← The Wolf Of All Streets
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- [00:00]
Dave
Well, good morning everyone. Hopefully people can hear me. It is Thursday, May 1, May being the month that everyone's been looking forward to in the world of bitcoin. And so far it's off to an interesting start. Certainly a little bit positive and also a little bit strange. It welcome to crypto town hall every day at 10:15 or thereabouts. So this morning bitcoin is now fairly clearly above the range that it had been set back to march and looks to be ready for another assault on an all time high. At the same time, risk markets and risk assets are having a great day. Nasdaq up almost 2%. The S&P up a percent. And all of a sudden people are saying, well, wait a minute, why the hell were we selling? And you know, that brings up all sorts of interesting points at the same time. You know, we see moves out there that are kind of strange all throughout altcoins, most up, some down, you know, semi rational. But we've been watching the altcoin markets like a ping pong ball over the last few days. Lastly, I think it's worth noting that rumors are flying and you know, look, I don't know where Jason Williams comes up with the idea about Nvidia. I can't find a source for it. Grok can't find a source for it. But you know, the idea that someone would post that Nvidia, given its size, is putting money into bitcoin is the kind of thing you expect to see around frothy tops of the market and we're nowhere near that. So that's sort of the way that I'm looking at the world and anyone out there, you want to tell me you know what you're thinking, but you know, there is a lot going on and we haven't seen anything yet out of the administration. More, you know, in terms of the sec, cftc, other bills and other stuff going on. But it looks like things are marching in the direction that many people who are listening want to see it march. And I cannot tell who, who might be. So, you know, dark, I. I notice you're up here. I know that you're, you know, you definitely think that there's something going on in the world of bitcoin. I mean, what are your thoughts this morning? Okay, maybe not. Lawyer. Do you want to take a shot?
- [02:22]
Lawyer
There you go, Dave. The room was muted.
- [02:25]
Dave
Ah, okay. Well, there you go. I guess if I want to hear the sound of my own voice for an hour, I could have left it that way, but I think people would have Been pretty annoyed by that point.
- [02:36]
Lawyer
Yeah. So I'll tell you what I think. I think that there's been a real proliferation in the income generating strategies around microstrategy and bitcoin in general. And that's created this kind of swarm of front month, even front week at the money call selling. And as you know Dave, once you run through those strikes, right, like that, then you kind of get into the world where the Gamma is actually below the market instead of above the market. And I think that's what we're seeing, I think for whether you're talking about MSTY or IMST or just general traders that are have kind of figured out the strategy, I think we've run through those strikes now and now that leads to support below the market and I think we're going to see a lift. And I'm curious with the proliferation in those strategies if we're not going to see really big short term moves followed by long term grinds. Right. Because in the end if you're msty, the best scenario is that microstrategy and bitcoin kind of grind higher. Right. Obviously the worst would be bitcoin goes down. But on the upside the second worst is that bitcoin rips higher and you underperform that move in bitcoin because you've sold those calls. So look, I think that what we're seeing is as bitcoin makes this move higher, we're kind of ripping through those option strikes and that's kind of creating this natural support below the market. Right. So every time we even downtick there's real, you know, significant buyers coming out from the dealers. So that's kind of my take on just sort of a short term trading activity.
- [04:37]
Dave
Yeah, I think that there, there's a lot there that to unpack. I mean I think that people always underestimate the effects of Gamma. And it used to just be the options trading on Deribit and, or in the OTC markets. But you're right, the MSTY thing is a big deal. I mean, look, I'm a microstrategy holder. I've told people that I'm looking at it up near 400 and that's a pretty important level in terms of, not that it really matters from a technical point of view, but it's an important level psychologically because that's where it was on the last, you know, basically the last big move before everybody entered. And so it's, it's definitely pricing itself, you know, fairly as it were. But you know, there are A lot of people who are in that and that's much more of a trading vehicle than Bitcoin is. Weirdly, I think most of the investors on the Bitcoin ETFs are more buy in holders than they are traders. That, that transformation over the last month has been breathtaking in terms of the amount of money going into Bitcoin without it being used as a hedge with futures. Because early in, you know, basically as recently as five months ago, the CME futures were trading in a substantial premium. You could buy ETFs and sell futures as an arbitrage that doesn't exist anymore. And so a large part of the money that came out of the ETFs when things, things are going down where the collapse of that premium, you know, the, the inflows have been pretty amazing. So, you know, it is what it is. I mean a lot of people are talking about alt season and I keep. Well, first of all, I don't believe in seasons anymore. I don't think the four year cycle is nearly as important as most, most still do. But I guess we'll see. So Zach, I, I noticed you joined, I mean, what are your thoughts this morning? And there's, there's, there's a lot going on in your world too, right?
- [06:39]
Zach
Yeah, I mean on the policy side, lots of interesting stuff recently I was just talking, I'm doing a policy hour podcast with Matt Pines, who you guys should definitely have up here sometime with Bitcoin magazine. And we're talking this week about sort of the D.C. wrangling between which of the crypto legislation bills are going to come first.
- [07:00]
Ryan
Right.
