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- [00:00]
A
Sam welcome back to the hurdle rate
- [00:28]
B
Episode 66 for the week of July 20th, 2026, I'm Tim Kotsman. I'm here with Ben Workman, Jeff Walton and Matt Cole. Strategy increased its USD reserve by $225 million last week, now up to 3.2 billion. Strive bought 21 Bitcoin and the High Court in the UK approved Smarter Web to pay dividends. The BlackRock Bitcoin ETF last week recorded over $200 million in inflows. Topics on the table today they are macro uncertainty. The bitcoin price is up week after week without strategy in the market so far here in Q3, insurance industry structured private credit credit. What Chamath doesn't see with bitcoin and robot dog welders and inflation. Jeff as Michael Sailor posted yesterday, what's next? Yeah, yeah, you know and we are, we are firmly into the summer here now the I guess third week of July, the price of bitcoin seems to be slightly moving a little bit higher despite you know, as we've talked about the last couple of weeks, this is kind of the middle of summer where everybody's out on vacation and going to, just away from their computers and so it's good time to build, good time to think about the markets and reflect and get prepared for what's coming in the rest of Q3 and Q4, the second half of 2026. So yeah, I mean a pretty big week despite relative volumes being down across the board for all for bitcoin, for bitcoin treasury companies strategy raising a couple hundred million dollars. We bought 21 Bitcoin, we've paid our 30th daily dividend now at the moment actually our 30th dividend, not 30th daily, but it's our 30th dividend. So we've reached the number 30 which is a great place to be and we're going to continue pushing that forward into the future. And yeah, it's, it's exciting times. But despite, despite the like relative slowness within the markets. So you know, I think the signal from strategy is they're continuing to build the balance sheet to improve the credit quality of strc. The whole goal is to get STRC back to par so they can start issuing and selling more STRC and buying more bitcoin. I would anticipate the strategy remains relatively the same until we start seeing the price of STRC trend back toward par. We saw some pretty good movement in the price action of STRC today back getting into the upper 80s. I, I again, wouldn't be surprised if they continue to push that USD reserve higher as they change the composition of the portfolio to intrigue and entice investors back into the space. So, yeah, I think I'm, I'm excited about the future here. I'm excited about some of these other topics, but maybe I'll kick it over to Ben and Matt for a quick overview.
- [03:27]
C
Yeah, I mean, I think at the strategy world it's business as usual, right. They've told the market what they're going to do and you've just seen several weeks in a row of them marching towards better credit quality, replenishing the reserves. Looks like they're even going to kind of overshoot and go further on those reserves. And you know, I think right now, if you look out at the way that Stretch has been trading and it traded fairly well today on the news that they raised more cash. So I think that's a good sign. But I expect them, as long as we keep seeing Stretch trade at these levels, that they'll just continue down the same path. So I think that's good to see. It's steady execution. They told the market what they were going to do. They've pushed forward in that direction. It's clear that they're going to be unapologetic about that. They're going to raise those reserves, they're going to get the credit quality back and they're going to watch and see what the market does from here. So I think that that's all a very good message. The dividend count starting to be kind of fun. You know, I enjoy it and I sort of stole your thing, Jeff, because I think you were the one that started posting the sports pictures about all these. But it's kind of a fun thing to do in the morning to go and figure out which athlete are you going to use for the day to, to put out your daily dividends. Today it was the number 30, Steph Curry breaking the ankles of the Indian rupee as they're intervening over there on the rupee. So it's kind of fun to create those, but it's good to put together that track record.
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B
Right.
- [04:49]
C
To be able to do that here publicly. And it's the same thing that we've been telling investors. We're going to be continuing to pay those dividend payments every single day. You're going to see those things hit your account. And that consistency, we think is, is highly valuable out there in the market. Seita's continued to trade very well on top of that, we continue to maintain our own credit quality, make sure we're keeping up our own cash reserves and making sure that we stay in a very stable place. In the treasury world, it's been largely business as usual, although I did see that it looks like the first pref actually hit in Sweden. So Bitcoin Treasure. What was the company's name? Bitcoin. Blanking on it now. I'll have to pull it up, but one of the Swedish treasury companies launched the first Pref there that I think started either trading today or it starts trading very soon. So you're starting to see these move out more globally. I believe that one's a 10% yield on it. I haven't gotten too far into the details on there, but you're starting to see those creep into the market. So it's good to see that happening more globally versus just here in the U.S. i know we've seen seen private ones from Meta Planet in Japan, but I believe this one's going to be a publicly listed pref. So that's good to see. So there is movement out there. People are still continuing to focus on expanding out the digital credit area. So it's good to see momentum there. But yeah. So, Matt, curious what your thoughts are.
