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- [00:00]
A
Welcome back to the hurdle rate episode 50 for the week of March 9, 2026. No shortage of things to talk about. I'm Tim Kotsman. I'm joined by Jeff Walton, Joe Burnett and Pierre Richard. We have oil trading like a meme stock, Morgan Stanley launching a Bitcoin ETF and STRC clearing the path for pre and post market issuance. Meanwhile, in the other world, BlackRock Private Credit is halting withdrawals and WARSH is forecasting a structural decline in prices. From AI Michael Saylor Posted on x5 days ago we can buy more Bitcoin than they can sell. Then Strategy announced on Monday that they have acquired an additional not total an additional 17,994 bitcoin for approximately 1.28 billion at an average price of $70,946 per bitcoin. So strategy currently holds 738,731 bitcoin acquired for about 56 billion at an average price of $75,862 per bitcoin. So today on the Hurdle Rate, we're going to break down what Strategy's latest billion dollar purchase means, what it tells us about the evolving Bitcoin treasury model and whether we're entering a new phase of corporate Bitcoin accumulation. Of course I'm talking about strc. I was telling someone recently, one of my favorite things on X these days is STRC Live, so if you're not following that account, it's pretty entertaining. A few things that caught my attention today. James Van Stratten posted that MSTR raised enough cash in one week, referring to the 1.3 billion to pay off the first tranche of convertible debt at $1 billion. So Jeff, intrigued to hear. You know if you have thoughts on that, Jeff, I enjoyed several of your posts this morning, including that in a bear market strategy raised 377 million on STRC, 899 million on MSTR. Also your post about Bitcoin risk being mispriced along with a beautiful chart of bitcoin up over 2% while gold, the Russell 2000 QQQ S&P and VTI were all down over 1%. And of course your post comparing the JP Morgan perpetual preferred to Strategies STRC Perpetual Preferred product. Joe Yet a few posts today about today is the day. It's the day that the 20 millionth bitcoin is going to be mined and the final million Bitcoin will be issued over the next hundred plus years through the year 2140 approximately. And Pierre, thanks for Joining us today, I enjoyed your interview with Hunter Albright, highlighting that zero is the wrong number, of course, highlighting why zero percent bitcoin exposure is no longer a neutral position for modern portfolios or corporate treasuries. So Pierre, intrigued to hear your takeaways from any other conversations you're having recently. And then of course, let's continue to go around the room and see what's on everybody's minds today.
- [03:16]
B
Yeah, thanks for joining Pierre. I appreciate it. And yeah, absolutely monstrous day in the markets. We've got strategy raising on strc and mstr 1.2 billion. I think it was the largest non IPO Bitcoin buy I think they've had since 2024. I think there may have been one week in early January where they had bought more bitcoin than this week that wasn't an ipo. But I think this was the largest week. And the signal is very clear. We can see that STRC is scaling pretty drastically. So we're now, over the last week they raised 377 million on STRC. This is a week prior to the record date, which is fascinating as well. So the record date happens this week. That means if you want the dividend for this month, you need to be in the stock. I think it's by the end of day Thursday to qualify for the dividend for this month. So you anticipate that this week would be a large volume week as well as people that are rotating capital around into different locations are piling in to get that dividend for this month. So a fascinating development as this continues to grow drastically. And Tim, you mentioned this I posted the relativity on the volume is staggering. JP Morgan has a perpetual preferred equity. As of Today it traded $2 million in volume, maybe two and a half million. And the strategy instrument has traded $270 280 million in volume in normal trading hours today. This instrument is eight months old. JP Morgan has been around forever and the relative risk profile and the liquidity profile of these things is just so fascinating to compare. And it's so much different than all of the other historical preferreds offered by any of the other banks. So this is really a monumental development in the entire world of credit and equity and how these things trade back and forth to each other. But curious to get your guys thoughts. It's dominating the feed everywhere now and it's the hottest topic. I think we had covered this structurally bullish, I think about eight episodes ago where we were talking about seeing this development happening. And here we are and it's starting to really dominate mindshare across the industry.
- [05:42]
C
Yeah, I can express a few thoughts as well and then pass it back over to Pierre. I completely agree. The buy that was announced by Strategy today, pretty incredible. I think looking back to when STRC was first created, I thought it was a really good idea, but I wasn't 100% sure how it would perform if Bitcoin did fall 40, 50%. Little do I know that that's exactly what ended up happening. And the fact that this instrument is still performing the way it's been performing, still trading roughly or at par, and Strategy is able to raise $300 million plus from it, that's pretty incredible. And then on top of that, you can compare or you can see that the Bitcoin acquisition that Strategy announced today was funded via STRC and mstr. Combined together, they generated a positive BTC yield I believe in for this specific transaction, it was plus 0.8% in just one week. And at the same time they maintained the exact, roughly the same amplification percentage. So they didn't necessarily increase the risk of the balance sheet. You yet they increase Bitcoin per share with this combined transaction, which is really kind of interesting once you start to think about it and what the implications could mean for that. If this is something that becomes repeatable week after week, which, you know, as long as the market is willing to buy these products at around the same valuation, that's exactly kind of what would happen. So it's cool to see the success of digital credit despite so much. I'm sure we're going to talk about this, but turbulence and traditional markets and private credit and all of these other different kind of perhaps more riskier financial instruments than a lot of the market may expect. But yeah, it's exciting times to say the least.