- [07:00]
Zach
There's the stablecoin bill, there's the market structure bill, and then there's the Bitcoin reserve bill. And each of these have very different constituents and each of them, if passed, I think would have a very different effect. The stablecoin bill I think would bring a lot of tradfi money into the crypto space. You know, as it stands, especially given the recent guidance by the SEC that they're not going to treat non yield bearing stablecoins as securities, there's a lot of, I think regulatory clarity for the time being for crypto native players. But you're not yet seeing a BlackRock coin, a JP Morgan coin, the PayPal coin I think exists, but it's not being used all that much. And so one interesting impact of getting stablecoin legislation passed is it'll really put a federal stamp of approval on stablecoin rails and bring those tradfi Actors in the market structure bill, I think the industry agrees is pretty important. Unfortunately, I think people don't really agree what should be in a market structure bill. The main thing that would unlock is legalizing token launches and if it's done properly, basically legalizing rwa, setting the rules for when you can have securities on the blockchain and borrow and lend against them on DeFi. But the SEC had a panel about this about a month ago, and all of the industry lawyers who all agreed that the current rules aren't good couldn't come to an agreement on what the rules should be. And so interesting to see what comes out there. But definitely there's a lot of sort of money and interest behind that. And then the third is the, the SBR bill, the Strategic Bitcoin Reserve. There's Cynthia Lus's Bitcoin act in the Senate. There's a companion bill from Representative Begich in the House. You know, we're trying to make the case that, like, that one actually is in some ways more time sensitive than the other two. There's news I saw today of China starting to sell some of their gold. I think there is increasing recognition internationally that bitcoin is a neutral reserve asset similar to gold. I think the United States, you know, especially after executive order, which sort of set off a starting gun on this issue, I think we want to move fast to accumulate some bitcoin. And, you know, it's, it's. That's an area where it really is definitely best to be first and last. But, you know, the industry, like, I think, understands that there is a limited amount of time and attention that we have on Capitol Hill and trying to prioritize which of these comes first and is most important.
- [09:21]
Dave
So on the latter point, I'm curious, we have a bunch of traders up on this panel and people who are talking about it. I mean, my personal view is if we sequence this by a bill gets passed, it starts getting traction. Polymarket starts getting the odds towards 70, 80, 90% that by the time the bill is actually signed into law and we can buy any bitcoin, the price will be dramatically higher than it is today and making it very hard for America to do it. Whereas if they could figure out a stealthy way to be buying, and then the issue is pass the bill to codify it so that a future administration doesn't sell it, that's a far better outcome for the US Treasury. I'm sure I'm not the only one who thinks that, because that's just. Honestly, if you disagree with that, then you don't know anything about trading. So it's. And you know, we have a really good trader running as the Secretary of the Treasury. I'm sure he understands that exceedingly well. And he's also a bitcoiner. So, you know, I wonder what's actually happening, you know.
- [10:28]
Zach
Yeah.
- [10:28]
Dave
And I'm curious what people think.
- [10:30]
Zach
Well, I think there's some, I think there is some merit to that. But I would, I would say two things. So first of all, I think there are ways to get this passed legislatively that are stealthier than they appear. So one of the paths that is being discussed in D.C. right now, there is what's called reconciliation, which is sort of a one time shot where Congress and the Senate can pass a spending bill with only 50% of the votes rather than the filibuster proof majority of 60 votes in the Senate, as long as that spending bill meets certain budgetary criteria. And one of the moves available right now in reconciliation is revaluing the gold that is held by the Federal Reserve on behalf of the Treasury Department. So we have a pretty big percentage of the world's gold supply held in the United States the last time we set a price, you know, don't ask me why Congress gets to set the price for this gold, but the last time that happened was 1973, and they set the price of that gold on our federal books at $42 per ounce. That's the price that Congress still says it is today. Although as probably most of you know, the free market price for gold is something like $3,200 an ounce. So if Congress were to pass a law remarking that gold to the current fair market value of that gold as it's actually trading, that creates just a credit from the Fed to the Treasury. That creates a surplus that the treasury can spend. And so that's about a trillion dollars of liquidity. You know, it doesn't involve selling the gold. This is just an accounting trick. But it would allow the treasury to spend that money on whatever it wants. And so there is, I think, a good amount of conversation in D.C. right now about, all right, we have an opportunity as the Republican Party to do this. If we don't do it, maybe President AOC will do it in a future term if we screw things up. And so we would rather have this one time weird trick to get a free trillion dollars now than risk letting the opponents have that. And assuming you do that, all right, what do you spend the money on? So Cynthia Lummis's Bitcoin act uses this trick to fund the sbr. But if you were just to do it through reconciliation, you know, I think it is more likely that some of that money would be funneled into the sovereign wealth fund. Some of that might retire U.S. debt, and some of that would go into the, you know, now created SVR through the. The President's executive order. And that's something that could happen quickly that I think the markets are underrating. And then even in like a traditional scenario where you had something like the Bitcoin act going through both chambers, you know, the United States government could hedge what is going to happen with the price. You could do that by secret executive order. To the extent that there is a price run up, you know, we have statistics that like, relative to gold, much a much bigger percentage of the bitcoin network of the 21 million coins is held in the United States relative to other countries, then gold is held in the United States relative to other countries. So even if the Treasury Department misses out by this, you know, price run up that you're talking about, the American people and American businesses will win. And so again, like, that would still be a better scenario than a different country, especially a big geopolitical rival like China being a first mover on this, like, you know, I'd rather have some slippage and have, you know, American bitcoiners and American bitcoin companies get rich than having the CCP get rich in a way that could be destabilizing to global trade and geopolitical power. So, you know, like, definitely. Right. Doing this in an open and democratic way, you know, is a feature of our system. It might be bad from a trading perspective, but I think there are both ways to get this done more quickly in a way that broadcasts a little bit less to the market. And even if we are broadcasting to the market, I think it's better to be moving in the right direction there than letting our geopolitical rivals do this in secret.
- [14:30]
Dark
I'm not sure if I'm the only one who can't hear anyone, but I'll chime in because I have a question.
- [14:35]
Dave
Go for it.
- [14:36]
Dark
We've been through this with Tesla when they bought Bitcoin, and it was obviously positive. I'm wondering if a company like Nvidia or something like that were to do this now at a large scale, at this point in supply and this point in the price, what would that do aside from creating fomo? Would it create fomo? I don't think Tesla really did. I mean, it Gave a. Certainly gave Michael Saylor a bit more of a pulpit to sort of, you know, beat his drum on. But I don't know if it convinced a lot of CEOs to put their treasuries in. What would now, Nvidia doing that, what.
