B (5:25)

I think there's another part to that that people overlook quite a bit because a lot of the discussion that I see around these is effectively getting into people term as a death spiral of interest rate increases on the dividends and the part that I think is overlooked there is the adjustments in the dividend rates. While a company like strategy has an algorithmic component to how they evaluate, the increases are discretionary. So if you find yourself in a situation where the market is reacting in a manner that isn't rational, it's not just because of a bitcoin. If your product was driven down, what they can do during that time is nothing. And when you have that ability to sit still, it would mean that they wouldn't need to be an issuer of more of that security at those levels. It would also mean that they can now wait and you can wait out whatever the turbulence is most of the time. When you think about what do these scenarios look like that could cause drawdowns, you're probably looking at Black swan style events in Bitcoin directly where people get shaken in terms of their resolve around the price action in Bitcoin even for a temporary time. And they do the flight out of the asset class and anything that's touching the asset class. But during that time, what they have the advantage of is things like the reserve. So when you think about operating a business like this, you've got to be ready to structure yourself to weather and endure those types of events. You know, you look at a blockfi Celsius three arrows style of an event, an FTX collapse, where you get this flash crash that happens in Bitcoin. You can't put your company in a position where that is an existential risk, where one short term flash crash can drive you out of business. And that's part of the reason why they're building things like this really long extended dividend reserve. Because what you see at the current point in time is kind of a maintenance program around that, right? They're keeping a rolling two and a half to three year dividend reserve. But what happens during those periods and times where the market conditions are unfavorable is it's there as a reserve. It's meant to be drawn down on. And so you start using that reserve as your primary source for paying those dividends and you can weather the storm. And when you look at these companies, I think that there's a hesitancy for people to acknowledge like what would need to happen for this to be catastrophic in the treasury sector. And I know Matt's been pretty open about this. You can create the scenario. Scenario is something like a bitcoin goes down 90% and it stays there for 15 years, right? That causes problems. That breaks the thesis around Bitcoin and the CAGR of bitcoin and it breaks kind of the foundational thesis there. But if that's not your base case, the one thing you have to be ready for in Bitcoin is periods of volatility. And during those periods of volatility, and prior to those periods of volatility, as a company, what you have to do is build out your playbook for how you're going to respond, because you don't want responses to be emotional. And if you're seeing things like an entity that blows up that's causing this rupture through the market and it's causing this period of suppressed price, you don't want to have to react to that. And so when you think through what does it look like to stress test these products, how do we ensure that we can weather even an extended period of this? What do you do? And what they do is they build these reserves so that they have the war chest in place to draw down on during that, which means they wouldn't have to be selling bitcoin during that time. So you've got three years of capital kind of frozen in time that they can draw down on to pay off those dividends without ever having to touch the base asset. So Bitcoin can fluctuate for a long period of time, and then if over a three year period it comes back, you're back on strong footing again. So I think there's a bit of a lack of recognition currently as to just how resilient the model is that they're building. And any of the doomsday theories really do need to be tied to some existential failing of the overall thesis around Bitcoin for a very extended period of time in order to break it. So the run on the bank thing, I don't see that as an apt scenario here because it's not like there's a withdrawal. Yes, people could be selling, yes, that could bring down the price of the security in the near term. But you're also going to have people that see that discount. And if they have a positive thesis, a bullish thesis on Bitcoin over a long period of time, that's going to present those investors with a massive opportunity where they're buying that instrument while that duration's tiny, and they'll get their investment back over a very short period of time because they know that those obligations are going to be met. Right. So there's economics at play on both sides of that transaction. But I think that the Cliff Note version of this is that every issuer we've seen thus far on digital credit is doing it with a risk forward approach where you're focusing on the foundational components of building the business to ensure that you're running a resilient business where you can effectively manage the product, you can respond to fluctuations in the market and you don't find yourself in a panic situation where you have to take rash measures, which is what I think people are all afraid of.

C (10:57)

I completely agree with Jeff and, and Ben, what, what you guys just said. I just have one maybe additional final thought to, to add. I think the original question is interesting, like does digital credit, you know, give an existential risk to Bitcoin itself? And I, I think back to like the history of bitcoin, like what's actually happening here. You know, we're seeing the monetization of a completely new asset going from zero to roughly $2 trillion today just to match gold, it needs to do another 20x. And if this is actually happening, as it appears to be happening, then this idea of a carry trade, you know, get dollars at whatever rate, whether it's via preferred equity or, or via debt and buy Bitcoin arguably could be a profitable trade. I think like throughout the, the history of bitcoin we've seen different variations of this trade like Bitmex and other perpetual features. Exchanges were popular and to some extent still are where you go 10x long bitcoin and it can work, but it can also not work, as many people are clearly aware of. I previously worked at Unchained where you can use Bitcoin as collateral and borrow money, but there's a liquidation risk when you decide to do something like that. And so I think it's, the question is interesting because like the history of Bitcoin is people doing this carry trade and sometimes it works well for them and sometimes they blow up and lose a lot of bitcoin. But now this evolution to the, the, the, the preferred equity model, this idea of digital credit is all because of the, the risk to doing those other strategies to, to get this carry trade on, on bitcoin. And so it's like if the other, you know, much inferior ways to do this amplified bitcoin position, this carry trade on Bitcoin have blown up in the past and probably will keep blowing up over and over again. If those didn't provide this existential risk to Bitcoin, then I don't think digital credit does. And as Ben and Jeff pointed out, it's like this is the evolution of this carry trade, this amplified bitcoin position. And this is why we got to this point to begin with, because it's arguably one of the most robust antifragile ways to put on an amplified Bitcoin position.

