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Transcript134 lines
- [00:32]
Soleil
Sa.
- [00:58]
Ben Workman
What you are about to hear may
- [01:00]
Jeff
be amazing, but it is not financial advice.
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Ben Workman
It is for informational and educational purposes only.
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Jeff
Nothing in this discussion should be considered investment advice or the offering of any
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Ben Workman
security or other investment product.
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Jeff
Please consult your own investment and tax advisors. And now I'll hand it over to
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Ben Workman
the True north team for your regularly scheduled programming.
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Dan Hillary
Whoo.
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Jeff
Welcome back, True North. Episode 74, the investment grade Bitcoin Podcast. We are back with another exciting week. There's always things going on even in the middle of summer. I hope everyone is having a great summer and enjoying some time out. Weather's getting a bit crazy these days. We got tropical storm down in the Gulf, wildfire smoke both on the east coast and the west coast. And I used to have to care about these things in the reinsurance world, but it's really nice actually caring a little bit less about the, you know, global, global catastrophes, but is still good stuff. Okay, so with us today we've got myself, Soleil, Ben Workman and Dan, Hillary. We are going to talk a little bit about the cash that strategy has raised over the last week. We'll talk about just cash in general balance sheet composition. We'll look at some other corporations, some of the top 20 publicly traded companies and start to look at, you know, how the market starts to think about these companies and valuation metrics and try to compare them, maybe, maybe put them into buckets. We'll look at the prep equities a little bit. I know, Dan, you've been thinking very close about this. Obviously we are as well watching SATA move relative to stretch. We'll look at some comps and then in the miscellaneous bucket, we'll have a little conversation about what's happening in the bip110 world and what's going on there. So I think this will be about an hour. Ben's got a rip off at around 30 minutes. So we are just going to kick it off. And so let's just start here. Over the last week, strategy has raised about $250 million of cash added to their balance sheet. They have now about $3.2 billion of cash on their balance sheet. Let's do a quick balance sheet update. What we do usually every single week. Going to share my screen here, Jackson. Okay, so what you see here, this is the MSTR balance sheet and what I've shown is a comparison between 712026 and 722 2026. About 20 days ago, if many of you recall, the world's the world thought that MSTR was dead and the balance sheet was broken. The business model was, was dying and basically the world was ending. So let's compare what's happened in the last effectively 20 days on the balance sheet and let's look at the health of the balance sheet. So Strategy now holds 843,000 bitcoin relative to 847,000. So they sold a few thousand Bitcoin over the last 20 days. Price of Bitcoin is up about $5,000. The net assets on the balance sheet have gone from 51.6 billion to 55.6 billion. Largely because of the price of Bitcoin going up, the USD reserve has increased about 1 billion. Just under a billion dollars. And a couple things to point out here. The USD reserve is up 26% in the last 20 days. The net capital held on the balance sheet, this is taking the assets, the bitcoin assets plus the USD reserve less the debt gets us to $52 billion. That's up 9.8% in the last 20 days. The net capital years of dividend. If you're just to take this net capital figure divided by the annual preferred dividend payments, that has gone from 29 years to 32 years, that's up 10.7%. The leverage ratio, how levered the balance sheet looks. This is purely looking at the convertible debt. The leverage ratio is down 22% going from 8.1% down to 6.3%. The coverage multiple also increasing and effectively the price of Bitcoin, we need to go down to $4,135 in order for the assets on the balance sheet to be worth less than the debt. This does not include the preferred equity. It's just focused on the debt. So thinking about the balance sheet strength and how this looks into the future, the company looks incredibly healthy. So I'll pause there. Ben, I know you're thinking about this a lot, thinking about the concept of looking at net assets and purely net assets. Where's your mind at these days?
- [05:36]
Dan Hillary
I think it's going to get interesting because with any of these models they're going to evolve over time in terms of the ways investors view them. And that's going to be particularly the case when you've got these new products launching into the market and early on you try to force fit it into metrics that are quickly understood. But over time you realize that they might not be the right metrics for the job. So I do think that we're about to see a shift over to where you start Focusing more on the balance sheet as a whole, which is kind of what you were looking at there, where you're including the bitcoin, the cash assets included in one bucket. So I would just term that as a Treasury asset value. And you really start hyper focusing on the dividend obligations and your ability to cover those dividend obligations. In the early days of these models, everything was treated as if it was debt. And I think we're starting to see that pivot now. You know, debt clearly has its own risks associated with it. It's why the market is hyper focused on those convertible bonds for a long time, although it didn't necessarily like the retirement of it. But I think some of that is also, you know, poor timing in the market given what bitcoin did immediately after they did it. But that point in time, maturity risk that comes with actual debt, where you've got a principal repayment out there in the future, is something that carries a huge amount of weight to investors. And as you watch these models shift, you know, it's one of the things that I've. I've liked about our model is that it stayed very simple, where we don't have any maturities out there in the future that we have to contend with, but with strategy. I do think that the reduction there that they did continues to make that debt a more and more immaterial amount of their overall balance sheet. When you see the number that it's got to go to, to where that debt becomes an issue.
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Jeff
Right.
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Dan Hillary
4100. Something in Bitcoin's gone horrifically wrong. If we go down to 4,100 and stay there through the maturities. Right. That's a pretty black swan event that happened there. But I think that the market's starting to look at these more on a holistic basis around the balance sheets. Because managing a company around its entire balance sheet is not a new concept. Right. There's been balance sheet companies before.
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Soleil
Before.
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Dan Hillary
Bitcoin's the new capital that entered the equation.
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Soleil
Yeah.
