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Sam. Foreign
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welcome back to the hurdle rate episode 65 for the week of July 13th, 2026. I'm Tim Kotsman. I'm here with Ben Workman, Jeff Walton and Matt Cole. This morning, Strategy announced it increased its USD reserve by $450 million over the last week, bringing it to a cool $3 billion. Strive announced it acquired 18 bitcoin, bringing its holdings to 19,900 bitcoin. And OrangeBTC announced it acquired 8 additional bitcoin for its treasury while repurchasing 70,000 shares during the last week. This afternoon, Strategy announced the launch of the Bitcoin Bank Adoption Index and Strategy noted that the adoption of Bitcoin and the related digital asset ecosystem across major banks and financial institutions is accelerating, but still early at 32%. Last week, Vanguard, one of the largest and historically most conservative institutions, posted a job listing for a head of digital assets. Vanguard is the second largest asset manager in the world, overseeing roughly 12 trillion and serving more than 50 million investors. Topics on the table today bip 110q2 recap and protecting IP Jeff, where do you think we should start?
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C
Yeah, let's start. Let's just zoom out for a moment. We'll talk about Strategy and how the market is evolving here. Nobody is sitting idle at the moment, right? Strategy raised $450 million last week. We purchased 18 bitcoin. Other companies are buying shares back buying bitcoin and people are, people are moving forward. And I thought it would be helpful to just take a moment to zoom out and look at Q2 and everything that's happened at least for a strive over the last quarter because a lot has changed in just three months and we, we have accelerated very quickly and I think it's helpful to recap some of that. So I'm just going to start with Bitcoin. Started Q2 at $68,000, ended Q2 at $59,000. So down what is that probably 12 15%. We started Q2 with 13,627 Bitcoin. We ended Q2 with 19,863 Bitcoin. That is a 45 increase in the amount of Bitcoin that we held. And we also announced the advancement of daily dividends that happened in Q2. Believe it or not, this was only just a couple of months ago where we announced it was possible and we became the first company in history, capital markets history to be to pay a daily dividend. We rang the bell at the nasdaq, we issued more seda, we explored several different conversations with different companies on how they're utilizing seda, how they're trading the instruments, how the market is continuing to evolve here. And I mean, there's just so much work being put forward in many different fronts and it's just continuing to evolve. And it's been really fascinating to see. And even just this last week when looking at MSTR, they raised $450 million in cash. And when I zoom out and I look at how they're managing the business at the moment, this is shifting, very institutional based. The composition of the balance sheet is evolving. They've got $52.3 billion of Bitcoin on their balance sheet as of today and $3 billion of cash, so, so that's 94.5% Bitcoin, 5.5% cash. A couple weeks ago, before they raised $1 billion of USD, that composition was significantly different. Now the price of SDRC remained relatively flat day over day as a result of the announcement. So we're unable to see as of yet if that has a, what kind of impact that has on the credit. But theoretically this is a very credit positive week that strategy has gone through here. Raising $450 million on the common stock in the last week. That effectively buys them three months of Runway of their dividend obligations. And they did it in a week. Okay, so if they have another couple of weeks where they're, you know, increase the Runway by a month or two months or three months, all of a sudden you're looking at a possible scenario where strategy's got 24, 30, 36 months of USD coverage on the dividend obligations. And I think with the focus on bringing that credit quality up so there's confidence and trust that the dividend is going to be paid out into the future. So I think the general theme here is this, this, the capital composition is changing. This is shifting, very institutional. We could talk a little bit later about some of the conversations I've been even a conversation I had today with one of my ex colleagues and yeah, I'll kick it over to you guys. How are you feeling about the last quarter? I feel like we're at halftime right now. We just hit halftime. We've got the All Star game is happening here in baseball, home run derbies this week. And I feel like it's a good time to reflect on, you know, the
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last half this, this time of year, you know, when you have the 4th of July, the hot dog eating contest, the All Star Game in capital markets. It's the time that almost everyone's on vacation. And so you start to see almost every year volume dry up. There's obviously the sayings of sell in May and go away or name whatever saying that you want to hear. But the reality is that from a capital markets perspective, this is the most quiet time, typically in a year. But to your point, Jeff, what you're seeing in digital credit and with Strategy with Strive is continued building during this time of general quietness in the markets, apathy in the markets. And I think to your point on them building up the cash reserve more and more, I think it's obvious that they are going to support their digital credit instruments to the degree that they need to to create investor confidence in them. And that target is evolving, it's dynamic, it's multidimensional. We've covered all of these different factors in why certain things happen. But the reality is that whether it's 12 months, 18 months, 24 months, 36 months, they seem pretty committed to raise the cash to a level that gets investors confidence. And obviously the goal here is to have the common equity investors comfortable in the amplified Bitcoin story, the digital credit investors confident in the credit of the digital credit instrument and then obviously management confident that they can execute on the strategy. I think we're seeing the evolution of that there, but I think in my perspective, I don't think anything's broken. I think we're just in the quiet part of the market cycle. If you look at Strive as an example you highlighted our last quarter SATA is at 97 right now with a very large short interest in it, which is likely going to be almost like delayed energy. You could almost think about it as a slingshot that's been pulled back of future demand because these people at some point are going to have to buy it back and they're paying for it in the meantime, that this is just working through things. I think Tim mentioned the BIP 110 conversation. That's likely to be past us in my view in a couple months. We're going to have the summer past us and I think it's going to be a really strong fall and close to the year.
