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- [00:00]
A
Welcome back to the Hurdle rate podcast, episode 54 for the week of April 6th, 2026. I'm Tim Kotsman. I'm here with Jeff Walton, Ben Workman and Joe Burnett. We are recording on Monday. Absolutely my favorite day of the week. I know some people don't like Mondays. It, you know, historically is linked with cortisol spikes, increased blood pressure and heart rate. But I think we can turn this into an increased heart rate in a good way. FOMO even. I mean just look at the announcements this morning. We have strive acquiring 113 bitcoin strategy, 4871 bitcoin. You have to have the comma in there supply off the market in cold storage, locked away. We have some headlines. We have reports that banks and crypto funds are saying privately that a deal has been reached on market structure and that the terms could be announced this week on the Clarity Act. We have strive last week filing for the first ever digital credit etf. Morgan Stanley's army of advisors are preparing to push their own bitcoin ETF msbt. For those keeping track, strategy keeps their STRC dividend at 11.5% for the month of April 2026. New Hampshire makes history with the launch of their bitcoin backed bond. And digital credit is on par with both STRC and SATA hitting $100 last week. Bitcoin as collateral for home buyers is here. And Meta planet announced adding 5075 Bitcoin in Q1 of 2026. So Jeff, any, any, any thoughts? Anything I missed? Any additional headlines? I know Jack Dorsey is out there with turning on the spigot. You have to spend a dollar of bitcoin. You get $25 of bitcoin. There's a lot going on on social media today.
- [01:53]
B
Yeah, there's a lot going on. We're in this accumulation phase and it's very interesting because it's kind of gotten a little quiet. But Meanwhile, strategy purchasing 4,000 bitcoin last week, 4,000 plus bitcoin last week paying all of the dividends on the preferred equity. The capital was raised on the common stock. I think they raised about $140 million in the common stock over the last week. Paid out all the dividends on the perpetual preferred equities. You've got. Yeah, our instrument hit par last week. We just announced the bitcoin buy largely from proceeds from seda, which is great to see. It was a great experience and we're ready to move forward here into the future and continue to build a liquidity profile for that instrument. So, yeah, no shortage of excitement over the last couple weeks. But it's very interesting. The. It feels like a quiet accumulation phase as the market is starting to recalibrate, and what I think is finding a continuous low and approaching this new trajectory in 2026.
- [02:59]
C
Yeah, it kind of feels like we're in almost that chopping period that you get when the market finally starts to stabilize and it's getting ready to make a new move. I was just thinking to myself late last week, I was like, man, in the treasury space, it seems like things are going kind of slow. And then all of a sudden there was this slew of announcements and you're seeing this flurry of activity, both positive and negative out there. Right. You're seeing more of the treasury companies accumulating US Strategy Meta Planet. You're seeing a lot of the miners starting to sell off a lot of their Bitcoin, which is typically a pretty good sign for where you're at in the cycle. And so you look around and there's actually been a tremendous amount of activity. And then for us, you know, kind of coming into that first record date where we get up to par, that obviously was. Was a really big moment for us, you know, and this is the model that you're pursuing, and you're fostering the liquidity in a product like that, and you're communicating the value of the product you have out there in the market. Seeing it within a month of making all the changes that we made to seda, which really aligned it to the structure of what people are familiar with, with Stretch. Seeing that hit par within that same month was a really big deal. We saw increased volumes coming into that record date, and so that was incredibly encouraging to see. And obviously the feedback that you get from a lot of investors has been really good. Now, these products tend to go in cycles, and so we always anticipated that it's going to take us a few months here to get that thing fully pegged apart, like what we're seeing with Stretch. But when we go back and we kind of overlay these two products next to each other and we look at the path that we're on relative to the path that Stretch took, all the signs are there that we're moving the right direction, we've got the liquidity increasing that we wanted to see, and hopefully we get to this point here where we're out here in the market on a regular basis, raising money through Seda, buying Bitcoin, adding to that balance sheet, and really scaling the strategy here moving forward. So there was a lot of really, really huge things that have happened. So when I look back and actually zoom out a little bit, there's a huge amount of activity that's going on in the space and it's actually been anything but boring. Now you add on top of that all the private credit conversations that we've been having, everything that's happening out there in the political sphere right now with the regulatory frameworks, the volatility that's coming with this war in Iran, we may be getting too comfortable with volatility because we hardly even notice it anymore.