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Dan Hillary
For hundreds of years, Bitcoin's the new asset that entered the equation. And you know, the one thing that bitcoin has with it is volatility. And that's a little bit different. Right. These bit. These balance sheets haven't been quite as volatile as they are with these models. So I do like to see that the conversation has been shifting that way. You've seen kind of a concerted push away from the M Nav discussion because it's not necessarily all encompassing. We've seen it change a bunch over time. You know, I'm still not sure who I blame if it's you or somebody else. You know, that probably, I think it was you that actually started talking about MDAV in the early days. But, you know, it was a. It was a good metric to get it out of the gate to give people something to anchor to. But I think that's adjusting now over time as well as when people look at these as entire enterprises. So, you know, we're. We're seeing an evolution, but what we're definitely seeing right now is a hyper focus on crowd credit, quality improvement. You know, that's become clear. I think that the strategy team got a heavy dose of feedback from the market here. You know, if you think about the timing, when they used that reserve to pay down that bond, you know, bitcoin was up at what, 80, 84,000 at the time when they actually did that, and then it immediately reversed course down to like 60.
- [09:05]
Soleil
Right.
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Dan Hillary
If you were picking a time that. That did not pan out very well. And so I think what would have been a normal transaction where they would have retired these bonds and with the liquidity that they had out there, while we were kind of back in the surging market at the time, they would have been able to replace that capital effectively within a week. But when bitcoin moves against you and the liquidity slows down out there now, you need to be more careful about raising it. Highlighted that that reserve, from an investor's perspective, was intended to be a war chest to fight off exactly what was happening in that moment. Right. It was meant to be there when bitcoin got weak and it wasn't. And the investor community reacted to that. And I think strategy has clearly received that message. And so now they're taking all the steps that they can to replenish and add more to that US Dollar reserve balance and start to really focus on the credit quality story around stretch again, bring the investors back into the instrument, put the guardrails in, that would prevent this from happening again in the future. And, you know, that's. That's the path to stabilize the ship. So it's been a wild ride here for the last year. I think it's only been like two months since all this happened, which seems crazy because there's been so much happening, but what a wild ride. But you see these models evolve in front of you in real time, and all the companies that are watching now are going to also have lessons learned that they'll implement in their own businesses as well to make sure that they put a structure and they've got a framework around them to make sure that the investors understand how they're operating and what they will and do at certain points in time.
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Jeff
Yeah, it's really helpful context and I like the framing of looking at balance sheet companies. And this is a broader spreadsheet that's looking at the composition of corporations. I've got the top 20 publicly traded companies here and I've sorted by category being balance sheet. So we've got Berkshire Hathaway, JP Morgan and Exxon. Exxon being oil company, and looking at price to book ratios of these three balance sheet companies. So Berkshire is at a 1.4x price to book, JP Morgan 2.5, and Exxon is also at a 2.5. So that and strategy, taking the same metric, which is the assets minus the liabilities, gets to a 0.7 price to book or Mnav or a multiple on Mnav. So I think it's valuable to look at the context and start to think about what these companies are, how they're designed, what they're meant to do in their storage of value into the future. These are balance sheet companies, they've got very large balance sheets. Berkshire 1.2 trillion, JP Morgan 4.9 trillion and Exxon $464 billion of assets. But you also look at the composition of these companies and they're very different. So Berkshire 42 leverage, JP Morgan 92 leverage, Exxon 44 leverage, and strategy here I've got at 11 leverage. What is this liabilities divided by total assets. And so I think it's interesting to think about the context and look at the composition of these companies relative to others. You think about a company like Exxon, they've got cash on hand of 8.4 billion MSTR is nearly 40% of the same cash on hand as Exxon at the moment, which is an interesting comparison. And there's, there's a couple. Some data that I think is interesting as well is looking at estimated net income for the year. So what I wanted to look at is how profitable are these businesses, how are they designed, what's the efficiency of the profitability, how many employees do they have, what's the net income per employee? How to start to think about why people are holding these instruments and why they're holding them relative to other tech companies? Because when you've got companies that are top 20 publicly traded equities, you have to put them next to each other and understand, is Berkshire Hathaway rich relative to, you know, the other companies? Trading around it or is it cheap? And the, the market is constantly doing that all the time. 24, 7, 365. The market is fully dynamic. Everything's. Everybody's trading in and out of all several different things as a function of where, maybe better to park capital.
- [13:37]
Soleil
So question. So these companies are so different, but what's the unifying property that makes them a balance sheet company that gets them on the spreadsheet?
- [13:47]
Jeff
They are asset heavy. Asset heavy. These are, these are some of the largest. Well, I guess you could, you could say some of the other companies. The other companies here, let's just unhide it. Good question. Clear filter. So this, these are the top 20 publicly traded equities. A lot of color on here. And that's by design. It is to emphasize that there is no great comparable factor between all of these publicly traded companies. Yet they're ranked. So you look at Berkshire Hathaway is trading right next to Micron and Eli Lilly. Well, how do you compare those? If you had a marginal dollar to invest, how would you compare? Would I rather own Berkshire Hathaway or Eli Lilly? The answer is probably both.
- [14:37]
Soleil
But
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Jeff
which if somebody that's managing capital of some of these larger publicly traded companies, and I'm not talking like retail investing, I'm talking institutional capital, they have to make those decisions, right? They have to think about their allocations and their allocations relative to other things and how that projects out into the future, right? All stocks are forward looking, everybody's front running everybody all the time. And all of these companies have completely different business models, completely different financial structures, completely different leverage ratios, different PE ratios, different price to book ratios, different net assets. But fundamentally what they are doing is they're leveraging capital in order to generate cash flow into the future. Now most of the tech companies are leveraging human capital, right? Humans are creating stuff or goods that people are buying. Apple is leveraging human capital both in Silicon Valley and internationally. They're leveraging capital to create products and generating cash flow on that. Whereas some of the balance sheet Companies like J.P. morgan or Berkshire Hathaway, they're leveraging their balance sheet capital to generate future value, more returns. And they're all different. And you can look at the price to book ratios. The MasterCard is trading at a 70x price to book. Apple is trading at a 44x to price to book. You look at the PE ratios of the top eight companies are all pretty similar. But then it starts to deviate massively. You've got SpaceX, which SpaceX is top 11 publicly traded company Tesla is trading at a 341xpe ratio. So that's, these are, these are Forward looking metrics. AMD is trading 140, 184x price price to earnings ratio. So all of this to say is all of these companies have different construction and they operate different business models and it's very tricky. One of the only ways really to value them next to each other is looking at the market cap and understanding like do I think this company is more valuable than this company? And its ability to grow faster than this other company in my opinion is one of the only ways that you can start to compare some of these top publicly traded equities.