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D
What I really like to see from strategy and Matt, I'd actually be curious. You just did a podcast with Fong and he shared some of their learnings that they've had here over the last couple of quarters. But you know what? I saw an execution out of them recently is it shows they're hyper focused on one thing which is getting that reserve back. And from what they announced Today it sounds like getting that reserve back stronger than it's ever been. And I think that it was an important recognition. And the market gives you feedback constantly. And that's what they're experiencing right now. They drew that down. The market responded to it. They took the feedback and now they're taking the corrective actions. And if you really look at the speed at which they're correcting that, they've been doing it incredibly quickly. They've not wasted any time. It proves that they've got the access to the capital. They've showed that they could use bitcoin as capital to make the right moves that they needed. And so you saw them shifting the right direction here. So I'll be curious to hear some of your feedback from that conversation that you had with Fong. In terms of this last quarter, this has just been an absolute whirlwind quarter. Jeff, when you said daily dividends just happened here in Q2, and I know because we see the count of the dividends that we've paid, we're up to 25 now. It seems like they've been going on forever. We can remember back to when we first started kicking the tires on that as a possibility. It feels like it's been a reality for much longer than it is. But it just shows you how fast things can move in this space.
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Right.
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And why you constantly have to be heads down, why you constantly have to be focused on moving to the next phase of execution. And from the companies that have been able to separate during this time period, I think that's one of those large differentiators is you never sit still. There's nothing the market hates more than idle time. You know, if you give them too much time to think about something and they don't see enough action, they lose interest pretty quickly. And that's been kind of a key that I think you've seen from both strive and strategy during this time period is they've constantly been evolving. So I'm pretty excited for what Q3 is going to have in store from us. Obviously, we're still in the middle of turbulent times. You've got bitcoin down here, you know, in the mid-61 thousands. So we've still got a weak bitcoin market. We haven't seen that turn. Obviously, you've got a lot of the expectations from prior cycles around that turning here, you know, later in Q3, we've still got the war going on. And so we're contending with headlines that are happening over there. There's a Lot of risk on, there's a lot of risk off. We've been seeing a lot of oscillations out there in the market that have been impacting things. Clarity seems to become more certain and less certain at the same time, you know, every week. And so we'll have to see where that lasts. But there's just a lot of catalysts here and a lot of things that can happen that I think could propel us into what the next phase of these markets are going to be. And that's when I think this is going to all start getting really excited. So far, when you're watching the equities trading, you know, and you see these moving up and moving down pretty significantly as bitcoin moves. That's the design, right? That's what being a high beta to bitcoin means. It means that you're going to move in an amplified manner to the moves that we've seen from bitcoin. So from what I've been seeing, you know, this model's been performing as expected. We've had, you know, really good access in the capital markets here over the last six months while we've been in this drawdown, which has been great to see and I'm pretty excited to see what comes out of this next quarter. Things in bitcoin seem to move at warp speed. The innovations are happening at warp speed. I know everybody behind the scenes is working on a lot of different projects to keep these things moving forward, keep digital credit moving forward, keep bitcoin moving forward. And I think Q3 is going to be one of those foundational moments that's going to set the tone for what we're going to see over the next couple of years.
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I couldn't agree more. You think about everything that you talked about, all the different paths of uncertainty, even the ones that I talked about, whether it's clarity, which is definitely going to be passed or not passed and dead before the midterms arrive. The midterms in and of themselves is actually going to be something that's going to be a thing we're going to be discussing, I'm sure, as it relates to potential implications on the pro crypto and pro bitcoin policy of the United States. Obviously, BIP 110 will be past us by. By midterm times. My guess is we'll have more certainty in what's happening with the Iran war by, by November, but I guess you never know. Seems to be kick the can down the road a lot on that one. The Fed's Actions will have a little bit more time under war. And, and as we kind of work through all those things, it's hard for me not to think that for most of those things, either direction still provides certainty. And that certainty in and of itself is likely to be a bullish catalyst. When you think about the productivity boom that we're still under with AI and how open the capital markets have been, that it's hard for me not to be very constructive, that right now that we're, in my view, likely just in the process of bottoming, whether the bottom's in or the bottom's not in, and that, that, that certainty of where things go is likely to be a bullish catalyst for us. And if it wasn't that way, my, my gut says by this time, you'd start to see the capital market start to really dry up. And, and we're just not seeing that. You're seeing the IPO markets hit record levels this year for all time as we speak right now. So it's hard not to be constructive here. And I think the other point that you brought up, Ben, on my podcast with Fong, I think that conversation just highlighted to me something that I already know, but it's always just nice to have it reinforced, is how calm they are when the markets get them feedback. They don't overreact. They act quickly and decisively when they understand a direction that they want to take. But it's always from that perspective of zooming out. And the way I view it is preparing themselves to be one of the largest companies, if not the largest company in the world, and taking those actions, being willing to fail and fail quickly. Listen to market feedback, take, take a cut, and don't let that cut be fatal. Like the. The motto of just don't die. I mean, I think there's no one better at that than Michael Saylor and strategy. And I think that they're taking that lesson in how they react to reactions from the market that may not be favorable to certain decisions. And I think that to their defense, if you can raise multiple months of capital in a week and not in a week in the middle of summer, I think that their reasonings for why they didn't view their cash levels to be a concern, I view that as justification for them, but also justification with the reality of what the markets want. The markets want them to have a true cash reserve, have it be maintained. I think it's going to be fine for them.
