional kicker that they can increase the interest rate at the discretion of the company in these environments and actually defend the price. And so I think you're going to start to see as this evolves really compared to what else is out in the market, the best opportunity to earn yield per unit of risk. But we just have to see this happen a few times. And the fact that you know, both Stretch and SATA are hitting par right now I think is showing where this ultimately is going to go. And it's a lot of demand for this type of a product.
- [10:07]
B
You bring up some interesting points there Matt. And thinking about traditional high yield credit, what happens in a credit event? In a credit event the like consumer spending is going down. So if you have companies that have that are reliant on future cash flow and consumer spending to generate revenue and net income that impacts the business model and impacts the credit quality of the underlying instrument because it's an instrument that's a function of the future cash flow of that specific company. Now with a balance sheet structure, your ability to pay those dividends into the future is a function of your balance sheet, not necessarily future cash flow. And so if you have this credit event that impacts the entire market, the question then becomes can you still pay the dividends? And if you're an over covered balance sheet by 2, 3, 4x you'd suspect that that risk calculus would look far more superior with a strong balance sheet as opposed to a reliance on future cash flows. So yeah, I mean it'll be interesting to see how some of these things are tested and as AI comes into the fray here and like eviscerates a lot of these business models, I mean just this Weekend I used A.I. probably 12 hours this weekend. And I'm just continuously amazed at how fast this stuff is moving and changing and how quickly I think society is going to pick this up and start to change how they do things. And that will continue to permeate and we'll see that impact credit markets. We'll see that impact the entire economy kind of everywhere. Bit crazy.
- [11:54]
D
I saw you post about credit spreads hitting their all time high tights versus Treasuries recently, right? Or tights vers since pre great financial crisis and it's interesting. I mean, I think we all would agree that that risk is mispriced, that the, the risk associated with the preferreds is, is too high and the risk associated with credit is, is too low. But it's, I kind of was struggle with credit spreads relative to U.S. treasuries because the U.S. treasury, the U.S. balance sheet is also not good.
- [12:31]
B
Right? It's also risky. The risk free rate is risky.
- [12:35]
D
Yeah, yeah, exactly. So you rewind in history and you think okay, like 20, 30, 40 years ago, it makes sense to kind of think of the US treasury as the risk free rate at the time. And so then credit spread on top of that, but the risk of US Treasuries is going up. So is the credit compression in corporates actually a view on the credit risk of the corporate or is it a view on the credit risk of the sovereign nation, the United States? I don't know. But I mean even if you take the view, and I think that this is true, I mean look at Pimco as an example. Pimco, the largest or one of the largest managers of bonds in the world came out this last week with a bearish view on the United States debt and that they're going to try to avoid, avoid it, reduce exposure to it. And so the largest buyer of bonds is basically working to minimize exposure to US Government debt. And so their view by that statement would be that the compression in corporate spreads is not just a view on corporate risk, but on the sovereign risk. And so are they wrong in that? I mean they've been the best fixed income money manager for the last several decades. I think they're probably right on that. But where they're missing is probably some of the AI risks of corporates and what the best obviously opportunity is on the bitcoin backed prefs and digital credit. But it's just an interesting framework that you have to really update your, your mental model.
- [14:16]
B
Yeah, that's a, that's a very interesting perspective. The other thing I've been thinking about with this topic is just the demand for credit is so high. You've got all these people that are retiring and like the baby boomer generation is going into their, they're transitioning their portfolios from, you know, having some equity exposure to more fixed income exposure as they live out the rest of their lives. And so the demand for these products is just so high. You could see it in, you could see it in the private credit market and see how that's expanded over the last five years. You could see it in, I think you could kind of see it in this credit spread decrease as well. Obviously multiple moving variables, you're totally right on that. But it seems like if you were a business, you had pretty much open access to debt, capital markets pretty much no matter what. I mean I've looked at some of the worst of the worst high yield bonds out in the market and I just can't believe some of this stuff has been issued. The term on them, the interest rate on them, the business model that sits behind it and that's public stuff. I can only imagine what the private credit market looks like. I mean there's probably just some absolutely horrid instruments out there just because the demand is so high. And I, what I see with these perpetual preferreds is, you know, a lot of people said oh the fixed income market and the bond buyers are never going to buy these. And I would, I would really challenge that framework because of the relative risk return and the yield profile of these and how they will, how the market's perspective of this stuff will shift and change.