- [15:10]
Zach
Would that do to them?
- [15:11]
Dark
Price, what would that do to the market? Would it be taken seriously? What do you guys think?
- [15:15]
Dave
Well, I mean, I want to answer that a little bit to, you know, go back to something. A couple days ago, Perry Anne was on here and she talked about an anecdote that I think is extremely important that, you know, mentioning bitcoin as a reserve asset at the Federal Reserve. How multiple, you know, Fed governors effectively looked at her like she had two heads and, you know, one like kind of walked out of the room, you know, kind of thing like, you know, like, how can you talk about, you know, something so crazy? Now, why I'm mentioning that is because as bitcoin gets normalized, it's the same with every network effect that has ever existed. I mean, you know, we all like to joke about, you know, Krugman making the comment that the Internet is a fax machine and, you know, no more important than the fax machine. But it was part of that, of the Internet's ubiquitous adoption as the information source to the world. It was very, very early. So what has to happen is opinion leaders. And it's not a binary thing, it's a overtime thing. But the bigger the opinion leaders are, the bigger the balance sheet, the more it gets important. I mean, let's face it, Elon Musk has been. Is polarizing, has always been polarizing, always been looked at as a gadfly in many respects. And look, the guy went on, I don't think you're going to see the CEO of Nvidia go hosting Saturday Night Live. So I do think it's relevant. And I think that as companies, if you're a CFO and you're an Austrian monetarist cfo and you see putting things in dollars from the cash you earn as a bad idea, and your choices are buy back your own stock and. Or leave cash around, be able to make acquisitions, or put cash in a vehicle that is demonstrably helping the stock prices of the companies that do it, and now you have the air cover of one of the world's largest companies doing it, I think it is going to matter. I mean, it doesn't matter immediately, but it will matter. That's my thought. I mean, anybody else think.
- [17:23]
Zach
I totally agree with that. I would maybe phrase it a little bit separately to borrow a phrase from many of you probably know bitcoin. Tina was sort of famous back in the day for saying that bitcoin is transitioning from being an illegitimate asset to a legitimate asset. And I do think the combination of Tesla's announcement and Michael Saylor was really an accelerator of that and really allowed for the institutions are coming narrative. And this cycle, a lot of this has been about nation state level bitcoin adoption. And I think we have the equivalent so far of Michael Saylor and Tesla in the SPR bill in some sovereign wealth funds around the world. Stacking Bitcoin, where the narrative is real enough to point to and say this is a thing, but the geopolitical race hasn't started yet in a big way. That's part of why I was saying I think the SBIR bill is important to get past it, to really get that race underway. But I think that like non sort of elon companies stacking Bitcoin are just yet another data point. I think the, the ETFs are another great example of this, of, you know, getting rid of career risk on holding Bitcoin, getting out the narrative that a lot of us have believe in for a long time that bitcoin is digital gold and is an asset you want to hold in your reserve. And so the symbolic impact of a Nvidia adding Bitcoin to its balance sheet I think is much greater than the actual supply and demand dynamics of it.
- [18:37]
Dave
Oh, I totally agree. Lawyer. Do you had your hand up?
- [18:40]
Dark
Yeah, I mean, so what's interesting about Bitcoin? For me, I totally agree. I mean it's always sort of existed in some sort of superposition. It was at one point either it's either not a thing or it's a thing, or you know, right now you can say it's either at a bottom or it's at a top.
- [18:55]
Zach
Right.
- [18:56]
Dark
Like people are always very nervous to buy because it seems high. And I think we've solved the is it a thing? Thing. It certainly is now. And I think that's only about a year old or so that I can say that with confidence. And I think if something someone like Nvidia were to buy that would signal this is not a top or anything like it.
- [19:15]
Lawyer
Right.
- [19:16]
Dark
So that's, that's where the, and you, you don't mind being second to Nvidia, you don't want to be third or fourth. And I think that's where the race starts.
- [19:23]
Dave
Yeah, I think that that's A fair point. And obviously there it's an unconfirmed rumor and you know, who knows? I mean I would be interesting to hear Jason, you know where it's coming from. He's. It's an interesting thing. It's hard to believe that he would post it with nothing. On the other hand, really, have you.
- [19:40]
Zach
Have you met Jason?
- [19:41]
Dave
Yeah, no, I know, but I mean it's just, it just, it's a little bit on the outrageous side. I mean, honestly, I would be surprised by it, I'll be blunt. But I do think it'll happen. I just think It'll happen in 26 or 27, right. As it gets more and more normalized. I mean it is a big deal. But the fact is that we've seen the on chain data and all the other data is pretty strong that says that people who look more like me, old boomer tradfi types who I've been in crypto for eight years, but most aren't. But are the ones who've been accumulating bitcoin and crypto people have been selling it. And there's only a limit to how much that selling will continue. And there's only a limit to the patience of people who accumulating it thinking that it's 90% undervalued. And that is an interesting dynamic and I think that's what's at play here. And to go back to what Dark said, that would indicate if that is true, that the on the margin buyers are the. We'll call them boomers. You can call them whatever the hell you want to call them. It's really institutions. Those buyers tend to be much less aggressive, buy at the market, much more patient and that would create a grinding higher environment. And that is the healthiest thing that could possibly happen from a market rally point of view. What you would see in that scenario is the market consistently grinds higher. Every once in a while a blow off top that corrects and you continue to see and it marches on. We call it climbing a wall of worry, but that is what it feels like. So I'm just curious, Dark, what do you think about that?