- [06:13]
A
Early in the week right now feels to me the equivalent to when you work out and you just got to show up day in and day out and it feels like nothing's happening. It's just. But you are actually building that track record, that process for both strive for strategy that you think about. Our weekly updates right now, relatively smaller bitcoin buys, but pretty consistent bitcoin buys consistently keeping cash reserves at a pretty sustained level. And I think that that can almost feel boring in a sense. But then you wake up one day and you look back and you hit the gym for, you know, a year in a row and everything looks totally different on. On the back end of that. That's the kind of process that I think we're in right now. It's the process that I think strategies in by continuing to build that cash reserve, continuing to show the market that they are serious about building, building the process. So it's just that boring consistency, part of, of a summer market. And I actually think it's an important part because what I've been thinking about a lot lately is that what does this look like in two years from now when you look back and you look back and bitcoin was in what appears to be its bottoming process? What were the issuers doing and that becomes an important part of the story, especially for the institutional circles that are going to say, what happened in the midst of the bear market? Did you keep paying the dividend? What happened to the cash reserves? Were you able to maintain cash reserves? What happened to the price of the security? All of these different things will be part of that analysis of these three year track records. And so, even though it feels in a sense almost boring versus some of the very volatile bitcoin markets that we've seen, very large bitcoin buys that we've seen, I think this is actually a very important, important part of the maturation process. And so while from a business perspective, I'm looking forward to getting past the summer doldrums, I think these are actually pretty important weeks and months for our companies.
- [08:33]
C
You can basically feel people getting restless at this point, right? This is what happens in these summer markets. There's the old saying, sell in May and go away. And you particularly see that pick up when you get around July 4th and everybody takes off. But, but I think that if you look out at what's happening with bitcoin right now and then you look at what strategy's been doing, I think that there's a lot to really be encouraged by seeing bitcoin today breaking back above and holding above 65,000. While strategy hasn't been in the market for weeks, buying any bitcoin, it tells you what we've been saying for a very long time, which is that strategy, even when they're in the market buying make up a very small percentage of the spot market. Right? In a market that trades 20 to 30 billion dollars a day, their buys are very, actually negligible on a daily basis from what you'd see out there in the market. So seeing that demand come back, seeing how difficult it's been, there's been a couple of tests where you had to wonder, was bitcoin going to break down further? You had all the people calling for the 30 to $40,000 range and you never know what's going to happen in these markets. Nobody knows. Everyone looks at the metrics that are out there. You look at the on chain metrics, you start to see where the flows are going and you can get a general idea, but nobody truly knows. So to see it during this market, during the summer, you know, where we're kind of in the dead center of the summer, and to start seeing a bottom, you know, kind of forming, firming up, you're seeing demand step in every time bitcoin pushes back down towards the low 60s and now you're seeing it expand out above 65,000. I think that there's a lot to be encouraged by there because one of the largest purchasers in the market is out of the market. And so it tells you how resilient this asset class actually is during this period of time across the treasury sector, it's been kind of beaten down. As you go through bear markets, this is what you effectively expect. You've got these amplified and leveraged plays on Bitcoin. So when you've got an extended drawdown period and you're reaching the bottom, or what a historical bottom in a bear market was, look like, you know, you expect the pace to slow down a little bit of the capital markets activity. And with that coinciding with summer, you expect to see some of this activity trail off. But now we're seeing some strength come back into the market and we're seeing the volumes pick up a little bit from what we've seen over the last two weeks. And so I think there's a lot of encouraging signs out there that say when we start moving here, towards the end of the summer, you're going to start seeing a lot more of that famous bitcoin volatility that we've seen kind of all been waiting for to come back.
- [11:09]
B
Yeah, there, there have been a couple things I've been watching throughout this, this kind of summer doldrum period. 1. Amplified Bitcoin. How is amplified Bitcoin trading? How is the common equity of, you know, ASST and MSTR trading relative to ibit, which I think is a, an interesting comparison just to continue to look at, and not necessarily just the price action on a percentage basis, but the volume. So MSTR traded today about $1.6 billion of volume. IBIT traded about $1.2 billion of volume. MSTR holds slightly more Bitcoin than IBIT does. But on a volume per Bitcoin basis, MSTR is trading more volume per Bitcoin than ibit. That relationship has continued to hold true and hold strong. One thing that's been interesting to see and just analyze on on X is the, the market's perception of why would you buy mstr? And it's like, well, the market doesn't care whether or not you buy mstr. There's computer algorithms that are buying MSTR because of the leveraged exposure of the underlying asset. And that continues to hold true and you can see it on up days and down days. So Today, MSTR up 3.5%, IBIT up 1.7% and that cuts both directions. That goes on the upside and both on the downside, but it's, it's happening in scale. And I think that comparison and looking at those volumes is a good indication of demand for amplified Bitcoin. So you can kind of see how they're, they're playing and moving together. That's 1, 2. Short interest on SATA and the credit instruments has been also very, very fun to watch and how these instruments are trading together. So SATA as we've talked about for the last several weeks is continue to have elevated borrow rates. So the borrow rates as of today I think are around 35%. That hasn't really come down at all. That hasn't really come down at all. We did get report in the last week that short interest is down about a hundred thousand shares over the last 15 days compared to the 15 days prior. So it does look like short interest maybe has come down a little bit, but the data is continuously trailing. So we are about 15 days behind. The last snapshot day was July 15th and we'll find out about that when I think on the end of Friday this week. So we'll understand how that's continuing to evolve. We the spreads between STRC and SATA are also a very interesting dynamic. Watching how these are trading together. The spread between the two has been pretty wide since the equities fell about a month and a half ago and kind of bouncing between six and 12 points. So we're watching how that's trading relative to each other. And then the options market on these instruments is continuing to become more fascinating. So just on STRC for example, Today at the $95 strike for August 21, there were 934 contracts that, that was the volume of call option contracts expiring on August 21st. And we're continuing to see higher and elevated volumes in the derivatives market on these instruments, which is helps to understand the strategy. How are people using these things? What does downside protection look like? How can you structure different strategies around these instruments? And that's continuing to evolve. So I think all of this plays into the maturation of this market. I think as we, as we see how the balance sheets evolve with a composition of USD cash and Bitcoin on the balance sheet, how the derivatives market changes around it, how structures are built on top of it, whether that be defi or tradfi, you need liquidity, you need a derivatives market, you need ability to hedge and interact with all of these systems. And that's, that's being built out today, so it's not built overnight. It takes time. And all of the signs are pointing to the development and the evolution of this marketplace. So it's all. All great stuff to see. I mean, albeit I do wish prices were higher, but I think that will come here in the next couple months.