- [05:34]
D
Yeah, that's a really good point. You brought up the success and the momentum around digital credit and SATA. It's truly exciting. And then current market conditions, I think I was looking today or as of this recording, bitcoin has not made a new low since the $60,000 low in 59 days. And to me that's pretty exciting and pretty compelling. I think towards the end of last year and at the start of this year, bitcoin was falling while traditional markets were holding up quite well. I mean, the S and P continue to make all time highs. And now that we're, we finally started to see some like real volatility in traditional markets and bitcoin actually, you know, appears to be hanging in there as of right now. I think that's a pretty compelling sign because, you know, in the traditional system, bitcoin can go down, you know, day after day and you know, no one's really going to care at that point. The, the s and P500 can't go down day after day for years and years on end. Eventually liquidity spigot, whether that's monetary stimulus or fiscal stimulus, will get turned back on. And obviously I think bitcoin would be a pretty big beneficiary of that. And then Tim, at the very start, you brought up how they're talking about using bitcoin as collateral for home mortgages. I think that's like a completely very interesting topic. And I've seen Jeff and myself, we've made some tweets about this.
- [07:02]
B
We.
- [07:02]
D
What about using digital credit as collateral for home mortgages? Arguably, you know, it's clearly less volatile. It might be a safer form of collateral. I mean, you know, you think about what strategy and strive are doing. We're building structured finance on bitcoin. Arguably you can build structured finance on digital credit and use digital credit as like the base foundation for a lot of very interesting things, whether that's digital money or, or whether that's collateral in the form of, you know, or to, to, to get access to a mortgage. So I think the, the, the foundation that strategy and strive are laying with Stretch and SATA is going to create like tremendous future optionality for building all sorts of interesting things on top of digital credit. And I think you know, as Ben pointed out, the momentum that we're seeing with Stretch and Stretch and SATA is truly exciting.
- [07:57]
B
Yeah. It's showcasing what a modern balance sheet can look like thinking about moderate duration capital. Not only can you think about it from a Treasury perspective, how can I put this on my treasury balance sheet but how can I use it as collateral? So there's multiple ways to think about it, both from helping improve your business profile to also being able to get leverage against it. And you look back and you look at the volatility that we've had over this time horizon and, and you, you brought up this data point, Joe. No. No new lows in bitcoin in the last 59 days. Well, it's been 181 days since the last bitcoin all time high priced in fiat. So that was back in October and priced in gold. Actually the bitcoin all time high was 476 days ago. So over about a year and a half ago. And if you think about parity it goes bitcoin was trading at a bitcoin gold all time high. It was 41x the price of gold in ounces. So that parity today 41x if gold were to stay flat would be around $190,000. Bitcoin price for bitcoin to go back to an all time high priced in gold if bitcoin would remain flat. And then you think about this landscape of these digital credit instruments and being launched in a period of general bearishness relative to a large asset like gold. And these things have performed incredibly well. And you think about SATA relative to Stretch and say does five months younger than stretch.
- [09:28]
D
Right.
- [09:28]
B
Stretch is popping up and bumping against par trading at a 2 cent spread. And here we see SEDA rising up to 100 just hit par this last week. So a little drawdown after the ex dividend date and watching that volatility continue to compress and ideally compress more over time. So, so it's just fascinating to see these instruments evolve and move forward into the future because they continuously provide just a very unique exposure, a lower volatility exposure to the underlying bitcoin asset. And I spent a lot of time this weekend just reflecting with Three day weekend, you get like one extra day of thinking. And so I've been reflecting on Bitcoin relativity in terms of size and scale. And so Bitcoin has fallen 50% from its all time high, yet it's still a $1.39 trillion asset. It is the 12th largest asset on the planet when you include commodities. So it is larger than ready for this list? It is larger than Tesla, Berkshire Hathaway, Walmart, Samsung, Eli Lilly, JP Morgan, Exxon, Visa. It is larger than all of those companies. Now this thing is only what, 15 years old. Here's another crazy stat. Bitcoin is larger than JP Morgan and Visa combined. JP Morgan is the 19th largest asset on the planet. Visa is the 23rd largest asset on the planet. And Bitcoin is larger than both of them combined. J.P. morgan was started in 1871, Visa started in 1958. You have a 15 year old asset, decentralized, nobody controls it. And it is larger than JP Morgan, like one of the longest standing US companies in history and Visa like the payments company combined. And people think it's failing, right? And it's not. You zoom out, you look at the relativity here, this is the 12th largest asset on the planet. And now the threats even that people are worried about, they've become just way more exotic, right? Like everybody's talking about quantum as a threat, right? It used to be four years ago, government's going to shut it down, Russia owns it, somebody's going to kill it like bombs or you know, Internet's going to get shut off. And now we've like moved and transformed into these new exotic threats of quantum, which I think are real. I think we should think about quantum threats and hardening Bitcoin and focusing energy there, there. But we're talking about something that's literally, if it's possible, it's years away, potentially a decade away. And that's the forefront of the threat that's on the horizon. So it's just bitcoin has matured so much in the last couple of years and then you've got these instruments and the infrastructure that's being built on top of it, right? We've got The Morgan Stanley ETF coming now on top of BlackRock, Bitcoin ETF. The BlackRock also just launched a covered call ETF on Bitcoin as well. These digital credit instruments are exploding. I mean I think Strategy stretch traded another $200 million today with a two penny spread. Like this is, this is where we're at the horizon. Like the signal is Very clear. If you just take a step back and you look at it relative to everything else and how it's performing relative to everything else else, despite a 50% drawdown. So anyway, that was one of my big reflections over the weekend, is just this relativity and just overall strength despite it being down 50%.
