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- [00:00]
A
Welcome back to the Hurdle rate podcast, episode 48 for the week of February 17th, 2026. I'm Tim Kotsman. I'm here with Joe Burnett, the permanent fill in or whatever we called whatever he called himself. Matt Cole and Jeff Walton with the green light. We've got some topics today. We have at least three announcements of bitcoin buys to begin this week. We have Strategy. They acquired 2,486 Bitcoin for approximately $168.4 million at $67,710 per Bitcoin bringing their HODL to 717,131 Bitcoin acquired for a total of $54.52 billion at an average price of $76,027 per Bitcoin. American Bitcoin crossed over 6,000 Bitcoin in under six months since their NASDAQ debut. And DDC acquired 80 Bitcoin bringing their stack to 2,068 total Bitcoin. A couple of topics for this week may include Bitcoin Investor Week wrap up. Matt, you were there. I was there. I didn't even see you. I think I shook Ben's hand briefly. Cardone debates, maybe we'll go to you, Matt, first on that, talking about defining a Treasury company. I caught some of that and some complimentary things after you logged off from a gentleman who said he's been pitched 30 treasury companies and you were the first person who could actually intelligently articulate what you're doing. We've got market sentiment, the strength of digital credit after an approximate 50% Bitcoin drawdown and what actually is an appropriate compound annual growth rate over 5 to 10 years in Bitcoin? Matt, how was Bitcoin Investor Week for you and how was cardone debates for you?
- [01:58]
B
Bitcoin Investor Week was great and the debate was great. I continue to believe that a bear market is the best time to go to events, to have debates. It's so easy to go have a debate in a bull market when amplified. Bitcoin is absolutely crushing it as we all think it will be because it's just going to be like, look at the chart, you know, in, in a bear market it's actually a lot more interesting because people are, are fearful. Some people don't understand what they're investing in. And one of the things that I think can be unfortunate about bear markets, I think they're, they're absolutely healthy. But what I saw in the institutional investment space in bear markets and in, in like longer Stock market, bear markets, is that you would see a shift from wanting to go out the risk spectrum to wanting things that had less risk than the underlying. So in this instance institutional investing would be like then the stock market. So how can we reduce risk and take less returns? That would be a common result of a bear market and it was always bad because you actually would then lower total returns. And an institutional perspective, you take someone like a Calpers, they're underfunded, they haven't met their 7% hurdle and then you scare someone like that and then they, they run and they try to take less risk when now they're going to miss their hurdle by even more. And so having these conversations, I hope in this space does not cause the same thing where people as a whole start to look for bitcoin minus returns because they're so afraid of the volatility because they don't understand what they hold. I think that would be a, a bad outcome. I think owning bitcoin is great. If you're a bitcoin bull and you underwrite a bull thesis which we'll talk about on these CAGR assumptions, then it's really bitcoin plus. That's most interesting I think. And then you obviously can do bitcoin minus like digital credit. But if you're a bitcoin bull, I think that right now is the time you want to talk about how much amplification could I possibly take. If you think about amplification as like a, a, a spectrum, like do you want to be 20% amplified, 30% amplified 50%, 60%? I put a poll out last week and I said if bitcoin is at a bare market, you're at a attractive long term level which I would classify for Bitcoin pretty simply as if you're buy a 200 week moving average, historically that's just been an insane price to buy. You could name your metric that has similar the, the realized average purchase price. All these things tend to be around the same price. But if you're around there, shouldn't you want to be amplified more, not less because you're buying cheap? And I didn't preface that, I just asked the question. And over 50% of respondents said for a bitcoin treasury company, when bitcoin's cheap they'd want to see amplification 60% or greater. And I think that's interesting, right? Like I think that the, the bitcoin treasury investor base as a whole, I think, I think sees that. So that's actually like something positive and the conversations at the Investor Week were positive. My conversation with Jeff park and Pomp was great to me, the most interesting part of that conversation was really dissecting Wash as the next Fed nominee and a view that all of us agreed on that he's going to be more dovish, dovish than people expect. People look at Washington, they think they see hawk, but when you actually deconstruct his views, he's more likely to be even more bullish than the average Fed chair because it's not. He wasn't a hawk to be a hawk. He was a hawk because he was concerned about inflation. And we saw inflation, we saw asset price inflation. Now he's concerned about deflation. Well, if you're concerned about deflation, the things that you wouldn't do before because you're afraid about inflation would now naturally be on the table because your concern has gone from inflation to deflation. So I think this gets into the accord between the treasury and the Fed which I think would be massively, massively dovish where interest rates go. And so that was probably the most important part of the conversation because I think that Marsh has been viewed as a risk off Fed Governor. I think that's actually the, the incorrect assumption from Marsh. And then with, you know, Cardone, it was a great debate. I think we orange pilled some people on bitcoin treasury companies, which I think you heard them talk talk about. After I got off Tim, I wasn't able to hear but it sounds like that that happened. I mean I think that they're generally bearish. They were investors in, in Nakamoto and I think they got, they feel like they got burned and maybe didn't understand even what the thesis was. But we actually talked through the digital credit thesis, the amplification thesis, not posting margin. What do you view Bitcoin to do in the future? How bullish are you and what are we doing and how are we trying to take advantage of that? I think they actually really, really liked that story. So I think it was a good conversation.