- [15:11]
C
Yeah, These are market cycles. Right. You don't get to pick the price. But I think that you're right in. In the focusing on the volumes. Right. And this is something we've pushed on for a long time, is that a lot of people will simply take price as the expression of whether people are interested in trading the instrument or not. I think it's far more critical to watch the volumes because that tells you how much capital is transacting in those vehicles. And so, for instance, which pointed out around ibit trading, what, $1.2 billion today or 1 billion and strategy trading $1.6 billion today, it tells you that more capital was interested in trading in the amplified version of the bitcoin asset versus the one that just tracks it directly. So it is important to focus on that to see where capital is choosing to be deployed. And what it tells you is that the amplified story is still one that the market is very excited about. One thing I did want to hit on you brought up the short interest, and I put out the post about a week and a half ago, but I'm not sure that we actually ever talked about it on this show is what actually happens when people lend out shares of Seda or shares of Stretch and what that actually means. Because I think that there's a pretty big misconception out there. You'll see a lot of people that talk about the short interest and they go, well, why do you care? They have to pay the dividends for you. And that's not actually true. Right. The shorts are not paying the dividends on behalf of the company. It doesn't mean that if there's short interest in our security, we are not responsible for paying those dividends. We continue to pay the exact amount of our dividends every single day, regardless of what the short interest is. What's actually happening and what's making people think that is say I hold a share of Seda and Jeff is a short seller. So Jeff borrows that share from me. So I deliver my share to Jeff and then Jeff sells it to Matt. Matt's a buyer of Seita out there because Jeff borrowed the share from me. He owes me what's called a payment in lieu. You'll see it Referred to as a manufactured dividend, a substitute dividend. There's a few names that you might see for it. But effectively what that is, is that's Jeff compensating me for the dividend I should be receiving if I was holding that share. So Jeff's paying me the amount of the dividend. That part is true. But who Strive would be paying the dividend to would be Matt, the person that purchased the share from Jeff, who was the short seller. And it's important to know, because the tax treatment is different in that situation. So return of capital applies to the person that's actually holding the shares, receiving the dividends or the distributions directly from the company. So in this case, Matt would be the one that's receiving the actual return of capital paid directly dividend. Whereas what I would be receiving, you know, is that payment in lieu or manufactured dividend that is not treated as return of capital because it's not coming from the issuer. And I think that that's just important to note because there's obviously been a lot of people that are out lending their shares, otherwise our share, our short interest would not be as high as it has been. And that's one of the things that I think a lot of people don't understand is that that your tax treatment changes depending on how you're receiving those distributions. If you're receiving it from the person you let borrow the share from you, that's very different than if you're holding the share and you're receiving that distribution from the issuer. So one thing that is very important, but I just don't think the market's really aware of that. And then from the issuer perspective, again, no matter what, we pay the exact same dividend amount, it's just based on the number of shares that are outstanding. Somebody out there is holding those shares, whether it was me at the beginning or whether it was Matt because he bought it from someone who sold it short, someone's holding that share. That's who we owe that, that distribution to.
- [19:05]
A
So if you think about it another way, there's been a lot of talk at times about paper Bitcoin. What is paper Bitcoin? If you lend out your shares, you have paper seda, you don't have real seda. And so because you don't have real seda, but instead you have paper seda, you don't get your dividend from Strive, you get it from the person that borrowed those shares. And because you get it from someone else, you have a different tax treatment on Those and depending on the account that you own it in, some people would care about that, some people may not care about that. But I think overall the return of capital dividend treatment has been something that matters to a lot of people. And so if it does matter to you, then that is something that you're giving up. And so you have to really calculate that total return importantly, because the tax consequences could be significant. So I think that's a good point. And it's one that when you put that out there, several people, and I think we knew this because of comments we were getting before, but several people did not understand that. And so I think it's an important part of the education there. I thought it was also interesting on the short side and it's not a similar type of call it like short squeeze, because with seda the borrow rates continue to be very high on some of the different platforms out there, around 30% annualized. That with ASST. Our common equity, there's also a very large short interest that's been building up. So I think right now it's somewhere around, last I checked, like 27% of the float or something like that. And it's very large even relative to the peers in this space. And I think, who knows what it is. It doesn't appear to be a similar type of situation to that of SEDA because the borrow rates have not spiked. So there still appears to be a lot of shares available to borrow, which kind of makes sense because there's not a dividend paid in kind. And so there's less reason for people not to be willing to lend out those shares. But I do think it speaks to a couple different things. One, what I think of as conserved energy to the upside, that is a lot of buying demand into the equity. So when you think about energy and energy forces in an equity, that is a lot of buying demand for our common equity that a lot of others don't have. And so I think who is it? Is it hedge funds? Is it Algos? We don't know. But I think if you're bearish on Bitcoin, then amplified Bitcoin is a good place to express a short interest, but that is a lot of buying pressure. So I think when you think about that, it makes me even more bullish on our common and more bullish on seda. When you see the valuations that have been holding up on both of them, the price on seda, the M NAV or whatever valuation metric on our common with that type of short interest, I think there Is a lot of stored energy there.