- [16:04]
C
Yeah, I'll just say the one thing that I find interesting about what Matt was mentioning is that that baseline for risk is established at the sovereign level. Everything when you look at the corporates is basically the sovereign debt. Plus you're always looking at that spread relative to the sovereign debt. And so you're starting what everyone calls risk free. It is a pricing of the risk around that entity, in this case the United States. Everything else that's operating within that jurisdiction is taking that sovereign risk. And then as a corporate operating within those markets takes on their own risk from their corporate structure perspective. So it is really interesting and to where you were going, Jeff. Part of the reason I think that these preferred products are going to be so popular is for exactly what you were saying, which is we have this massive cohort that's entering retirement and you have to look at what are people incentivized to find. So say you had a portfolio that you built up of a million dollars that you're going into retirement with and you're now shifting to fixed income. How much income are you able to draw off that each year without having a concern about drawing down the principal? Right. Traditionally what a financial advisor would tell you would be 4% if they're pretty conservative, maybe up to 5 if they're slightly more aggressive. So you've got 40,000 or $50,000 plus for as long as that's around and that's effectively what you're living on your retirement. And so if you think about individuals and how do individuals get the opportunity to live their best life, let's say you could average that up from a 4% draw to a 6.5% draw. Because you blend in some of these preferred products into that overall portfolio, well, that results in an extra $25,000 a year. Well, what can you do with that? Well, that's time with your family, that's traveling to see your grandkids, that might be a trip to Disney, that might be going out to dinner with your friends, and you're from your retirement community or wherever you are. Like that, just that amount, that shift is a major increase in the quality of life you get to live in your retirement. So while people look at these products and they say, you know, well, there's not going to be any demand for it, well, look at what the demand is coming for. The demand is shifting to fixed income products. To your point, right, you're moving out of that equity exposure in your portfolio. You're not willing to stomach that volatility and that risk of being in the equity markets because now you're drawing down an asset base that's not typically getting added to, or it's getting added to very little as long as things perform in that year. But now you look at it even different. And if you're drawing some of that out of a portfolio where it's in a taxable account, finding products like these that have that rock status on the dividends is a massive enhancement to the overall portfolio and what you're able to draw out of it. So I can't imagine a world where there isn't demand for this because I see so many people that go into retirement, and it's almost like you're kind of giving up on the fun part of your life and you're just waiting and hoping you have money for utilities. And if you have to go to the hospital, that's not a fun way to live. Like, you want to have the opportunity on the other side of spending years and decades of your life building this balance sheet and building this retirement nest egg. And everyone's vision is always, when I get there, I'm going to be able to do all the fun things. And the faster the money's debasing, the less of a reality that's becoming for everyone because the prices of doing all these things are going up. So what you thought you were going to need 30 years ago isn't even in the ballpark of what you actually need today. So anything you can do to make adjustments to the total amount that you're able to draw is going to give you some of those things back. And I think people really underestimate what it would mean to a huge part of the population to be able to have just that little bit of excess that's going to let them take that one trip with their family a year and go visit their grandkids when they've got an event or a school play or whatever it is, you know, that's a huge motivator. And so when you have products like these where we see the risk being far lower than most of the fixed income products that they're picking up, like I can't see a world where these are not transformational because I know how I'd weave them into my own life if I was in that situation. That's how I try to think about all these products.