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D
There is the disconnect that happens when you're behind the scenes versus what the market sees and perceives. And I think that's something that you just have to recognize when you're watching these types of companies and these types of execution models is, I think you're right. In the early days, I think when they did that redemption on the bonds, when they paid those off early, they used the cash to do it. They're watching the execution that's happening behind the scenes. They've seen the pace of access that they've had in the capital markets. They'd seen how much capital they'd been raising. Obviously bitcoin was at a much different point when they did that. I think it was around $84,000. But they're able to have a lot of comfort in the ability to replace that reserve. Right. So I think at the time you just look at it as it was a temporary swap. They had the cash available, they could get a deal done quickly and therefore they executed on that and it was a credit enhancing activity. And so from that level, the right decision and then you get the market feedback because the market doesn't see what's happening behind the scenes. Right. They don't see the pace that you're able to raise. They don't see what your access levels are. What they see on the face value is what you have in reserve. And that's fair. I think, you know, the market's going to react based on the information that they have at hand. And the information that was readily available was the reserve. They clearly valued that as a part of that credit story and because of that it proved to be highly important. But what you have to be willing to do in those circumstances, and I think to your point, Matt, is fail quickly. Right. You took an action and it turned out not to be the one the market was comfortable with. And so you took the time to hear their feedback and correct course and start making the moves that were necessary to get back on track. So I think they were doing all the right things here. I think they're executing well and I think as that progresses, you're going to see the market stabilize around them.
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C
Yeah, absolutely. Just a couple of data points to kind of put, put some perspective around this. I think where we're trending is strategy is going to pay off the convertible debt with proceeds that are raised from STRC in the future. The entire goal, as we've seen over the last couple weeks, is to improve the credit quality and get that STRC engine continuing to roll again. Might take a little while, it might take a month, it might take two Months. But there's been a lot of concern about the convertible debt that's on the horizon. So, for example, there's a 2028 convert with a put date of September 15, 2027 that's got $1 billion of notional outstanding. Just thinking about STRC and how this thing trades and how much capital they've been able to raise on the instrument on days where it's trading at par, roughly they're about 50% of the average daily of the trading volume for that day when it is trading at par. So if we're looking at a billion dollars of notional value Today, STRC traded $80 million. If they take 50% or of the daily trading volume, you're looking at about $40 million. If that were at par, it would take about 25 days to accumulate 25 trading days to accumulate a billion dollars to effectively offset that billion dollar put date on the convert in 2028. So you've got between now and September 2027. So about, what is that, 15 months do the question then becomes, do you think that the SDRC engine will be up and running again within the next 15 months based on the actions that they've taken recently with enhancing the reserve, improving the credit quality, and continuing to, you know, move forward very transparently. Now, today's trading volume of $80 million is a fraction of what the average 30 day trading volume is. And what, and a fraction of what it was over the last couple months. The 30 day average trading volume is around $300 million. If you take 50 of that, it's $150 million. That would be raising a billion dollars of capital in about six trading days. Should we see the trading volumes pick back up in the fall as capital markets start to ramp back up and the credit quality starts to become a little bit more understood? STRC becomes greater than a year old and all of these other uncertainties that we're talking about here continue to evolve. And I mean, this, this marketplace has been just so incredibly fascinating to watch. I mean, obviously we're all paying a ton of attention to Bitcoin, but what's evolving in the AI landscape and the Fed and the political landscape as well, is just so fascinating. This is such a unique time in history. And I sent this over to Matt and Ben. A couple days ago, Marc Andreessen was appointed to the Fed, one of the Fed Committees for technology. Okay, well that's super fascinating. This is, this is like one of the best, brightest thinkers on the planet is appointed to the Fed committee. Okay, so now that's an influence on tech, that's an influence on AI, that's an influence on crypto that's now getting itself into the Fed. It'll be interesting to see how that continues to play out. On top of that, Ben Bernanke was added to the long term benefit trust at Anthropic. And so you're now seeing like the Fed is becoming interwoven with AI and it's kind of moving in both directions. And you know, what is the downstream second and third impacts of that. That will be really fascinating to watch this play out. And then on top of that, Satya Nadella, the CEO of Microsoft, came out with this paper this morning, or in the last day. It was about reverse information paradox. And this is something we've talked about internally pretty extensively. And the concept is many people are paying AI to get information out of it. And the paradox is the companies that are providing the AI are also taking your information, everything that you're