- [22:10]
B
Absolutely. I've got some of the math or the data here. This is from Fintel, so this is dated, this is as of probably July 1st. So I think that as I mentioned, we get the short report from July 15th on July 25th. So we'll have an update on this shortly. But asst has 34, 34 short interest as a percentage of the float, about 19.5 million shares. Short interest rate ratio of 8.3 days to cover. The cost to borrow is 0.88% APR. So very different story than SEDA but the, the percentage of the float is significantly higher than mstr. So MSTR has a short interest as a percentage of float of 12.7%, 42 million shares, 3.7 days to cover. So asst is almost 3x, almost shorted 3x more than MSTR on the common side. So it's that, that, that future energy, it's like preserved or pent up energy. A couple interesting things about that is typically when I've seen like big short interest on some of these common stocks, the people that are shorting them are very loud and outspoken. And we haven't really seen those. Maybe, maybe I've just muted all of them, but we haven't really seen them on our side aside from just the traditional algorithmic bots. I mean nobody's really come out with a short report or explaining why they're short on this space. So that kind of leads me to believe that it is aligned with our thesis of this amplified bitcoin leverage exposure.
- [23:48]
C
For reference stretch, the borrow cost to short stretch right now is 1.14% versus our. I believe we're at like 32.5 as of the close of the day. Right. So very different stories. Which makes sense. Right. If you look at the way that they're trading right now, the spread between them similar products, both targeting a value around $100, it would make sense that you would short the one that was trading higher. But I think what was. What's interesting in all of this is that we've had this significant short interest that built up over time and SATA is still trading up here. And so there's a lot of strength that's out there. You know, obviously I think that the daily dividends is a major contributing factor to there because that's just such a unique characteristic of a security that's really not out there yet. But again it means that, you know, anyone who's short eventually becomes a buyer. And when you're burdening a 30% plus carry cost on that position. You've got to really want to hold that position. And I've got to imagine that risk desks start getting real restless here the longer that this goes on. So it is going to be very interesting to watch how this plays out. And then if you start seeing some strength coming back to bitcoin on the common side, it makes it dangerous to be short on those positions as well. If you're holding something that's an amplified version of bitcoin, if you start seeing that strength build up here in the second half of the summer, it definitely changes the way you're going to view that position. So we could have a lot of activity here over the next couple of months.
- [25:14]
A
Yeah, the common equity vehicles, they really make for a great way to express a view in either direction, actually. So I think if you started to see things like bitcoin as an example, starting to trade above its 200 week moving average start to shift a lot of the momentum trades to the upside. I think then the amplified story becomes great vehicles for levered longs. You could see, and this is, I think there's the just math of having amplified bitcoin, of why the common equity trades more volatile to bitcoin in both directions. But then there's also the structural positioning underneath the math of just the amplified bitcoin that also helps to explain that, that to the downside, you start to see some shorts piling on, expressing bearish interest in the equity through a short position, then the reverse on the long side. And I think part of the reason why sometimes you see very large purchase activity when we report our weekly positions is a reversal of those positions, causes massive block orders from whatever type of institution has those types of positions on. And so if you. There might be some fireworks at some point this year and it'll be fun.
- [26:37]
C
It's the saying, right, Bitcoin's for enemies. Well, amplified bitcoin's an even bigger expression for enemies. I mean, there's no doubt when you go out there and you listen to the discourse, and particularly when you get into these bear market periods, you can see that there's two polar opposite views on these. And when you've got an amplified version to express that trade in, whether you love it or hate it, you can express your direction of the trade effectively through these vehicles. I think that is why you see so much passion. And Jeff, to your point where when the short interest starts building up, often you'll see a lot of noise start kicking up around it. That's the fight for mindshare that's out there. Investing has become very largely a social endeavor as well, which is new.
- [27:24]
A
Right.
- [27:25]
C
That didn't used to always be the case. You roll this back 10 years and it was very different. You couldn't go out and spend a whole bunch of time trying to convince others of your position on something where you could be really noisy and potentially influence the way that people act. But now you can, right? You've got access to millions of people out there just by logging into your X account. And if you can get some momentum for your perspective, it can drive trades your direction. So. So I think you do see a lot of that. And with these types of securities out there that are highly volatile, these are kind of the perfect instruments for that social investing aspect to kick in. So it is one of the most interesting places to monitor these markets because they're just so unique and there's so much passion that builds up around everybody's positions here. And you also have the mismatch in the investors. You have a lot of people that'll come to these securities for the long term thesis here, right? Do I have the ability to try to outperform Bitcoin? And that's one position. But you also have a lot of people that are trading, they're scalping, they're swing trading. They're doing all these things that are very short term in nature and all they wanted to do is move violently in their direction, even if it's for a very short period of time. So you've got all these different actors in the same securities playing a different game. And so it's very interesting to watch that capital flow tug of war happen out there.