- [17:03]
Dan Hillary
We did get an update on Tesla. We got our quarterly update on whether or not they sold their bitcoin and they did not. They kept it all, they're long, nice,
- [17:11]
Jeff
they're along the bitcoin.
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Soleil
Well, when I, when I sell covered calls on my capital, I guess I was zero today years old when I learned that I'm a balance balance sheet company.
- [17:25]
Jeff
You're a balance sheet company.
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Dan Hillary
You might be the purest expression of a balance sheet company.
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Soleil
Exactly.
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Ben Workman
Yeah.
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Jeff
But to your point, Soleil, you asked, you know, what's the differentiating factor between a balance sheet company and you look at, I categorized Exxon as a balance sheet company. Exxon's got, what is this, 58,000 employees and $464 billion of assets. You look at companies like Amazon, I mean you could categorize Amazon really as a balance sheet company too because they have $916 billion of assets and $474 billion of liabilities. And of that $916 billion of assets, 143 billion of that is cash. So they are right there, they're leveraging balance sheet, they're leveraging commercial real estate, they're leveraging property and how they're delivering goods and services to people. So again, what makes Amazon more valuable than Meta or what makes Amazon more valuable than SpaceX or Tesla? That's kind of an open question.
- [18:34]
Dan Hillary
Well, I think for every investor, right. It comes down to your belief in what the future is going to look like here and capital flows to where it finds the best ideas in those specific categories. And sometimes you can see it get incredibly crowded. If you're going to see a company that's trading at more than 300 times forward earnings, that's pretty crowded. There's a lot of people that have positioned directionally into that bet and those multiples expand and Contract with confidence. I think that's really interesting because investing becomes, and it's likely to become less of a factor, actually, but it runs largely on the human psyche and the way investors are thinking about the markets, the headlines they're seeing, the direction that they see technology evolving, the assets that they view as sound versus not sound, the types of business models they think are going to endure innovation, disruption. And as you start getting. Jeff, you highlighted earlier that Robinhood opened up, effectively, algorithmic trading for all investors now, right, where you can go and set up your own trading bots and algorithms to trade for you. And when that starts to happen, and as that becomes one of the more primary ways that investors are sourcing opportunities, it's going to fundamentally change the way capital flows, because it's taking human emotion out of that equation almost entirely now. Right. You get to configure it, you get to tell it kind of what and where to look for. But ultimately it's going to take an algorithmic approach to trading. And I'm going to be curious of the markets when that happens. Obviously, if people start aligning on the way that they want to assign value to their algorithms, that could create capital flows that chase each other around, but it could also vastly differentiate them because you might get something like a huge amount of arbitrage trading that's going to happen out there in the market where it's looking for minor inconsistencies in the valuations among companies and specifically specific sectors. And it's trading on, you know, compressions of premiums between the two. Whatever it may be, it should fundamentally change investing. And so I am going to be very curious to watch how capital flows change, and I'll call it over the next five years, because as that capability becomes mainstream, as people are becoming far more native, you know, in building using those types of tools, you know, I think it's drastically going to change that conversation. So, like Soleil, for instance, with what you're doing, have you been automating any of that yet? Or are you still out there doing it manually? Do you have screeners and things that you've built? Have you started looking at that at all?
- [21:15]
Soleil
My eyes just glazed over. As soon as you said that. I was like, holy crap. I could just. I literally just do the same thing almost every day. I could program the bot and then, you know, if I can put together an AI image of myself, I can just go on vacation forever. I can still record every day and just. We'll know the difference.
- [21:32]
Jeff
Build the AI track record. Yeah, the Soleil. I mean, the AI is getting so good. Sorry, I lost you guys there for a moment.
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Soleil
I can do that on Robinhood.
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Jeff
Yeah, yeah.
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Dan Hillary
It was Robinhood that opened it up just recently. Right. Wasn't it within the last week that they launched?
- [21:48]
Jeff
Yeah, I think it was on Monday.
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Dan Hillary
Yeah. Monday, yeah.
- [21:51]
Soleil
I'm going to have to figure it out.
- [21:54]
Dan Hillary
I think it's huge because it's going to get easier and easier. Right. It used to be very difficult. You know, I spent several years, you know, doing this all by brute force, by hand.
- [22:02]
Jeff
Right.
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Dan Hillary
Writing my own algorithms and deploying them. And that took a lot of work and a lot of testing and all those things. And that development cycle is so accelerated now. You obviously have to be careful because at the end of the day, if it's trading real capital, you've got risks there. If you vibe code something in there that's a little too loose, but it's giving people all the same capabilities that used to be reserved for these high frequency trading firms, know, on Wall street that were sourcing, you know, these opportunities, looking for those tiny arbitrages that they could capture over and over again and generate significant returns that way. Right. It's fundamentally going to change the way that capital flows in the markets. And it's also, you know, what I look at, given what our business is, is I look at where would these things choose to park idle capital. And so that's where, you know, prefs become very interesting out there. When you've got things that are high yield, you know, say that you got the daily dividend paying out there, it's kind of an attractive place to park ID in between trades if you're just waiting for something. Recently we've had the bouts of volatility right now, and that's part of the battle testing of any of these new products that go out to the market. You can't expect to launch kind of a new segment out there and a new category of securities and not expect them to get battle tested. That's going to happen. You know, it's going to happen. And particularly when you've got products out there that are trying to offer low volatility, high yield, or perpetual in nature, high liquidity. Right. I mean, if you can meet those criteria, it becomes a really attractive instrument to build leverage on. And the longer it stays stable, the more leverage you would expect to build up on it over time. Right. So these liquidation flushes, I think are interesting and I do think that there's something that's going to need to be contended with over time. You know, the larger the products get, it might be that the smaller the impact the actual liquidation events have. But this first one happening pretty early, had a pretty significant impact out there. And when you're first trying to build a track record around these products, these are the things that you have to come out the other side on. The market's going to look at what happened the last time that that leverage got flushed out of the system. How did the companies respond? How did the securities respond? How much time did it take for them to rebound? What dynamics came into play? And it's become interesting because, you know, speaking of things like arbitrage opportunities, when you've got products that are similarly structured, it creates a desire to pair trade those things. And I think you see a lot of that happening right now with seda and stretch, right. If you look at the SATA short interest, you know, I would imagine that in the early days, and you can kind of look back at where that short interest built up, what point in time it was. You know, like when SATA dropped or when Stretch, it dropped below Seda, the market starts taking leverage to bet on both these instruments returning to 100. But you can short your SATA, go by stretch, and you're betting on them returning back up to par. And as time has gone on, that short interest built up over and over. As I think people were playing for that return to par trade, but the carry cost became really high.