- [21:29]
Lawyer
It's really interesting when we talk about these big companies, mag7 companies and really large companies shifting from stock buybacks to buying bitcoin. There's a couple things to keep in mind. Stock buybacks are benevolent in one sense, right, because they improve a lot of the ratios pe all different types of metrics that are used to buy Wall Street. But there's also malevolent activity in that Stock buybacks help boost stock price, which helps a stock option game inside these companies. And in many ways, that is a major profit center for large companies in using stock options. So you have to kind of cross the Rubicon, where companies become convinced that adding Bitcoin to their balance sheet will move the stock price more than stock buybacks, than the pressure from stock buybacks.
- [22:30]
Dave
You have to keep in mind two things. First, 100%. But most stock buybacks are effectively to sterilize the dilution from stock options granted to employees as stock compensation.
- [22:44]
Lawyer
Exactly.
- [22:45]
Dave
You need to do both, but there's a limit to what you need to do. Right. So let's just say whatever. Let's say you. You give 2% of the company to employees in a year. It's a pretty big number, but it could happen. So you give 2%, then you probably want to buy back 2% so as to preserve. Preserve, you know, the value of the stock to the people who have it. And. But you don't need to buy back 4%. And so if you could do something that is, that is going to add to the company's value and the perception of investors, that's generally a good thing. And so companies are constantly managing that, and it's really growth companies. Now you have other companies that are just cash flow companies. I mean, imagine a world where companies that are not growth, but what we would typically call value companies who are churning out profit year over year, accumulating cash and paying dividends. Well, what if instead of paying bigger dividends, they put their money into bitcoin? What would happen to the stock? All of a sudden you might end up looking more like a growth company than a value company. And you could, if, if anyone has been watching the differential in metrics between growth and value companies, there are a lot of value companies who are going to look at this and say, okay, wait a minute, I have a lot of stock in my company. How can I go to the stock price? And that's a really, really interesting dynamic that has yet to play out.
- [24:06]
Zach
Yeah.
- [24:07]
Lawyer
And to that point, Dave and I, 100% agree. The stock buyback from a dilution perspective, 100%. But the stock buyback from the higher stock price makes the options more profitable, makes working at the company more attractive, makes the executives of the company more money. Right. So again, they have to get to the point that they're convinced that adding Bitcoin will be a bigger driver to the stock price than actually buying the stock.
- [24:42]
Dave
Right.
- [24:42]
Lawyer
And that's really, really interesting in a world of Indexation, where so many of the passive investors in these companies, they're really not sellers, right? They're not. It's a fascinating point and it kind of leads us to the next point, which is as MicroStrategy continues to perform, it sort of forces the hand. I truly believe that MicroStrategy will solely be responsible for companies like Nvidia taking the plunge and adding Bitcoin to their balance sheet because they just can't continue to watch MicroStrategy grow in dominance in the S and P and in the QS without actually reacting to it. So that's my take on it.
- [25:32]
Zach
I'd want to make two points in regards to that. One is I think what Saylor and these other companies, Meta Planet 21, there are a couple more coming out. I don't know how public they are or not, but this is different than a operating company putting bitcoin on their balance sheet. These companies are like, I don't really think that what MicroStrategy is doing is a business, you call it financial engineering, but like they're adding bitcoin to balance sheet and levering it up. And that is the move. And that to me feels more like a sort of dynamic levered ETF than like something you could actually call business revenue. And so I would put that to the side. And I don't think that that is analogous to what it would mean for a company like Nvidia to add Bitcoin to their balance sheet. But then, all right, why might a company, if we're taking it like steel manning, why might a traditional operating company, Nvidia, Apple, like the next tier, why might they put some Bitcoin on their balance sheet? So first of all, it's not actually clear to me at all why they would want to do that for some of the reasons we were just talking about with stock buybacks. But there is a reason you might do it other than short term juicing the stock price. I think these big companies, they're big enough and their market caps are big enough and their business is big enough. They don't want to just juice their stock price short term. They might look out in the future and think about where interest rates are. Right now the company is that big, it's not so expensive for them to borrow money. But you might have long term capital needs, long term liquidity needs. And you might think that having some amount of bitcoin, even if that's not today, you know, great for your stock price relative to buying back your stock, gives you optionality to make expensive capital investments down the road in a way that holding other investments or, you know, borrowing capital in the future, you know, at whatever rates there are, is, is less attractive. So using Bitcoin as a long term store value, which is I really think the core use case of Bitcoin and could be a legitimate reason for these companies, but they would have to get their mind around that and they would probably have to have some specific capital need where when they run the numbers, it is better to buy and hold Bitcoin than it is to invest in any other asset or wait to borrow Bitcoin or sell shares of their company to fund that activity.
- [27:40]
Lawyer
Yeah, I would just caution in viewing MicroStrategy as a levered ETF. And I'll tell you why. I think that if you kind of step out, step back and look at what the company really is, they're sitting on $50 billion of what I consider to be the most pristine collateral in the world. And with the proliferation of ideas like bit bonds, with 21 coming in, Cantor kind of, you know, pushing bitcoin lending, you know, I think what you're going to see is that MicroStrategy works its way into an operating company, whether that's a bitcoin bank, whether that's a reinsurance company a la Warren Buffett, through the introduction of bit bonds, they just have, they have so many opportunities in their future.
- [28:30]
Dave
Right.
- [28:30]
Lawyer
And I think that, you know, that combined with the fact that, look, what would, if you tried to replace MicroStrategy's 530,000 Bitcoin today, what would it cost you? And I can make a good argument that MicroStrategy might be trading below its replacement cost.
- [28:49]
Zach
So I've heard this argument a lot from MicroStrategy Bulls. To me, it doesn't make any sense. So first, okay, this is speculative about what use cases there might be from an operating perspective in the future of having a lot of bitcoin, but nobody knows quite what they are yet. It could be lending, it could be a bitcoin bank, whatever that means. It could be, you know, 21 says it's also going to be a bitcoin software business. Fine, but like we don't know what that is, so that's not what it's trading on now. Second, whatever benefit you're saying comes from this, from an operating perspective, you have to think is not pro rata to the amount of Bitcoin you hold.