- [28:50]
B
This is the perfect segue into part two of the hurdle rate. So talking about social investing and how the market is evolving. So a couple things that I saw today and over the last week. Robinhood has now allowed AI agents to trade, which that means any retail agent can. Any retail person can go deploy an AI agent to go trade for them. That you basically equipped retail with the most advanced analytics of traditional financial capital markets that completely changes the game playing field for the entire world. Like how the, how the world sees the smart money versus dumb money. Your, your equations are just completely blown up of like understanding where the smart money is and the dumb money is and how that evolves. That now it might take a little while for people to start deploying AI agents and they're still going to be good ones and bad ones and. But the, the playing field has changed and, and thinking about, you know, liquidity and marginal liquidity and where the social energy is kind of flowing is, is definitely. You need to take that into consideration. And everybody's taking that into consideration. And Chamath came out here and he, he also posted this, this tweet here. There are two problems right now for crypto and specifically bitcoin bulls. One, marginal liquidity would rather speculate in prediction markets and equity markets. And two, marginal energy to mine, BTC is worth 10 to 20x if reallocated to serving AI tokens. These changes feel structural, but I could be wrong. So this kind of hits at this marginal buyer, right? It's like, where is the social energy flowing? And it's very clear that a lot of the energy is flown to AI and it's flown to prediction markets. And you can definitely see that now. What I think he's missing is the fact that bitcoin is now moving structurally. We're talking about a $1.3 trillion asset. Yes, marginal flows matter. Marginal flows impact additional volume. They impact, you know, how this whole thing moves together. But the big story here is the structural change to bitcoin. It's credit being built on top of bitcoin. It's wrapped products being built on top of bitcoin. It's instruments that are getting systemically plugged into how the world works. It's businesses holding bitcoin as capital. And that to me, is a much larger story for bitcoin's future, is how corporations are starting to think about these instruments and build on top of them. And, and that's the, really, the story of the next decade, in my opinion, is how the structural bid for bitcoin continues to grow despite different social flows. So, for example, the fact that strategy purchased $10 billion of Bitcoin and we purchased nearly $750 million of Bitcoin with our credit instruments, that's a different buyer. That has nothing to do with the social energy. Maybe a little bit less with the social energy. It's a function of credit quality. It's what we've talked about this entire podcast is bringing additional capital in the door. That's a different marginal buyer. So thinking about the continuous flow of credit capital in the markets, and that brings me to my next point. I'm going to go on a little bit of a rant here. There was a Bloomberg article that came out this, this weekend, and it's titled Wall Street Alchemists Tap Insurers to Unfreeze Private Markets. Fascinating article. And it talks about how Structured finance is within the private credit markets. There's a very insatiable demand for credit. Insurance companies, pension funds are all reliant on a continuous stream of new credit instruments coming to the market that they can buy and match the asset to the duration liability that they have on their balance sheet. That's a continuous flow in demand of credit. And because of that demand of credit, there's all of these private loans that have been created and there are financiers and structuring companies that have bundled up these pieces of private credit and structured and tranched them into different layers. And they're selling them to insurance companies and pension funds. And the reason that they're doing this is because there's capital arbitrage within rating agencies. So if an insurance company wants to hold just a straight piece of private credit from one corporation, if you wanted to hold $100 million of it, you might have to hold $30 million of capital against it just because of the rating that it may have. Now if you structure it and tranche it and subordinate it with additional equity buffer that same hundred million dollars of credit risk, you may only need to hold $1 million or $5 million against it. So there's a, effectively an order of magnitude change by arbitraging the structural credit market. Now a couple interesting things about this article is that the insurance industry is now getting involved. And what this means is the insurance industry, instead of having just a purely structured private credit instrument that's subordinated by an equity tranche, you now have, the insurance company is coming in and they're wrapping the entire private credit instrument. So the buyer of that, of that product is now actually borrowing insurance company balance sheet credit. So if you instead of this senior private credit instrument being like triple B minus or triple B plus investment grade, it is now a rated investment grade because nationwide is now the risk that the, that the buyer is interfacing with. And I think that's a fascinating evolution in this marketplace. So this is very similar, albeit a little bit different to 0708 with AIG and credit default swaps. Very similar type evolution in this marketplace where the insurance companies have significant balance sheet strength. The insurance companies are also very interested in finding really good risk return opportunities in the marketplace. And there's, there's actually some diversification benefit to the insurance company that's providing the wrapper of 10 taking on this risk as opposed to like property and casualty risk or wildfire risk or hurricane risk. If they actually take on this risk, there's some diversification Benefits. So it actually helps the, the insurance company that's writing this policy, they're better off. The, the private credit wins because they're now able to increase the demand for the product. And the, the weird part is that the, the insurance companies that are buying the credit now hold insurance company balance sheet on their balance sheet. So it's like an incestuous web of insurance companies holding insurance companies paper. So you can imagine a scenario where that starts to create some systemic risk if there's a potential downgrade in the insurance company that's providing the wrapper that could cause some concerns structurally from a risk perspective as there would, there would have to be some kind of structured downgrading liquidation. So that's something to keep a lookout for. Yeah. And the, so I think this, this market will continue to evolve. I think it's something to keep an eye on. But the risk is kind of going further and further out into more opaque areas with the rating agencies again continuously being a bit of a crutch. And, and there's a rating agency, a regulatory arbitrage that's continuously happening. So I think that does provide the fact that this exists provides some opportunity for, you know, us to bring in a structured product to the market where you can identify that, that arbitrage and have a more transparent product in the market than a private credit instrument. That's effectively borrowing insurance company paper.