- [07:46]
D
Yeah, I think going into this, one of the assumptions was that it would be very hard to raise capital in the bear market so that the model would essentially break from an accumulation perspective even if it didn't cause of liquidation. So we're not seeing that. We're seeing that Strategy is able to continue to raise capital. And I think that on the stretch side, what has really worked in Saylor's favor was establishing that cash reserve, which is just ideal for this kind of scenario, so that the fixed income investors don't have to worry about whether access will be cut off in the future and they won't be able to raise from the common. They know they're going to get their dividends for the foreseeable future. And so I think that attracts demand. Now. The other part of it is that on the Wall street side, despite the turbulence, liquidity conditions are okay. And so I think that there's lots of chatter on the private credit side. And as Jeff has pointed out, Bitcoin is so or Bitcoin treasury companies. What MSCR is doing with digital credit is so transparent. I think that it almost comes as a shock to people who are used to trying to figure out what is in these loan portfolios, what is the underlying collateral, what are the real marks, the real prices for these assets that are so illiquid and bespoke. So I think that going forward it does seem to me like a bit of a dislocation where Bitcoin's trading at what I would consider to be distressed prices at this point versus what I think Bitcoin itself should be doing. So it's interesting. Digital credit has exceeded our expectations as Joe pointed out. But Bitcoin, for me personally at least it has been underperforming. And of course that's not the first time in Bitcoin's history that I felt that way. And usually that leads to some nice outperformance. So those are my thoughts at this point.
- [09:57]
B
It really hits on the symbiotic nature between the credit and the equity. And Joe, you hit on this is they raised MSTR in line with STRC at effectively the same amplification which benefits the equity and benefits the credit. The increased demand on both of those improve both the equity investors position and the credit investors position. Why? Because as the amplification remains constant, that gives them more ability to potentially raise additional STRC into the future. So as the underlying price of the commodity will rise as well, that will de amplify the portfolio. So the credit quality being unchanged here is also really I think critically important for both the equity and the credit. So scaling them both at the same time in this depth of the bear market is one is impressive. Two, I think it's critical for just the structure of the vehicle moving forward.
- [11:02]
C
Yeah, one thing that I talked about when I back at similar I described kind of the different strategies around Bitcoin treasury companies in two different ways. I said one was a fast money strategy and the other one is kind of a slow money strategy. And I think both strategies are good strategies and they work over time. The slow money strategy in my mind is exactly what strive and strategy are doing. We take an amplified Bitcoin position and we simply wait. As long as Bitcoin has a CAGR that exceeds our cost of capital, then over time, that trade should pay off and you can keep, you know, issuing additional digital credit, buying additional bitcoin to try to maintain a similar amplification ratio. That's like the slow money game that as long as the bitcoin thesis plays out, you know, it, it, it should work. The fast money game that I talked about was, okay, well, let's say that the equity, the common equity, is trading at a pretty high premium for whatever reason. There's different arguments to be made as to why that's necessarily happening. But historically we have seen that happen with a number of different bitcoin treasury companies. And that's where, Jeff, as you're talking about, you can raise common equity at this premium, potentially pair it with additional digital credit, and you end up maintaining a similar amplification ratio, generating BTC yield. And it actually is generated pretty much instantly. Like I mentioned, Strategy generated a 0.8% BTC yield just this past week. And as the premium on the common equity gets higher, that BTC yield that can be generated also gets higher. So I think it's a pretty interesting dynamic that a lot of people may not necessarily understand or think about.
- [12:53]
B
Totally, totally. I think we should hit on this historic moment in bitcoin's history here. The 20 millionth Bitcoin has been mined. We've got a million bitcoin left to be mined across the year 2140. Pierre, you tried to trick me with a few questions last week or two weeks ago at Strategy World, but I'd be curious to hear your perspective on the changing supply dynamic, supply and demand dynamic, and your view of this landscape kind of moving forward.
- [13:25]
D
Yeah. So the trivia question last week at Strategy World was, would bitcoin ever really reach 21 million? And there's actually a number of answers to that. The headline one is, no, we'll never actually reach 21 million for a number of different reasons. The mathematical one being that there's only 32 halvings, and that actually gets you some satoshis short of the full 21 million Bitcoin. So putting that aside, half the bitcoin were mined in the first four years, and so then the next 25% in the following four years, and so on and so forth. And so now I think we're around 95% of the Bitcoin have been mined. So 20 out of 21 million. This is a really interesting debate that bitcoiners have had for the years is what is the relationship between bitcoin's price and Its scarcity and its relative scarcity and the stock to flow question. And so that's, I think in my mind it's just supply and demand 101, that we're getting less and less supply. And so now it's just all about demand. But the other piece of it is the ogs. So now the people who were accumulating bitcoin back in 2010, 2011, 2012, so on and so forth, they're the ones that are bringing supply onto the market. It's not bitcoin miners anymore. And so I do think that that would just, all else equal change the shape of cycles. And maybe what we just saw with this cycle is I've heard it referred to as kind of a psychological cycle in the sense that you had OGs that were selling just because it was the four year mark, not because anything particularly exciting had occurred other than crossing $100,000, which is pretty psychologically significant. But this supply was, it's not from bitcoin miners selling now.