- [29:23]
Ryan
Right.
- [29:23]
Zach
It has to be something special about having half a million Bitcoin that you don't get you know, 50% of that benefit having a quarter million bitcoin. Right. Like there has to be something special about a bitcoin pool that big. I've never heard anyone articulate to me something, something special. You unlock being the biggest bitcoin holder that being the fourth biggest bitcoin holder you couldn't do relative to your bitcoin stack. And then third when these like business models present themselves. Right Maybe, you know I do think a lot of people want to bar against bitcoin. Bitcoin lending could be a great business. Bitcoin could be a great if eventually becomes admitted asset, it could be great collateral for insurance or reinsurance in the United States. I don't doubt these things. But there has to be something special now about you had the bitcoin early that people couldn't raise a pool of bitcoin for those amazing, you know, revenue generating opportunities when they present themselves, when the market is mature enough for you to take the risk for to pay the MNAV premium. Now on Microstrategy and I think when you take those all together, it's not to denigrate the idea that there could be future good use cases for bitcoin and operating business. I actually do believe that's the case. But if you're buying MicroStrategy today like taken collectively, that is much more like a levered bet on the value of their current bitcoin than it is like a rational investment you can make about any one or any group of those future speculative activities.
- [30:45]
Dave
I think that's probably true but Zilian, you had your hand up and then. Ryan. Zillion.
- [30:55]
Zilian
No, just when you finish about the subject, I want to give a little update about token 49 if you guys care for it.
- [31:00]
Dave
Okay. So hold on a second. So yeah, we don't have that much time but yeah. Ryan, you want to comment on the MSTR bitcoin kind of thing or.
- [31:07]
Matthias
Yeah, I just, just jump in on. What do you do with a large treasure trove of bitcoin? I, I think it's, it's something a lot of people are scratching their heads about. The only thing that my team has come up with is backing a bitcoin mining pool with a, with a reserve of bitcoin. So the largest mining pools in the world have to show that they have bitcoin in order to be a surety for large miners to mine against them. That's really the only use case we've found so far for having a large trove of bitcoin. Now does half a million Bitcoin, does it warrant half a million Bitcoin to back a pool? Maybe if like the Department of Energy or like large governments get involved in mining, maybe. But I think it was a valid point. I don't think there's a huge use case for large holdings of Bitcoin other than just value capture and value store.
- [32:04]
Dave
Yeah, I think that the other thing that a lot of microstrategy I think is held in taxable accounts. And so if people don't want to be trading in and out and they want a levered play, that's where it's there. I do think that the premium that they might get will dissipate over time. And I'm a holder, so, you know, I'm definitely, you know, it is what it is. But I think that the entry of 21 in and others will, will change that over time. But you know, look it, the game theory here is, is what really matters. You know, it's a question of the. It's a limited supply or a finite supply asset. And the math. All you have to do is look at the number of millionaires on planet Earth and the number of Bitcoin and you start understanding what that means. I mean, I don't want to get into the unit bias issue, which, Zach, I know you agree with me on how inane that is, but at some point I just wonder if human beings who are looking at actual crypto and not ETFs wouldn't be better off trading in SATs. I mean, the ETFs have changed that because now you can buy 100 shares or something and it doesn't feel like you're buying anything crazy. But the prices don't map to supply and demand at any normal escape velocity of Bitcoin achieving critical mass. And that's really where we are today. Is there anybody who disagrees with that? I mean, most of the holders who own bitcoin. Yeah, people will trade around their position because it's a great trading asset. But how many people who hold it really think that this is fair value? Nobody. Yeah, that's kind of what I. Yeah.
- [33:50]
Lawyer
Well, I'll tell you this. I think it's below fair value. Yeah, I do. But just going back to microstrategy for a second, I really encourage people to do a little homework on bitbonds. And as to the question of why 500,000 is more important than 100,000, well, it comes down to scale, right? You can't, you know, you, Warren Buffett can do what he can do because of scale.
- [34:18]
Dave
Can I help your argument here, Dark? Because absolutely, Microstrategy is monetizing the volatility of its own stock, which they can do and other people can't very easily unless you actually have that track record. Everybody can monetize the volatility of bitcoin. That's microstrategy's advantage. That's the scale advantage of microstrategy. The second thing, when you talk about bit bonds, the notion of monetizing bitcoin's volatility is very attractive to people who want to borrow. And the reason people will want to buy is because they can get a risk reward profile that is lower risk and that all I can tell you is anybody who's ever been in equity derivatives and I spent decades will tell you that there's an enormous retail market and an enormous institutional market for structured products that limit downside, willing to cap upside, but getting a more stable return profile, but still taking advantage of some of that upside. And so there's a whole variety of project of products that do that. And Bitbonds is just the way to do that with bitcoin. And so the real key here is, I mean to some degree it's going to be not, not fasb, it's going to be the international standards on how bitcoin is treated as collateral. And so it may very well be that some countries accounting rules allow it to be treated one way but until collateral at the global level from Basel basically is treating it as pristine collateral. That's really the final boss. When you talk about final bosses. I don't know if there's any financing people up on this platform, but I think that matters.
- [36:12]
Zach
Okay, but even if you're bullish on bitcoin bit bonds, and I personally am bullish on bit bonds, at BPI we've taken a super pro bit bonds position. We think maybe even the government should do this. Although that's, that's more complicated question. Why is the benefit not pro rata to how much bitcoin you hold as collateral? Right. Like bitcoin, I agree, is pristine collateral. I think that's going to be a big use case. So fine, so then there's no magic sauce in being the biggest bitcoin holder. Like if bit bonds are super useful, then people will raise large pools of bitcoin to be collateral for bit bonds that could provide a source of bitcoin denominated yield. Like, you know, the securities that you issued to create that collateral will be really attractive and you can have a pure Play for. For a bitbot. So I don't see how that's a bull case for MicroStrategy.