- [37:15]
A
I think what you said, all of that, the Chamath tweet and the Bloomberg article, they really are tied together in a pretty major way. And obviously in a summer doldrum bear market, we've been all talking about structured finance and bringing Bitcoin into that more obviously we even call Strive a structured finance company. But even in more traditional structured finance ways, continuing to evolve, the way that companies interact with our balance sheet over time and SATA and I think it will move there. But going back to the Chamath tweet for just a second, when you think about marginal liquidity, talked about marginal liquidity speculation, what do I think that type of demand is? That type of demand will never be coming into Bitcoin in any bear market. It wasn't coming into bitcoin in the 2018 bear market. It wasn't coming into bitcoin in 2022. That is speculative flows. And so speculative flows are by nature shorter term money that are looking effectively to make a quick trade, to make a bunch of money. And so it would pretty obviously not go to Bitcoin when Bitcoin has been falling for the past 12 months. And probably won't go back into bitcoin until bitcoin's back, back at all time highs again. But trust me, that speculative flow is there. When bitcoin starts moving and doing bitcoin things, that money can move back and forth very quickly. And I don't think speculative flows are having a good time in prediction markets actually making money. They might be having fun, but I don't think they're actually making money on average. That is an insider's game on insiders games right there. And AI obviously is pretty tough with valuations. And so I have no doubt that that money will come back into Bitcoin in the right time and let's say the right time when things start to get frothy. Right? And frothy does not mean a top because as we know, hot money could come in, it could go higher for quite a while, especially with an asset that has very little supply like Bitcoin. But I think what's healthy actually is when there's real building happening in a network, in an asset. And that's what we're seeing in Bitcoin. We are seeing real institutional building. You were kind of highlighting how that could actually happen within the insurance circles, but that's happening and we're seeing it happen all throughout different, different circles. And I think this is something that, you know, when you think about someone that might be a bitcoiner that, that just can't see what's happening with strive and strategy and others and why there's any value there. And then you look at the largest holders of our companies and you put yourself in their shoes and what you'll find is that for most of them, they literally cannot buy Bitcoin. And so we are literally providing a solution to those people that can't buy Bitcoin. And we're continuing to find different pockets of capital that will never be able to just buy Bitcoin. They need a solution that's custom fit to their specific need. And this is a massive, massive business opportunity. And it's really building that's happening here. And it's likely going to continue to drive more and more demand to Bitcoin as these solutions continue to get built out. And what that likely looks like in bitcoin's price terms is a more boring grind up in Bitcoin's price as you continue to provide solutions to different people that would like to have demand in their own circles. And then once you get that, that flywheel going and things start to heat up, then on the back end of that, not the driver, but actually as a result of bitcoin going up, then you start to get the speculative flows coming back in. And so I think that's something that chamath is missing in a major way with Bitcoin. But I think it's not just true to bitcoin, it's true with any business, any market that it's that speculative flow that does not drive the outperformance. It's actually more of a symptom of a market that's starting to overheat in some way. And it's something that will continue to happen in Bitcoin because of its scarcity and supply. But I think that it's a mistake to look for that to drive Bitcoin's price performance. But it's actually the opposite. It'll be a result of true demand being driven, longer term demand being driven to Bitcoin. And then on the second point that he brought up on energy and mining, it's obvious that energy is being allocated to AI. But I think a couple things are true with Bitcoin. One, it has an algo that automatically adjusts. And so I think to me the question with hashrate is is it secure enough to actually stake your company, your nation in it? And Bitcoin's the most secure network we've ever seen. It has sovereign grade security. And that would even be true if hash rate started to decline pretty substantially from here. But I think the reality is still likely to be the opposite, that energy is going to continue to be brought on online. And one of the interesting things that's happening with several of the mining companies is that if you actually put a data center in any location and you need a certain amount of energy for the data center, what actually happens is more than that amount of energy has to be delivered. So on average call it 5 to 10% more energy to that way to ensure that you're getting the minimum required amount of energy. And so when that excess energy is being delivered, it actually is not reliable for AI compute, but it is reliable to basically flip on bitcoin mining to capture that excess demand of, of energy and actually make it productive. So we've heard several stories of different miners actually utilizing this. And so my suspicion would be as more and more data centers eventually get brought on, there's actually going to be a massive increase in the amount of energy that's used. Obviously it's going to be first driven to AI token compute, but it's also likely to drive all around the world marginal demand for bitcoin mining. And so I think over time, you're likely to continue to see bitcoin hash rate go up, not down. And we're likely to continue to see more and more energy needs pop up, because energy itself is, is not scarce. There's actually infinite energy in the world. I know that's something that Chamath actually really believes in. He's talked about the cost of energy moving towards zero. Well, if the cost of energy moves towards zero and we have infinite energy in the future, it's pretty obvious that we're going to continue to see a lot of demand to actually go into mining bitcoin and obviously into AI as well.