putting into it and everything that you're getting out of it, they're also taking that information and they're bundling it up and doing things with it. And we could see this just recently with an anthropic coming out saying that they're going to get into the biotech and the, and the drug creation pharma space. So it becomes this really interesting. The paradox in AI right now is like I need to harness and own all of my data and how I interact with AI and I need to protect my ip, my intellectual property. Meanwhile, we have our business model and you know, we're plugging away on AI and we're hopeful somebody takes our business model like please, somebody go run a Bitcoin treasury as well, like that. That's great for everybody. And the. My response this morning to Satya's piece was effectively what is the answer to protect your ip? It's monetize your edge as quickly as possible and store that energy in Bitcoin, something that's completely scarce, that cannot be debased and that that is the monetization of your edge in the space. And, and then just one other point to kind of round out this AI conversation, which I think is going to continue to evolve here as we've no doubt have seen just tremendous amount of capital that's flown into the market for chasing the AI names. Chamath had a brief video where he was talking about the spend of AI tokens is increasing at 45% per month and they're only seeing a 5% increase in output. And there's some concern that that narrative may continue to infiltrate in the market. So his recommendation, I think he was speaking to, you know, people that run AI companies is get out to market as soon as possible. Go raise as much capital as soon as possible while there still is this, like, uncertainty component of the upside in AI before there's uncertainty to the downside of what do we actually use these things for? And so it's just fascinating watching all of this evolve. I mean, AI is just moving so quickly. It's working its way into all sorts of different places. And just the landscape of the capital world is changing, the landscape of the political world is changing, the landscape of the Fed is completely changing. And yeah, it's just so fascinating to watch all this stuff at the same time.
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A
It's definitely not a boring time to be alive to be in capital markets. I think on the point that you made about Marc Andreessen and the Fed, just to go there for a second, it was only a short time ago that the smartest and now most wealthy person in the world joined the government to start something called dogecoin Elon Musk. And I go back there because as someone, obviously this group of people, and a lot of people listen to this, are people that are generally deeply convicted about the debasement, trade, the debt crisis, issues with the Fed. I found myself in the early days of DOGE becoming pretty optimistic in the sense of I don't root for the dollar to fail. Even as a bitcoiner, that's not my goal is to take down the dollar. It's more been being a pragmatist about the world and about the issues within the treasury, the issues within the Fed and where things are going to go. And then as an investor, as a businessman, how do you take advantage of the world that you see and the realities of that world, not the world that you wish would be? And I started to question myself when Dosha to say, well, I. If there was ever a way the United States could get out of its debt crisis, it's by putting Elon Musk in the middle of the United States government with all the data he has, his intelligence, his team, and Vivek Ramaswamy was involved with it as well. And obviously the founder of strive, someone that I deeply, deeply respect and say, go solve this big issue. And obviously the result was nothing stops this train. DOGE is now over officially, as of the last week or so, and nothing was solved. I mean, I think that some organizations were shut down that probably were giving money, some money to things that shouldn't have happened. But the debt number just continues to go up and to the right and no dent at all was actually made in the deficit. And that was directly within the Treasury. And the important part of that is that Jeff likes to joke, because I do say this, that I believe the dollar and the debt crisis has terminal cancer. That's my diagnosis of this situation, unfortunately. And if I was there, what I would say. But if you were going to fix it, the place to fix it's actually at the treasury, within the government, not at the Fed. The Fed is like the Fed is like the doctor. The treasury and the United States government, they're the patient. So you couldn't fix it with the patient. So now you put someone that's really smart and Marc Andreessen, who I really respect with the doctor. The doctor can't do anything. I mean, I do think he'll be helpful in making sure that the Fed is able to understand the ramifications of AI. But the reality is that this is not a problem that Kevin Warsh can fix. It's not a problem that any individual or group of individuals can fix. The Fed, can they do things that may or may not be helpful? Yes, they can. Can they be smart about how they think about inflation and AI and this world we're moving into? Yes, but those are still topical to the actual core root problem of a debt crisis in the world and in the country. And so I'm happy to see smart people step up and try to take a crack at this. But I'm pretty pessimistic that anything meaningful could be done at the Fed to solve where this ultimately goes. So that's kind of more my view there. And then with regards to the data and AI, it really is interesting. I think we're in the Bitcoin space. We're in a very unique position that, I mean, you read Satya Nadella's article and it's like, gosh, we've talked about on this podcast before how in the rise of the Internet, there was over a 50% turnover in the S&P 500 over the course of 20 years. And then we've been talking about and predicting how something