- [25:20]
Jeff
Right.
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Dan Hillary
And so we're still waiting to see exactly how that cycle is going to pay out or play out. But it's a very expensive test to run right now, because with Seda, you know, the people that are selling it short, they've got to pay the person they borrowed it from, effectively a daily dividend, right? That dividend that that person gets no longer comes from the issuer, which is why the tax treatment changes, because it's a payment in lieu, not the actual dividend, but they're still obligated to pay it, plus the carrying costs of holding that short position. And so if that is built up and it was a short SEDA long stretch type of a play to unwind, that they have to sell SATA or sell Stretch and buy SEDA back. Right? And so you keep this dynamic that kind of keeps that spread in place as people try to exit that trade. So it's been very interesting to watch these things evolve over time. I think what strategy is doing now and the path that they're on to stabilize that credit quality, I think that that's going to go a long way in generating that net new demand into the ecosystem to make people feel secure in allocating there again. But you've still got these market dynamics that have to play out and things like these algorithms looking for these opportunities as you go. All right. These two products are structured very similarly. How can we capitalize that and generate returns for ourselves? That opens interesting possibilities. And the more people that start to do that over time, the more interesting it becomes. We're very much in the exploratory phases of how these markets are going to develop here over time. These products relative to the broader market are very, very small. Right. So right now you see these outsized impacts on all these capital flows that are happening, but as they continue to grow over time, I think it may have a dampening effect there.
- [27:08]
Jeff
Yeah. So, Dan, I'd like to bring you in and thinking about this analysis too, because this is something you've talked about kind of pair trading between the parameters, preferred instruments. And to Ben's point, when str, there was a period of time where STRC dropped and SATA didn't move, and then it was like a day. There was a day or two where STRC dropped and SATA didn't move. And then they kind of felt. Then they kind of like followed in tandem. And so what it appeared. And to your. To your point on pair trade here, Ben, in analyzing what this could look like, somebody could theoretically short SEDA and Long Stretch, recognizing that the dividends are pretty similar, effectively nearly cancel each other out, thinking that as Stretch goes back to par, they get the capital appreciation opportunity. And that thinking that that capital appreciation opportunity is more lucrative than the cost of borrowing, plus having to pay the dividend and the time that they hold that position. So, you know, Dan, how are you thinking about these? Has your. Has your thinking evolved on, you know, how these are, pair trading? Like what. Where's your mind at?
- [28:27]
Ben Workman
I think there's definitely pair trades between Satan and Stretch. Most of the big shops are unable, I think, to access with enough size the SATA market. So I think SATA has actually benefited in a huge way by being a smaller product. Just because if you take SATA at 98 and stretch at 87, like you said, Jeff, you'd be a fool not to long Stretch and short SEDA there. And I think the absence of that has been very beneficial to SATA as a product. And.
- [28:57]
Jeff
Well, I think it's happening. I think it's happening.
- [29:00]
Ben Workman
Yeah. I don't think it's happening that much. Quite frankly, simply because SATA is trading so, you know, so close to par, whereas Stretch is not.
- [29:09]
Soleil
Right.
- [29:09]
Dan Hillary
Like, what was interesting is I think it actually started before the major dislocation in price. Like if you look back at where so like our short interest got up to like a million two shares. Was it, Is that what it was, Jeff?
- [29:20]
Jeff
Yeah. Million two. Yeah.
- [29:23]
Dan Hillary
But if you look at where the bulk of that started building up, it was when the difference in price between the two was effectively a dollar. So it was back when it was still in that stable period. And then there was that momentary discorrect, disconnect. And then as Stretch fell, what you kind of found was when the effective yields aligned, then they started to move in tandem, which was pretty interesting. You know, I think we. To your point, Dan, on the, on the larger shops, I think it was harder to take leverage on SATA because it was a smaller, it was a newer security out there in the market. And so we didn't have the same things like what we heard when we went to New York and we're talking to some of these institutional investors, you know, where they were out getting 3 to 1 at SOFR plus what, 2 or 300. And then all of a sudden that changes to 2 to 1 overnight. You've got to unwind that leverage. I don't think that type of structural leverage had been able to build up in seda, which is one of the things I think has helped it maintain near par, whereas Stretch, I think had a bigger flush out. And so you've got to replace that capital and get that demand back into the product here to bring it back up to par.
- [30:28]
Ben Workman
And to your point, Ben, I think the investor base is similar but different between the two instruments. And when you have, I think a more diversified, retail focused investor clientele in SATA makes the capital actually a little bit more sticky than per se. A shop that's looking at Stretch and is allocating based on cash reserve and bitcoin price and looking all over the place. And when a certain amount of capital is pulled from strc, right. The amount of capital that it takes to replenish that pull or that extraction of capital is on the order is 10 times as great as it is in SATA. So I think actually having a smaller size in one of these instruments is highly beneficial because the amount of inflows you need to take it back to par is a lot less than, say, the amount of inflows you need after a big sell off to take Stretch back to par.