- [07:22]
C
Yeah.
- [07:23]
D
Matt, you brought up debates in a bear market and I think that's an interesting, you know, just thinking about bitcoin over the years. I initially made my Twitter or X account partially to engage with people that in the 2018 Bitcoin bear market were saying, you know, haha, I told you bitcoin was going to crash. And and one I was trying to just validate my thesis with them. And so I think the debates are kind of interesting in that sense to where it's like okay, if someone is taking the other side of this trade that is maybe not holding bitcoin, what's their argument? Is it a valid argument? Because if it's a valid argument, I have a lot of bitcoin to unload. And so I think that these debates that I've seen and experienced throughout countless bitcoin bear markets have, has only helped me rebuild conviction into why I think bitcoin is really important monetary technology. And I also think the debates are interesting and also a bit revealing. For example, Saylor was on, I think Fox or Fox Business Today and he posted the video of it. The host that was talking with him came out with all of the stereotypical negative, amplified bitcoin statements. They were like, Michael, your cost basis is $90,000 if it drops below this or whatever the number was. Are you sure that the strategy is going to work out? And it's interesting seeing how confident a lot of the bears become at the bottom of the bear market. And if you go back and look at some of the different bitcoin bears over the years, each bear market, they have tweets or posts or whatnot where they're kind of, of gloating pretty much near the bottom about how the bitcoin bubble has crashed. And yet every time you go back and look at the price, whether it was like 2015 and Bitcoin was like a couple hundred bucks, then 2018 when Bitcoin was like 3000 or 2022 when Bitcoin was 16,000, or today when Bitcoin's 60 something thousand, they keep saying bitcoin is going to crash, but it's crashing upwards. And so it's just kind of funny to see these debates, you know, over the years and see so many people just still not conceptualizing that this is a long duration asset. And I, you know, I'm personally a huge fan of the debates and the bear markets. I think they're, they're great for bitcoin and great for helping Build conviction.
- [09:48]
C
100% completely, completely agree. I think the, the response on Fox News was funny. I mean, Saylor's response to that was, I mean, we've raised $52 billion an equity capital. I think we're going to be okay. Like, all right, we have a stalwart balance sheet, you know, very under exposed. Like we are very strong here as opposed to where they've been historically in the past. Like back in 2022, a lot more concern about their balance sheet. But looking now, the concerns that the newscasters bring up are quite honestly A bit embarrassing and intellectually lazy. So, yeah, completely agree there. Matt, you, you brought up an interesting point here on amplification. And I, I loved your post, your poll, but I also wondered how many people understood you vote on it. I did.
- [10:42]
B
Did you do 60% plus?
- [10:44]
C
I did 60% plus. It's, it's fascinating math when you, when you start to underwrite, underwrite amplification and underwrite bitcoin risk and think about what do you want your balance sheet to look like at a certain point in time? So that's something I've been kind of conceptualizing and wrap my head, wrapping my head around a bit more, is how to think about the differences between a perpetual preferred equity instrument and amplified Bitcoin. And if you were to experience a historical drawdown, what would you want your balance sheet to look like? Like what, what are the bounds of possibility that I could start to operate within? And you know, that question made me think quite a bit. Right. Okay, greater than 60%. What it, what does greater than 60% look like? What are, what are the implications? What is the risk profile of the perpetual preferred instrument look like at greater than 60% amplification? At what point would investors not be willing to put in an additional marginal dollar into perpetual preferred securities? At certain points in time. So I was going back and back testing and looking at some historical drawdowns. And you brought up the 200 week moving average. Historically, around the 200 week moving average has been a great time to buy bitcoin. Over time though, there have been some circumstances where the price of bitcoin has fallen below the 200 week moving average. Of the times that bitcoin has fallen below the 200 week moving average, the one standard deviation of returns below the 200 week moving average is 12% below. Two standard deviations is 29% below. Three standard deviations is 30% below. So I started wrapping my head around some framework of like, well, okay, what would a perpetual preferred equity instrument look like if that, if that scenario were to occur, what would you like the security of that instrument to look like in that down downside scenario? Three standard deviations from the mean return under the 200 week moving average, the four year moving average, effectively. And it's an interesting framework to start to wrap your head around that. And what my head came to is having a bitcoin coverage ratio near 1 at that point in time. Basically the assets on the balance sheet being equal to the notional perpetual preferred outstanding that you had at that point in time at a 30% drawdown starts to get some clarity about how much amplification you could potentially put on in the future. Starts to put some framework in place for that strategy moving forward. And some of the numbers, I guess what are a bit surprising. An amplification of 60, 70 plus percent could be supportable depending on different times in the market, different risk profiles. At certain points of time you can think about regulatory risk, business architecture, business cycle, interest rate risk, all of these different components. But yeah, it was a, it was a fascinating question that led to very in depth analysis and quite frankly I don't think many people quote, understand the, the implications of that question or how powerful that question really is.