like that will likely occur today through the rise of AI. Well, AI is basically internalizing and ripping off every single business model that out that's out there and what's on the balance sheet of these companies, it's goodwill. Like, it's a really, really difficult position for a lot of these companies to be in. And I think a Lot of them are in some way not going to make it. That doesn't mean they have to actually go out of business. Most businesses that fail don't actually go out of business. They. But they're not in a position of strength and I don't know the way out of it for them. And I think that it's one of the many reasons why I do think that the opportunity and the value of a balance sheet company with the foundation of bitcoin is still misunderstood and mispriced. Strategy's model is not replicatable at this point. With 800,000 Bitcoin, like I've said, I think strive can be the fastest growing company in the world. But 800,000 Bitcoin, over a million Bitcoin is going to be out of reach for effectively everyone. And it's a model that we can just hammer away at the AIs because for multiple reasons. 1 To your point, Jeff, if anthropic or chatgpt wanted to put bitcoin on their balance sheet, that would massively benefit us. I don't know that they will, but I hope they do. If they did, they still wouldn't be a pure play amplified bitcoin company. They would just be a company that has bitcoin on their balance sheet. We're really in a unique position in capital markets. I think it's why this whole narrative of a digital gold rush era is playing out even in the midst of a bear market that these companies that are achieving scale in bitcoin holdings, it's only going to become harder and harder to replicate as these large companies that have a foundation of goodwill on their balance sheet become attacked by all these AI companies. I think it's going to be really interesting times. I still couldn't be more convicted on the opportunity that we have here. And it's. I just, I mean it's pretty interesting to read an article like that from Satya and say we're immune from that.
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C
Yeah, not many people can say that from. Yeah, the CEO of Microsoft. Yeah, that's pretty eye opening, isn't it? Yeah. Incredible. And Matt, to your point on Doge, we did get rid of the penny, so we've got that going for us. There's no more pennies, I guess anymore.
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I don't know if that's a good thing or a bad thing. I guess as far as the value of the dollar is if the nickel's next and then the dime and the quarter, we're going to be having million dollar bills pretty soon here.
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C
Yeah, yeah. They're gonna have Donnie T. On the front for sure. And then Matt on, on that point on hard to replicate. I want to hit on that for a moment as well because I just had a conversation today with one of my old colleagues from the reinsurance days and he heads up, heads up securities. And we were talking about just in the last month they've had a few people come up to come to them that they had significant gains in crypto, I think mostly Bitcoin and they were looking for ways to get yield in the insurance and the reinsurance market. And it. So this conversation today was pretty funny because I had noticed this like years back. I was like, okay, these assets are going to come into this market and they're all going to be chasing yield. But the problem is, which is one of the reasons I'm here at Strive, is the insurance companies cannot accept Bitcoin as collateral for a reinsurance transaction. It is too volatile. There is a 40 Vol 50 volume. It is not a tier one asset. So a tier one asset effectively like Treasuries or investment grade bonds. So that means that instrument cannot be parked somewhere to earn a yield on it in the duration, in the duration of the insurance world you can use alternative assets like bonds and Treasuries and those types of things. But it's really difficult to go from Bitcoin where you've got a bunch of unrealized capital gains into taking risk in the alternative risk taking space. So like the insurance world now where, where we have a bit of a moat is the fact that our corporate balance sheet is converting. We are transforming the underlying commodity into a different security that is beginning to be more applicable to taking risk on in different institutional financial spaces. Now I do think there needs to be some more advancement in this securitization effectively taking. So we take Bitcoin, that's a perpetual, we create SATA which is a perpetual as well and turning it into a term instrument and having a senior piece and a junior piece and that senior piece can potentially get a rating and start to get integrated into some of those risk taking locations. And, and when I zoom out and I think about what's on our horizon here, I'm largely thinking about who is it? Right? We sell credit. SATA is credit. Who is the largest consistent buyer of credit on the planet. And Matt, it probably used to be you at Calpers, right? Like pension funds, insurance companies, some of the largest continuous purchasers of credit. So how can we wrap these instruments in a way that they can interface with them while not having to interface with the underlying Bitcoin. And I think that's ultimately the name of the game on the. In the institutional space. Obviously there's the retail side, which is a bit of a different side as well. But in terms of accessing some of the largest pools of capital, it's. It's. How can we convert and change the shape of these instruments such that they fit the puzzle piece and can actually be held on the balance sheet? And, you know, Clarity act will help. Basel III risk rating standards will help rating agencies. Understanding the model will help and beginning to shift away from this being a bitcoin underwriting exercise to a balance sheet underwriting exercise will help the evolution of that market.