A (13:18)

100%.

B (13:19)

I think there's also the component where you have to realize that the buyers of these types of products are a different investor profile than what you're seeing in things like the common equity or even in bitcoin itself.

C (13:31)

Right.

B (13:32)

A lot of people that are willing to step into, you know, these high dividend yielding instruments, they're looking for the cash flow and they like the stable foundation that's behind it. And while the collateral base can fluctuate quite a bit, the benefit that you have here is you can monitor that in real time. So you get to really define your own risk parameters where you actually begin to get nervous. And so if you're looking at an instrument that's 4 to 1 over collateralized and then it goes down to 3 to 1 over collateralized, do you have reason for panic at that level?

A (14:06)

Right.

B (14:06)

Like, that would be kind of a standard volatility in bitcoin where you get one of these bigger drawdowns. And that would a very reasonable. But you're still multiples over covered on the obligations. Plus you've got the reserve out there that funds you years into the future. So the overall coverage doesn't really become the issue until you get to the point where you would need to use that coverage. But I think that the response to a bitcoin move may be different because I think these products really are attracting a different investor. We're finding a different segment of the market that's coming into these products. And these are those yield investors. They're the fixed income investors. And they're looking for ways where they can augment their portfolio and move their overall blended return higher on the fixed income component of that portfolio. And I think that that is a different behavior in that type of an investor. You know, they're more going to be the types that are sitting there and watching. And it doesn't mean it wouldn't raise questions. If we saw a 50% drawdown in the price of the perpetual preferred equities, it would certainly raise some eyebrows. People would wonder what the heck's going on. Quite frankly, it might be the first time a few of them understand that bitcoin is the collateral, because we might overestimate how much some investors are digging into these products. They're just seeing really attractive yields and they're finding exposure that way. And they end up learning about it later. But I think that that different investor profile means that you don't have everybody reacting in real time to small moves in bitcoin and that's going to create a different type of overall price action in the market. So you know, the beauty here is we're still, you know, as Jeff defined it, I guess if you look at the first time one of these was launched, we're still year zero. Haven't even crossed over here into year one around the digital credit. And you know, a lot of these have come out during a time where we've seen a lot of sideways to down action in Bitcoin. And what you're not seeing is a dry up in demand and you're not seeing a drawdown in the prices on these right now. And so what you're finding is that there is interest. You're finding new investors, those investors are coming in, they're putting a bid on these products. It's keeping the prices higher. You're not seeing a lot of selling happening out there in the market around these. Right. These are attractive instruments that people want to hold in their portfolio. And you know, so far that thesis is playing out. Turns out people do want lower volatility, high yield instruments. You know, believe it or not.

A (16:27)

Absolutely. I'm going to hit a couple more things. I just want to make sure that these are, these get through here and it's that the dividend needs to be declared by the board. So think of strategy. Who's the chairman of the board? It's Michael Saylor. And so he can, he can also control like they can control whether or not a dividend gets paid. So if there was a situation where like hey, we need to take the foot off the gas, we can't pay this for whatever reason. Now the dividends may accumulate, but they can pause. Additionally, they've got that five day vwap calculation on whether or not they raise interest rates. They also have flexibility on that. They can pause that. They don't have to increase that. It's really just a guide of how the interest may, the interest rate of those of those products may change. And, and then even think about back to this. Last week you look at what, so strategy raised $7 million on STRC. So they, there was the ex dividend date. Last week the price dropped, which we were all anticipating and then the price snapped back up to 100 and they were still even able to raise capital last week on strc, this new product just right after the ex dividend date and on top of that MSTR was still incredibly liquid. It was, it was one of the least liquid days for MSTR stock, probably in the last year. And they still raised $257 million in the last week, which is roughly 30% of the dividend commitment that they have for the entire year. So just to put that in relative scale, like these are crazy numbers. The common stock is incredibly liquid. The design is very good. And to Joe's point, we've learned a ton from, you know, how the mistakes that the people in the past have made. And that kind of brings us to where we are today. Right? This last week we, we issued 225 million of SATA stock and we looked at retiring the similar convertible bond and the Coinbase loan. And that was part of the, this part of our story. Moving forward into the future here is having this clean balance sheet powered by perpetual preferred equity. That's our goal in the next 12 months is to be completely perpetual preferred equity. And the, the reason for that is you remove that cliff maturity, that risk that's on the horizon and you shove that into a pure equity model. I think that's we would be the first company that's pure perpetual preferred equity. I mean we, we were already that, but with the acquisition of Semler we had to make some adjustments there. But so what we did is issued more SEDA in exchange for the convertible bond. So there was an exchange rate on the convertible bond for more SATA shares. And yeah, so we'll, we're off to the races again.