- [14:08]
B
I, I could just fill the bewilderment of certain people on X explode when you talked about a BTC rating of 1 in, in a deep bear market. But I think it comes down to underwriting risk. And, and what are the assumptions and what happens if you're slightly wrong but you're largely right? And how bad is that? And, and I think when, when you start to do the math. My view is that we, we've leaned as an industry actually when it comes to digital credit and preferred equity. Too conservative actually in, in bear markets. Not, not too aggressive. And, and, and, and so that was, that was why I, I posted that poll is I was actually just the X audience would disagree with that framework and say I want less amplification in a bear market. And it gets into another post that I, that I retweeted and it was about the forward returns after a drawdown level. Okay, so what are the, the average one year returns and what is the one year win rate percentage? So one year win rate being something happens one year in the future, what is the percentage chance that bitcoin is up? And then if it's up, what's the average return? And so what it shows is that whenever you've had a 50% decline in Bitcoin you have a on average 89% chance that Bitcoin will be higher in one year than it is at that moment in time. So if bitcoin is at you know, whatever the high was 1 125. So Bitcoin's at 62 and a half or something like that. What is, what is which you know we took out at, at the lows, I think what is the, at that point in time? Historically speaking you have a 89% chance that Bitcoin will be higher in one year from now and the average return one year into the future is 125%. And, and I think when, when you put this in, in a poker analogy. So like for people that play Texas hold' em poker, if you have pocket aces, the best hand that you could have, at best you have an 80% chance of winning. If you go all in. Pre flop, every single poker player would go all in every single time for an 80% chance of winning. Like no one would hesitate. If you're a poker player here at a 50% drawdown, you have 89% chance. What's interesting, so like let's say your view is that, you know, you don't know the future right now. Obviously we're in a bear market. Maybe the bottom is not in for bitcoin. And so just if I'm thinking in probabilities personally, I think there's probably over a 50% probability that the bottom's not in. And I think it's also an insanely attractive time to buy. And if that you're trying to take advantage of the fact that Maybe there's a 60% or 65% or 70% chance the bottom side in, you're playing the wrong game. But if you put a gun to my head and said it's a bottom and I don't think it's in. But let's say we now go down to a 60% drawdown from the high. So bitcoin goes down, touches, you know, the 58K gang is right. Okay, 60% drawdown, your one year win rate goes up to 98% and your average return is 132%. So now we have a 98% chance of winning. And that's only if bitcoin goes down a little bit more from now. And so if it goes down, I'm already capturing that if I max long today, right? Because as long as I can ride that out. And so I think the point is that we're at levels right now that it's extremely attractive on a historical basis to be max long bitcoin. And then the question becomes, are you, is your, is the fundamentals different? Is there a, if you're, if you're leaning in probabilities, is the probability that this drawdown is longer in duration than the average one or shorter in duration? I think the probability would be that it's shorter in duration, that it's shallower in depth? That'd be the probability at an extremely attractive historical time to buy with very positive fundamentals. So I think that you would want to be very amplified and very long right now. And I think the market Gets that as a whole. But it's just interesting because then the question becomes, well, what happens if you're wrong? If you're wrong on the order of magnitude of a year or two years and this kind of gets into. Well, currently, let's take Strive as an example. And you have 17 years of interest coverage on your bitcoin, on your balance sheet, let's say you're directionally wrong by one year. Okay? You lost 6% of your Bitcoin well in the first quarter. We literally have a 24% bitcoin yield. So the drawdown is actually not even an order of magnitude of the yield that's even gotten in the last three months. So it's such a small loss. The only way that you're really wrong here is if bitcoin just goes into a structural bear market. That's a difficult scenario. But I don't think anyone that's actually a bitcoin bull has laid out a thesis to me that they even think that that's the case. I haven't seen any bitcoin bull that even believes that. So if it's not the case, I think you want to be locked in, you want to be all in. And I think it's a really interesting framework. Now if you have to post margin or anything like that, completely different conversation, right? Because now you have to be directionally right in the order of magnitude of like a week or a day or a month, otherwise you become a forced seller. But with digital credit, it's just a different ballgame.