- [13:08]
C
Well, and these market conditions are actually the ideal time for these structured products to get battle tested. The traditional thought would be if we saw weakness in the bitcoin market, these digital credit products would struggle. That would have been the going in expectation you would have expected. Well, the balance sheet's shrinking. That shrinks the overall coverage. That's going to dry up the demand for it. And what we've seen is the exact opposite. We're kind of in the trough of this drawdown, right? It's already down. We're what, 45% down from the highs? 44% down from the highs. And it's kind of been straight down for. How many days did you say it was, Jeff? Almost six months now?
- [13:53]
B
Yeah. 181 days.
- [13:55]
C
And we're seeing the demand increase during that time period. Right. Which tells you there's a massive desire for yields like these. Right. That's the product that's being offered here. It's just being made possible by bitcoin. And so when you see these turbulent market conditions and you see how well these assets are performing and how much demand and how much capital is flowing into these each month, that signal that tells you, I've been harping on this for a while where I've said price isn't your indicator of demand, liquidity is, it's the volumes. You got to see how much of this stuff are people accumulating? How much of this stuff are people trading? And what you're seeing right now is there's huge volumes in the digital credit products because they're incredibly attractive. I saw a post that came out from, from that Bar charts account talking about the $8.2 trillion that's now sitting in money market accounts. That alone is a staggering number because money market accounts are going to pay you 3.5, maybe 4% if you're lucky. And that is a huge amount of capital to be sitting out there on the sidelines. Now, obviously, money market accounts are not all going to flow into different assets. Some people are just parking money there as part of their standard investment practices, and that's fine. But it tells you where people are parking capital for low volatility with yield, because that's what you're seeing in money Market accounts. So the longer these products are in the market and the tighter we get on the volatility range. Right. Which is why I think Saylor was so excited today to get the one penny up, one penny down spread during the day. That is the holy grail for what we've been trying to achieve with these products. Right. You want to get to the point where you can keep that incredibly narrow band of volatility there. You do not want these to be volatile instruments over time. And we're starting to finally see that materialize out there. And the longer that that happens, the more attractive these are going to become. And I think that the bid that is going to putt underneath bitcoin is going to be incredibly impactful. Because now you look at just how much demand they've had for bitcoin as a single buyer. If you just look at strategy and you've got a week like this past week, they're buying 4,000 Bitcoin and I think it was 2/3 stretch, one third common. And this is during a significant bear period for the common equity. So they're not really using the common equity in the same way that they've used it historically. Now turn the market conditions, you've got this bid that's building up underneath bitcoin. We're a part of that bid. Metaplanet's been a part of that bid. A lot of these other companies are there ready to be a part of this bid. And you've got these structured products that perform in market conditions where these companies should in theory be effectively shut out of the market. It's what you would expect, right? If you're amplified bitcoin up, your amplified bitcoin down. So when you get these bear periods that drag on for months, you expect the common equities are going to underperform bitcoin. That's kind of the structure if you're putting on leverage or amplification relative to bitcoin. But now there's the other side. There's the products that are desired for their yield and they're providing incredibly attractive yields, which I think is what's going to be what's so unique and what's bringing so much new attention to these is that they're almost unavoidable. You can't just look past them because they're interesting. The structure is interesting, the asset they're being built on is interesting. The risk management practices behind these are interesting. The long term modeling on these is interesting. And when you think about it in the context of an Overall portfolio, it plugs into several portions of them. Right. It's not just, hey, here's a replacement for bonds, you know, yes, that's a great area where it's clearly applicable any of these fixed income products, these are highly applicable. But right now in these early days, the yields are in the position where they're effectively competing with equities. And you're getting that return in a tax advantage structure which is incredibly unique. So for people to be able to look at this and go, well, there's return possibilities that match or exceed what I've seen historically over time with like the S&P 500. And I'm getting that in a tax advantaged account that's giving me a cash flow yield that is interesting. You can't overlook that when you're starting a structured portfolio. Now, the first thing is you have to be aware it exists. I actually think that's where we're at today is there's still a significant portion of the market that has no idea that these exist. We see all the clips online, we see Saylor on CNBC and on Bloomberg and all these shows and we assume everyone on earth is seeing these. But that's the bubble that we live in. This is just the very beginning of the marketing period of helping educate the market that these products even exist. What the structure is, what steps these companies take to safeguard during these drawdown periods and make sure that you're building a company meant to endure the bear markets. We're in the early innings here and I also think it's a transitionary period for Bitcoin because up until this point Bitcoin's really had all of its success just simply on its own merits of existing as a bearer instrument. That was it. There were no other products that were on top of was purely that you finally had a chance to hold a fixed supply asset that's a bearer asset that you can take out of the traditional system that everyone sees breaking. And so that is unique enough store of value being able to capture your time and your energy you put out into the world, move that into Bitcoin self custody it right. Hold it for your own, that's valuable alone. Now we're seeing it move its way into the traditional markets with the structured finance come products coming on top of it. And this is just the very beginning of what's going to be built on top of an asset like Bitcoin. When you have an asset that is this incredible, that's this unique, particularly for the environment we're in, in the world right now, people are going to start getting creative, but sometimes what they need to see are these battle testing periods. You go through this period. Oh, it turns out that all the hyperbole out there didn't come true. Strategy didn't go bankrupt overnight like people projected every cycle that we've been through so far. And these companies paid all the dividends and they've kept the cash balances and they're strong companies. That helps to build confidence and not just in investors, but also in the entrepreneurs that are going to continue to build out this ecosystem and bring it wider. And so I think that this year is really going to be transformative for building these next layers that are bringing net new demand into the bitcoin ecosystem. And I think it's going to flood in a lot faster than any of us actually would have thought before.