- [20:40]
D
I'll tell you the I completely agree with you. I think pensions are the perfect place to see how transformative it is to their portfolio approach. Because you take a pension that has in its documents a targeted return of 7% and you say, okay, how do they construct their portfolio to earn 7%? They simplistically have two primary buckets. They have their income bucket and their growth bucket. The growth bucket is equity, private equity, whatever you want to call it. And then you have income, fixed income, preferreds, whatever on the income side. And generally the portfolio construction is that if you that your target 7, the income is less than 7 and you have to make up for it on the growth side. So let's say right now you have Treasuries in the, call it 4% range for 10 year. And so you're 7%, you're 3% short of 7. And then obviously have corporates on top of that. So let's say you get 5% on income, 5% on income. That means that you need, if it's 50, 50 portfolio, you would need 9% on the growth side, right? Just to average 7. If income can be flipped from a deduction from your target to above your target in digital credit, right? So if income is earning you 10, 11, 12%, you can completely rethink and or de risk the growth side of the equation. It's super simple math, right? You just have to be willing to underwrite the risk, the bitcoin risk of digital credit. And this kind of gets into I, you know, like to beef with my former employer, CalPERS, because of how political the overarching body is there, right? You have an investment staff there that I feel like I need to speak out with. These are like lifelong friends of mine that are unfortunately, under the constraints of the California political system, which obviously is implementing wealth taxes that are causing the billionaires to flee their state, their pensions underfunded. The majority of California's tax revenue is from capital gains. And so if all the billionaires leave, you're pretty much screwed. And there's not really a way to fill that hole of the underfunded pension. So it really becomes critical to say, okay, how do we fill the gap and ensure that we're meeting our return target? Well, if you can change income from a defensive side to an offensive side through digital credit, that's transformational. Right. And you need leadership. And unfortunately there you're seeing horrible leadership from the California politicians that put constraints on what I know are intelligent investment staff. So you need a lot of changes there. But will there be other pensions that'll be more forward thinking? Well, clearly there are. You're seeing pensions like the Ontario pension fund take a position in strive. Right? Like there's, there's different pensions that are at different places on the, on the innovative scale. Right. But, but digital credit is a massive opportunity for them. It's just like how we talk about Bitcoin being the most valuable asset known to man. So that's why they're people, individuals want it, that's why corporations want it, that's why nation states want it. Digital credit is going to be the same. It's going to be something that works for individuals, it's going to be something that works for certain corporations, and pensions will be a perfect example of that. And then also for, for certain sovereign nations, it's a great product that's backed by Bitcoin. And so the, the ability to scale this over time is just off the charts large. And I think we're starting to see those demand metrics hit in the price performance of these assets.
- [24:13]
B
You guys both drove me back to where my train of thought was. The opportunity cost of capital is going higher. So if you have a new dollar that you're willing to deploy into fixed income and you guys both hit on it like from, from the pension fund side and from the personal like retirement side, if you have one new dollar to deploy to a fixed income instrument, where are you going to deploy it? And that's going to happen thousands of times, hundreds of thousands of times here over the next decade where people are going to say, okay, I've got this new capital, I need to redeploy it, where is it going to go? And you have to look at the options in the market and determine what is the best risk return to hit my 7%, 8%, whatever your target goal is. And that that resets the cost of capital for the entire market. Like, if you're a business going to the debt capital markets, you need to make a really, really appealing case as to why you may be less risky than this digital credit instrument that's paying me 11 and a half, you know, 11 to 12, 12 and a quarter percent with very little volatility. Like, what does your business look like and how confident am I that I'm going to get this capital back from you based on how your business is changing into the future. So I do think these instruments start to clean up the capital markets just naturally because the yield is high and the relative risk profile is significantly better than a lot of the crappy stuff that's out there in the market. So it just changes the cost of capital. But this is like a, this is like a tectonic shift idea that takes time. This isn't something that just like snap tomorrow cost capital has changed. It will change as the market starts to recognize these products exist and weave them into risk analysis.
- [26:12]
D
I agree that's, that's my base case as well. But it's worth hitting on what happens when currencies collapse, because we're witnessing one right now for at least the first time since we've started recording this podcast in Iran, right, where the Iranian currency, if you, if you look at it, has just absolutely collapsed in 2026. I think one last I checked, it's 100 billion of the Iranian currencies for one bitcoin, 100 billion IRR for one bitcoin. And earlier this year it was some small fraction of that. It's up like 20x this year. And so what happens when a currency collapses? It actually has been pretty quiet. I think the US obviously would be much louder. But the point of this is that it had somewhat relative stability, obviously not stability like the dollar, but somewhat relative stability until it didn't like that. Right. And so that becomes the risk that you have to start pricing in is that, yes, everyone's base case, it makes sense to be like gradual, continual adoption for digital credit. Gradual, call it super cycle for Bitcoin. But the reason that I think you see so many bitcoiners, myself included, just feel so comfortable now that we've kind of based ourselves on the bitcoin standard for all of our capital decisions as a company, is that we don't want that to happen, that wouldn't be a good scenario for the United States. No one's rooting for that to happen. But also, we don't control the future. We live in the future. We'll try to impact it. We'll try to educate people. But would it surprise me that at some point in the next 20, 25 years, whether it's three years from now, 10 years from now, 20 years from now, 25 years from now, that we have a period where something like that happens in the United States and the current and bitcoin, just literally 20 x's that would not surprise me. And I think when people think about risks, that's a bigger risk in my view than the risk of bitcoin failing. And it's not a risk to us as in like we would, but just a society risk. That is a bigger risk. And so how do you hedge yourself against that risk? Imagine that you're in traditional fixed income products that just have a fixed maturity schedule and the currency gets debased and you wake up and it's lost 95% of its value overnight. Your fixed income instruments are worthless, literally
- [28:46]
B
worthless, and everybody that depends on those is furious and taking to the streets. That's not good.