- [20:09]
D
Yeah, I think that's another interesting point related to looking one year out and seeing that very high successful one win rate, adding in the cash reserve that strategy and Strive have, that's a whole nother lever to the game where you can say, okay, if there is a prolonged bear market, perhaps that you can ride it out and you have that extra buffer as well. And then Matt, you brought up the other point of how perhaps this industry has been too conservative on digital credit. I tend to agree and I feel like the market honestly probably agrees as well. Seeing strc, for example, seeing it trade basically at par after bitcoin has gone down five straight months in a row, when pretty much no one really necessarily expected those next five months to be straight down. Especially with the S&P 500 sitting at near all time highs and not too much stress in traditional markets. I think it just shows that perhaps STRC was significantly less risky than what the market initially thought it was when it came out. Because the fact that the interest Rate has gone up marginally, but it's still trading near par. So I think that's another interesting point of, okay, perhaps digital credit or a lot of these companies can be more amplified than people originally thought. Perhaps digital credit is less riskier than people thought. And then you add in that cash, cash reserve like I mentioned, that could enable a lot of these, basically you to survive a very long time to hold that core amplified Bitcoin position because you think or you know that, or you're confident that Bitcoin is going to go up significantly over a long period of time, but you're not exactly sure when. And that's what, in my mind, what that cash reserve position is there for.
- [22:06]
C
I largely think the entire market hasn't wrapped their head around the actual, the true risk profile of the digital credit instruments. And I don't think they will for four years, maybe, maybe, maybe a bit longer than that once there's a significant trading history of these things and the dividends keep paying out. I mean, very clearly, like watching the Fox News thing that Saylor was on recently, it's just very clear that people aren't wrapping their head around this. And I just typed this into AI right before this and I was looking at probabilities of bitcoin going to 0 versus probability of the dollar collapse. And it's an interesting framework. And this is a little teaser into what I'm talking about at Strategy World next week. But the output From Claude Opus 4.6, one of the best models that's out there says when you model both assets through the same actuarial lens, the results are counterintuitive. To most people, the US Dollar faces structurally higher long term risks of severe purchasing power loss than Bitcoin faces of going to zero. Okay, why is that important? Take a step back. The S and P. When they've rated strategy for their B minus issuer credit rating, they have given the bitcoin on their balance sheet a zero credit. So the capital that it holds on the balance sheet, they gave it a zero, they marked it down to zero. There are other rating agencies that are marking Bitcoin down to zero. Yet the intelligent models indicate that the probability of the dollar losing its purchasing power relative to Bitcoin is significantly greater. Okay, so now you take a step back and you look at the entire bond market and you say, okay, well if the, if the dollar has a higher probability of losing purchasing power than Bitcoin, the rating agencies should probably take a look at all of the bonds in the entire market and revalue them and re rate them with a higher probability of losing purchasing power on those bonds relative to these digital credit instruments. I think that crux of Bitcoin going to zero. What's the probability of Bitcoin going to zero? I think that's what most like risk analysis are really stuck on but haven't underwritten. And if you, if you chop that risk off, the mean distribution of bitcoin explodes like you have fat upside right tail, it explodes to the right. Whereas the inverse is the dollar is, it is a downward implosion. So there's a, there's a lot there. I think it's a pretty powerful comparison.
- [24:57]
B
So this, this actually reminds me of an interesting conversation I had at Bitcoin Investor Week about exactly this. The ratings. And why do the ratings give no credit to Bitcoin? Is it because they, they just don't comprehend it, they're bewildered? Or is there something that's actually more structural and a solvable problem? And I think it's actually probably the latter was the result of this conversation. And the latter kind of the base layer of this likely is from Basel and Basel rules, which give no credit to Bitcoin. They actually have a very clear framework of how they value assets. And so what became really interesting about that conversation, which was with people from the bitcoin treasury industry, people in D.C. is when you think about the Trump administration and some of the executive orders that have been put in place, a lot of them when it comes to finance have been moving off of European regulations and rules to more of an America first framework and to think about America first framework. So if America is going to be the crypto capital of the world, to put the words in Trump or the bitcoin capital of the world, which I think is what it should be, right? How do you actually do that? Why are we regulating banks and financial services companies off of a European standard? That actually makes no sense. Why have Basel? Why not have the American regulatory standards that actually give credit to Bitcoin? Because if you then from a regulatory standard said see you later Basel, just like we're saying see you later to the rating agencies, which by the way, ISS and Glass Lewis are not American corporations. So this was kind of a similar thing. You had non American corporations recommending for how to vote on American corporations. And original strive was actually very involved in this. We saw this problem and we were talking to people in D.C. and it was like, here's why we think ESG is a breach of fiduciary duty. All these different Things that were interesting. But when we told them that when we talk to American corporations, the most common reason that we get why they're doing this ESG stuff is that Europe regulates it, and if they don't do it, that they can't do business in Europe. So they viewed it as a tax. We'll pay this ESG tax to access the European markets. And so we went to D.C. and said, look, you're making all these rules, but they don't even listen to your rules because Europe restricts them more than you do. So you're basically letting Europe regulate American companies. And the politicians didn't like that. So is there something we could do with Basel or say the Basel regulations? You're having, again, Europe regulate America and it's causing restrictions on the best form of money ever known to man in Bitcoin because Basel doesn't allow it. Okay, let's change the regulations. Let's give some credit to Bitcoin. Then you can go to S and P and say American companies like strategy, like Strive. We're not on Basel. We get credit from this. From a regulatory perspective, you should give us credit from a ratings perspective. And just an interesting conversation that it's at the early days, but I think that that discussion needs to be had at the highest levels of government.