- [20:57]
D
I definitely agree. I mean, I think when I look at bitcoin and digital credit, and specifically Bitcoin, I've always thought bitcoin as a product, it has all of the features to make it work. It really just simply needs to survive. And yes, there's ways that bitcoin could break, but it'd be probably pretty difficult to break bitcoin. Digital credit also, in my mind is kind of the same idea. It's like it has all of the features in place for it to work. It also simply needs to survive. And yes, it can break. You can drop scenarios where it does break, but it is pretty hard to actually break it. And then the other thing I think is really interesting about digital credit, and we had this in our last investor presentation, you don't have to be a mega bitcoin bull to actually think digital credit is a viable idea. Like for strive in particular, I believe it's like bitcoin only needs to go up 5 to 6% annually to completely offset the entire state of dividends that are owed every year at the current dividend rate. That's pretty interesting. And it works because the amount of bitcoin on the balance sheet is massive relative to the dividend obligations that are owed annually. So it's like a completely, you know, to buy the amplified Bitcoin. Yes, you need to be very excited about Bitcoin. You have to believe that adoption is going to grow a lot. You have to believe that the CAGR is going to be higher or greater than the cost of capital on whatever debt or preferred equity or digital credit, however you want to structure your amplified Bitcoin position. But to take the other side of the trade or to take the other part of the trade, the digital credit trade, you don't have to be a mega bitcoin bull. And I think a lot of people in the world probably at this point should either admit, like, okay, I don't know if bitcoin is going to million dollars. I don't know if it's going to Bitcoin Gold parity 1.5 million or whatever it is at this point. But I also probably don't think that bitcoin is going to go to zero tomorrow. I mean if, if you thought bitcoin was going to go to zero tomorrow, you could make a lot of money making that bet. And so if you don't think bitcoin's going to zero tomorrow and you also believe that, okay, the, the dollar itself is designed to be debased over time, you can look back at the historical M2 kegger. It's around like 6.7% last I checked. And if you believe that that's simply going to persist, and not only is it going to persist, but like it's literally by design, like they, you want to create monetary inflation in a debt based monetary system. Well, if that's the case and bitcoin simply continues to work, well, the case for digital credit becomes pretty interesting and pretty hard to ignore. And I completely agree that one, a lot of people probably haven't heard of digital credit. And two, even if you hear about it, you might think, wow, this product is so interesting that it's probably too good to be true. And so then they, they quickly ignore it. But that's what, you know, with this bear market that we're seeing with bitcoin, we're building that track record to show that, hey, it actually is probably going to keep working. And as long as it keeps working and you see other areas of the financial system start to deteriorate, whether it's private credit or private equity or whatever else, if bitcoin or, and digital credit continue just humming along even despite volatility in bitcoin, I mean, it's going to be like incredibly hard to ignore what's happening here. And it could be very exciting times.