B (19:06)

Well, that, that old raise was also a testament to the demand that you see out there. Right. Anytime you go out with an initial offering size and you see kind of 4x the demand of the initial offering size, you're seeing a lot of demand on the other side. Investors and institutional investors are really starting to value these products. And that showed in how quickly that transaction was really able to come together here. And it's a part of building that foundation that we've talked about for a very long time, which is we really value being on a pref only amplification model. And to do that, sometimes you have to come up with creative ways to get rid of any debt that arrives on your balance sheet as a result of a transaction. With us acquiring similar, you know, we inherited what they had on the balance sheet and we were able to clean that up here, you know, effectively within a week of closing that acquisition, which is lightning fast speed. And I'm sure our lawyers need a break at this point. But what it showed was that there was a lot of demand out there and there were people that were willing to participate in this very quickly. And you don't know what you're going to get when you do a follow on offering, particularly when you do one shortly after you did the initial offering to see what investor appetite's like out there. Bitcoin hasn't really done anything. It's gone sideways and so you never know. And what we saw was overwhelming demand, which is great because it shows that these products are really hitting a niche in the market where people want to participate with them and people are wanting to increase the exposure that they already have, which I think is really great to see. So, you know, there's going to be some, some trail stuff that we have to clean up. With a lot of these convertible bonds, you get these clauses where you can't retire the full thing in one quarter. And so sometimes it has to straddle into another quarter for some cleanup things. But what this is allowing us to do is really get ourselves back into that position where we're on track to be back to pref only amplification here in very short order.

A (21:04)

So I believe as a, as a result of this transaction will be roughly under 2% debt leverage on, on a billion dollar balance sheet. Billion dollar plus balance sheet, which is a really exciting statistic to say. You got a billion dollar balance sheet, you've got less than 2% debt and you know, you think about buying a house and you're like, okay, well I'm going to put 20% down on this house. Well, you're actually 500% leveraged. And so that relative scale, you're thinking about a billion dollar corporate balance sheet with 2% leverage. You're like, wow, that's a strong position to be in. I would think that's a strong position to be in.

B (21:43)

You know, we've got Joe on here and he's from the other side of that transaction. He's obviously a part of our Strive team now and we're really happy to have Joe as a part of the team. But Joe, I'd be curious to kind of hear your perspective on this entire journey. You know, we obviously went through the very first M and A transaction in this space. And you know, Semler was, is one of those marquee names. You guys were the second publicly traded company here in the US to put bitcoin on the balance sheet and run a Treasury strategy. And then being the first to be a part of one of these M and A transactions, what was this whole process like from the other side of the table.

C (22:17)

Yeah, it was definitely an interesting experience and is very exciting working closely with Eric Similar who I think my eyes will forever go down as a legend in the entire bitcoin space if we're witnessing the monetization of bitcoin. Bitcoin and Eric out there, chairman of the board of a real publicly traded company that had or still has many employees. It had a real business and at one point it was a billion dollar company without bitcoin on the balance sheet, which is pretty cool to think about in of itself. And so I remember the first day when I remember the first day when Strategy announced their bitcoin strategy. That was pretty exciting. I remember the day that Eric Similar and Similar Scientific announced their bitcoin strategy and then later joining the team was pretty awesome experience in of itself. But the Similar Strive transaction I think was a huge win win for both shareholders. I think Strive, if you look at the landscape of all of the publicly traded bitcoin treasury companies, Strive has been executing unlike almost anyone else in the entire space. You know, I think now I may be like a week into to the role roughly at Strive. And you know you guys typically talk about like how fast you're moving and obviously you can see how fast Drive is moving but then when you get on the inside and you and you see how the, the bankers and the council are struggling to, you know, they're like, wow, like this is, this is a lot, like that's pretty, pretty incredible the pace that Strive is moving and how hard everybody works and how excited everyone is about the future. So yeah, I mean I think it was a huge win. I'm excited to see for Strive to attempt to generate value out of the healthcare business. I'm excited. I think the bitcoin strategy as we talked about with the preferred equity only model transitioning to that was something Similar definitely needed and you know, being able to clear that up mostly in less than a week is like a dream come true given, given my role previously at Similar. So excited to be on, on, on the ship and I think it's, you know, a huge win for, for both teams.

B (24:38)

Yeah, I'd agree with that. And you know the one thing, and even I wasn't even ready for this when you joined with, with the pace that everything happens. You know, when you get on a team that's willing to really think creatively and go outside of the box and look at things that haven't been the norm in the industry and really push things forward, you know, it becomes A very energizing place to work. And I think that's what we've seen across our whole team. You know, like, we don't have a very big team overall. And, I mean, when you think about the Strive side of this, and Jeff, you might know the actual number, but I think it was something like 15 people on the bitcoin side of the business and something equal to that on the ETF side of the business. Like, it's not that big of a. A team, but it's a very effective team. Everyone in their roles, you know, knows what they need to do and. And they get it done. And when you go through these transactions and when you're doing them quick, you know, the thing that a lot of people never see is what's happening on the back end of these transactions, right? They see the announcements when they come out, and they see the filings when they come out, but what they don't see is the hundreds of hours going in, you know, across. You've probably got a team of 40 or 50 people that are working on this actively, all at the same time, you know, between lawyers and bankers and people from the companies. And. And so you don't see all the work that goes into that because there's so many details that need to be accounted for on this process. Everything from structures of the press releases, making sure you're getting all the right SEC filings in, making sure you're getting things done in the correct order. You know, what you can say, what you can't say. Like, you got to go through the whole process, and when you do it on an accelerated timeline, you can stress some people out, and I think we've certainly done that. But everybody's risen to the task and been able to get these things done, and that's what's really allowed us. When I look back and realize that strive's only been a public company for four and a half months, and from zero Bitcoin, it's a fast pace that everything's working at. So it's fun to see. And when you look out over the industry broadly, I think this is really like, these are the periods in time where I think investors start to reassess allocations in terms of where they want to put their capital. Because what you see, and it goes back a little bit to the fear pieces that Jeff was talking about, is you see this entire treasury sector as a whole just lumped together. And I think early on, that was probably a more appropriate approach when everyone was kind of just trying to do the Exact same thing. But what I think is clear now is that you're starting to get separation amongst the models that people are taking on. You've seen several companies that have continued to stick with the convertible bond model and they've iterated on the convertible bond model and they've done things like create the bitcoin denominated convertible bonds and going other ways of applying leverage to the balance sheet. And then you've seen a subset of those, you know, us being one of them, that have gone the digital credit route and where we're pushing down towards the preferred equity issuance path and we see that as being the highest and best value. And what I think that's going to allow for now out in the market is there's going to have to be differentiation in the discussions amongst the entire sector and it's going to open the door for everybody to choose what they believe is is the right flavor of amplification or leverage that is going to yield the best outcome over the long term. And you see that in the discussion. Like a lot of the discussions that I watch, there's still a major cohort out there that looks at the convertible bonds and all the success that strategy had issuing the convertible bonds over a very long period of time. And they still see that as the optimal model to deploy where you've got the defined equitization of those at the end. And they're still looking at that as the ideal leverage model. Now obviously we vehemently disagree, we think that the PREF model is the best one. But what you're starting to get now is a true market out there where investors get to allocate based on what their thesis is going to be. And you're going to see a ton of different models and a ton of different products pop out which is going to create differentiation. So what I'm excited about here, going into 2026 in this sector overall is that I think the conversation is going to change now and it's going to be able to get far more nuanced in how we actually evaluate these things. I don't think there's going to be a one size fits all framework that we're just going to be able to plug and play with. Every company in this space anymore, 100%.