- [28:59]
C
Now, Matt, as a long investor in the Iranian currency, was this a devastating move for you?
- [29:07]
D
It was. Unfortunately, I'll have to disclose publicly that during Bitcoin, Mina, I did spend about US$20 for some Iranian currency just because I like collecting random currencies that you obviously depreciate over time. And I probably could have got it for under a dollar. So substantially underperformed. Totally, totally wrecked. That's what happens when you dabble in altcoins.
- [29:41]
B
The Iranian.
- [29:41]
C
Now you can go back and you can get a wheelbarrow full like what you used to see with the Zimbabwe currency when people would, you know, have wheelbarrows full of it.
- [29:50]
D
Exactly. I will say though, I bought a basket of Middle Eastern currencies there. I spent about $100. So down about 20%, I think we can be pretty confident that that decline will continue.
- [30:04]
A
Everything's trending to zero against bitcoin. One thing that Jeff, you had on the topics for today, coinbase pulling out of the Clarity act. As I'm seeing these posts from Brian Armstrong and Eleanor Terrett. And Brian Armstrong and Eleanor Terrett, kind of going back and forth. The theme seems to be, and even Scaramucci saying it's about the banks pushing back against stable coins that are providing yield. And what I think as I'm scrolling is have you guys heard of preferred credit? Like preferred instruments digital credit? Like, I don't know if the 1, 2, 3, whatever the yield is, percentage points on stablecoins holds a candle to what these preferred products are already doing. So just be super intrigued to hear, like, am I missing something or what are your thoughts on all of that?
- [30:57]
B
Yeah, it's interesting watching the communication go back and forth. It seems like there's some tension between old guard and potential new guard of who controls the yield.
- [31:10]
D
Right.
- [31:10]
B
Do the banks control the yield or do the companies that control the stable coins control the yield within the market? I mean, yield is a huge component of like the entire architecture of the economy. So I think there's some tension back and forth between the banks and Coinbase and the like. So it's really fascinating. I mean, you bring up a good point, Tim, is like these digital credit products are. I mean, you're seeing Stretch, right? Like, operate with very low volatility and provide significant yield. Granted, it's not a stable coin. It doesn't exist on crypto rails except where it's tokenized. So, yeah, it's like the Trojan horse of a stable coin providing yield just within the traditional markets. Right. It's in a wrapper that's familiar and it's relatively stable in and of itself. But I would be curious to get Matt and Ben's opinion on this as well.
- [32:14]
C
Yeah, I mean, I think Coinbase's position is really, it shifted in a way that's going to kill off innovation in the space. To Tim's point, when you think about these digital credit products, the value proposition for them actually changes significantly if you end up with tokenized equities that trade 24,7 that you can actually hold in wallets and send to people. Like, you could actually use them as a part of that ecosystem and people could send each other Stretch or SATA or whatever it was. It changes a lot. So I think there's a benefit when you think about operating in the digital credit space within the equities world, in integrating into the system that exists today as your first step. And I think it's one of the points of contention that happens out there amongst the bitcoiners, which is there's really two factions, there's the purists that think that there should be an immediate cutover for bitcoin, where it just completely replaces medium of exchange for everything in the world, which I don't think that the world is prepared. I don't think the Rails are there yet for it. But ultimately Over a long period of time, you'd love to see success in the medium of exchange part of bitcoin. But in the meantime, what's really important to me is finding ways where we can take bitcoin and we can intertwine it into the fabric of the financial markets and into the capital markets and help create the security and the stability. There's ways to make bitcoin, I'll call it, unassailable. Nothing's unassailable. But when you start to weave it in and you start to make it strategically important to the financial markets, you provide a significant layer of protection. And there's a reality to the world which is you're going to need a long transition out of the way things are today.
- [34:10]
B
Right?