- [15:35]
C
Big.
- [15:35]
D
Huge caveat to that, right? We have big publicly traded bitcoin miners that are pivoting from bitcoin mining to AI. So at this point it's really the, you could call them the mining treasury companies that are exiting the treasury business and then just going full in on AI. So I think that from that perspective, it's really about specialization, right, that we're going to see bitcoin treasury companies actually specialize further into financial engineering and away from operating businesses like mining, for example. And I think that'll just be a trend forever. I think the clean way to do it would be for them to spin off the bitcoin treasury rather than to liquidate the bitcoin. I think that that would be a lot healthier for the bitcoin market, obviously, selfishly, but also I think the shareholders would be better off. I think that would create value. So doesn't seem like that's the direction they're going in so far. It seems like bitcoin is such a liquid 24,7 market, they'd rather dump the bitcoin on exchanges. But I actually think that we'll see this trend extend itself to operating businesses as well. So there's the pragmatic question of should a company hold bitcoin? We all believe, yes, but should they hold a material percentage of their balance sheet in bitcoin, it might just make more sense to spin that off as a separate entity and let that become a digital credit vehicle than to try to layer it on top of other businesses like Mining.
- [17:21]
C
Yeah, it's a good point. I think one of the takeaways that I had from Strategy World was how focused Saylor was on obviously pushing to bitcoin adoption but encouraging more corporate adoption of digital credit itself. Which to me in hindsight is pretty. It's kind of obvious that that's going to be the natural evolution of things. I think of bitcoin being this max long duration asset that may over the next decade compound at a 30, 50, 60% CAGR. If you're really optimistic, maybe perhaps even higher, but you can say 30% with relatively extreme volatility. Right now I think the last 365 day Bitcoin realized volatility is around 47%, something along those lines. So extremely volatile compared to traditional asset classes. And then digital credit being on top of Bitcoin, giving the first 10 to 12 or so percent returns to investors and then giving the excess returns to the common equity investors that want even additional volatility. It makes a lot of sense to me. You know like Saylor has always talked about like everyone wants a bank account that pays them, you know, 10% interest or 12% interest. And, and I think like, you know, thinking about like just markets and building products and building things that people want, people want like very simple things that just work Bitcoin. You know, very few people in my mind actually have a time preference of like four or five decade long years. They actually just want something simple that works on a day to day basis and they don't even want to really think about it. And so I think that that's exactly why digital credit has probably done so well despite the bear market that we're in for Bitcoin itself. And it seems like if Bitcoin can eventually turn around like I think it will, it's just a matter of time. Since it's a better form of money, maybe then this could really be off to the races in a really unique way that perhaps we haven't seen ever in the history of a bitcoin bull market.
- [19:34]
B
I think a lot about the analogy to standard oil and I was chatting about this with a friend this weekend thinking about digital credit just like you were talking about Joe. You can go get gasoline at a gas station anywhere. If you wanted to go get oil and turn that into gasoline, you wanted to go do that in your garage and plug gasoline into your car. You're going to have to go get a ton of infrastructure, specialized tools, you might need to hire a person or two and your house might blow up in the meantime, talk about volatility. It's really difficult to take this commodity and turn it into a specialized solution to plug it into your vehicle. Now it's same thing with Bitcoin. You're taking this volatile commodity and this company like what we're doing at Strive and Strategy is doing, we are taking that volatility on our corporate balance sheet. We have the infrastructure and the team to take on that volatility and convert that into a more specialized product that's more consumable for the masses. Right. And that's the, I guess the fundamental difference between people can't go buy Bitcoin and turn it into like a perpetual preferred equity in themselves. There needs to be a transformer to transform it into this specialized product that we're seeing today. That's the really big unlock is that folks can't do this themselves. There needs to be a transformer in order to do it.