- [35:48]
A
The puzzle piece analogy, Jeff, I think really hits it well. And it's core to even the first layer of what we're doing with the amplified Bitcoin story and digital credit, right, that in and of itself, it opens up pools of capital, massive pools of capital, right, that have equity, only mandates income, only mandates to be able to access those. But what you realize is that, you know, and this is, I think, what makes it and really makes any business a great business, is putting the pieces together. Where is there large sources of demand for something that you have expertise and you could provide a product that fits a solution, right? That is. That is just business 101. And so part of that was saying, hey, there's equity mandates, there's income mandates, people that want exposure to Bitcoin in some way and give them access to that. That's like one component of what we're doing. Then there's indexes that are just passively buying our product. Then there's retail that wants these specific types of exposures even though they could buy anything. And you combine those and you have massive demand for the first layers. But then there's certain players that need terms, there's certain players that need more protection even from the downside, than what the first layer of digital credit would be, right? That's how you can create another piece of a puzzle, which, to your point, that one piece that you're talking about is trillions of dollars of capital that allocates to that term structured finance with downside protection type of product that would more likely have a rating. And then who's the buyer of the bottom tranche? Well, I mean, you get amplified exposure to digital credit with term. That would be likely hedge funds that could be people with deep conviction in Bitcoin. Frankly, that's probably almost going to be the easier bucket to fill. There's a lot of people that would want that, that juiced return profile. And it gets back to the whole origins of structured products of mortgage backed securities and how you create win wins, win win opportunities. And by doing that, the, the slices of the pie become greater than the pie as in and of itself, right? And then you're able to obviously not only expand the demand for the underlying asset, but likely to do so at a higher price for the people that actually structure those things. That is how structured products works. That is why there is a multi trillion dollar asset class of structured products. Because these problems exist in the real world. And it's not unique to Bitcoin and Bitcoin treasury companies. It's mortgages, it's auto loans, it's student loans, it's credit cards, it's aviation loans. There's all sorts of different types of things that are sliced and diced. And this is really just applying those same principles in a novel way to Bitcoin.
- [38:58]
D
This is what makes this entire industry so fascinating from the outside looking in. I think that a lot of people look at these companies and think this is final form, this is all you were trying to accomplish. And now this is the model that you're going to run forever. And the part that I think a lot of people miss is how big this opportunity is in front. And you don't get the reward of that opportunity by sitting still, by reaching one point and saying that's enough, you don't have to go any further. And so the conversations that Jeff's having, those prove what we've been talking about, right? There is a next phase to this, there's a next evolution to this. And there's a reason why there's been so much focus on credit quality, credit ratings, what it's going to take to get credit ratings, right? That is the key that opens that next door. And you need organizations like ours, organizations like strategy who have expertise in that domain to go find the right structure for those products. And it started earlier, right? It started with structuring these preferreds themselves, right? You needed the right product that you could actually go structure on top of out there in the market. That created something interesting for these structural buyers to participate in. But now that next phase is what are the tweaks, what are the protections, what is the right slicing of those tranches in order to make these products available to an industry that becomes a structural buyer? That's the one thing about it, is not only is it a massive industry, it effectively can create a perpetual bid over time. Because they're constantly rolling these products, they're constantly buyers of these products. And I know Jeff's talked about that a lot. In particular, why places like the insurance industry are so interesting to go try to crack into. But it is the depth of the instruments that they're working with over there and the uniqueness of the different types of products that they can put into the same structures that they're offering everywhere, right? The fact that, you know, you've got one bucket of capital for one product that they've got out there that has to be investment grade and then you've got another one that has complete discretion on top of that, right? It means you can fit products into multiple different slots for them. But unlocking that opportunity is so massive that it's worth the time, it's worth the effort and it's worth quite frankly going slow to make sure that you get it right. Because if you get it right, the reward there is massive.
- [41:31]
C
This could be done in several different ways, right? This could be constructed. There are several different firms that are, you know, outside of us that could go and create this. This is effectively making Bitcoin backed private credit or private digital credit effectively like a more difficult to trade 144, a senior tranched instrument with a term on it. Like anybody could theoretically structure this. So there's opportunity there. I think one of the most fascinating things, Ben, is this is the first call I've had from a colleague where they've reached out to me and that was like a milestone, you know, and a bit surprising that they're also reaching out to me talking about this when Bitcoin's at its, you know, at the bot, you know, under the 200 week moving average at a bottom and they're getting requests about how to utilize Bitcoin in, in the, in the capital markets as collateral. So it typically I would have thought people would be reaching out to me, you know, all time eyes and it's, it's interesting that these conversations are continuing to happen and they're coming, coming my direction too. So I think it's a pretty good signal that people are still focused on this. There's a lot of energy being put in behind the scenes in the capital markets in several different places and you know, several of them just aren't on X. And you just. Nobody's going to talk loudly about this stuff. I know for a fact that this guy I talked to is not on X. He has no idea what's going on the X sphere.
- [43:16]
A
People in institutional circles are not following almost anything that we're talking about. And you think about someone as institutional, they're an income investor, they're on Bloomberg. I think most of their perspectives would be still even impressed that Bitcoin is at $60,000 right now. We're thinking it's down 50%. They're like, oh, it's still hanging up there. It's still a trillion dollar asset class. And so as they see that happen, as they see the ETFs continue to have success, even though they've had small outflows, ETFs around, Bitcoin have been the most successful financial products launch in history. They see $10 billion flow into digital credit in a year. Right. These are all in wrappers that are easier for them to digest than what you would normally see in the bitcoin and crypto ecosystem. These have Q sips, they're easy to pull up on, they're on Bloomberg, they're exchange listed. That it's not surprising to me to see more constructiveness around them with these things.