- [34:11]
C
It can't happen overnight. So you're going to have to find ways to make bitcoin a part of that system. But what you're starting to do is you're starting to underpin and you're starting to build security under that system on the basis of sound capital, which we don't have today. And so I think building this into the credit markets is a massive, massive first step. And there's going to be other places where bitcoin's going to be able to play a very important part in that. And so when you have these credit products that do have a yield behind them, and when you do start to achieve things like that incredibly low volatility profile that you're starting to see with something like stretch, when you start to layer on different levels of innovation and advancement in the space, and you do start seeing things like, you know, tokenization of equities and 247 trading and the ability to actually, you know, hold those equities directly in a digital form where you could transact, you could settle up dinner with somebody using equities instead of, you know, a stablecoin or a dollar or venmoing of money, you know, that changes the way the world operates because it changes where you need to park that capital.
- [35:19]
D
Right.
- [35:19]
C
If I have the freedom of choice and I don't have friction in that system that requires me to go liquidate into a base currency and then pull it back and then transact. Now you've really got the opportunity to have everything fully deployed if you wanted to.
- [35:35]
D
Right.
- [35:36]
C
I don't want to sit in cash because I see the problem. And to Matt's point, you don't know what day it's going to happen where that thing completely devalues, like the Iranian currency. You didn't have enough time to get out of that and move into something else that happened. And now you've got to pick up the pieces from that. But eventually that changes. If I've got the choice and I've got the ability to transact with any of the assets that I'm holding, you know, in real time as I choose to, I can now change the allocation for how I'm parking capital. Think of things like emergency funds or even just checking accounts. If I got a checking account that's paying me 0.1, but you know, I can go put it in a digital credit product yielding me 10, 11, 12, and I can settle up with that. I'd rather hold it in that, right? I don't want to hold it in a bank account giving me nothing. What's the value to me there? But there's going to be resistance to that because the whole system is built around that banking model. That's how new currency is getting out there into the economy, right? It's how the banks make money, it's how they have the capability to lend, it's how people end up getting mortgages, it's how people get commercial loans, right? Like there's a slow transition that's going to need to happen here. Because if everybody just decided overnight, all right, the banks are gone and that collapses, that's so intertwined into our economy that I don't think we could sustain that shock. And I think when we talk about these short term utopian outcomes, right, you abolish the Fed, you get rid of the banks, everything happens all at once. I don't think anyone's actually ready for how chaotic that transition period would be. Right. You would like it to be more orderly where people can maintain because not everybody's as far down the curve as the people listening to this podcast or that we're interacting with or that are investors in these types of equities and these types of credit products, we've seen this as a potential outcome that we put a higher probability to for a long time. And so we've recreated our portfolios around that potential outcome because it doesn't seem like printing can stop. If they want the economy to keep growing, but most of the world isn't there yet. So if you just pull the rug out from the entire world and the way things operate, you're not living in a world that looks anything like a utopia for a long time, that's going to be a bad place for a while. You're going to have to stabilize. To your point, Jeff, people are going to be in the street. It's not going to be good. So I like the approach where bitcoin gets built in to the legacy system in the first phase of the transition. You build it up, you show the value in it. You bring new and innovative products that people haven't seen before that give them tremendously more value than the legacy system that they're used to. That's going to make it more important in our markets. It's going to make bitcoin a more recognizable asset that people are going to start thinking about getting exposure to. And you can start to kick off that next phase of that slow transition out of the system, which might take several decades to do, but you're building the foundation for it. And that's why we need people and we need companies to continue to be builders. And even when there's going to be a ton of noise and there is all the time, right. There's resistance even within the bitcoin community to bitcoin getting involved in this. But you need people to take the first step and push it forward if we ever stand a chance at correcting the system that we all know.