- [28:30]
D
That makes sense to me. Jeff, you made an interesting point that I had not actually necessarily thought about in too much detail earlier, about how the dollar obviously would likely have more existential risk than Bitcoin. Or to put it plainly, like a fiat money, they all trend to zero in the long run. In fact, they're designed to do that. And I think if you compared any sort of historical fiat money to gold, it would be very intuitive for the. For someone to be like, okay, that makes a lot of sense. Obviously, gold has been around for thousands of years. You know, you heard the saying, like, a certain amount of gold, an ounce of gold, can buy like a nice suit in the Roman Empire and can buy a nice suit today. You know, it's. It's a timeless monetary technology. And obviously compared to, you know, hundreds or maybe even thousands of different FIAT monies have, you know, come and gone over the years. Then it just become. And so you have that comparison in your head. Obviously, gold can outlast pretty much every fiat money that has ever existed. Now you just have to say, okay, well, if bitcoin is digital gold, how can it, you know, how is it going? Is it going to last a very long time compared to gold? Like, are the monetary properties Actually sound like, are there any potential disruptions to bitcoin? And then once you can realize like, okay, like bitcoin is software, you know, it's, it's most. Its monetary policy has been unchanged for 17 years at this point. And not only that, bitcoin software. So if there's actually a threat to bitcoin, it itself can evolve. Like, you know, people talk about the quantum threat. Will that, you know, break bitcoin one day? Well, it's like if that ever becomes a very material threat, then Bitcoin can upgrade. You know, it's very, very difficult to change Bitcoin. But, but if bitcoin is actually threatened, it can change and it can upgrade to survive a long period of time. And so it comes down to like, okay, well, if gold has survived for thousands of years and bitcoin could survive a very, very long time because of those unique properties, then yeah, it would make a lot of sense to me that fiat money, whether it's the dollar or countless other fiat monies all around the world, those are likely going to trend towards zero or eventually reach zero, probably a lot sooner than bitcoin ever would. Which is just an interesting point.
- [30:54]
C
Yeah, totally. And you think about gold, you can't upgrade gold if there's like a meteor that flies over the earth and it just sucks up all the gold. It's not like you can just go upgrade all of the gold on planet Earth and avoid that situation. I think it's a great point. I've also been conceptualizing here and Matt, great, great concepts on the Basel framework. I think if there's any change there that kicks a door wide open. You're talking about banks holding capital. You're talking about Bitcoin being used as collateral institutionally across banks. You're talking about institutional grade letters of credit from banks that are holding capital. The capabilities of the financial infrastructure globally would explode. That would be very interesting to watch. That might be a good, that's a good topic for 20, 26. We'll keep eyes on that. But one other point I want to kind of come back to is with bitcoin is it's very observable. And because it's very observable, you could watch it 24 7, 365. There's benefits and drawbacks to that. The benefits are it's data. It's just so much data. You could go on, check on Chain's website and go look at the thousand different charts he's pulled together of like on Chain data. Different perspectives, different wallets. Moving in different places. It's just incredibly observable. The downside is it's incredibly observable and it's super volatile. And that creates this like visceral feel, fear feeling for most people seeing volatility and experiencing it and watching it. However, you could think about like the true liquidity value of like your home. If you, if your home, if you had to see the true liquidity value of your home on any one given day, at any one given moment, any one given second, it would be incredibly volatile because there's just not buyers all the time of like that specific type of house in that specific location all the time. That's why, you know, hangs out. It's not very liquid. It may sit on the market for a month or two months or three months. And that's that. That observability is one of the biggest strengths here for Bitcoin and thinking about digital credit too, these things can be calculated in real time and have a very thorough understanding of the risk profile of these different instruments. 24 7, 365 and that, that's, that's something I think is just vastly overlooked and should be seen as data, not as a downside. It's volatility that exists, but that's data. And historically you think about the expansion of any of these financial markets or even the Internet, the whole point is how do we get data and more data to make better decisions? More data to make better decisions. More computer like Fintech was about more data. Insurtech was about collecting more data so you can make better decisions. And this is the same thing. This is the expansion of having the ability to have more data available at any one given point in time to make better decisions with better computing power. So that's just something that my mind has been on, that it should be viewed very positively, but I think is being misconstrued to be very negative.