A (29:14)

I think I wrote down incentive alignment. And you think about the convertible bonds, right? What's the best case scenario for somebody that holds a convertible bond? Okay, you hold a convertible bond, you hedge out your position on day one via shorting the stock. You're kind of incentivized for the stock to go to zero because you make all the money on that short position and then you have a senior claim on the assets, if the assets are worth anything. So you're. If the convertible bond performs well, you're like, cool gravy. But the best case scenario for you is the stock goes to zero. So that's the mind of the convertible bondholder. And then you think about the pref holder. And the pref holder is long the credit quality, not the long the volatility. So the prep holder being long the credit quality. How do you, you don't hedge the position like it's a. It's difficult to hedge the preferred equity position. You would actually rather the common equity perform well. If the common equity performs well and they're able to monetize it and you're like, cool, I get my dividend paid now. You're kind of long both inherently. You're kind of long the underlying asset, you're long the common equity, you're long the structure. Like, I like this yield. Everybody kind of wins in thinking about the incentive alignment. So that, that's that future holder that we're kind of pushing forward towards here is, is how do you align incentives of the corporate structure and then have multiple different securities that you can use at different points in time at different capital market structures?

B (30:51)

So yeah, that applies as long as you don't have a convertibility feature in it. Right. If you've got any type of convertibility feature in it, then you start to incentivize some more of that, you know, gamma trading that's out there. And I think they all served a purpose. Right. It's hard for me to look and say, you know, the convertible bonds were bad because you did see strategy achieve a huge amount of success with them in terms of how they scaled it, created the scale that even and I think made the pref issuance possible. And so when you're in. One of the things that we kind of learned going through the process is it's clear that there's kind of a benchmark scale for any offering you bring to the market in order to find demand on the other side of it. And we saw that during the IPO when we upsize that one. And so I think what you're going to see with some of these smaller treasury companies that are still looking for that path to achieving the scale, where digital credit even becomes an opportunity for them, is I think that you're going to see them looking to some of those niche pools of capital to kind of seed that growth in the early days. And it may be a trade off that they just have to make right. We luckily had the benefit of, you know, being able to achieve relatively significant scale early on in this journey. And since then, obviously we've just grown more, which put us in a level where you become institutionally interesting in your offers. And I think that there's a big separation, there's not a lot that kind of achieved that size yet. So I still think some of these are going to have that growing period. But I totally agree that the incentive alignment between the two products that you're offering is far better on the preferred side with no convertibility feature than it is when you've got convertible bonds. That's incentivizing the trading and the shorting on the other side in your equity that can, you know, kind of compress that volatility over there.

A (32:44)

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B (34:43)

There's no doubt that that's got the potential to be a major vault dampener around Bitcoin. It shows you how unique of a product volatility is.

A (34:55)

Right.

B (34:56)

And anytime that you see opportunity and you start to see scale. And they've clearly seen it because on the other side with their other product, they've got their most successful product they' issued. And ibit being that etf, clearly there's demand in that realm. What they also probably learned along the way is that there's a huge amount of covered call selling that goes on over top of the IBIT product. And so they can monetize that and create a new product that they can collect fees on doing kind of that exact same thing. And you saw it around strategy that was early in the ecosystem. Those were some of the very first products that were popping up, were the volatility sellers. And it is interesting, but I do think that there's a significant amount of volatility selling and it'd be. I'd be hard pressed to say that it doesn't have an impact on the price, because I think it does, you know, particularly when it's happening at massive scale. I think it can slow things down, but it doesn't stop it. Right. That's kind of the high level is there's a point where you pierce through. You get people that get really comfortable selling at a certain level and all of a sudden price pierces through that. Now all of a sudden you've got these really large outsized moves that happen in the underlying asset sometimes before it kind of resets. So we'll see ultimately what this brings. I'll be very curious to watch what the inflows for that product will ultimately be. I think they'll be significant, but I actually think that what it's showing you is also part of the value proposition that comes with the prefs. There's a demand for cash flow. And right now the asset that's providing the right characteristics to be able to offer that cash flow is Bitcoin. And it's the same reason you see such strong derivatives performance on strategy. Right. Why that's so active over there and the open interest is always so high is you've got the baseline volatility that comes with Bitcoin. That's great. People love to sell that. They're doing it on all these ETFs out there. Then you take an amplified version of that and it creates the Opportunity for people to do the same thing around the equities. Right. It's why that common equity is such an in demand product for the companies in this space that achieve scale. It really drives that liquidity in there. And all those contracts are ultimately settling into the, into the shares of the company. And so you get this huge amount of liquidity that starts to build up around these companies as they get bigger and bigger and bigger. And so I'm not at all surprised, you know, to see this problem. I'm actually a little surprised it took this long. Yeah. For that product to hit the market. But what it tells me is that while, yes, there's a lot of demand for bitcoin the asset and exposure to bitcoin the asset, there's also a lot of demand for what the volatility characteristic provides, which is the ability to create cash flow for individuals. I think that's becoming more and more important out there today.