- [38:55]
D
So this is such an important conversation, and I'm going to go in a contrarian direction on it, but I think your point is accurate. And, and it makes sense. Why. Why are the banks fighting this bill so aggressively? Because they don't keep deposits. Right. They go and invest them into the market in loans and, and that's. That's their business model. Right. And so if you. But if you start from a first principled perspective, the first question is, whose money is it? It's the individual's money. It's not the bank's money. Right. The individual has decided to create, to become a customer of the bank because they believe that the bank is providing them a product and a service and banking that is of value to them. Well, all of us on this call already don't think that that's a good trade. We've already opted out from that system. And so what's happening right now and why I think it's going to ultimately lead to the collapse is that I think as education goes out there, when more and more people understand that this is not a good trade for them when they go to the bank, you know, think about this in any example, It's a wonderful Life. Name your example. Right. Like everybody goes to the bank in real life examples as well. The money's not there. Right. And so this gets into also one of the statements at the Fed Which I think was the most important part of, of the statement that the Fed made. They made a statement that, that they needed to preserve the perception of independence. Okay, that was the second part. The first part was like we need to preserve independence. And the second part was the perception of independence. That's actually the important part because they're not independent. We all agree they're not independent, but they need to preserve the perception of independence. I don't think they're going to be able to. I think it's a worthwhile exercise to say can we make this a slow transition over many years? But history would say that's not how it works. History would say that what actually happens is that when the people understand where this is going, they all go to get what's theirs and it's not there. Right. And, and I just think that, you know, I, I would like to see a slow transition. If stablecoins paid interest and everybody understood that I could have checking account A was 0% or checking account B with 4% and I can get it paid daily and it's no problem. Everyone's going to go to checking account B and it collapses. Right? So the banks are saying hey, hey, hey, like stop and, and you know, coinbase saying well let's pay rewards, let's do this. The plumbing is there but you see where this ultimately goes. And I just think it's such a, it's an, it's an ugly scenario but it's, it's the reality, it's the reality of a, of a debt based economy that has over levered, that is engaged in money printing, that is kind of lost its skis. And I think, you know, we'll, we'll see where it goes. But I just don't see the ability for the United States to engineer the n of one outcome of a slow unwind of a trade where every other example throughout history, right, like throughout history has ended with everybody goes to the banks and the money is not there. And, and you take that one step further is that over the last couple years it's pretty well known that a lot of the banks have a lot of hold to maturity accounts that have been massively underwater, right. Bonds that you know, from the zero interest rate era, now that interest rates have risen, are not worth what they are marked at. Right? So, so those, those markings are fine as long as the quote unquote perception of it being there, the perception of independence, the perception that the system works maintains.
- [42:44]
B
Right.
- [42:45]
D
And so that is really what you're banking everything on at the individual level, if you're still engaging in the system, is that the perception? The perception will hold and I'm very bearish on the perceptions holding. But I also think that it's at least worthwhile to try to engineer a soft landing, even if I'm extremely bearish on the potential for it to be successful. Heavy, Heavy.
- [43:09]
B
Very heavy.
- [43:10]
A
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- [43:57]
C
Jeff on here, right. And he's got his role as chief Risk Officer of Strive. So I got to ask you a question, Jeff, because there's been some buzz on the Internet and this really brightened my day. It made me chuckle that Matt Cole has cornered the bitcoin treasury podcast industrial complex and I need to know your assessment of that risk.
- [44:20]
B
Oh, this is. Yeah, I mean this risk is mispriced. Yeah. We've got Joe Burnett added to the team. Podcasters per share is going up and yeah, I think it's helpful.
- [44:37]
C
It made me laugh because we've cornered the market with three podcasts, which is pretty impressive.
- [44:44]
B
Bitcoin treasuries market. The bitcoin treasuries market.
- [44:47]
C
The bitcoin treasuries market. Yeah. But the one thing I'll say about podcasting is I think a lot of people initially start with the perception that it's really easy, like it's just something you do and it keeps moving. But you've got to ride through a lot of cycles doing this. We've seen it with True north. We've been doing it with the hurdle rate. And I think the one thing that's required to keep all these things going is you've just got to keep showing up every week and keep doing it because the sentiment is going to be all over the place throughout the year. Right. We go in multiple market cycles every couple of months here in the bitcoin space. And so there's a huge amount of value in just being willing to continue to keep showing up and keep having the conversation and keep pushing it. Forward and I think it'll be good. I hope that it makes people competitive now. We start seeing more podcasts pop up and we start seeing more people moving into the space here. But the biggest thing when it comes to this is just consistency. Just keep showing up, keep showing up all the time. You can't, you know, decide that you're going to be there when the market cycles are good and you know, you're going to be off while they're bad and come back when they're good again. You know, you just, you got to keep showing up. It's a skill that I think is really underrated out there is the ability to persist and be consistent and you know, just keep moving no matter, no matter what the sentiment is.