- [34:27]
D
The other thing that I think is very interesting about Bitcoin's volatility that you mentioned there is, if you look back at Bitcoin over the last 17 years, Bitcoin is arguably, this is what Pierre Richard said, the least uncertain asset. And so I've always found it fascinating that Bitcoin's price is incredibly volatile, moves up and down at an unbelievable rate compared to bank account OR S&P 500 or any other traditional asset. Yet bitcoin itself is like one of the most stable things in the world and kind of like in a world where there's so much uncertainty. I saw this one chart on Twitter the other day, it was like the uncertainty index and it was supposedly at all time highs. But I think a lot of people do feel that there's a lot of uncertainty and it's just interesting seeing. Okay, well, bitcoin, this actually incredibly stable thing is for whatever reason, incredibly volatile. I think it's incredibly volatile, really, just because it's growing so fast. If you look back the last 17 years and you pick any specific year and you look at the cagr, it's a pretty good cagr. The bitcoin haters. I did this post today. The bitcoin haters will look back and say, okay, five years ago, if you bought bitcoin and you held it until today, well, bitcoin is only slightly up. You've almost matched maybe the S&P 500 or it's a little less than that. That's their best argument in that, okay, you bought bitcoin after it went up maybe 2,000% in 18 months from the low, and then now bitcoin has fallen 50% and you sold at that time. So you had the worst possible timing that you could ever have and it didn't work out. It was, you know, or that's, that's. And you match the S&P 500 basically, or you match like a T bill. I find that kind of funny. And so, yeah, I think, like, the volatility of bitcoin is really just a symptom of its rapid growth. Like the world is trying to conceptualize, okay, we have this, like perfectly, you know, this perfectly scarce new monetary tool with all these superior properties. No one has grasped that whatsoever. The market is like trying to figure it out as fast as it possibly can. And I think the volatility is kind of just evidence that, hey, like, something is here. It's very mispriced, the market. We're trying to figure out what it should be priced, but we just know it's completely mispriced. And I think that's why the CAGR has been so high for such a long period of time.
- [36:57]
C
It's like intelligence and information whiplash in both directions all the time.
- [37:03]
D
Yeah.
- [37:04]
B
The way I've conceptualized it myself is I know that $10,000 a Bitcoin or $100,000 a Bitcoin, it's the wrong price. It's either worth millions or it's worth nothing. And we're just on the bitcoin maturation journey that if it's going to be the thing that we think it's going to be, that it's worth millions. And this CAGR along the way is really just a combination of liquidity conditions and the probability that it's going to be successful.
- [37:37]
C
Right?
- [37:38]
B
It's not just one of them. It's not because certain times liquidity conditions get out of whack, people take too much leverage and the market flushes that, not because the probability of success has declined, but because there's pockets of liquidity and liquidity conditions tighten. But we know that the probability of Bitcoin's ultimate success is going up right now because fiat currencies continue to be debased. And so I think it's just part of that journey. And my skeptical view of why institutions may not like that transparency at times is I think sometimes they don't like to see the value of their private credit, that it actually would be volatile. And I think I've said this on the hurdle rate before, but I mean, literally one of the former CIOs of CalPERS literally went to the board and he called the lack of pricing transparency accounting alpha. And like, I, I, I mean, I don't think I was drinking coffee, but I about spit out whatever I was drinking. Like, are you kidding me? Like, like what, what, what a joke that we're going to sit here and pretend that it's, it's alpha from a Sharpe ratio perspective? Because certain assets are not marked day to day and then their marks actually lag the real market. So when you actually get the update, whatever it's worth on, you know, a certain date, it's already a few months stale when you actually get it. So it kind of also has a, a lag versus whatever the market did. And so less pricing and the lag creates a weird, positive, helpful feedback on Sharpe ratio metrics. I'm like, and it makes me laugh because, because when you get the same people that play that game that are like, well, Bitcoin's a grift, or Bitcoin treasury company is a grift is like you're literally trying to invest in something because it doesn't have pricing transparency and the pricing is delayed. To play some math game with Sharpe ratio, it's like that is actually a grift because that's not alpha. All you're doing if you're doing that is you're going out the risk curve. So you're taking a view that risk assets will do well and then you're closing your eyes at the valuation. So that way if risk assets do well, then you have a mismatch in pricing and it makes you look really smart. Well, that's not really smart. And I think, Jeff, you and I have talked a lot about private credit and how we don't want to touch private credit and how much better we like the opportunity that digital credit provides. But I think that's there's certain people that are in that mindset and to a certain extent those people are probably hopeless. If you don't want transparency, then Bitcoin will not be for you because it's super transparent. It should be for you, but it won't be because you don't want transparency. But for people that actually do like to see the numbers, they do like to understand the risk and return profile truly of what they own, then this is a great technology and phenomenon and it does show the opportunity. But you know, it takes, I think intellectually honest investors.