A (37:47)

Yeah.

C (37:49)

A couple thoughts on the covered call etf. I agree that I think that it's going to be probably a pretty great big product. It's going to drive in a lot of capital because people want bitcoin and people want cash flow. I also think that it's kind of misunderstood. I've heard Matt talk about this a number of times. But if you take on a covered call position, you play it out over the long run over, you know, a decent asset, whether it's S&P 500, NASDAQ, Bitcoin, you're likely going to end up just underperforming the total return of bitcoin, which I think is, is true. And I think a lot of people don't understand that. But obviously it is beneficial to have the predictability of, of some cash flow and it's appealing to a lot of investors. I also think that if you, you know, look at what's happening with gold and silver, you know, hard assets can just absolutely rip. And so like the, the, the covered call selling, you know, strategy can work really well. It can print for a while and then all of a sudden you get one month or one year where it doesn't print because, or, or you lose a lot of the underlying position that you, you thought you had. So it's one of those things that, you know, you can do it for a little while and you're like, oh, wow, I'm earning a certain yield on the underlying asset until something just melts your face off and you lose half of your position in a short period of time. Because hard assets, especially bitcoin, With a perfectly inelastic supply. If sellers disappear, things can start moving very quickly. And I think that gold and silver are clear examples of that. And bitcoin being significantly smaller than gold and silver in terms of total market size. You know, it's possible that people get lulled to sleep and the price just, you know, does whatever it likes to do and doesn't really do anything. And then one moment, you know, this happens countless times throughout bitcoin's history or over a 12 month period or a few month period, the price can just go absolutely insane. If you were caught selling covered calls at that point, you know it's, that's going to be a bad position. You're going to deeply regret that probably.

B (40:00)

I think you also, you get some behaviors that happen with investors where when you get a portfolio drawdown, when the assets draw down, they start looking for ways to make that back. Because mentally I think people shift into that mindset that you're stuck here forever, it's not going to reverse. And I've seen this play out a lot of times in the treasury space where all of a sudden during these periods you get this heightened awareness of covered call selling and people start being willing to sell their upside because they see consistent cash coming in the door on that and it feels like recovery. And then you get one of these ten days a year where bitcoin takes off and all of a sudden all those companies take off too. And all of a sudden now if you've got to buy back into the position, you end up with far less of that asset that you were holding before, and you did it for a very defined and capped upside that you were able to achieve. So I do think you get some of that. And I think that a sideways period like we've seen recently with bitcoin is one of those where it starts to look really attractive to people because they've seen that for, you know, the last, you know, set of months is if people have been selling covered calls, you know, they've been consistently profiting. But you've got to ask yourself, what do you think the next major move looks like? And if you think that the next major move could follow what you're seeing in the other commodities in these metals, I'd be a little terrified to be selling my upside at this point. Because you're seeing a lot of cracks out there. You know, you're seeing it with the Japanese bonds. You know, you had the 40 years spiking up over 4% in Japan. Like you're starting to see Broader cracks out there in fiat land. And that would make me a little nervous of wanting to sell my upside on, you know, assets that are truly decentralized. You know, that, that would start to feel very uncomfortable to me right now.

A (41:52)

Yeah, I'm looking at the largest assets by market cap chart over here on the left and I've got gold at the top 35 trillion. I think one of the last times I looked at this it was at 30 trillion. So it's added 5 trillion in like, I don't know, a couple weeks. It's just a crazy move. Number two is silver. So it used to be, it used to be Nvidia at nearly, you know, four and a half trillion, but now it's silver at six trillion. One of the last times I looked at that, it was around 2 trillion. So it's tripled. And so now you've got two commodities, metals that are the top asset cat the assets by ranked by market cap. And you've got bitcoin at number eight at 1.7 trillion. I think that base effect math on a truly inelastic supply, that's an interesting value proposition here. Despite metals absolutely ripping once, these things do have any sort of return to the mean situation that capital is going to be looking for a place to go and I wouldn't want to be caught off sides.

B (42:53)

Didn't silver have a pretty decent pullback at the end of the day as well where you're starting to see that volatility kind of whipsawing in both directions now? I mean it really spiked this morning up above, what was it, 107 or something to that nature that it got to and pulled back to like it's.

A (43:08)

Went up to almost 120, I think. Yeah, like 116, 117. And then it snapped back down to 1, 102.