- [21:14]
D
Yeah. And I think that applies to the individual level and it applies at the corporate level. That something that is surprising when I look back at the kind of the conversations I heard, whether it was at bitcoin startups or bitcoin companies that are more mature. Management team was always trying to find ways to not be in such a cyclical business. They would always talk about, oh, you know, this is too volatile. Like we need to have steady earnings to get the right multiple that will increase our valuation and our stock options. It's a completely normal way for management to operate. If you get into the academic corporate finance literature, management can be too risk averse and not take on enough risk. But on top of that, as Jeff has pointed out, they're mispricing the risk that turns into always getting distracted in bear markets. And so I think that's a huge risk in and of itself. A principal agent problem between the shareholders and the management team. Thankfully, I haven't seen its strategy or its drive and we kind of take a very rational approach to risk, thanks to Jeff. Now so when we think about the sales of digital credit products, that's a huge opportunity. Right. Where you have management teams that don't want the P and L volatility of Bitcoin, they don't want it to mess up their next earnings call. So when they think about bitcoin exposure, it's like, okay, how do we put it in a wrapper where we're just going to get a fixed or variable rate dividend that that does not move around so much from a principal perspective so that our P and L's looking great. And I think that there's that risk aversion part, but there's also the pragmatic perspective that if you're operating a corporate balance sheet, you have to make sure that your assets and liabilities are matched. And so if you have a very volatile asset and you have fixed liabilities, you're going to find yourself upside down. You need to have a stable asset, depending on what your cash flow needs, what your FPA projections are. That's where I think it's going to be a lot easier to make progress for adoption of digital credit in corporate treasuries than it has been for Bitcoin. Now, let's keep in mind, when Saylor first announced that strategy was adopting Bitcoin, myself and others thought, well, this is going to turn into a tsunami and we're going to have half The S&P 500 is going to adopt Bitcoin in a few years. Because it's just so obvious, right, that hasn't happened. And so I think that there was basically a fluke that we had somebody as brilliant as Mr. Saylor, who was the CEO of a publicly traded company and he in some ways stumbled into it. He didn't immediately start with launching stretch in 2020. It was an evolution and that the rest of Wall street is not necessarily going to go down that path. But I actually think that they're going to be interested in Stretch because they're holding hundreds of billions of dollars of cash. And of course it's not actually cash, it's in cash equivalents and other kind of short maturity instruments. And just from a diversification perspective, I think they will start buying Stretch and other digital credit products that emerge. I think that it makes sense for Saylor to focus in his pitch that can have traction, that can have product market fit, rather than trying to push on a string with bitcoin adoption with management teams and boards that fundamentally their incentives are just not aligned with adopting Bitcoin.
- [25:18]
C
Yeah, and I think like the digital credit credit market, not only is it like an easier pitch per se to corporations and even individuals, but it's perhaps like a more scalable market. Like everyone wants a stable dollar credit like instrument that pays a high yield. So I completely agree on the 20th millionth Bitcoin today, that was an interesting moment. I think for me the coolest things in bitcoin history are havings being able to watch the block subsidy actually dwindle down over time, even though we all know it's going to happen and not one single individual or single group of People is remotely capable of changing the monetary policy of bitcoin, which is. Which is why bitcoin is so unique. But it's still cool to go through time and be like, wow, this was going to happen. And it actually happened. So, like, the 20 million, I wouldn't say this is as cool as a having, at least for me, but it was a pretty cool experience. I mean, I feel like it's probably like the most reaching a certain threshold in total bitcoin supply. To me, this makes bitcoin feel more scarce than it's ever felt before. I mean, Only less than 1 million Bitcoin left to be mined at this point. Like, that's. That's pretty incredible. So, yeah, exciting times. And I agree. I agree with what you said about digital credit.
- [26:47]
B
I've got a couple things to add there, Pierre. Pierre and Joe, both of you guys. First of all, 1 million bitcoin left to be mined strategy has 738,000 bitcoin. They're 261,000 bitcoin away from hitting a million bitcoin. They're in a race with BlackRock and the IBIT ATF. And that, that is. That is heating up, obviously, with STRC cooking here. But thinking about 261,000 left, the 261,000 bitcoin left to hit a million bitcoin. The company didn't have 261,000 Bitcoin in November of 2024, and now they're sitting 261,000 away from a million. It's just like, this is moving incredibly quickly. And as we have the supply is asymptotically getting closer and closer to zero. People will recognize this. And the crazy thing that I experienced when I first kind of started looking into bitcoin, the supply curve, I immediately was like, this is too good to be true. It's so simple. You're like, no way. And then you start digging into it and you're like, oh, wait, no, this is legitimate. There are computers that are securing the protocol, the whole thing. So I think people will wake up to this idea of, like, the supply asymptotically approaching zero. And I think that will start to get more apparent here over the next year or two. But I'm going to go back to what you said, Pierre, hitting on assets and liabilities like duration matching. And this is something I've been thinking about quite a bit. And, like, where are all the liabilities? Like, who has all the liabilities? And, I mean, my mind instantly goes to insurance companies, right? You're collecting in premiums to pay out future liabilities and you have a float in the meantime. So the question is, what do you do with the float? How do you invest the float? What does the float look like? And historically all of these insurance companies, they are piling into debt instruments because they are, they have some certainty on what the cash flow is into the future. And if you have long tail liabilities greater than a year, two years, three years, you can start to match those from an actuarial model