- [24:36]
B
You make great points, Joe. And it hits on the name of this podcast. Bitcoin is the hurdle rate. And now for many others it's digital credit is going to be the hurdle rate. Digital credit is going to be the hurdle rate for capital deployment for many others. Because you think about capital management and it's like the point of this is like opportunity cost of capital. Like if I use the capital Here does that outperform the relative risk return of this, this alternative decision? So one of the most fascinating things to me is that the analysis, the risk analysis has moved from like if folks were to add Bitcoin to their balance sheet, you would have to underwrite Bitcoin. Underwriting Bitcoin is, is, we think it's easy, right? Probably most of the people listening to this think it's easy. But the, the relative underwriting from a, from a new person's perspective is, is pretty difficult. Like, you kind of want to know about computers, you want to know about energy, you want to know about monetary inflation, you want to know, you want to know about a lot of things and read pretty complex, some pretty complex papers. But that analysis has shifted. Now you just have to underwrite a capital structure and maybe it's 80% underwriting a capital structure and 20% underwriting Bitcoin. You need to just kind of believe that Bitcoin is just going to keep surviving and then you underwrite the capital structure and the relative position of the capital structure. And that is a lot easier for people to wrap their heads around and comprehend. And I think a lot of companies are going to be faced with this decision very fast. Like much faster than I think we realize. I mean, I've been looking into the performance of Nike recently. So Nike, I live in Oregon. This is a local company. Their stock just hit an 11 year low. And from a technical perspective, if you're a trader, you're shorting it, you're shorting it now because an 11 year low blew through resistance levels. To the downside, they've got a new CEO, they just stopped share buyback repurchases and they're in a tough spot, right? Like the, the world is changing. The world is shifting now. Smaller companies have access to, with AI, have access to do some of the things that typically only larger companies had access to if you wanted to do like testing or, or make videos or content creation or, you know, those kinds of things. And some of these larger companies are going to be challenged now. They have a really unique opportunity here though, because they have $8 billion of cash and cash equivalents on their balance sheet. They don't need $8 billion to operate their business, right? Like what, what is 10% of that or 15% of that on their balance sheet moved into digital credit. What does that do to their, their profile of their company? Like that may add 50, 60 million dollars of annual additional capital coming in the door. That's the share buybacks right there. Or that's innovation or that's going to go do something else that you haven't done previously. And I think that's the decision making framework that a lot of these companies are going to be forced with here is adapt to the changing financial landscape. You can't ignore it like the financial landscape is fundamentally changing. You cannot ignore it anymore. You have to be with the times with your financial balance sheet or else you're going to get left behind. Just it's aligned with like adopting new technology, right? If there's a new operating system on my computer, I'm going to download it. So my computer keeps moving fast. Now there's like a new operating system for your money and people are like, oh no, I don't want to download that new money. No. So I think that's this mindset shift I think is going to occur. But these new instruments provide the ability for people to start to comprehend these, these things.
- [28:57]
C
Well. For corporate executives, your balance sheet is your survival Runway. In the absence of growing revenues and cash flows, if that starts to slow down and you start getting stress tested, your balance sheet is what determines how much time you have to correct the issues in your business model. And when things are going good and you get comfortable because your business model has been working for so long, you get a little too comfortable in doing the easy thing, which would be buying U.S. treasuries or doing whatever. It's very easy to make that decision because it's normal. It's what executives have done. It's what you do when you've got this moat and you've got a growing business and everything's going good around you. It's when you start to see the weaknesses out there and you start to realize that there's no such thing as, as a business model that's completely undisruptible, that doesn't exist. It's just a matter of time for when something shows up that disrupts you as a business. If you go back 100 years, there were plenty of companies that people thought would be around forever and they've all turned over. And a lot of the names that right now you would look like as juggernauts showed up since the year 2000, relatively young companies. And so if you're going to be in those positions where your job is to ensure the long term viability of your company and to protect the value for shareholders, having a war chest isn't really optional. That is your pull in case of emergency. And part of the job there is to ensure you have as long of a Runway as you possibly can. And so you get a decision when you're in those positions, which is, am I going to be proactive in putting that structure in place? Am I going to go out and actually seek the best places for my capital to provide the best alternatives for my company and the best structure for my company? Or am I going to wait until making a change is forced on me? And I think that right now a lot of these companies would be caught flat footed. It's not to say that every company is going to go take all of their cash balances and deploy it into digital credit, but I think that they should be start becoming aware of the products that are out there. Right? That's the education period where you start to look at the landscape and go, okay, if I've got $8 billion and right now I'm earning 3.5 to 4% on my $8 billion, what are my options if I need to ratchet up the returns I'm getting on that money to extend my Runway and how much extra time does that give me? And I think that that's kind of the phase we're going into