- [44:31]
B
Right.
- [44:32]
A
These are starting to become available or available to build on. And, and so I think from the institutional perspective, this is just the early days now. I think from the OG Bitcoin perspective, it could be, oh my gosh, it's getting, you know, it's getting centralized. Wall street is buying all the coins. But from the institutional perspective, they're just wetting their beaks as we speak. And so I'm not surprised to hear that reach out to you, Jeff. I've had a few different examples of similar from my past life of just people reaching out with inquiries. Because still it's like if bitcoin's not a trillion dollar asset class, it's not even really investable for these people. It's just like it's a hobby. It's too illiquid. Bitcoin is still smaller than several companies in the United States today. It is still an emerging asset class that is just starting to become of the scale, the liquidity, the track record, all of these different things to be interesting. And, and so I think this is going to continue and it's just a massive opportunity.
- [45:50]
D
I mean the push versus pull here is huge. I think that's a monumental shift that we're starting to see. When the inquiries start coming in. Instead of you going and reaching out trying to find anybody that you can to talk about this stuff, the fact that they're now interested in exploring means that we're making traction in this. Right. The awareness is growing out there and I actually think a big part of, of that is because the companies in this space have been innovative. One of the things that you mentioned, Jeff, from that conversation was bringing up things like daily dividends and people were still unaware. And they get their mind blown when they hear that that's actually out there happening. And you can't expect a lot of people to know that that's happening because there's only right now one single company doing it. But that's coming out of bitcoin companies. And so I think the fact that you're seeing innovation happening, strategy has been innovating now for years with all the different ways that they've been structuring these products and the different products they've been designing and putting out there, that's innovative. We've come in, we've been innovative, Right? And so I think that it's making bitcoin interesting to them. They're seeing us enter their world, they're seeing us put this into products they can understand that are natural for them, that they can see a place in a portfolio. And it might be, to your point, Matt, it might be a scale issue for now, but it's on the radar. And I think being on the radar is a massive win for the stage that we're at. These are very traditional institutions that don't have to spend a single second thinking about this if they didn't want to. But it means there's someone in that organization now that's taken notice that started to ask questions about it, that started to think about how it could be integrated into what they're doing. And we're seeing that now as those inquiries come inbound. So I actually don't think you can understate that or overstate that enough. It's a massive shift from what we saw, you know, call it over the last four months to see that us
- [47:56]
C
turn that corner totally. And I'm going to go into small story time here real quick. And that industry is still so primarily focused on stablecoins at the moment, for as crazy as it sounds, just so they can pay each other, like from one person to the other person. And when I, when I worked in the reinsurance industry, it's so crazy. You fill out these contracts, right? You syndicate a deal. A deal may have 40 different reinsurance companies on it. And you go in and you input into a computer every single participation that every one of these reinsurer has in the specific transaction. And there's people that are manually shepherding this process through. And so when an insurance company pays a reinsurance company their reinsurance premiums. The insurance company pays the broker first, the broker takes the fee and, and then they pay the reinsurance counterparty that whole process and it might be, you know, sending $100 million from one party to the broker to 50 parties. That whole process might take two months, three months from when the first payment is initiated to it sitting at the broker for a little while and then going from the broker to the reinsurance counterparties. And the reinsurers are that, that they factor that into their calculus of how they like price these deals. So like if you're getting payment two months later than you anticipate, that impacts your float calculus and how you price deals. So they've been really focused on compressing that timeline of capital flow. And that's, that's like how simple this industry is at the moment. Like once they figure some of that stuff out, then they can shift their gears and their attention to okay, utilizing different forms of capital. Like they just need to figure out how to pay each other right now. Which sounds crazy, but like even one of my clients when, when I, when I worked in 2021, I had a client that still had black and green computer screens and they were sending physical checks back and forth to like, to people like when they had claims, they sent physical checks, they accepted physical checks. That was like how people paid for their insurance. And that's just. This industry is really old, it moves really slow. And they're working on some of the very simple things just like paying each other. And then I think some of this will continue to evolve. Clarity will clearly help.