perspective to future cash flows. This is one of the reasons I ended up leaving the industry, the insurance industry. I started seeing a mismatch between the volatility of the tail on these insurance company balance sheets where there was uncertainty on inflation. The claims themselves were coming in at a different pace than the insurance companies were able to build the assets on their balance sheet. And it just seems like these companies business models were continuously getting squeezed on the margin. And now you look at the landscape of where we're at, I'm now what, like a year and a half out of the insurance reinsurance world and it's becoming just so much more apparent that these instruments are going to get plugged in everywhere. You think about private credit. BlackRock just shut the door on withdrawals from their private credit fund. That's effectively like a bank run on private credit. People are going to go get their money out and backers are like, whoa, whoa, whoa, hold on, let me close the doors on you. You can't get your money out. That's going to wreck everything that we've got going on here. That's concerning. And even thinking about just looking at the relative, like we were talking about earlier, the relative liquidity profiles of the existing bank preferred stocks, if you had any scale in any of these preferred instruments, I'm just imagining a company like aig. AIG has probably a long tail portfolio. I wouldn't be surprised if they had 10, 20, $30 million of preferred equity in JP Morgan. It's safe, it's a large company. They're offering you 6.5%, whatever it may be, yet it only trades $2 million in volume. You might be 100% of the volume for two months in order to scale out of that thing. And you might move the market down and the price down with it. Who's the buyer on the other side that's interested in that product? I don't know. I don't know who the buyer is on the other side of that product. And I think that as this landscape changes rapidly, these instruments are scalable. It's not like as they get larger, like we saw today, strategy came out, they announced 377 million of STRC and also issued MSTR at the same time. That's scalable. The credit profile hasn't changed. Typically with traditional credit instruments they issue more, the company's more leveraged and yet here we are, we're seeing it scale at the same time and it's, it's scalable. So I'm just incredibly bearish on some of these traditional credit instruments. And I think the second and third order effect is that the cost of capital, the hurdle rate changes for all of credit, all of credit capital should get repriced on a relative risk profile. And that might take two, three, four, five, six years. But I think that's kind of what we're on the verge of here, especially as these instruments continue to have more success and they continue to scale.
- [32:11]
D
Yeah, I think that it's worth looking at kind of the history of how this private credit bubble, we could call it a bubble at this point formed, which is that with Dodd Frank they tried to get all of the risk out of the banking system. And I think that overall that was a good idea, that if we've got FDIC and deposit insurance, we don't want the taxpayers to be on the hook for bailouts. And so just push all the risk out of that system and put it into this private system which, you know, you have maturity matching between the LPs and the loans being originated. Now as Jeff pointed out, when the LPs need liquidity, that's, that's when they're in trouble. But at least you don't have a systemic problem and you're not creating kind of the conditions for a bailout to happen because of depositors losing money. But as anything on Wall street, it really became a momentum play right where okay, private credit was growing because it was being pushed out of the, let's call it the public banking system. And then it took a life of its own and I think has grown bigger than it ought to be in equilibrium. And also it hasn't worked out all of the misalignment between the investors on one side and the borrowers on the other. That financial intermediation function, it takes time for that to mature. So I think that in the next iteration of private credit, what we'll probably see is a lot more equity involvement where and first loss, so that the underwriting is a lot more conservative and that we won't see another bubble. Now, of course that will Spawn some other subprime lending system ad infinitum. But it does seem like the clock is running out on this latest bubble. I don't know that it will spill over into other markets and cause problems in other markets. It might just cause losses on balance sheets and more unfunded liabilities than we would otherwise have had. But who knows? It might lead to some pretty good money printing if it ends up being a real problem.
- [34:42]
B
Some pretty good money printing
- [34:45]
D
bad. I mean, look, obviously I don't want anything, I don't want money printing, but the reality is that they're going to do it. And whether it's because they need to finance more military weapons or to bail out private credit or whatever comes next.
- [35:03]
C
Yeah, exactly. That was related to that. A fun stat that I saw today. So we're at the 20th millionth bitcoin. 5% monetary inflation should occur for bitcoin forevermore over the Next, I guess 100, I think 16 years until the almost the 21 millionth Bitcoin gets mined. The US dollar monetary supply, so M2, which historically from 1970 has grown at roughly a 6.7% annual growth rate according to the St. Louis Fed. If that same growth rate in the monetary supply persists up until the 21st, almost the 21st million Bitcoin is mined, then the dollar supply will grow by 1624x over that same period. So like monetary inflation of 162,000% roughly, which is kind of mind boggling to think about and wrap your head around to begin with. And to me, it also kind of relates to this idea of, okay, bitcoin, as Jeff talked about and people here you talked about as well, the supply asymptote of bitcoin, that absolute scarcity that we're seeing is kind of ironically happening at the same time when AI is creating an abundance, arguably of almost everything the dollar continues to compound at its previous rate, which could accelerate over time as eventually most fiat monies do accelerate with some sort of probably big boom acceleration at the end. But also all of these other traditional financial assets that people might have in their portfolio, AI arguably could make an increasingly more abundance of gold or real estate just being able to create more of those assets. So it's interesting seeing this absolute scarcity contrast with this exponential abundance that we're seeing. It makes it seem like it's just a matter of time before bitcoin starts to absolutely melt faces, unlike maybe anything we've ever seen.