B (43:15)

Yeah. And on massive volume. So it is interesting because you're reaching the point now where even all the gold and silver bulls. You look at the history of things that go vertical and historically it doesn't last. But you're watching a lot of macro uncertainty at the moment. So I don't know, I don't know if this is ultimately a repricing or if this is a spike. But what I know is there's a huge amount of uncertainty out there and it's clear that you have capital moving out of the existing systems and looking for a home where it feels like it can be protected. And right now the first place to go is, was metals. And we'll see. There's a Lot of people talking about whether you think that bitcoin's kind of the follow on here. I tend to fall in the camp where I think it will. I agree with you, Jeff. I think eventually you'll see that capital start rotating and it'll look for other homes. And I think bitcoin's probably a better home for a lot of that capital. Particularly because the question always comes up where you got the paper versus the physical supply out there around all of these metals and you're not sure which one's wagging the tail here. And so you got to see. But I think we will see a lot of capital rotation over the next couple of months. And my thesis is some of that's going to find a home here in bitcoin, which is probably what brings us back above 100 and potentially well over.

A (44:37)

I'm just looking at the 25 year silver chart and it's just, it's ridiculous. It is literally straight, vertical and. Yeah, it's a good question. Is this a repricing event? What does it look like of it? I mean, it looks like a risky entry here. So the, the question becomes like, are more people buying than more people are selling? At some point that could, that could go for quite a while if it's irrational and then the paper's figuring itself out. And yeah, that's a, it's an interesting time. I mean last time, last time silver went parabolic was 2010. So if you rode the backside of the silver blow off top in 2010, you were a bag holder for 15 years before you experience this. So yeah, it's, it's an interesting time.

C (45:33)

Yeah, the price action of gold and silver is absolutely mind boggling. And it's. What's interesting is kind of like you guys are pointing out, it's like, okay, things that go vertical, typically that ends at some point. But you can also make the argument that relative to the entire global financial system, hard monetary asset like gold could actually be incredibly undervalued. You know, I think Peter Thiel actually did a presentation at a bitcoin conference maybe like in 2021, 2022, something like that. And he had an interesting slide that showed the total market value of all US equities actually matched the total market value of all gold in 1980. And so if gold ever hit that level to where it's equal to the total market value of all US equities, gold could actually go significantly higher. Obviously interest rates were incredibly high in 1980, so forward cash flows were less valuable and there was just massive inflation back then. So people are rushing into gold, but it's not completely unimaginable to see a somewhat similar situation again at some point. And if that's the case, obviously gold would probably do pretty well. But I would make the argument that digital gold could do a lot better. And if you compare the two side by side, looking at their monetary properties, looking at the auditability of each, to me it's pretty clear that bitcoin is vastly better. And I think that the evidence of bitcoin's incredible CAGR over the last 17 years at this point is kind of evidence showing that the markets trending towards bitcoin. But that high CAGR comes with extreme volatility as we've seen. And I think right now, yes, gold and silver are doing well, but I would argue it's like gold and silver trying to catch up to bitcoin's incredible performance over the last five, seven, ten years. So it's definitely interesting times.

B (47:31)

What do you guys think Japan's saying to the world right now? Obviously you're seeing a significant amount of weakness coming out of there. You're seeing the bond yield spiking. You know, what do you think this path looks like?

A (47:43)

Yeah, I mean it's, it's tough to say. I write the Japan bond one, they've got a 40 year bond, which is interesting. The US doesn't have a 40 year bond and the 40 year bond is rising pretty rapidly. It's made like six standard deviation move in interest rates recently. So you think of this as potentially, as Matt would say, a canary in the coal mine of the collapse of fiat currency is. So what, what I am really interested to think about and how this plays out here is like what happens next? Like who? There's, there's so many things going on, right? You've got, if interest rates rise, that means the price of all of the bonds are dropping. Okay. So that could be a good time to like, if you felt like somebody was going to come in and save the country, it could be a good time to buy bonds. Potentially you're getting higher yields. It also makes cost of capital for all the businesses in Japan to be materially higher. Like does the US step in? I think there's some rumblings of the US potentially stepping in. I'm just, I'm so uncertain with this entire situation in Japan and I don't necessarily know how it all plays together. I'm still trying to wrap my head around it. I mean, Ben, I'd be curious to get your Thoughts and Joe as well.

B (49:07)

But yeah, you got to wonder, right? As we've seen a huge amount of dollarization happen globally over several decades now and you have to wonder if this weakness continues and the US does have to step in, what are going to be the conditions where the US steps in? Right. You're not stepping in for nothing. And it almost feels to me like Japan might find themselves in like a dual or a bi monetary economy where you're operating, you've still got, you know, yen as legal currency, but now you've also got dollars. And you might have split reserves in the banks between yen and dollars. And it's like a transition that happens, right? Invoicing globally might start getting done in dollars, right? You might see kind of a sl to dollarization over there, but we don't know, right? They're, they're trying everything that they've got at their disposal here to try to write the ship. You know, you see a lot of the controls being put into place which just causes more volatility every time they step in and try to stabilize the yen. And but it's a massive economy and it's a massive trade partner out there. And so a failing over there. They're going to have to try to manually. We've heard the term soft landing a million times for a million different scenarios. But you're going to have to try to find a way if this has to wind down, if the yen is no longer going to be sustainable over there, if those government bonds are no longer going to be sustainable over there, you've got to find a non abrupt path to unwind all of that. And I think it would have to be a slow transition. And right now with all the weakness that you see in these fiat currencies globally and we focus on the weakness in the US dollar, what's interesting about this is it's kind of the best of the worst. You see weakness globally because we've propped up on these economies that are built on these debt ridden balance sheets all over the world. And you know that that's unsustainable over a long period of time. Even if a lot of people don't really want to acknowledge just how bad that gets when it starts running away. And all of a sudden you're interest is more than you're bringing in as a country and your GDP growth. And I think that they're going to have to start searching for more drastic solutions than what we've seen in the past with just Japan stepping in and trying to stabilize these yields I think that they're going to have to take more drastic steps and it might mean that their banking system's going to have to be dual currency or something. I don't know exactly what that's going to look like, but it's coming quicker than we would have thought. Right. You've heard rumblings for years about the weakness over there. We've seen it. You've seen everyone calling for the collapse of Japan. It's start or not Japan, but of the Yen. Like you're starting to see that looking more and more like the reality of the situation. You just, it's hard to manufacture a solution here that I can see.