- [31:25]
Dan Hillary
Yeah. And it was also Right after daily dividends came out, which I think makes the product sticky. And I think Stretch going to the twice a month dividend model is going to help make that capital sticky as well. Because it used to be with these products when they were monthly, you had one day of the entire month where it was economically required to be holding that instrument to get the dividend right. So I think that it gave a lot of investors the ability to sit and think about that position and whether they wanted to redeploy it during the month or if something was happening in the market and you start getting nervous about it, well, do you sell back out? Because you can always buy back in when you get closer to the record date. And now when you've got like in satas for how SEDA operates now, where every single day is a record date, every day is the next dividend date, every day is a payment date, you know, it makes it sticky because it's economically beneficial to hold that instrument every single day of the month versus trading in and out of it. And then coming down to twice a month with Stretch, I think is going to change that cycle for them as well. Where, you know, a two week period may not have the same incentives to shift capital around like it did back when it was monthly. But you know, only 2% of companies that even pay dividends even pay monthly.
- [32:39]
Soleil
Right.
- [32:39]
Dan Hillary
Which is kind of crazy. In 2026 you would expect this to evolve.
- [32:44]
Soleil
Right.
- [32:44]
Dan Hillary
Quarter, quarterly. Quarterly dividends came out in like 1885 and it's still the standard today by a long shot, by a wide margin. You know, the monthly dividends I think was like 1965, something around that range. And so the fact that, you know, here in 2026, you still only have 2% of dividend paying companies even paying monthly, you know, seems. Seems crazy to me. And now you've got one paying daily and I think you've got one paying twice a month. Both of those are bitcoin companies. So I think that's kind of an interesting evolution that you're seeing innovation happen in the capital markets and it's coming from bitcoin companies.
- [33:21]
Soleil
Yeah, that daily versus twice a month dividend seems like it would have some kind of effect. It's an asymmetry. So the correlated pairs trade that you mentioned would work best if you're shorting stretch and you've got a couple of weeks to hold it and then, you know, you can buy SATA on the dip. But the reverse isn't necessarily as accretive. You know, not using Overusing that word because you'd be, you know, shorting SEDA and paying that dividend every single day. And, and, and, and that's a little bit bigger of a penalty than just, you know, try to jump in and out every two weeks. Shorting stretch.
- [34:07]
Dan Hillary
Yeah, it depends on how they're trading at the time. Right. As to which direction you think that that base price can move in that security as to, you know, whether it's going to move against you or not. And I think early on, and what probably built up a lot of the short interest that we saw was, you know, if you looked at the balance sheets, obviously strategy is a significantly larger balance sheet than STRIVE is. And so I think when people looked at the similar products, the baseline assumption that they were making was that that one would revert back towards par quicker because of that balance sheet strength and the amount of capital flows that we'd seen going into that product. And then when you got the leverage unwind and it went exactly the other way, I think you double down on it. But to Dan's point, it takes far less capital coming into a product like SATA than it does into Stretch to move it. And for people who are coming in and holding it because they want the dividend payments, you know, it's not really worth it for them to disrupt the tax treatment. Particularly if you're in a non qualified account holding that instrument. It's not worth trading in and out of if you're getting paid every single day. It's not worth disrupting the tax benefit of it. So I think it's a sticky product to hold on to. But you know, institutions will trade differently because they don't have the same tax implications that a retail investor will have. People that are trading in retirement accounts will have different thoughts on it because you also don't have the same tax treatment that someone trading it in a non qualified is. So incentives sit with the investor. Right. It just depends on what the thesis is that the investor wants to express in that trade as to, you know, how they, how they apply it. So these markets are, are getting interesting and we've certainly seen a lot of institutional demand and interest in the products and learning about the products. You know, we saw that when we were in New York and that's always an interesting time because we were in New York when things were pretty bad.
- [35:55]
Jeff
Right.
- [35:56]
Dan Hillary
So you get, you get real honest feedback from investors when you're there, when, when things have not been going well in the market and you know, they, they get to ask their questions and you get to hear what their real concerns are as it pertains to these types of products and how they're looking at the balance sheet construction and what metrics they actually care about when they're assessing credit quality. And it gives you a different perspective on, on what the views are out there versus what you read online.
- [36:23]
Soleil
Yeah, there's a lot of volatility in the number of thank yous in my DMS lately.
- [36:29]
Dan Hillary
Yeah. Yeah. If you could create a chart with that, I would imagine it drops off a cliff and spikes, you know, related to.
- [36:36]
Soleil
The only one that I got over the last, like, year that was memorable was I talked somebody out of using margin and then the prices just kept going down. They were like, holy crap, I'm glad I didn't get into margin, you know, thinking that we're buying the dip. But the market can always just dip more.
- [36:53]
Dan Hillary
Well, that's the thing, right. Is, you know, you're. You're betting on a bottom where you think it is, and, you know, most of the time emotions start to play. And what you quickly see, you know, as you get deeper into these drawdowns and you know, we've been in a pretty steady drawdown here over the last nine months, is when the prices bottom out like you saw, and they kind of stabilize at the lower. You start to see the anticipation of a bull move in the market. Right. So as soon as anything good shows up, people start piling in like, oh, that was it. Right. The bottom set, it's reversing. I don't want to miss it when it reverses. And you could see it in the percentage spikes in a lot of the equities in the space. As soon as bitcoin would move up 1%, the whole sector on average is up 7%. Right. Like, you're seeing that capital looking for a bottom, it wants to get back in. It wants to go risk on again. But we've had so many of those fake outs that I think that it's hard to get the follow through. And during the summer here where you get really low volumes and you see that across all the equities, summer is always a notoriously low liquidity period for the equities markets. So you pair low liquidity with lackluster bitcoin price, it just kind of grinds here in a range. It shows signs of life. It comes back down. We're back up around 66,000 right now. You know, until you see a decisive move, I think it's going to be difficult for the larger capital to Position risk on. But it does seem like things like clarity are starting to get some momentum, you know, which is pretty good to see because those are, that's just one of the many different catalysts that are out there that I think can start to shift the mindset towards a more risk on approach here
- [38:36]
Jeff
100%. And now Ben, I know you got to go, so I'm going to be cognizant of that. But there's a, on this topic, I think there's an opportunity for somebody to run some analysis here. Anybody that's listening. And it's looking at the change in short interest over time both for STRC and SATA. I think one thing that's fascinating here, you look back to the February drawdown. You see the short interest went from about 1.7 million to 3.9 million shares in February and then it trickled down and now back up to 3.6 million shares as of 6:30. We should get updated data at end of the day Friday. So it's interesting watching the volatility here, but the where I think there's an opportunity for a lot of analysis because this has evolved pretty drastically since the very first time we talked about it is the options market and how this options, how the options market on the digital credit instruments has changed over time and looking at that relative to
- [39:42]
Soleil
the
- [39:42]
Jeff
price of the underlying security. So whether that be put call spreads or open interest on different strikes at different points in time and trying to glean any information there because this is a novel concept. I mean anybody that's buying puts or yeah, anybody that's buying puts here in on any of these strikes is effectively purchasing insurance. So they're purchasing downside insurance. One thing that's been interesting is the $55 strike is there's a lot of volume at the $55 strike and there's volume, there's open interest all the way down to a $40 strike. So something's happening there where people are buying insurance or somebody selling it if there's a buyer. Obviously the, the prices are very low for these, these particular contracts and probably pretty illiquid. But the SATA and stretch, this is
- [40:37]
Soleil
stretch really there's action down at 55.