- [37:12]
B
Yeah, you hit on AI here and jumping into the AI conversation I watched this video this weekend of this software engineer talking about the speed at which AI is advancing. This is somebody that's done software engineering his whole career. And I posted this on my. So you could go watch it. I highly recommend it. But he was talking about the speed at which these instruments are coding and he is no longer, this engineer is no longer able to double check the code. It's just moving too fast. It's creating too many things. And may it have been different than he would have done it. Absolutely. There may be just a whole bunch of junk in there that. It's just there because that's the way the computer wanted to create it. And he kind of referred to it as a, as a hot dog. It's like you don't really know what's in the hot dog, but it's a sleeve of stuff and you know, you know it's in there and it's good. And like that's kind of it. And that's, that's kind of what his coding has turned into. It's just like he's hidden. Hit the easy button and there's just no other, no other choice but to hit the easy button and operate on this stuff. And it's just, it's moving, it's moving faster than anybody that's worked on it before is like starting to recognize. So, so just a totally fascinating psychological perspective on somebody that's actually worked on this stuff. And I think that the downstream impacts of that happening on a broad population of these typical high paid white collar workers is just a fascinating development of the population. So just something to be aware of there. And then also over the last couple of days, I think Warsh went on CNBC talking about the, the speed of AI and something that they're acutely focused on and hoping to bring that knowledge and that perspective into a central bank having an understanding of the power of AI and how it could potentially bring prices down and thinking about the monetary policy that they would need to take into consideration as a result of AI. So there were some speculators thinking that that perspective should result in lower interest rates. There are some perspectives that could go the opposite way and higher interest rates, but it is just a fascinating. This is somebody that's acutely aware of what's actually happening today and wanting to bring that information into a central banking system. Curious to get your thoughts.
- [39:46]
D
Yeah, if AI humanoid robots start building houses and bring down the cost of real estate, the existing mortgages, they'll have the same principal balance, right? And so you'll see Just like in oa, people would be underwater on their homes and sure enough, that would lead to more bailouts. Now, Fannie and Freddie are still under conservatorship, so it would be very convenient to bail out the mortgage real estate market. But nevertheless, I think the end result would be more money printing because the credit system requires inflation and if you enter into severe deflation, things start going sideways and really bad S hits the fan. So that I think ultimately when we think about, okay, Kevin Warsh, he wants to come in, he wants to reform the Federal Reserve. He's more of a free market, sound money kind of guy. He said things positively about Bitcoin, essentially restraining governments because it provides a price signal, a vote of no confidence on dollar monetary policy. But even with that mindset, that doesn't change Social Security obligations, that doesn't change Medicare Medicaid obligations, and it doesn't change military spending. So if he wants to move away from qe, get all the fiscal responsibility off their balance sheet, push it back onto treasury, just focus on interest rates. I don't know how he accomplishes that in the two years of the remaining Trump administration or frankly over six or ten years. It seems like with the boomers retiring, the problem seems like it's only going to get worse, not better. In my mind, the only hope would be that AI brings healthcare costs down so much that those healthcare liabilities really compress because healthcare is a huge source of costs from a GDP perspective and from a government perspective that if we want to close the deficit, it's either you cut benefits or you find ways to give those benefits in a, in a way that is not so expensive, you know, by using AI efficiencies.
- [42:15]
C
Yeah, it's safe to say that like the world is changing at a rate probably faster than it has ever changed before. And I like, I can, I agree that like AI is going, is obviously going to change a lot. And like, you can, like Jeff pointed out, like, you could argue that interest rates could come down from this. You could argue that interest rates could come up. Really, it's probably just going to create a lot of like, unique dislocations in the market as certain things get rapidly cheaper and other things perhaps maybe don't get rapidly cheaper or they, or the rate of change of certain prices starts being significantly different between different industries or different goods or different services, which is probably just going to create a lot of unique chaos. On the topic of AI, I've been playing around with cursor and Claude code and it's truly Completely blown my mind at how cool these tools are. In undergrad, I studied information systems and computer science and my first job out of school was technology consulting at ey. And I thought at the time I quit my job to work full time in Bitcoin five years ago. I thought at the time that that was going to be a very risky decision. At EY was a product manager, business analyst type role. You know, making slides, identifying requirements and presenting it to the client. And then, you know, at this point it's like, okay, well, if I was still in consulting, I would actually be pretty worried about my job at this point, maybe even more worried than if I was working in the bitcoin space. So it's kind of interesting to think about that. And it's like, okay, well, I would have also thought that at the time, oh, a fallback job could be. I'll just be like a software engineer. You know, I studied this, you know, to enough degree in college to probably pick it up, back, pick it back up again. I could do that. And then now it just completely, you know, it's pretty good at being a software engineer. And the things that I'm able to build with Claude code and cursor just, you know, for fun locally, it's like I don't even really think about the structure of the code. I hardly ever even look at the code. I'll build something pretty cool that I will use and I don't even look at the code anymore, even though that, you know, I could theoretically look at the code. So it's pretty cool to see how fast these tools are, you know, becoming like, incredibly useful. And it's, it's kind of scary to think that they're probably only, only going to get better from here, which is quite interesting.