A (52:03)

Yeah, a couple interesting statistics. So Japan has a 250% debt to GDP ratio and every 1% increase in borrowing costs adds over 2 and a half percent of GDP to annual interest expense. So basically if as the interest rates go higher, their interest expense explodes as a portion of their actual gross domestic domestic product, like what the country itself is creating.

B (52:34)

That's a huge issue driving a country in bankruptcy. Right.

A (52:39)

Like we're talking about perpetual preferred equity earlier, the leverage, this is the complete flip opposite.

B (52:45)

But the ripples through the financial markets, you know, could be pretty severe for a bit. I mean there was so much capital dedicated to that, you know, yen carry trade and you know, taking that all over the world and putting it into the other markets. And so the unwind that would need to happen there could be pretty severe. If this is the time where all of those investors think that it might break, you know, the flight to safety is going to have to be unwinding those positions and not taking the risk on what's going to happen there and you might start seeing some of that. So I'm not expecting stable markets in the near term. I don't know that it's going to bring some panic selling event here in the near term, but it's certainly going to hit headlines really hard and it's going to make investors cautious because it's tough to map out what that impact is and where it's concentrated out there in the markets.

C (53:37)

Yeah, I think of someone like Ray Dalio when he talks about the end of the long term debt cycle and he implies that okay, in these situations the sound money typically performs well. And a lot of people think yes, that's correct and of course I do too. But I think a lot of people forget that it's a, it's a very hard situation for like everyone involved, like volatility spikes, you know, I guess eventually you have to decide like do you want to sacrifice the currency, do you want to sacrifice something else? Like it gets to a point I guess where there's going to be a loser. And typically sacrificing the currency is like the easiest pain, pain most painless way to survive like the end of the, the long term debt cycle. But at the end of the day it's a hard decision and no one wants to watch any currency go to zero overnight. And I don't expect that to necessarily happen obviously. But it's interesting to just think about what could actually happen. And I think the best way to be prepared is to expect extreme volatility and if you have on certain carry trades, do it in an intelligent anti fragile, robust way via digital digital credit like we've been talking about. Because if volatility is coming, you don't want to be 10x long bitcoin and get liquidated overnight. Obviously that's a terrible idea. So yeah, it's interesting times now.

B (55:00)

Stablecoins could be a wild card that you could see creep into that conversation as well.

A (55:05)

Right?

B (55:05)

You've been seeing a lot more global acceptance around that and so you could potentially, if they didn't want to move and kind of accept a destiny that involves the, the US dollar being integrated over there right away you could see them move to more digitally native solutions and say, you know, they're going to look at stablecoins. Maybe you open up some small escape valves where you create, you know, more tolerance in your treatment of Bitcoin for people that are holding it and you let them kind of transition savings into these other currencies and you don't put friction in the way to try to, you know, preserve that. Well, I don't know there, there could be creative solutions that we're not even thinking of but you know, world's moving fast.

A (55:45)

Don't go leaving for the Japan economic team. Ben, we need you.

B (55:51)

Well, I'll be curious, you know, what Metaplanet's view is going to be on all this, right. Like this, it's got to create a lot of complexity over there as they're trying to, you know, engineer the right products to offer in that market, you know, and for a long time it was based on this completely yield starved country but now yields are rising and that kind of changes where you got to peg your products at or maybe where you set the initial rate on an adjustable rate. Like I got to imagine they're watching this like a hawk and Dylan and Simon are just, you know, kind of pulling their Hair out with all the changes that are happening over there and how it's kind of whipsawing the sentiment around that because I would imagine it, it makes it challenging to structure the right product to bring out to the market during this period of time.

A (56:34)

Totally need a variable interest rate.

B (56:38)

Yeah, yeah. It's probably what it highlights is you need the ability to move that interest rate around because you don't know what's happening.

A (56:47)

Right.

B (56:47)

It was like on the last episode where we were talking about the risk and the risk free rate.

A (56:51)

Right.

B (56:53)

And that's having a lot of variability to it now globally where you can't even look to the government bonds as the risk free rate because you're seeing very clearly that there's a huge amount of risk that's built into those. And so if that's the base foundation that all these other products are sitting on top of, you know, that wave has ripples that go wide.

A (57:13)

I wish these were publicly traded so we could see how they're, how they're pricing because that's a, it brings up such a good question. Like if the company itself is holding the bitcoin and they're, they're effectively sovereign from Japan, then how, how do you mint. How do you compare the risk of a corporation holding that capital relative to the government financial situation? Right. Like potentially bankrupt government or a corporation based in the bankrupt government jurisdiction with actual capital. That's, I, I mean that's a, that would be a fascinating risk analysis. And I, I'm sure, I'm sure it's happening. I'm sure somebody's thinking about it over there. That's a, an interesting analysis. A lot going on. The market is moving fast. Tons of stuff is moving and happening, shaking.