- [46:15]
D
Yeah, I love messing around about podcasters per share and joking about it, but the value is enormous. And the value is if you don't have an ability to go direct to the people and also have earned that, you have an authentic message to say, right? Like if, if all you're out there is, is shilling things and not providing natural value, that's not going to be a podcast or something that's gonna be interesting, right? And the way we've approached this is basically like imagine we're having a meeting, an internal meeting about the future of the markets. What's what, what is strategy doing, what is going on in the economy. Let's just have, and blast it out to the masses and have that message, right? And we think that we have an interesting take. So, you know, we'll see. And I think obviously we've had a lot of success in that, but if you don't do that, you're beholden to the hit pieces of the failing New York Times or the Financial Times or getting booked on cnbc. And when you get, when you get booked on these, these stations, right, like we've all, we've all done these things. You get a five minute hit and they're asking the questions and so they control the questions and it's gonna be like, you know, what is your view on the Fed interest rate decision coming up in two days? And you're like, okay, like let me tell you that. And then let me get like a 30 second message out there, you know, to, to this audience of people, right? Versus we can have a long form discussion for an hour, right? And, and, and actually give the nuance of these takes, not the, the short 30 minute, 30 second clip that is, you know, potentially accurate but is not inclusive of the nuance of the conversation, right? And And I think that the ability to go out there and tell that to. Directly to the audience is of immense value. And the other nice thing about it is you don't have to do an advertisement. I mean, we did a. We did one for SEDA that our team did with AI cost, you know, $0. And it was, it was awesome around Christmas. Like, I loved it. But. But we're not out there advertising on, you know, at the super bowl, spending a million bucks. We're just going out there having a conversation that we'd have internally, having it to the masses. And I think it, it really is a bullish signal when you can actually go out there and create real community with people through direct, authentic conversations. And that is showing up when times are good or times are. Are bad. Right? Like, I mean, we're gonna, we know there's gonna be amazing times where, you know, the market's gonna be up and to the right be, you know, a lot of fun, and there's going to be times when the market is, is bad. And, and that constant regular communication in an authentic matter is extremely important. And, you know, I just, I just think it's such a, it's such a, a luxury to be able to have like, the podcaster per share metric of actually developing that constant communication and, and, you know, engagement. And I think as we, as we go on in person conversations and dialogues with people. Right. As well. Just like, there's so much misinformation out there that it would be a shame if the New York Times puts a hit piece out there and you're just like, Fox Business. Will you please book me? I need five minutes to go out there. It's like, nope. See you on the hurdle. Right. Next Monday.
- [49:30]
B
Yeah, I will be responding.
- [49:31]
C
Yeah, yeah, no, that access to delivering a message is huge. But, you know, I'll give Brian Brookshire a shout out. It was a, it was a great tweet. It did. Right. My day out, I really enjoyed it. To see that, you know, there's, there's the focus out there. It was great.
- [49:47]
B
I mean, what, what other, what other company has, you know, three members of the C suite on a podcast every single week just chatting about what they're thinking about. I don't think there's another. I don't think there's another one out there. And that's incredibly valuable. Like, so even, even our employees, like our, the, the people that work for strive, they don't necessarily get to chat with Matt or myself or Ben every single day. And, and sometimes you may Go a week or two without talking to some of these people, but they can also listen to the hurdle rate and understand, oh, this is where the vision is. This is what's happening. This is what's on my CEO's brain. This is what these people are thinking about. And it keeps even employees aligned as well.
- [50:28]
C
Well, and let's be honest, right, it's a luxury for the three of us to be able to do this. And we can do it because we've got such a killer team behind the scenes here that pushing everything forward all the time, right? The work never stops. It's fun to see what goes around on the Internet because if you have a podcast, that's what you become on the Internet. You're just a podcaster. That's the only skill you have and it's the only job you do, right? And that's the message that's out there a lot. Running these companies is incredibly, I'll call it hectic sometimes. There's so much going on all the time. If you're really trying to push this things. And if you look at us as a company, right, we've been in the public markets for what, four months and we've just had a tremendous amount of activity, right? Doing IPOs, doing acquisition, like all these activities that happen that normally if a company did one of those in a year, like it's a big event and it's been four months, but that requires so much work behind the scenes. And if you don't have the right structure on your team and a team of people that are highly effective, right, there's nobody sitting on their hands in the back here. Like everyone's working and they're working hard and we get off the podcast and we're back to work as well, right? But it's fun to be able to take all that and take all that work and everything you hear from investors and what you're seeing in the market and you have a different view on how you see the actions of other companies in the space. Which is interesting because we're analyzing all of those as well and being able to take that and distill it down and then come have these conversations about it. But, but you know, make no mistake about it, it's a luxury we have because we've got a very purpose built team around here to make sure that momentum never stops. There's always work going on 100%.