- [44:50]
B
Corporate America is going to get completely redefined. I mean, when I, when I was an analyst, when I first started my first finance career, I remember sitting in a room, a conference room, going over a PowerPoint presentation and I remember my manager telling me, oh, make that box a little bit bigger or change the color of that. And it's like, oh my God, completely eviscerated. That conversation never has to happen again because you do cloud code and you change the PowerPoint slide and you're like, oh my God, that's prettier than if I were to send this out to a consultant for two weeks and come back and get the thing done. And now that presentation that 10 people labored on, the manager could probably dictate that into his microphone and walk away for the evening, wake up in the morning and that whole presentation is there and done. And he just talked to the microphone for 20 minutes about what he wanted and it references all the material, builds the whole presentation, makes it look good. It's a fleet of these consultants or analysts that you had historically had working on this stuff and you have teams of 5 or 10 now chopped down to 2 or 3. Another thing that I was thinking about is just kind of on this topic is I think the future of gig work is going to expand drastically because of this as well in different ways that we can't necessarily conceptualize today. And what I mean by that is I think the incentive structure of AI and even thinking about bitcoin and cryptocurrency, there's going to be incentive structure for gig economy work to build different models and codes and to get and attract attention which people will be willing to pay for. And these are jobs that I don't think really exist right now. But as the, as society's interaction with the Internet changes, which it will change drastically, that will just create new types of jobs that we haven't seen before. And it's going to be an interesting future. I think there's going to be a lot more gig type work available, especially as people get into tough situations and they can't find work because of xyz. So I'm hopeful but also a little nervous for that whole cohort.
- [47:19]
C
Yeah, I'll add on a couple of thoughts real quick. I certainly agree that full time jobs at these mega corporations that felt inefficient to me many years ago, now that bitcoin is AI is as good as it is. It's like those slow moving mega corporations are, it's going to be very hard for them to adopt and stay relevant when you know, all of a sudden these, you know, whether it's a single person startup or like a 10 person startup or 50 person team, like you really don't need that many people to build something really cool at this point. And it seems like it's also very concerning considering a lot of people save like their entire, you know, wealth in the S&P 500 passive index fund, which obviously worked well historically. But like going forward, you know, obviously you know, these companies are going to have to keep acquiring the next greatest startup and hopefully not pay an unreasonable valuation for it. And then hopefully by the time they've acquired it and integrated into their business, there's not another great startup that has actually disrupted that startup. And so like it seems like there's going to be a really big change to, you know, the profitability perhaps of mega corporations, the ability for them to stay super relevant and as relevant as they have been over the last, I don't know, 50 years or so, but it's definitely a fascinating time.
- [48:47]
D
Yeah, I'm more bullish on the employment picture, I think, than we've described because one, these big companies are going to have to hire consultants to implement all these new AI systems. There's all sorts of data governance issues that they're going to have to work through that, you know, they can't just unleash Claude or Codex on without, you know, managing that risk. And then two, you know, these companies, they all have giant backlogs of projects that they'd like to or experiments they'd like to run but just haven't had the bandwidth to do so. And their engineering team is busy fighting fires that could actually be solved by AI. And so it's almost like once you take care of the small problems automatically, now you can focus on the bigger problems and try out more innovative things. So I think that of course there's going to be stories like we saw with Block of large layoffs, but I also think that there's going to be lots of new roles and that ultimately who's going to benefit from this is actually consumers. I don't think that the shareholders are going to benefit all that much in the sense that, you know, those margins are going to get competed away and that it's not, you know, the value will accrue to the users. And so that's my big thesis on AI, whether at the corporate level or at the individual level. So, yeah, yeah, I think that there will be lots of fascinating roles for everybody coming out of college.
- [50:26]
B
I love that we have a little disagreement there because I think it's changing so fast. That whole equation is so multidimensional because it's all a function. We talked about asset and liability matching there. It's all a function of revenue, cash flow and capital management too. Like, does your revenue change? Do the competitors come in? Do you have to drop margins? Do you have cash to withstand that change? A lot of these companies are really thinly capitalized. So do they have balance sheets strong enough to withstand any disruption? I don't know, like on the average, right? We're talking like the average of all these companies. So I guess it's a real question of how fast does disruption occur and how quick are some of these companies able to adopt? And I think kind of what Joe mentioned A lot of these companies are just archaic. And I think the security hurdles and some of those data hurdles, they're going to be so vast that the clients are likely going to have to think about whether or not they should move. And so can you monetize that data? Do those clients move? Is there somebody faster that's offering something that you know is competing to you? Is it cheaper? You know, so it's just so multidimensional. And like the decision makers at any of these companies right now, it's just, it's a hard time to operate. The only thing that you can, you know, hold onto here is like, it's probably a good idea to have capital, right? And if you've got digital capital, digital credit on your balance sheet, you're, you're likely in a stronger position than having traditional capital or traditional illiquid capital or traditional credit on your balance sheet.