B (58:06)

What I will be watching as it pertains to Meta Planet is I want to start watching very closely how that stock starts trading. If there's huge weakness in the end. And in the Japanese markets. If you've got all these businesses that are capitalized on the yen and then you've got a company like a Meta Planet that's capitalized on bitcoin, do you start seeing capital flight from these other companies and moving into something like Metaplant? It's going to be a very interesting use case if this progresses to see how a Treasury company in a jurisdiction like that responds. Right. Do people find that? Is that where the capital ultimately flows? Right. This is going to be a good test In a very large market.

A (58:48)

Then the financial markets control the country, the corporations control the country. Wow. It's an interesting thought. All right. A lot going on.

B (59:00)

A lot going on. It's not going to be boring all of 2026. I think this is going to be an action packed year. We're not going to be bored.

A (59:07)

Yeah, well, it's January still.

B (59:10)

No, we're not even through the first one. Oh my God, it is dog years when you're working in bitcoin.

A (59:15)

It is, yeah. We've got earnings calls coming up, strategy earnings calls on the horizon, Strateg World in February, there's a True north event. All of us on the screen will be there. That'll be good time. And Bitcoin investor week's coming up in a couple weeks, so travel is about to kick off. Conversations are going to happen and yeah, a lot of business to be done in 26.

C (59:36)

Going to be exciting time. I, I, like I said earlier, I mean, I think that the, the performance of gold and silver is like a, you know, people are looking at it in a, in a dark spot and relative to bitcoin, they're like, wow, like, you know, why couldn't this have been bitcoin? But to me it's just kind of foreshadowing what could potentially be to come. Right. I mean, if bitcoin is digital gold, which I would argue it is, there's so much future potential in, in bitcoin and it's hard not to be excited, you know, if Price is temporarily disagreeing with, with your thesis, obviously that can be incredibly painful. But I feel like looking forward, you know, it's, it's, it's very exciting to be thinking about the future of bitcoin.

B (60:18)

People forget we had a long period where bitcoin was moving and the metals weren't moving. Right. So these things, they have ways of catching up to each other.

A (60:26)

Yeah. I think it would be weird if all of them were ripping at the same time though too. I just don't think that I was trying to wrap my head around this earlier today. Does that make sense? With precious metals and bitcoin also moving parabolic at the same time? They're both vying for the same store of value capital. I don't know if that makes a ton of sense. Sense. So I, I mean personally I'm, I'm not, am I disappointed that bitcoin's not ripping? Sure, yeah, I would love it to go parabolic. But at the same time I'm like, this is a great time to accumulate. I feel like I have asymmetric information of what's, like, what's happening in the market. I think Jordy Visser had an interesting perspective of how he framed gold and silver relative to bitcoin and the cryptocurrency land is that gold is the store of value asset, silver is the utility asset. So you're seeing gold store value rip and silver the utility rip. With AI tech infrastructure. Silver's in a lot of these things, so it's actually a necessary commodity for production of some of these things. And then you think about cryptocurrency and he referred to Bitcoin as the store of value asset and eth as the utility asset. I mean, I'd argue that bitcoin is both of those, but that's a, that's a topic for another day. But the, the concept is interesting. So if there's a rotation from store of value and utility into other store value and utility on a, on a crypto commodity perspective, I think there could be a rotation there. That, that makes sense. I think that narrative would be logical. Am I, you know, would I be disappointed if that doesn't happen? No, not necessarily. I, I am fully confident in how this industry is building and evolving and the plumbing and the infrastructure and all the financial, yeah, the financial infrastructure that sits underneath Bitcoin and how it's going to propel it into the future. So, yeah, it's exciting.

B (62:25)

Well, there's the very unique component to Bitcoin where when you start seeing all this capital rotating out of the system and into the store of value, Bitcoin really becomes the only one that has ease of transactability. It can be the permanent landing place for the capital because you can transact globally with it. You're not going to put your gold bar on a boat and ship it across the seas or anything like that. Right? That's, that's not real. But with Bitcoin you can, so it can serve both of the functions. Right. It's like a combination of gold and silver with the store of value plus the utility.

A (62:58)

Right.

B (62:59)

I mean, and that utility is the transaction of value across the globe. And that's a massive, massive utility while there's unrest. So we'll see. I, I, this doesn't waver my confidence in Bitcoin one bit because, you know, I, I think that we're just in the beginning stages here. These trades become crowded. I think you're starting to see that with metals, everyone's running in. The sentiment always goes to these things are going to infinity and it'll never come back down. And, you know, time and time again those lessons get learned. As people chase their way in. But it doesn't mean that the foundational level hasn't repriced significantly higher than it was in the store value assets. And you may start seeing that be a trend here and see bitcoin catch up in rather short order here if things keep progressing globally the way that they have been.

A (63:49)

Yeah, just, just a year ago there, I think there was like one publicly traded company that was $3 trillion and quietly now that there, there's four companies all above $3 trillion and there's two $4 trillion companies. So like those, those, I mean theoretically from a market cap perspective are ripping higher too and yeah, unprecedented time. So that, that, that base level is, is definitely increasing.

B (64:11)

Well, you know what they say, the first trillion is the hardest and the next three are much easier.

A (64:18)

On the horizon. All right, I guess that'll wrap it up for episode 45 of the hurdle rate preferred equity demand for Joe Burnett, Jeff Walton and Ben Workman. I'm Tim Kotsman. Thanks for watching and listening and we'll see you next week.