- [37:00]
Dave
No, the bull case for MicroStrategy is their scale and they're monetizing their own stock volatility. I don't see any.
- [37:07]
Zach
But that's like being a levered etf, right? It's like a dynamic leverage instrument.
- [37:11]
Dave
Sure. Well, that's why I own it. Yeah, exactly.
- [37:14]
Zach
But that's my point is that's different than a business.
- [37:16]
Dave
Right? I mean, yes, I'm on your side on this particular divide, but I don't think that that matters for most of our. Most of our things. Anyway, we're going to have a sponsor today, so, Zilian, I think it is important to. I'd love to hear what's going on out in Dubai. I mean, obviously my old companies are there. A lot of other people are there. I'm still. I'm not. So what was it that you wanted to talk about and what are you seeing out there?
- [37:44]
Zilian
Yeah, so just like a hot take on what's going on here in Dubai. So I see a lot of building a lot of projects, a lot of apps, a lot of things in various chains. You know, everyone is pushing his agenda, etc. The common talk is that basically I feel that, you know, where, where layer ones and layer twos, they usually, you know, every cycle they come up with like the killer app for onboarding users, reminder ICOs for ETH and then NFTs. And then this time around it looks like it's Meme Coins, but it was Meme Coins. But that's a pretty much a done story. I think that lot of. Lot of these infrastructure builders have given up on finding like the killer app. So everyone is talking about stablecoins on their chain as being the killer app. Yeah. So for me, basically it seems this time around, and I think for most of us that have seen this industry type of mature to this stage, I think that there are more projects than actual users for these projects. So it feels that there's a lot of building, there's very little adoption, or at least the adoption is very fragmented. This is what it feels like. So I was just in this.
- [39:17]
Dave
That's not really all that surprising, though, if you think about it. It's very. It's very reminiscent of every time you go through these build cycles, though, winners will emerge and it's a question of picking them. I mean, everyone who talks about stablecoins always forgets, and I'll repeat this every time the topic comes up. Stablecoins will do one thing more than any other thing. It will, that will happen. It will massively increase the velocity of money. Now what does that mean? That means that you don't need to hold, you know, you don't need a buffer of days or weeks in a checking account anymore because you'll be able to transfer. That is a very, very big deal in finance for a whole variety of reasons and it's worth a more in depth topic. But it will create a lot and I don't think it's well understood by most of the crypto community.
- [40:08]
Zilian
Exactly. And the other thing that is a lot less understood also is that stablecoins where basically transfer money into a form factor where it can be used in the infrastructure that is built. And that is very important and it will make a lot of sense especially for emerging markets, kind of stable coins. So anyways, this being said, it feels like and I really been going to these conferences probably like from 2015, so back in the day where you started, you know, you had very few projects and you had a lot of user base and at least an investor base from retail, et cetera and people being excited about things. Now it feels extremely fragmented. So a lot of building, a lot of basically same things repeated on a different layer, different infrastructure, etc. So it feels very dry. There is not a lot of hype around anything really. So this is what it feels like. But this being said, people are talking again about fundamentals. User acquisition, user retention. It's becoming one. Especially when you talk to capital allocators. They're finally understanding, or not understanding, but basically just positioning themselves for having the narrative that you know, it is all about user retention and user acquisition cost. And yeah, basically this is the kind of general feeling.
- [41:33]
Dave
Well to me that's is exactly the environment that you want if you're building and you and you're trying to see crypto turn from a insulated business to one that's more mass use. And speaking of businesses and others Buzz, I think we have a sponsor today, right?
- [41:53]
Buzz
Yes sir. We have Margarita Finance which is a pretty cool Defi product. So I'm spoken with them before. So I'm excited to introduce them to a new audience. But before we get started, I do have a disclaimer. So Mario's company IBC does marketing, incubation and investing and sponsors on this show are sponsors working directly with ibc, not necessarily crypto town hall, myself, Dave or Scott. And IBC is also hiring too. So if you're looking to do an AMA like this or you're somebody who's looking for a gig in crypto. Just dm. Mario's account above. There's a team of people looking at those DMS pretty much 24 7. So shoot them a DM if you're looking for any kind of opportunity. But let's do a mic check on Margarita. How you guys doing today?
- [42:40]
Ryan
Hey guys, can you hear me well?
- [42:42]
Buzz
Yeah. Is that Matthias behind the mic?
- [42:44]
Ryan
Yeah, it's Matthias. Hey guys. Hey, Dave. Hey, Buzz. How are you doing?
- [42:48]
Buzz
I'm doing well. Just to kick off the ama, why don't you give a little bit of an elevator pitch on what you're building?
- [42:56]
Ryan
Yeah, look. What is Margarita Finance? A lot of people ask us. It's basically very simple. It's an AI enabled DeFi platform and we allow you to mix your own yield. So you can actually choose any APY you want and we'll mix it up for you. We even have an AI bartender that does that. And that sounds pretty cool, but actually it entails quite a lot of sophistication in the background. The backend is a sophisticated legal and financial engineering engine, I think. Dave, you mentioned you spent many years in equity derivatives. That's actually my background as well. I come from commodity derivatives and actually we built exactly that. So the one product that has a lot of adoption in the institutional space, volatility based strategies, cover calls, et cetera, have so far been quite elusive to the normies out there and everyone else in DeFi. And we're exactly enabling that. We're enabling boosted yields thanks to volatility based strategies. And you can customize your own investment product with a click of a button. And actually if you just want to speak to our AI bartender, he's actually going to mix it up for you. So that's it? Yeah, that's pretty much what we've been doing. We've been in our alpha live on mainnet since December and we're looking to build out now our beta product to the broad masses.