- [40:59]
C
Craziest part about that comment is that it will be earth shattering to those people when the computers that are their directors and guides and overlords, the AI computers and the next 10 years nobody's going to want the opaque thing. The computers don't want the opaque thing. The computers want something that they can calculate. And it will be interesting to see how this entire marketplace evolves. Does everybody that's issuing fixed income instruments have to shift in the future? I mean this brought them five, ten years from now to a digital credit type model where you are storing the value in your company and the risk profile of that instrument is a function of the value of your credit or the value of the assets on your balance sheet and how quickly you're able to continue to accumulate them. And that's just an, that's an interesting, interesting framework. But Matt, you brought up another point here. The just the math. Current US government debt to GDP ratio is 121%. So that's total debt relative to gross domestic product, the US to debt GDP compound annual growth rate. So this number has been compounding over time. That number is compounded at two and a quarter percent since 1971 and it's compounded at 3.6% since 2008. If you were to forecast the U.S. government debt to GDP, where it's at right now, 121%. If you're forecasted out 10 years to 2036 using the 2008 trend, 3.6%. The U.S. debt to GDP ratio will be 172%. That's assuming no changes. It just continues that trajectory that it's been on since 2008. And I don't think there's Anything that looks like it's going to be stopping it.
- [42:53]
D
Yeah, that's especially terrifying when you realize GDP itself is compounding and exponential over time. So it's know, compounding, uncompounding. I, I heard a stat the other day, I heard a stat the other day that was kind of just breaking down like what the US Government, like, spends money on it. And you know, it basically was just showing like Social Security, Medicare and interest expense were like 80 to 90% of tax receipts. And so I, I guess, like, this just kind of shows that, you know, Lynn Alden said it the best. Like this train has no brakes. Like, we're spending a lot of money on a lot of different things, but a lot of our spending is just going to what probably most people would never vote against. I don't know, I don't think anyone is ever going to say I want less Social Security or I want less Medicare or, you know, if our interest expense, you know, if interest rates go up because inflation goes up again for whatever reason, then interest expense could even expand further, which is kind of a scary thought. So, yeah, it's just kind of like frightening, scary times. And I think what's also funny, when I think people talk about the dollar and whatnot, it's like, best case scenario, the dollar continues to debase against a basket of consumer goods at 2% per year. By design, that's the best case scenario for holding dollars. And when you compare that to anything more scarce basic consumer goods are going up at 2% per year. Bitcoin, which is this perfectly scarce monetary tool that 1% of the world may have truly adopted, probably less. If you think about how large of an allocation it perhaps should be in a portfolio. You have, okay, basic consumer goods going up 2% per year, M2 growing around, I don't know, 6 to 8% per year. So the total amount of dollars kind of in the banking system, Bitcoin maybe having no supply growth and having that adoption feature of, okay, well, no one in the world practically owns it now. We got to get to like, a lot of the world needs to own it in the future. And then on top of that, you have like, you know, AI rapidly creating technology deflation and creating, you know, massive productivity and more inefficiency or more efficiencies within the market, arguably should be making things cheaper, which perhaps might mean the government needs to spend more or more, credit needs to be created and the economy to maintain that 2% CPI target. Bitcoin is just like prime to potentially have an incredibly High CAGR over the next five to 10 years. So I'm pretty excited about it.
- [45:37]
C
Yeah, you bring up a few things there. I went on a road trip to the ocean this weekend and I was just observing everything as I was driving. I'm just living in this totally digital world, thinking about digital credit and these digital assets and everything that's going on. And then when I, when I drove out to the ocean it's like, okay, AI is not going to help any of these like 95 of these people like that, the little towns I was driving by and it's like these people are going to get left behind, like all of them, like in all of the little towns, like the little farming towns and. But those, those tasks will still be very necessary. Like we will need the people that are working in the farms or working in these tiny towns and doing that type of stuff. So it's kind of interesting coming out of your bubble a little bit and trying to level the playing field of what's happening over here in this digital world and how it may filter out and filter through to the real world. And I think there's just a pretty big disconnect because I use AI every day, but my neighbors don't. My neighbors have no idea this stuff is going on. We're in a strange times for sure.