- [40:41]
Jeff
There's action well there that's, this is open interest. So it looks like the Last price was $0.15. I mean some if somebody, somebody sold, you know, 1,400 contracts at 55. That's, that's interesting and I mean it's not the notional amount here is relatively small compared to daily trading. Volume, things like that. But that still impacts and influences kind of how this market works. But like looking at where the volume happened today, most of it's kind of, you know, at the money, near the money, same on the call side. But that is changing over time. And September looks significantly different. People are selling puts at. There's more open interest on puts at 90 and 95 than August 21st. It's almost like we've got to get through August 21st, put this behind us and then that changes. At least the options market is indicating that it's a bit more lopsided in the other direction. So I think there's opportunity for analysis to compare how the, how the options market has evolved, how it's changing, how it's moving over time. How does that look relative to SATA and short interest? How are these trading together or separate? Yeah, I think the first time we looked at this, when SATA options opened, we had like one contract trade in the first two weeks and now there's, you know, a couple, a couple hundred contracts that are open across the different strikes. But even the September 18, 2026, we only have three contracts open interest. So very illiquid there. Interesting.
- [42:31]
Soleil
Yeah. I was wondering who, like, who is even making these trades? Because if it sticks to par, like where's the volume? But then I think I had mentioned to you, you know, Saylor talks about bitcoin's CAGR being 30 and he calls a lot of times he'll reference, you know, them being 30 Vol and then strategies like 60 Vol. And so if you're paying 13% on a pref, should you expect 13 volume over long periods of time or, you know, I know it's supposed to trade in that range, but you know, should investors be willing to, you know, occasionally expect these dips, you know, five, ten, maybe as much as 15 bucks like we saw recently?
- [43:20]
Jeff
Yeah, I mean all of this is data, right? Like this. Every, every time there's, you know, price drops and how far it drops, like how does it trade all of this data? This is all. And you, you can analyze all of this stuff. This will all impact the future trading environment of, of the future. How people analyze it, how people see risk, how see people see the options market, all of those things. So it all comes into play. Yeah, Tough to say. Dan, what do you, what are you thinking about? We've got, are you, are you focused on any of the other prefs? What's, what's on your mind? Sure.
- [44:02]
Ben Workman
The only anecdote I really have is I was In New York, meeting with Stonex and Mark Palmer and a bunch of other kind of institutional investors last weekend. And it was really Good talk. Dylan LeClaire was there, we had a private lunch and for the most part a lot of the institutional guys are stuck all in the bag on scre, which should have traded up more than it did based on its credit rating. Sgre. Yeah.
- [44:28]
Jeff
Okay.
- [44:31]
Ben Workman
Obviously the prospectus is structured like Strife. It's rated at 10% annual dividend based on PAR denominated in euros. But the risk free rate over there in Europe is a lot lower than in the United states. It's about 200 basis points lower. So the thinking was you buy this thing at the IPO and you ride it up to PAR value, much like Strife or even beyond that because of the difference in risk free rate. However, it's on this Luxembourg exchange, which is largely a fixed income exchange and it's having problems trading and it's not really recovering to par. A lot of the old veterans of the fixed income industry have told me they're like, look, this is something everyone has to learn. There's no money in European fixed income markets. And there was some talk about seeing if it could be traded up or, excuse me, uplisted from the Luxembourg exchange. But unfortunately, for one reason or another, it's unable to be uplifted. So I think a lot of people are kind of salty holding the bag on stre. It was an experiment that unfortunately was not successful. But I think moving forward it helped inform the kind of attention and focus on strc. And then this idea that STRC will then branch out into their, into different currencies and jurisdictions based on layer two products or ETFs. And I think with Stretch volatility, what we've seen over the past few months and which we'll continue to see is this idea that you can just limit the price by selling equity at 100 and then expect the price not to dip during leverage sell offs is a fallacy. And moving forward that will continue to be a fallacy. So I expect Stretch to trade much more volatile than it didn't, you know, period of time over the past six months. So I think expecting 90 to 100 is applicable. But there's going to be products, I hate saying products, more so funds and defi products which are largely a scam, but mostly funds that are built on top of it to reduce some of that volatility, to take first loss, second loss capital and allocate it accordingly. So I think you're going to have options to create a zero volume instrument that are lower yielding and outsource the risk to someone looking for the higher return. But again, moving forward, I do think the US markets are the focus and I think stretch is not in its final form simply because this problem of selling equity at 100 will not go away.