- [44:08]
C
I think there's been a lot of people that have been surprised by the pivot from, from the companies that started out as the bitcoin mining companies and moved on to effectively just becoming data center companies. And I really don't think they should be. If you think about the time it takes to build out these facilities, to energize these facilities, it can be a very long time before you can turn revenue on. But the barrier to getting bitcoin miners up and running is a lot lower. And so I think what you saw with a lot of these bitcoin mining companies was you could effectively turn on revenue incredibly quickly without needing to go out and find customers, negotiate contracts, do all these things. You could plug in the equipment, you could turn it on, you could be mining immediately as you're building out the rest of those facilities. You know, there's certainly these companies had the foresight to see this AI boom coming, to see the energy crisis coming, where there's just not enough data center capacity out there. And so, so obviously it's economic for them to make the pivot now, but in the early days, it was effectively a way for them to turn on revenue. Day one, while they're scaling out all these sites, building out all these sites, you see a lot of companies. The barrier is low because you've seen companies effectively mining bitcoin in deserts, in shipping containers. You don't have to have a tier 2, tier 3 data center to be able to do that. So I think it was an easy on ramp for that industry. But to your point, Matt, there's always going to be some level of unutilized capacity there that you can now toggle on and off with bitcoin miners. I think it's one of the things Texas did really well was they viewed the bitcoin miners as effectively a partner. You're balancing the grid because you need the economics to be right for it to be profitable to mine bitcoins. When the demand spikes and there's a huge increase for energy output or for energy needs, the bitcoin miners shut off because it's not profitable during those time periods where that energy becomes really expensive for them to keep running. And the same thing, I think is going to apply not only for these bitcoin mining companies turned AI data center companies, but for any companies that have those types of assets, those types of energy assets where they can capture stranded energy and turn it into an asset that they can hold and utilize for their business. I think that that's something that will be become more and more common. And to the point on chamath, those are talking points that have been very familiar for many cycles now. I don't think that there was really anything new that came out of that. We were always competing in the bitcoin world for that allocation to the risk capital bucket from a lot of investors. It was that incremental capital. But now that's changing because you've got companies and industries like the one that we're in right now, where you're taking these corporate vehicles and you're effectively converting them into capital on ramps to the bitcoin network. Right? We are the loading dock for that capital to back up to where we can take it in. We can convert it into bitcoin on our balance sheet, and in return, we can offer them a product that they can hold. And people really do underestimate the power of that. And, you know, I think we've seen it, and we're obviously huge believers in being able to customize these products to find the right fit for the right type of buyer that's going to allow us to take that capital and convert it into bitcoin for our balance sheet. But even when you just. And a clip came up of a panel you were on, I can't remember which one it was, Matt, but it was. You and Fong were up there and you were talking about the $300 trillion credit market. And I think Natalie had asked Fong, you know, what's your outlook for the next five years? You know, And Fong's answer was, well, if we take 1% of this, that's $3 trillion. Well, cut that in half and say you get half a percent of that, that's $1.5 trillion. That's more capital coming into the bitcoin network than the entire network's market cap. Right now, right? Right now it's $1.3 trillion. And the difference from the past to today is, is you now have corporations actively working to unlock and onboard that capital. We're not waiting for people to find Bitcoin anymore. We're creating the right products to deliver to them where they are today. They don't need to change anything about the way that they invest. They just need the right product to be able to buy. And we're able to structure those on top of our balance sheet, which we hold as our core asset in Bitcoin. And so to me, that is a fundamental shift in the way those capital flows are going to happen, because not only are you going to get things like the incremental capital on the side, and I think that that likely creates those vertical moves, but I think you can see a long grind up from just the activities of corporations like ours, corporations like strategy, and several of the others that are building in this space, working to create the right product to go find this capital where it is today without making it change anything about how it's deployed. We change where it ends. The capital comes to us. It ends in the Bitcoin network. And that, to me, is a major shift that can greatly change the trajectory and the speed at which the Bitcoin network and Bitcoin itself reprices and revalues out there in the market over the next decade. Decade.
- [49:30]
A
One of the fun things about the hurdle rate is that a lot of our institutional investors actually listen to the hurdle rate regularly. And it got me thinking about, as you're talking about that, Ben, is that in the past, when you think about providing a product on top of Bitcoin, I think a lot of what I would hear was you're creating a solution in search of a problem. But I actually think what you see now is the opposite, is that there is a problem in the sense that you have all of these different mandates that want risk tied to Bitcoin, but their mandate does not allow them to invest in it in the current form. And so the solutions, and obviously part of those solutions at times involve ratings, but those solutions actually unlock a problem that exists, and that's part of Bitcoin's maturation process. Pro process is that the, the debasement, trade belief in, in Bitcoin and, and bullishness on Bitcoin, it exists at so many large institutions right now, but they just can't go buy Bitcoin. They can't buy a Bitcoin etf. And so there is just such a, a large opportunity. And when you take, and I Think Saylor lays this out? Well sometimes when he talks about putting that digital credit is refining Bitcoin, but then you can further refine it into different products. And it's like if you just use that analogy with oil and then gasoline and all the different things that can be made with the different types of gas, that each of them fit a different need that has massive sources of demand. And we're seeing that in Bitcoin building on top of digital credit. And it's a, it's a really fun thing to be a part of. And it's one of several reasons that I think you're going to see Bitcoin treasury companies persist to trade at a premium valuation to their Bitcoin in ways that maybe people can't see if you don't understand the intricacies of these problems. So one of them is that is that we're actually building true products that have true product market fit that people can't access in other ways. And two is, and this is another point that you know, over the last few weeks we've seen business solutions get rolled out to retail that I would say are a step function and improvement in their ability to take leverage. So you take like strike and having their volatility proof loans. Okay, well, probably better than what retail used to not to be able to access. But you compare that versus Seda, you take a six month term offered to retail. I understand why there's a six month term. I understand why it's hard to offer retail better than that. We have a perpetual term. I mean if you're a retail investor, would you want to borrow money to buy Bitcoin perpetually? You'd say? Yes, I absolutely would want to. Would you pay 13%? Yes. Well, you can't get it. I'm sorry, no exchange can offer that to you. And there's several reasons why they can't, but a corporation can. And so is that valuable? Is that valuable to be able to access better financing? Yes. Then you take the flip side of that. Well, we're able to offer something that pays 13%. Well, individuals can't get something that pays 13%. And the reason is actually because they're typically debt which requires a 144A wrapper and it can't be on an exchange listed to individuals. You're able to take that Bitcoin and provide two products that are not accessible in any other ways, both to retail, which I think is great and an important part of our mission, but also to institutions that have mandates that can only access capital in those types of wrappers. And I think that for those reasons, obviously we're talking about how we can to build on top of it, but also from a valuation perspective, why there's real value being created here.