- [52:15]
D
I mean, we've all been, you know, I think a lot of us have played sports historically. We've been on different Corporate teams. And you know, I'll say like, just, you know, my, my time at Calpers is as a great example towards the end of that, you have a very talented team across the investment staff. And then you have a political layer that demolished chemistry. Okay. Like, and, and we've seen that happen all too often in corporate environments throughout, throughout history. Is that it's, it's, it's one thing to have a talented team and make no mistake, our team, I'd put it up against anyone on the talent side. But also being able to work together without unnecessary friction, minimizing unnecessary friction allows you to think offensively, allows you to go out there and telemessage, allows you to go out there and execute to do these things right when you're not captured in some drama that makes the sum of the pieces less than what they are on an individual basis. Where I think we actually have the opposite where because of our ability to work together as a team, we're showcasing kind of, I think in sports. It's like I grew up, I'm a Sacramento Kings fan. Fan, which before people make too much fun of me right now. Yeah, there you go, Jeff. You know, it's like, like, man, like what a, what a rough. Whatever. It's been 20 years. But in, in the early 2000s, you had the Chris Weber, Vladi Divock, Peja, Mike Bibiera. And that team, I think, embodied chemistry where like you had a bunch of good players, but it wasn't just the players. It was how they played together and, and they played together really well in their different positions and they accepted their positions and a lot of them are still like close friends. That, that is kind of the holy grail of performance of getting high, hard working, high agency individuals together and then having them work well together. And I think when, when you have that, it doesn't happen in sports or in corporate environments a lot. And I think that's, that's what you kind. That's what you're seeing with the Strive team cooking. So it's, it's, it's, it's a lot of fun.
- [54:20]
B
Mike Bibby, Jason Williams, Bobby Jackson. That was a electric period watching The Sacramento Kings. 100%.
- [54:28]
D
Yeah. First time I ever talked about the Sacramento Kings on podcast.
- [54:32]
A
I love it every week.
- [54:34]
C
It's gonna pop to the top. You know,
- [54:38]
B
that's great. But yeah, I mean, our team is incredibly stacked. The amount of stuff that we have flying in the background. I can't tell you how many emails I've had since I've started. But it's like, it's emails, it's communication with lawyers, it's SEC filings, it's accounting, it's liquidity reports, it's, you know, interacting with all of the teams. It's understanding it. Security, custody, like, the amount of stuff
- [55:00]
C
building, analytics, like it's everything, right?
- [55:03]
B
Analytics, insurance, you know, what is our exposure, like, the. The entire corporate structure. There's just so many things going on. Yeah, you need. You need a team. And we're doing it with what, 31 people?
- [55:15]
D
Yeah, right, 32.
- [55:16]
C
And you've got the freedom to operate. Right? Like, that's one of the things you have is when you have a team where you can trust every individual in the direction they're going, and that what they're doing is meant to bring as much value as they believe they can. You can give people the freedom to go build.
- [55:33]
D
Right.
- [55:34]
C
And I think that's something really unique that we have in our culture here, is that you have the freedom to go build if you think it's valuable. If you can come up with a reason that this is going to push our ability to deliver value further down and help us outperform, go build it.
- [55:51]
D
Right.
- [55:51]
C
And you've got the agency to do that. So it's. It's been a fun place to work. I mean, I've got permanent bags under my eyes, right? It's where we're moving, but, man, we're having fun. So it's a great time.
- [56:01]
B
The. And everybody's equipped with the best tools, which is the other. The really cool thing. And I saw somebody on X refer to it as their. Their. Their tech stack the other day. It's like, oh, I use X for this. I use Perplexity for this. I use ChatGPT for this. I use this for this.
- [56:16]
C
This.
- [56:17]
B
And it's. I think that was a cool framing. It's like, this is my tech stack. And like, we use all of them, we use all of the tools, and we use them to our benefit to make everybody more productive. And it's just. We're seeing it happen in real time. It's incredible.
- [56:31]
A
Seems like a natural place to wrap it up. Thanks, everybody, for watching and listening. This has been episode 44, as Jeff says, of the Hurdle Rate. For Jeff Walton, Matt Cole, and Ben Workman, I'm Tim Kotsman. Have a great week. We'll see you next.