because of the level of uncertainty that's out there. The world has changed so drastically over the last decade that it's almost hard to comprehend. And for a lot of people that have been in these roles, they've been in these roles for an incredibly long time and they've done things one way. But over the last 10 years, the options that are out there have evolved quickly. And so it's time to retool. Getting comfortable is one of the most dangerous things that you can possibly be because it stops you from going out and exploring what is the art of the possible. What can I make happen? What changes can I make today that change our outcome 10 years from now? You've got to be willing to get a little uncomfortable and go look at something from a new perspective. And I think a lot of companies started down that path with bitcoin back when we were reaching all time highs and it was starting to become noisy. And I think that was starting to cause people to at least pay attention. Because at the time it got up to what, above a $2 trillion asset, it starts to become kind of unavoidable. And then you get these drawdowns, which I would say are untimely in that cycle where people are probably out starting to do their exploratory research, and then you get a drawdown and now it feels too risky and so they pull back again and they'll show back up when it starts to perform better. But right now it's batting down the hatches. And so, you know, when you make the realization that for corporations, the hurdle rate is likely to be digital credit, because it has the characteristics that help them avoid these periods where they would have to go and explain to their board, hey, here's why this portion of our treasury is down 44%. You know, that's an uncomfortable conversation if you're a corporate executive now, you can look at these other products and go, all right, if I believe in the long term survival of bitcoin, I believe it's going to continue to be hardened and upgraded and made secure. So it's going to exist. And if you just look at the institutions that have skin in the game now, you start to feel more comfortable in that. Plus, with all the quantum stuff that's been going on, it's not that there's been no research happening. Research has been happening for years. So this is not the first time that people that are building on bitcoin have considered quantum, despite what it might sound like out there on Twitter. But for them, digital credit is a much more comfortable entry for change because it feels familiar to all the other products that they're used to, except it comes with the added benefit of better liquidity than most of the products that they're used to. And so I think that this battle testing period, and it's probably going to, you know, these products are probably going to need to be in the market for more than a year before you start to see a lot of the bigger firms willing to look at it and look at small percentages. But I just think the characteristics, the balance sheets, the companies that are issuing them have and the ability to explain the structure of the product is incredibly important. It's much harder to go into a boardroom and explain bitcoin to a board. It's very easy to go in and describe a product that looks like a normal fixed income product for them, that I think that they can do so at that inflection point where you have to start being willing to be uncomfortable, because over the long period, it could change the entire trajectory and the outcome for your company. So I think that we're going to be in that period here over the next two, three years where the ones that are proactive are going to have the longer Runway in the war chest in the event they have to make a pivot as a business and they need time to settle those changes.
- [35:22]
D
I used to think that a lot of Companies or nearly every company should hold like almost their entire treasury in bitcoin. And over the years, I've actually started to think that maybe that's not the best case. A very simple example that you kind of brought up there is like a growth company that is losing money. Maybe they're a startup, maybe they're massive publicly traded company that's just growing revenues really fast and losing a lot of money. Whatever it is, if you hold bitcoin and you have 24 months of Runway of your treasury and bitcoin's price gets cut in half, well, now you only have 12 months of Runway. And if your project that you're ongoing to eventually turn your business into a profitable venture, you know you need 18 months to do that. Well, that's a pretty big catastrophic mistake. If you had 12 months to make it actually happen, or 24 months to make it actually happen, now you only have 12 months. Like that's a, that's a pretty big problem. Additionally, having digital credit on the balance sheet, not only can you have like that more stable base that would enable you to keep that, that 24 months of Runway, but you can actually probably extend the Runway. Maybe now instead of holding, you know, something in a checking account or T bills or money market fund, and Maybe you had 24 months, maybe digital credit because of the, you know, higher yield enables you to get 25 months, 26 months, and like that's extra time that you have to actually make things happen and to make your business more profitable. Which I think is kind of interesting. Then earlier you brought up how obviously this is the hurdle rate podcast. I always find it interesting talking about bitcoin as the hurdle rate. Obviously completely agree with that. It makes a lot of sense. And I think over a long time horizon that is the case at least how I think about investing. But I also think it's funny, when you're looking at something that is a form of money as the hurdle rate, you're basically just saying, don't lose money. And I think that makes perfect sense because bitcoin is a superior form of money. And if you have that long time horizon, well, yeah, like obviously I don't want to lose money over that long time horizon. But also if you have a shorter time horizon, digital credit is a hurdle rate. So make sure that you're not, you know, your opportunity cost is holding digital credit. If you're doing something else with the capital, well, make sure you don't lose money. Make sure you don't lose the digital credit that you otherwise would have had. And so I think that's kind of an interesting, really big idea that probably goes over a lot of people's heads.