- [46:58]
Jeff
Yeah. As an instrument becomes less volatile, there's more leverage. So which creates, which creates more volatility because there's more incentive to wipe out that leverage in any one direction. So, yeah, having. It'll be interesting to see how this plays out because. So some of the things that I'm thinking about. That's great feedback, Dan. Very interesting on stream. I was unaware of that. I think that this leverage is going to continue to exist regardless of whether or not it's volatile because people still find the asset, the underlying asset, attractive. You could see that in short interest. You could see that in the options market. You could see that on people talking about using margin on the instrument, especially when the price is away from the par value. Now, again, this is something I've talked about a while thinking about. How can you get to a more sustainable form with less volatility is bringing in structural leverage where you've got a duration that is matched and tied to the underlying asset. So effectively, like a perpetual duration. This is getting into the idea of the structured product. Right. You've got a senior instrument investment grade and you've got a junior instrument that's structurally leveraged and not necessarily creating liquidity on the market at any one point in time because it's structurally long with the duration. So I think there's opportunity to grow into that space and ultimately have a consent, consistent buyer. Right. Like that's the, the big goal I think in, in the digital credit realm here is how do you develop a consistent buyer that's there all the time, which should help theoretically reduce the volatility as well. So, yeah, cool. Good feedback. All right. One, one last thing before we start chatting about Bitcoin code. Here is just this concept. I want to come back to this concept here for a moment because I threw in estimated net income, just a spectrum of different bitcoin prices. And if strategy didn't purchase any additional Bitcoin, what would be the estimated net income for the year? These are totally rough numbers. There's no act. There's very little accuracy in this at all. But this is a function of FASB fair value accounting. The price of Bitcoin started the year around $87,000. This assumes there's no additional Bitcoin purchased and no additional bitcoins sold. And this is assuming a 20% corporate tax rate that would come through in a deferred tax asset if it's negative and loss on the, on the opposite direction. So just a couple of things here. I mean strategy's got $58 billion balance sheet that's, that's bigger than MasterCard here. It's getting close to AMD. They're, they're starting to punch into some of the larger companies, larger publicly traded companies. You look at net assets on the balance sheet which is 52ish billion, where's that at? Right here, 52 billion. That's larger than Eli Lilly, that's larger than SpaceX, that's larger than AM, that's just nearly as large as AMD and certainly larger than MasterCard. And these are some of the top 20 publicly traded equities. If the price of Bitcoin goes to a hundred thousand dollars, the balance sheet itself goes to $80 billion and the net asset net assets goes to something probably like $75 billion. And then at that point you're still, you're now nearly as large as Tesla, nearly as large as Broadcom, and you start punching into some of the larger publicly traded companies here. So and then on a relative basis thinking about earnings per share for the common a net income. If, if bitcoin in the year, ends the year at $90,000, the net income for the year the estimate would be around $2 billion earnings per share around $5.6, which would imply a 17.9 PE ratio at the moment on a forward looking basis. Now if you're, if you were a bitcoin bull and you think the price of Bitcoin is going higher to a hundred thousand dollars or $110,000, let's just say 100 or 120, go back to near all time high strategy would post a 22.2 billion dollar net income again assuming no other activity, which would be a $61 earnings per share. How does that compare? The market average here, Aside from Berkshire Hathaway which has very little shares outstanding, this would be the largest earnings per share across any company. The implied PE ratio as of today at 1.62 would be significantly different than all of these other companies as well. The average PE ratio of this entire list is around 37. So yeah, I think it's interesting to think about that concept again. As the market cap of these companies rise, the relative proportion of market cap weighted index funds increases and that, that results in additional capital that gets allocated to those particular assets. I think that's one of the reasons some of the largest publicly traded companies, once they get up to the top, they stay at the top because this continuous flow of capital that's coming in the door, Everybody with their 401ks, pension funds that are consistently buying S&P 500 index or QQQ index, that is a function of passive flows that are continuously coming into these particular assets. Cool.
- [52:52]
Ben Workman
Yeah.
- [52:53]
Soleil
I think it's interesting to speculate because everybody wants to know what strategy is going to do and everybody thinks, you know, a lot of people have speculated Bitcoin bank, which JP Morgan is the obvious comparison in that list. But if you can do all of these other things, if you can just be Berkshire or you can be Exxon, you can literally just do, do whatever your, your mind can come up with with your balance sheet. So they're not just pigeonholed into the Bitcoin bank that everybody thinks that is a, is a no brainer lock, locked in.
- [53:26]
Jeff
Yeah. And they're so different. Like if you're just comparing balance sheet companies, like what is Berkshire Hathaway? Berkshire Hathaway is like an ETF. They've got $300 billion of cash, right? Well that's a third of the valuation is just something that doesn't move and it's actually bleeding losing money. They got $300 billion of cash, they've got big. I think they sold out of their Apple positions, but they've got like railroads, insurance companies, See's Candies. It's like an ETF that's, that's effectively publicly traded. So it's in my opinion not very sexy. It's one of those, it's going to be around forever because they're just tied into like infrastructure. So what like would I do? I think like Berkshire is going to be the top publicly traded equity on the planet. No, probably not. But they're going to be around and they're going to do well. I think they're, you know, going to be there because they have a strong balance sheet. And JP Morgan again, they're 92% leveraged. Do I think that's a sexy balance sheet to offer deposits and issue credit cards? Not necessarily. Do I think their balance sheet is going to explode relative to their liabilities? Probably not. Do I think they're going to be the largest publicly traded company? Probably not. And then I look at a company like MSTR and the balance sheet is sexy, Right. It's very volatile. I think it could perform incredibly well. The Balance sheet could become significantly larger. And that's an interesting comparison when you're looking at all publicly traded equities and you have to think about them all next to each other. How do you value MSTR relative to bank of America or O'Reilly Auto Parts is who they're trading by now or like Sherwin Williams paint. Right. Like which one's better? So yeah, anyway, I drove past Sherwin
- [55:22]
Soleil
Williams the other day and I had no interest.