- [46:57]
D
Yeah, I completely agree with that. And it reminds me of the whole idea of the K shaped economy where talking more about the haves and the have nots, but part of that is due to broken money, but I think another part of it is just due to how fast the world is changing. He brought up how, you know, comparing maybe myself to like, you know, a 70 year old man, it's like we're living like completely different lives. And if AI continues to accelerate at the pace that we've just seen over the last three years, like the disconnect between like different parts of the world or different population groups or different demographics is perhaps just going to get like wider and wider, which perhaps will create some pretty interesting dynamics. I think that increasing uncertainty is obviously really good for a monetary asset that is the least uncertain monetary asset. When all of this uncertainty is existing in the world and these disconnects that are happening between different countries, different groups of people, different technologies, you need some sort of economic certainty or lack of uncertainty or, and I obviously, I think that's bitcoin.
- [48:10]
B
I think to me I could actually make an argument that those people won't be left behind relative to, let's say the workers of New York City. On average. But I think what's going to be true is that the current jobs that people have, there's going to be less need for them in a major way in the future. There's going to be massive disruption on the backs of the K shaped economy. People that own assets drastically outperforming people that don't have assets. And it just feels like what you would imagine a fourth turning scenario to be. And you put on top of that the political divisions in our country and it just feels like it's going to be messy.
- [48:56]
C
Totally.
- [48:57]
B
Like, I, I mean I, I, I could make an argument that AI puts so much power into the hands of the individual wherever you are, whether you're right by the ocean. And probably most people there have no idea what's happening. But there's probably like a couple people there that do that are probably like deep in it. And those couple people now probably have an opportunity to do something in the middle of nowhere that they would have never been able to do in the middle of nowhere. They would have had to move to New York or Dallas or wherever. Right, but why, why do they need to, they could fire it up wherever you are. Right. And so what is, what does that future look like? I just think it's going to be, it's going to be messy and it's going to be this, this world of abundance, right, that gives all the power back to the individual. Jobs are going to be lost. New jobs are going to be created at least for the next several years. You know, massive power plants and data centers are going to be built out and there's going to be a need for basically unlimited labor for the next few years as we build it out. Like different types of labor, right, that companies might be hiring less white collar workers, you might need other workers. Then you have humanoids coming in and it's just like, what does that future look like? Well, it might be different for the next three years. A booming economy where there's just unlimited demand for Labor. And then 10 years from now it might be humanoids are around, AI smarter than everybody on the white collar and we have to completely rethink work in the near future. And in the midst of all of this, the government keeps printing money. I feel like there's so much uncertainty about the future. Looks like, except for we know bitcoin is scarce and there's going to be, that's going to be a place that people are going to have to run to. Like, I, I just don't see there to be any, any other way. But also I think it's going to be a roller coaster of roller coasters.
- [51:04]
C
Super messy. Yeah, totally. Yeah. I was talking to somebody, it was like, oh yeah, I was talking to someone that they were saying if you were. Yeah. If you're aged like 50 to 65 right now and you lose your job, you're probably pretty frightened. If you've got these younger cohorts that are doing things in a different way and they're doing it faster and they're using all these tools, tools that you've never heard of. I mean, the older folks, the older people can absolutely use these tools. There's no boundary to using these tools. But the ability to operate with them and interface with them. I mean, the younger people have just grown up with these types of tools. They're just fully integrated with how they think and how they work and how they operate, how they communicate. And yeah, I think this whole thing could be a bit, a bit messy. But the one thing we do know is that bitcoin is scarce. I think scarcity should, should be at a premium here in the future. A lot going on, deep, deep conversations.
- [52:08]
B
It's not going to be boring, I'll tell you that much.
- [52:11]
C
Yeah, well, look, we have the Strategy World is next week. We have a True north event on Monday. We've got a great panel, panel, great lineup. I look forward to seeing everybody there and chatting through some of the stuff.
- [52:23]
B
It's an insane lineup. Have you released that yet?
- [52:26]
C
Half of it. We've released half.
- [52:27]
B
Okay, well, people got some nice surprises coming.
- [52:30]
C
It's a good lineup. Look forward to it.
- [52:34]
A
Awesome. Well, yeah, we will see everyone out at Strategy World Bitcoin for corporations. And thanks for listening and watching to episode 48. Bullish digital credit for Joe Burnett, Matt Cole and Jeff Walton. I'm Tim Kotsman and this is the hurdle rate. As fiat systems falter, wealth preservation isn't a strategy. It's survival. While the world reacts, Swan Private clients are already prepared. Swan Private builds strong relationships with clients around mutual conviction in Bitcoin's long term promise. With concierge service, deep expertise and airtight security, the Swann Private team helps build generational wealth the right way. Swan Private's comprehensive bitcoin wealth platform serves over 5,000 clients. With more than $4.5 billion of Bitcoin purchased to cold storage. Swann Private is built for long term partnerships. Get started today@swann.com private.