- [53:40]
C
One of my favorite conversations that we have whenever we've gone and talked to these institutions and it's what brought me to understand how many bitcoiners are out there. You forget that corporations are just made up of individuals, right? And those individuals all have their own individual interests out there. And a lot of our conversations will start off with discussions about bitcoin and then they'll be again, that's what I'm doing in my pa, in my personal account, right? And so a lot of these guys that are running these huge institutional funds, they are bitcoiners, they understand bitcoin. They've been deep down the rabbit hole for a very long time, but in their day job they've been prohibited from getting access to it. And so these are things that allow them to get that access. And it opens up this world to those funds where otherwise it would just remain closed. So I do think that that is just a monumental shift.
- [54:31]
B
And part of it is really just communication and talking to, talking and talking to institutions. I can't tell you how many conversations I continue to have where people have no idea what's happening here as well. And you know, people that are around finance CFOs and they're fascinated by this, yet they've never heard of it. And so part of it is just continuing, continuing to communicate amongst the risk taking circles. And that example that I brought up earlier with Nationwide, one of the reasons it was so fascinating to me was when I had left my reinsurance job, I was working on some kind of. Nationwide was looking for wildfire exposure for high net worth individuals. And so they were interested in risk taking. And they were like, we're going to go out on the curve. And one of the examples was they were looking at underwriting the wildfire risk on the house that was next door to the Playboy Mansion. And it was like $50 million home, right? And they were like, okay, so how do we, how do we quantify this? Like, how much do we need to charge? And they were looking at charging something like $2 million a year for an insurance policy on this $50 million home. And they ended up pulling the plug. They didn't even like the quote. And so just to put some perspective on the amount of like risk capital that folks are willing to take and consider it now seeing Nationwide's name on some of these, like wrapped private credit deals. It's a really good indicator that the market is looking for risk in new avenues and new places and new territory. And there's some excess balance sheet on those insurance industry. There's excess balance sheet that's looking for risk in unique places. So part of that, again, like, like we said last week, it's putting the puzzle pieces together, identifying the puzzle pieces, identifying the right people to communicate this to these products too, and how they, you know, fit into different places.
- [56:29]
A
Yeah.
- [56:29]
C
And this doesn't mean that you don't have to go through the maturing process in these markets. Right. Anytime you embark on an endeavor like we have and like strategy has, you have to go through these battle testing periods to prove to the market that you are a worthy steward of capital. And I think that that's perhaps the most critical part of this journey. We've talked a lot about the track record. That's what that means.
- [56:55]
B
Right.
- [56:56]
C
You have to go through these periods of time where your industry gets stressed, the asset you're holding gets stressed, and investors want to see how you respond to that. How do you navigate that? You're always going to have the good times where it's easy and everything's going the direction everyone wants it to and it's a tough ton of fun. But you're going to have an equal amount of times where it's difficult. And you have to be constantly planning and analyzing and making the right move and making sure that you're staying sound and not changing your strategy and making sure you have a strategy in advance of it even happening. That's part of the thing we've talked about a lot, Jeff, with us. Taking a very risk first approach here is making sure that you're stress testing constantly so that, so that by the time the rough waters hit you, you already know how you have to operate in that market condition because you've modeled it out 20 different ways so it can become mechanical and not emotional. I think part of the problem you see out there is there's a lot of reactions to things and people feel forced to do something. And sometimes the right move is not to do anything and you have to be willing to do that. But you've got to put yourself in the right position and make sure that every week you're taking the right actions to maintain the stability of your organization so that you're not finding yourself in the position where the market now has to look at you and wonder whether you're going to be able to continue to operate over the next six months if this doesn't turn around. It's about fortifying yourself so that you can weather the storms and continue to come out the other side over and over and over again until it just becomes undeniable, right, that you are a good steward of capital. You do protect the shareholders, you do protect the company, and you make sure that you're always in the right position here. So that's the art part of this business, but it's the process you have to go through in these bear markets.
- [58:48]
A
Right.
- [58:48]
C
You need to show the market how you're going to react, you know, as a management team when things get rough. And that's the most exciting part. That's how you build a track record we've got. You can look at it as we've had the opportunity to do that very early in our journey here. So I think that over the long run, that's going to bode very well for us. Awesome.
- [59:09]
B
Thanks, everybody, for joining us for episode 66, Social Investing. For Jeff Walton, Ben Workman and Matt Cole, I'm Tim Kotsman. We'll see you back here next week for another edition of the Hurdle Rate.