- [37:50]
C
Well, and at the end of the day, bitcoin is the hurdle rate, right? If we are that base layer that's providing those infrastructure level products to the market, our hurdle rate is Bitcoin. So at the base, with what's making these digital credit products possible, Bitcoin's always going to be the hurdle rate, right? That's what makes this possible to get these products out there. So it is when you talk about a company like a startup, right? Like imagine you're a company that's perpetually raising capital and you're always on the clock before you need to go back to the market and try to raise capital again in the private markets, which is difficult and time consuming. Extending your Runway, you know, one, two, three months is incredibly material. But you made a good point, Joe, that, you know, the one problem you get if you just said, all right, my entire balance sheet, maybe outside of my very short term capital, should be Bitcoin, what you run into is timing risks. Even if you believe in the very long term prospects of bitcoin, and you believe over 10 years, 20 years, Bitcoin's going to perform great, they're not going to be able to stop printing money, price is going to skyrocket. You can still get yourself in trouble just by having a timing component to your balance sheet. And I think that's why the conversations around short duration capital, moderate duration capital, long duration capital is so important because your treasury should be segmented, you should be building it with all of those things in mind. And so if you start to think about your short term capital, yeah, that might still be in money markets and Treasuries and bank accounts, and it might just be sitting there in those because you just need that capital to be there for the next six months. But then as you start to slide longer out that duration, now you can start looking at, well, now how do I start maximizing the yield, right? How do I extend this Treasury? How do I grow this Treasury? And that's where things like digital credit come in. But then you get to the really long duration capital and you go, we have excess, right? We have excess capital that with all of our projects in the pipeline, we don't see a need to deploy it. Right now we can't find a project or a company we want to do an acquisition on that we think is going to provide a better return than the digital credit, let alone Bitcoin, that long term capital. Now we can move into an asset like bitcoin and we can manage the short and the moderate duration portion of our Treasuries actively. As we start moving through time, I think that type of structure starts to make a ton of sense. And for the company, it just depends on what type of business you are and how high your cash needs are and what you're generating to tell you what that cutoff is for you personally on what you're going to consider short duration capital or moderate duration capital. And that's where you can customize a bit. But I think that the structure over the long term is the right one and it's going to build more resilient companies when they start thinking about it that way.
- [40:47]
B
So you took it right out of my mouth then. This is exactly what I wanted to hit on, is moderate duration. And historically the moderate duration bucket has been, there just hasn't been really great options, right? So if you think about Joe's example, you got 12 months of Runway or 24 months of Runway and you're like, okay, I'm holding this in T bills, I'm getting 4%. Well, my alternative is I could go park it in hyg and get five and a half percent. It's like, okay, those are high yield bonds. What's backing that up? It's like, it's pretty liquid etf. How much additional risk am I taking on for extending my Runway from 24 months to 24 and a half months? Okay, like maybe that's, maybe that's not worth it to me. Like I don't want to take that risk. And you know, I don't have the skill set or the analysis to make that judgment. Now these, these new instruments. Well actually let's take, let's look at the other alternative. The other alternative is you buy bonds, right? And you think about the duration of a bond because it's illiquid. I may have to hold a bond for 8, 10, 12 years in order to get that yield profile out of it because it's illiquid. So you think about, okay, well if you're a company that's moving quick and you want to operate on a 24 month horizon, something with an 8 year or 10 year duration, that's just not going to work. I just don't want to do it. So what do these companies historically, what have they invested in? Humans. Humans have been like the moderate duration capitals. Like, let's just go acquire more people because they'll be, they'll Be able to perform better than, you know, going to buy more bonds. Well now that equation has completely been obliterated. Right. Like AI, you've got AI on the scene now and you've got these digital credit instruments. And so now like the opportunity cost of a human is pretty high and you've got the digital credit instruments. Now these are paying 5, 600, 700 basis points over and above hygie with an increased liquidity profile. Okay, now that's interesting. Historically the Treasury Department and most of these companies like the fast moving companies, probably one of the most boring jobs of all time, you probably in the basement and it's just super easy, like let's just go buy Treasuries. It's super simple. Just don't lose money. Right to your point Joe, just don't lose money. Now that's changing and evolving. Right. The companies that historically held those moderate duration instruments like those bonds and hygiene, they were like all financial companies, like insurance companies that are managing true 5, 7, 8 year, 10 year durations and they're able to match those liabilities. Now these instruments open up a whole new short, moderate duration box of opportunity where treasury innovation for smaller, faster, quicker companies, they can operate within that and that's the future. It's like this little short moderate duration alpha, that relative risk return for those additional instruments that's really lucrative. That's an interesting risk analysis that every treasurer on the planet, if you run a business, you should probably be looking at the risk return profile of these things and how it can fit your business profile. And yeah, it's totally flipped like capital allocation upside down. It's just so fascinating to see.