- [52:20]
D
The good news is that these subscriptions to these AI services are not that expensive. So hopefully they're able to pivot. But the politics I've seen people say, oh, my company just banned using AI. And the picture I have in my head is like North Korea, right? Like that. Some of these companies are going to have a Luddite moment that will put them in tremendous difficulty, but other companies are just going to dive right in and they're really going to be able to increase productivity. And so I still think that even if on average we say AI is going to compress margins, it's going to make markets more efficient, maybe it's also going to increase the fat tails, the dispersion between the winners and the losers in this technological revolution. Something that I would also hope happens. We've seen people complain on the kind of hiring side and the HR side just slop right where applicants are sending in slop. HR is replying with slop. And it's just like it's turned into a mess that has not adapted to the 21st century. It's still 20th century kind of way of thinking about human capital. Maybe somebody's going to vibe code a solution to this that is better than indeed or LinkedIn or these other slot mills and actually bring humans together to be productive together. So I'm looking after that and bring
- [54:04]
B
probably communities in person becomes important too. And yeah, world's moving fast, super fast. Feels like decades are happening in weeks, right? It's just like, you know, all, all of us and on top of this, we haven't hit on the fact that, you know, we're in war right now, right there's like bombs, bombs being dropped on Iran. And yet we're still trying to digest everything happening in the world at the same time. It's, yeah. Very unique time.
- [54:38]
C
Yeah. And the speed of things. It's kind of cool to see how fast everything is changing and all these new technologies that you can use in your everyday life. Like in that video that you talked about, Jeff, with the 10x engineer, he talked about also how he used to put a lot of effort into building something that he was really proud of. And now it's like you talk to it, it builds it, and you're like. Is like, wow. Like, that's it. Like it's. It's kind of addicting in the sense that, like, you know, that was really easy, like, I want to build something else that's really cool. But then it's like, are you really proud of what you just built? Like, is it, you know, is it actually really good since it was that relatively easy compared to, you know, how it used to be? But this rapid change that I guess, like we're, we're seeing in the world is exciting, but it's also a little scary in terms of, like, what are the second and third order effects of everything that we're see. And arguably it could be kind of like you pointed out, it's like multidimensional. It's probably almost impossible to predict exactly how this is going to play out because there's so many unique variables that are just incredibly impossible or hard to predict. But I will say one of the things that gives me optimism is bitcoin. Right. Like bitcoin being this perfectly scarce form of money that humans have discovered, it's been around for 17 years, it continues functioning, it's working. And then the fact that we're building digital credit on top of this and providing digital income to institutions, corporations, masses of people, I think that's a product that's coming to the market at the right time. So there's a lot to be thinking about with so many different things going on. But I also think there's a lot to be optimistic about.
- [56:25]
D
Yeah. And on that video, the history of software engineering has always had this, where at first they were putting in zeros and ones, so you had to really be a tremendous expert at the low level. And then they had assembly, so it was a little more abstract. And then compilers and C and C. And so it got increasingly further away from the hardware and towards kind of the way humans think. And then you had interpreted languages like Python and JavaScript and the OG software engineers, they'd complain about this new generation of developers. These web coders are just slop cannons that are building these websites that are janky and half work and they just go through a coding boot camp for one week. Whereas I got my computer science degree in four years. I think we're just on a continuation of that complaint. And now we're moving to a higher level of abstraction where now we can use English to program with. And all of the positive and negative consequences of that. But I think that ultimately it's going in a very, very positive direction. And that programming, when I think about when we would write lines of codes, it's like thinking about when we would manually work a field and before combine harvesters and plows. But there's also like huge greenfields. So projects that have never been undertaken because they were too expensive are now approachable. So I don't think we're long before people start rewriting operating systems from scratch. And the magnitude and ambition that people will be able to have with their prompts is going to continue to increase. And ultimately the AI, I think at this point it is better than probably 90% of the software engineers out there already. And so eventually it'll be 100% and the complaints will continue. But the amount of software in the world that should exist but currently does not, that gap will be filled and then we'll move into the physical world with humanoid robots and kind of see the same phenomenon happen.
- [58:46]
C
There's infinite things to build World of abundance.
- [58:50]
A
Well, thanks everyone for listening and watching episode 50. I don't know if we're going to call it some pretty good money printing or. What did you just say, Joe? There's infinite things to build.
- [59:03]
C
More things to build.
- [59:04]
A
There's more things to build. So for Jeff Walton, Joe Burnett and Pierre Richard, I'm Tim Kotsman. The thanks for listening and watching and we'll see you next week right here on the Hurdle Rate.
- [59:16]
D
Thank you.