- [44:17]
Buzz
Love it. I find examples often really help when explaining a product. I'm sure there's somebody in here listening in who has a 10k of USDT, 100k of USCT, whatever it it may be. Could you maybe walk through an example of how they could customize their APY and what it looks like on their side to do that?
- [44:42]
Ryan
Absolutely. So basically it's very simple. So we enable these products which so far have been exclusive to like, as I said, larger institutional players, hedge funds, crypto foundations, Et cetera, trading millions of dollars with the galaxies of the world. We're bringing them down to a byte size of 100 bucks. For 100 bucks, starting at 100 bucks, you can basically tell us how much API do you want? Anywhere from 10 to 100%. And how long do you want to lock it up for? Anywhere from one day to three months. Then basically based off, let's say you want to go a bit spicy, you want to say maybe 60% APY for a month, we tell you what your risk buffer level is. So what does that mean? So let's say you lock up, you want to have exposure to Solana, for example. And if we're trading, I'm just doing round numbers right now at 150 right now, spot price, we're going to tell you, okay, you get 100 bucks back plus your 6% APY in a month time. So that's $5 over one month, right? 5% in one month, 6% APY if Solana stays above your risk buffer level, which might come out to be like a hundred bucks. So if, you know, Solana drops a little bit or rallies a little bit, you're actually quite well off because you're making 6% API. So you're getting 105 bucks back in a month's time. The only risk you have, if it drops below the risk buffer level, you just get turned into solana. So you're 150 bucks. Get your 100 bucks get turned into Solana at today's price at 150. So worst case, you just end up being long in an asset which you're hopefully bullish on anyways. So it's an amazing way to get yields, get boosted yield on. Let's say you want to have an income strategy, so you want to have part of your crypto actually generating some yield for you. We can also do crypto boosters. So Solana native or bitcoin native or eth native yields. So you can actually deposit one bitcoin or 0.1 of a bitcoin or 0.01 of a bitcoin, right. And earn yield on your bitcoin with what is then the equivalent of a cover call strategy. So that means basically you're getting a yield for giving away a bit of the upside. So if, let's say your risk buffer is then at 150k, you get, I don't know, 20% yield APY if you're happy to give away the upside. If Bitcoin rallied above, let's say 150k in a month's time, but you're getting a fixed yield for that. So these kind of products have been around in, let's say the tradfi world for a long time, but they've been exclusive to very wealthy individuals or institutions. And actually we're, thanks to the crypto infrastructure, blockchain infrastructure, we actually issue full financial products on chain, fully regulated as well. So that's what you can do with Margarita Finance.
- [47:47]
Buzz
I love the concept of an AI bartender that helps you navigate defi because there are such great opportunities out there to get yield. But often you find yourself it's so fragmented, right? You're looking through all of these different sites or these aggregator sites, you're bridging over to L2s or using L1s. And even if you're full time in the space, it's really difficult to go every day or every week and change where your stable coins are sitting to get the, the best yield. Dave, I saw a hand go up there. Feel free to cut me off and jump in.
- [48:23]
Dave
Yeah, I have a question. Obviously I'm not, I wouldn't be jumping in with a comment. You, you know, you guys are well aware of the fact that in traditional finance and in fact finance just in general, it's almost axiomatic that increased yield comes with increased risk. But that is a general thing. And if you really have. I'm curious about how or if your AI takes risk into account when selecting between yield because there's different types of risk, counterparty risk as well as the collateral risk, et cetera, et cetera. So to me that's the holy grail is to be able to have a risk, go for the highest risk adjusted yield based upon your own parameters. Is that something?
- [49:12]
Ryan
Absolutely. So there's actually two ways AI is playing in here. So one way is with the AI bartender that actually is just like a ChatGPT layer to create your own financial product. Right? It helps you design that product. And if you go to Margarita Finance and launch the app, you can actually just connect any Solana based wallet being a Coinbase Wallet or Phantom Wallet and actually try out these products. And what we, I believe do a quite nice job is show you very transparently what is the risk. So if you go for a higher apy, your risk buffer, sort of like when your downside kicks in, becomes lower. Right. So we show that very visually, very simply, you don't need any options or derivatives background whatsoever. It's basically two scenarios. You're above the buffer, you're below the buffer, right. And that's basically how we explain it to you. And the AI bartender can actually bring that to you in natural language. The second bit is what you mentioned is very, very interesting. So what we are just launching now this week as we speak is AI investment strategies. So this is not just a one off product where you're basically, excuse me, going long for let's say a week or a month. But it's basically a investment strategy over time where you could choose do you want a 20%, 40% or 60% expected APY on. What we start with is Solana as a yield. And here we actually have an AI agent in the background optimizing exactly these types of products that I just described over time and selecting the best strikes, barriers, etc. Over time to optimize this. And of course the yield is then dependent on what is called the implied volatility in the market. So basically that's the insurance premium the market pays for hedging risk. And in this case you're selling volatility. And as we've seen, we've just had extremely volatile month in April, right. And actually these products have been doing really well and a very nice performance because basically the implied volatility was very high and you're selling something which is high. So that's actually the market risk side of things. And then what you actually mentioned, quite nice as well, is the credit risk side of things and collateral side of things. So this is let's say a end user product, so it's always fully funded, so there's no collateral risk. You basically put up to 100% of the collateral. So there's no counterparty, no, let's say counterparty risk from a issuer side. But, but of course we enable access to, let's say institutional market makers. Think of as I said, the galaxies of the world, the GSRs of the world, et cetera. And we of course want to enable then a full solid framework for managing the credit risk that the investor has versus these market makers. So one way we're managing this is by making sure that actually these products are fully legal, a fully legal security. So basically these are, we're leveraging the Swiss DLT framework for that. So they're actually fully enforceable as well. And these products tend to be very short dated, so one week or so and the AI is actually using different counterparties to hedge the risk against. So you actually have a diversified credit risk exposure. But you're absolutely right, there remains a small element of credit risk in these products. As well. So it's always a combination of credit risk, market risk and collateral side is not really relevant because they're fully funded.