- [50:34]
A
It's amazing how antiquated and slow moving the process of settlements has been. Ben has covered in the past the process of moving the timeline to settle trades and that condensing by a day here and how big of a deal that was another thing that's just. I was almost flabbergasted as I was remembering this. But when I was in 2011 when we were settling trades between different Wall street firms, the process was done by fax. 2011, think about 2011, that's 15 years ago. Obviously like the Internet is. Well, in a way everyone uses the Internet and once a month with mortgage backed securities. So there was, there's a market called the TBA to be announced to market. It's multi trillion dollar market. Outside of U.S. treasuries, it's the most liquid fixed income market available. Okay. So we were very active in the mortgage TBA market. And I would get a stack of a few hundred paper pages of paper, of faxes, once a month, because they settled once a month for me to sign into route where we were sending, sending hundreds of millions to low billions of dollars. Okay, like that is wild. Like if you think about that. And I had to validate and I would, I would sign and the other counterparties on Wall street would sign. That process lasted probably until 2015, 2016. So about 10 years ago, it finally moved to an electronic system. And so you think about how stablecoins is something that they would be talking about a lot right now. That makes all the sense in the world to me of how antiquated this system is and continuing to make it easier and more seamless to send money to settle trades, obviously with just more tokenization that that is where we are and to bring it back to us. And as a bitcoin company, what we're doing is. And even bitcoin itself, Wall street and investors, I think are still confused of bitcoin versus Ethereum or versus Solana, of why is it bitcoin versus like I'm just going to invest in an index that is, that is where the average institutional investor is still today, where they're like, okay, like I get it, like these things aren't dying. Like I probably should invest in it, but what do I invest in? It is still so early. And we have the ability to build a track record. But not only build a track record, our positions are very important because we also have the ability to, within corporate America, within policy of the United States, within potential legal frameworks to provide massive net good for bitcoin. So you want people that have a deep appreciation and understanding of the principles of bitcoin. And I think that that is one of the concerns on the bitcoin side is that maybe those are being abandoned. And I think it's a fair risk to be concerned about. But I think as it ages, you'll see more and more that the larger players in this space are aligned with those core principles of Bitcoin, but are working them in within a system where there's going to be massive demand for it. Because like we talk about, corporations don't need, or bitcoin doesn't need corporations, Corporations need bitcoin. Sovereign nations need bitcoin. Bitcoin doesn't need sovereign nations. Like it's going to work into these systems. And so you want people that are stewards that understand bitcoin. And I would even say as a piece of constructed feedback for people that get frustrated with whatever way a certain debate is going that in the early days of Strive, when we were the anti ESG asset manager, I can tell you I was very frustrated with how the capital markets were going and the direction that it was going with DEI and esg. And the winning approach was not to malign and really attack them. It was actually constructive engagement. And, and so what I mean by that is that we actually took ownership positions in these companies, small ownership positions between our ETFs, we engaged with them, we didn't boycott them. Right. And by doing that, you were actually able to have a voice in the room. And I kind of come back to real quickly, kind of like this 110 argument where it's like the plebs versus the large holders of bitcoin. Strive was a pleb. We. We were a pleb asset manager. We had a billion dollars and we were going against trillion dollar asset managers. And we won, but we didn't win. Like when we fought the DEI fight, we didn't say this person by name was a DEI hire as a dei. We were attacking the ideas, the concepts, the first principles behind hiring decisions. It was never about the individual. It was about the first principles of the idea, and it was about being constructive when we can. And really the active fights were almost more of a marketing to then go to the other companies where it was basically like, if a company was a lost cause, we might send an engagement letter to them. But then we're engaging with 20 other companies that actually are positively engaging us behind the scenes to actually implement change. And so I say all that to say that plebs can make a difference. You can do so by being constructive. Engage, don't boycott, is a way to have a more likely impact and to be a happy warrior. We used to go into Harvard, Berkeley, name your place. And I'm sitting there at a panel with all these ESG activists in a room of everybody that loves esg. And you got to be the happy warrior. You got to show up. And I think that with that, we can win. And it's a piece of constructive feedback for the plebs, because we've all been there.
- [56:34]
C
One of the main questions or one of the ending questions that my old colleague asked me was about the esg. The European insurance companies are concerned about the ESG impacts of bitcoin. That's where we're at.
- [56:50]
A
It was the first Fireside chat that I hosted at Calpers on bitcoin, right. I'm obviously not pro esg, as people know, but I worked at Calipers, right? And so I did a Fireside chat with someone from the bitcoin industry on why bitcoin was actually the ultimate ESG asset if it was from first principles of what governance should be. Right? It's the ultimate governance asset. If you actually think about from the environmental perspective, there was actually already several examples of gas being flared off that was being recaptured to actually mine bitcoin, Right. That it was actually on a net basis, more friendly to the environment than. Than you might think. And how it also provided an opportunity for anyone. Bitcoin doesn't care your skin color, it doesn't care your gender. Right? It's just code. Can you contribute to the system? Can you. Can you contribute? Code that gets accepted by the consensus. Can your ideas be accepted? And that is the ultimate meritocratic system which should be if you actually care about s what you care about. And so we framed it that way. And actually, even within Calipers, it was received very well. Where it was like, oh, that's actually surprising. It wasn't like, no, you're wrong. It was like, okay, I never thought about it that way. And so we can win these battles.
- [58:15]
B
What a time to be alive. Thanks for watching episode 65, Shifting Institutional, for Ben Workman, Jeff Walton and Matt Cole.