- [44:16]
C
Yeah. For a lot of these organizations we've focused a lot recently and Saylor's been hyper focused on kind of communicating the Sharpe ratios around these products. And I think that part of what's going to make that transition into being comfortable managing your moderate duration capital through these instruments is going to come with the longer time frames built into those ratios. Right. Traditionally if you're going to be an institutional allocator, you're going to look at a Sharpe ratio on a minimum of maybe a year and usually around three years. Right. So over time, I mean the Sharpe ratios they're throwing off right now are pretty incredible over time. If you're looking at the Sharpe or the Sortino ratio or pick your ratio, if you're looking at those and you start to see, you know, what is the risk adjusted return on these products and you've got a couple of years of history to look back on to see how they performed. Have there been any issues? You know, that's going to make it a much more comfortable investment. And so there is going to be, you know, this path that I think a lot of these companies are going to have to follow, which is first spending the time to even understand do you have a moderate duration capital strategy or have you just used one catch all bucket? And my hunch would actually be that the vast majority don't really segment too much. I would guess that you've got a pool of capital and it's either sitting in a money market fund or you're rolling Treasuries all the time. I think when you, particularly when it gets to private businesses, that we would probably be surprised to see how little thought actually goes in to the management of the Treasury. But it's becoming a very hot button topic. And when you start to see all the news headlines that are coming out around a lot of the options that people probably would have picked for moderate and long duration capital being things like these private credit instruments where they're trying to get those higher yields and now all of a sudden there's all these redemption requests and you're seeing these liquidity constraints going out. JP Morgan's highlighting that the losses in private credit are gonna be worse than anticipated. I think that was just in their recent shareholder letter that went out. So it's starting to make you question how you do things. And I think that's going to be incredibly productive because that is a conversation that should be had a lot more than it has been in the past. And I think the reason it hasn't really been a conversation in the past is because there hasn't been a lot of new options. I think everybody kind of got stung during the great financial crisis and they went back to what was simple and safe, even if it's low yielding. And then they kind of took their eye off that focused on the other portions of their business. The economy was coming back, they were able to make more investments in their business. Now you're getting to a point where you're starting to see the symptoms of some contraction out there and it forces you to rethink your strategy at the foundational level. How do I make sure I'm protected in a prolonged downturn in my industry? What builds me that war chest? What keeps me in the game longer? Because there are times where, you know, as a business you might be doing everything right. Something can happen out there that's out of your control. Covid was a great example and all of a sudden you're out of business. And it's not because you weren't performing well, and it's not because you didn't have a great business. It's because you weren't prepared when it showed up. Right. And I think that these are the times, and now that you have better products, it makes it an interesting exploratory task to take on, to go reevaluate what is our capital strategy, how are we managing our treasury, how are we going to make sure we're resilient and we're ready to endure when the time comes?
- [48:02]
D
I think for me, I'm probably about to close it out. But I think for me, each day that goes by, digital credit, the way it's moving, the momentum that's building around it, it gets me more and more excited about the future of bitcoin. It's like people think like, well, how will bitcoin ever hit bitcoin gold parity or go beyond that? To me, it seems very clear that digital credit is probably going to be one of the main drivers that actually does get us there. And one thing that I think is super interesting around the entire concept of digital credit is say someone takes $1 million, buys $1 million of digital credit, the issuer likely takes that million dollars, maybe buys a million dollars worth of bitcoin, that million dollars worth of bitcoin gets on their balance sheet. Someone sold a million dollars worth of bitcoin, so someone didn't receive that million dollars that's still in the banking system. Whoever now holds the million dollars might want to put that million dollars in digital credit. And so I think that's like, at the end of the day, people have all of these dollars that they want to allocate throughout the financial system. And we found this new credit instrument, this moderate duration credit instrument that, you know, you look at the Sharpe ratio and you look at all these unique financial metrics, it looks incredibly interesting to say the least. And as more and more people slowly begin to figure this out, it could get. It could be insane. So I'm super excited about the future and it feels like we are approaching some sort of tipping point or inflection point. Maybe whenever traditional market volatility dies down and liquidity starts to kind of just flush throughout the system, maybe we could be back off to the races again for bitcoin.
- [49:44]
B
Absolutely. I am amped, I'm laser focused and I'm looking to spread the word. I've got a lot of things on the horizon. We've Got a lot of conferences, a lot of tradfi, a lot of tradfi meetings and things to continue to talk about digital credit. And there's a lot of opportunity here. That's the most exciting. This is the biggest story in all of finance and just absolutely thrilled to be working on this stuff. But I completely agree, it feels like we're at an inflection point. These things are becoming too hard to ignore and they're getting very big very quickly. So, I mean, what Strategy added what, $200 million of STRC, maybe more this last week? What is that? $330 million. Sorry, $330 million in the last week. Also, just because I did this math, strategy. The common stock traded $8.5 billion last week. They raised $144 million on the common ATM to pay the interest of all of the preferred instruments. And that represented 1.7% of the common stock daily traded volume over the last four days. Last week it was a short window, right? There was a holiday. So over four trading days, 1.7% of the volume paid for the dividend, the dividend for all of the perpetual preferred equity instruments. So access to capital markets is wide open despite, you know, the stock being down a significant amount and Bitcoin being down, you know, 45% since all time highs.
- [51:20]
A
I really enjoyed Joe's last quote. It could be insane. Well, thanks everyone for listening and watching to episode 54 of the hurdle Rate. The management of the Treasury. For Jeff Walton, Ben Workman and Joe Burnett, I'm Tim Kotsman. We'll see you next week right here on the Hurdle Rate.