- [52:55]
Buzz
And there's a APY 20, 40 and 60 membership as well. Can you walk through how that works?
- [53:05]
Ryan
Yeah. So what we've just launched now, so we've had the yield boosters and crypto boosters. So the products, investment products live since earlier this year or end of last year. And now we're launching these, as I said, these investment strategies where an AI agent manages a rolling portfolio of these products. And right now, whilst we're basically in the build up for the go live of these products, you can become a member of that community and you can select which product you'd like to be the first time mixer, basically what we call it. So you're the first to get access to these products, which is super exciting. So there's of course a limited amount that we can offer right now from these products and if you get yourself a membership which is only 0.1 sol, you're the first one to get access. And over and above we're actually paying a higher APY. So on the SOL20 you're actually going to get a 33% APY in the first year. On the SOL40 I think is 55, et cetera. So you're getting an increased APY as a member. And this is basically how we're rewarding early, early interest and early access to this very exciting product we're launching now.
- [54:24]
Buzz
You also have the yield boosters in the platform. Are those funded organically, like through real yield or trading profits, or are you subsidizing these yields through token emissions or anything like that?
- [54:39]
Ryan
No, not at all. They're fully funded organically. So as I explained before, these yields come from the insurance premium in the market that are being paid from hedgers that trade options and buy options to hedge themselves. So either put option to hedge the downside or a call option. And in these yield boosters you're basically taking the other side. So you're getting let's say an excess yield on Solana. So if you deposit one SOL, you might get a 60% APY. If you're happy to give away the upside above, let's say 200 bucks. So you're basically cutting away your upside, but you're swapping it for a fixed yield, which is actually a very nice product, let's say in a sideways trending market that we've seen last couple of days, last couple of weeks, or the downside version of it is the equivalent version to the downside is basically accepting some downside for fixed yield as well. Let's say if you deposit USDC and you can actually do a very nice, let's say dollar cost averaging strategy if you just want to go for a high yield and worst case you get just swapped into Solano, let's say at a slightly higher price than it is at the market price. So yeah, these are fully organically, they're basically the equivalent of someone going directly to the Raribit and constructing a sophisticated strategy themselves. And we just make it super easy for an end user to just get the yield and not have to worry about options and strikes and bearers and complex terminology makes sense.
- [56:19]
Buzz
And for a user who's going to the product and then kind of wants the transparency and then maybe like a dashboard showing the revenue sources of the yield, the performance, different risks that they're exposed to, how much of that information do you give them versus abstract that away to make it a usability problem? What does it look like for the end user there?
- [56:44]
Ryan
Yeah, so actually as I said, you can just go there, go to app, Margarita Finance Connect, let's say a phantom wallet and try it out yourself. So just input what asset you want to trade, deposit, is it usdc, btc, Ether, Sol, how much of it and what time frame you want to lock it up for. And then you can just hit the mix button and it mixes up the product and what you will see is a first very simple overview of what the risk and return opportunities are. And then if you want to know the details, there's actually a very highly high degree of legal automation as well. So these are, as I said, we're leveraging a very sophisticated legal backend for this that's been built over many, many years and it allows you to actually issue a full financial product on chain. What does that mean? This is a legal contract with the market maker and you will see the full term sheet with all the details, the strikes, expires, etc. All the complex stuff right away as well. So if you click on the term sheet you see all the details. So if you want to know the details, we have 100% transparency and we even have the full legal documentation so that the master framework that this is based on as well readily accessible. So this is all fully transparent to the user, but we're in a first view abstracting it. Way to not overwhelm the users with too much information at once.
- [58:16]
Buzz
Makes sense. And there's a MARG token as well. So how do you tie the token in? I'm sure we have some people tuning in that don't just want to use the product, but they want some. Maybe they want to speculate on the token too.
- [58:30]
Ryan
Yeah, absolutely. So we're pre token, so the token hasn't been launched yet and basically we have a point system where people can earn rewards and points for future potential airdrops and so once we have our tge they can actually profit from being early users. And actually, yeah, so Also for the SOL20 membership there's points involved as well. So if you buy your membership now, you not only get a elevated yield on the product, but you also get points and rewards for later on. So you're very excited about our March token. We're going to be actively incentivizing it once we're live as well and have a reward system now in place for early adopters.
- [59:22]
Buzz
Very cool. Well, for people who are tuning in, the Margarita Finance account is up here, it's Marg Finance. So if you did want to check out the product, just click on their profile which is in a speaker spot and right in their profile there's the official link to not only their telegram but also the website where you'd be able to check out these financial products and anything else before we wrap up that you want to maybe give in terms of alpha or call to action for people to do.
- [59:53]
Ryan
Yeah, absolutely. So I think now is the perfect time to engage now we have the very cool new SOL20 strategy token out there. Get yourself a membership early on. There's a limited number of memberships so get it quick and then be rewarded with higher APY and mark token later on and of course get your hands dirty and just try the product yourself as you go to app Margarito Finance and earn some high yields in this market environment.
- [60:28]
Buzz
Sounds good. Appreciate you joining us. And for people who are tuning in, make sure to click that Margarita account up here in a speaker spot and give them a follow and check out their website. Second time speaking with you and equally as impressed both times. So I appreciate you for, for joining and for listeners tuning in. We'll be live again Tomorrow, same time, 10 8, 10:15am Eastern Time and hopefully we end this day and the start of the month on a on a green note. So thanks everyone for tuning in.
- [61:01]
Ryan
Thanks for having me. Appreciate it.
- [61:04]
Buzz
Take care everyone. Have a good day.