- [55:24]
Jeff
Big pain. I think they've got like a hundred billion dollar market cap. I, I look forward to the days that strategy is back and punching around. You know, corporate trash and big paint. So throwback there. All right, we're near an hour here. Let's jump into this Bitpoint 10 conversation. Soleil, I know you feel very strong about this and I appreciate your rationality and your ability to have a level headed conversation because X has been absolutely ridiculous over the last month or so and I think it's just going to get louder for the next couple of weeks. So one thing I'm interested in is what's the path of what's going to happen in the next couple of weeks. Just thinking about how does this proceed because blocks are continuously getting mined. I did see that. I think ocean mined a couple of blocks today that was like bip110 blocks. But in terms of signaling, I think signaling is very small. There's you now these like consensus websites that are coming out. Yeah. So just give us a little.
- [56:38]
Soleil
Yeah. I'll hit you up with what's definitely going to happen and then what the possibilities are on certain binary events and then you know, I can speculate a little bit about what I think is, is going to happen. But in the first week of August at, at a certain block height, the bip 110 block.
- [57:02]
Jeff
961632.
- [57:04]
Soleil
Thank you. There will be, that's what's called a signaling period, mandatory signaling. And the miners have the option to. It's called flipping the bit. And they're just basically signaling we are ready for BIP110. We are ready to start selecting transactions that will not violate the restrictions that BIP110 is setting out. If they flip that bit, then none of the BIP110 nodes will reject their blocks. And it doesn't even matter if those blocks are compliant with spam or not. It's simply just checking did you flip the bid or not? If you're signaling that you are ready for BIP 110 BIP 110 nodes will be like, okay, fine, we're not going to reject your blocks. That's going to last for a couple of weeks. And then we enter. I'm sorry. And I should say that if over 55% of the hash power flips and it's currently only at about 1% right now. Right. So it would have a long way to get there.
- [58:17]
Jeff
Of the hash power, not nodes of the hash power.
- [58:20]
Soleil
Yeah, there's probably 15,000 bip 110 nodes right now out of, and I can't remember how many total there are, but I think that's about 15% of the total network. There are disputes, there are ways to fake the number of nodes, but it's going to be pretty close to about 15% of the nodes are bip 110. I can't remember if that does or doesn't include knots only. But yeah. So if the hash power side of the equation gets over 55% of the hash power, and since basically 6, 6 large mining pools control about 90 to 95% of the hash power, it only really takes about 3 maybe to get to that level. If that happens, then it activates with a minor activated soft fork and so it would actually activate early and in that case that would be a very clean, smooth transition. And BIP110 basically succeeds. If during that minor period any miners don't flip the bit, then every single block gets rejected by BIP1. Ten nodes, the core nodes. It treats it fine. Right. And then there starts to be a little bit of a divergence in the two different chains that each nodes are basically tracking. And then when mandatory signaling kicks in, it doesn't really matter if you're signaling anymore at that point it's just, are you compliant with the, the limits on, on the filters and the spam? If those blocks are compliant, then BIP110 nodes would, you know, basically validate them and if not, they would get rejected. So there is that early, you know, that two week window where the miners could activate it early. And then if they don't, there's still kind of like, okay, here's mand. The real drop dead date is the mandatory activation which would be a user activated soft fork. And at that point the miners would either flip and start mining compliant transactions or not. And if they start mining compliant transactions, then BIP110 becomes the dominant chain. And if not, then it would fizzle out and core would remain the dominant chain. So those are the things that are definitely going to happen and those are the, well, those are the two main most likely possibilities. There could be a contentious split, which should be pretty rare, and I'm not too worried about it, but everybody should keep an eye on it. If we got like very close to a 50, 50 split between the hash power, then it would be, it would be tough for any one chain to kind of like outpace the other one. And that's one of the main fears or I guess complaints that some people who are not even technically against bip110 but are just afraid of a chain split, that some of them will just refuse to run BIP110 for that because they're afraid of something like that happening.
- [61:46]
Jeff
Yeah, you might be running and holding two versions of bitcoin alongside of each other for a period of time and there might be volatility and what that looks like or you know, that that's a big concern.
- [61:58]
Soleil
Yeah. And if you're, if you're just holding in cold storage, you're fine and you can literally just do, you know, just do nothing and, and wait for the, wait for the winner to cross the finish line. But, you know, yeah, it is going to be a little bit of a scary time for I guess exchanges shipping should have some experience with this. They should be prepared to handle people buying and selling, you know, during this period. But it is a good reminder that we should be at least routinely moving our bitcoin from the exchanges to cold storage and because then you don't have
- [62:35]
Jeff
any, then you don't have any issues.
- [62:37]
Soleil
Yeah, you don't really have anything to worry about at that point. Yep.
- [62:41]
Jeff
And I asked you this question the other day and I think it's a fun question because I see the world in probabilities. In your opinion, what do you think the probability of a BIP110 activation is and why?
- [62:57]
Soleil
Yeah, you put me on the spot with that question the other day and I just threw out a number. I was like, ah, 80%. Right.
- [63:03]
Jeff
Makes you think about it.
- [63:04]
Soleil
Yeah. But that's me being, you know, just confident that it would. And then of course, you know, there were others on the call that was like, not zero percent chance it's dead. It's dead on arrival.
- [63:13]
Jeff
Right.
- [63:15]
Soleil
And so because you made me think of that, I was like, well, let me just remove incentives out completely. Right. Let's just say that this was a probabilistic experiment and I mentioned that there are six large mining pools that control the hash power and you can either flip the bit or not. Right. So that's a heads or tails probability. Calculation. And the way that you figure out whether at least one would flip heads is you take two to the sixth power, which should be 64, and then you subtract all of the. The number of combinations where you would get all tails, which would be basically just one. There's only one combination where you can flip all tails. So just from a strict probability standpoint, there's a 63 out of 64 chance that at least one of the miners flips the bit. And then you'd be left with a five. You know, you know, you would run that same experience with five and it would be 31 out of 32 chance that at least one of the five flips the bit. And then once you're down to four, it would be six. 15 out of 16, which is probably, what, 85%, that the third one flips the bit. And at that point you've already probably gotten to 55%. So I'm changing my answer to about a 96% chance because.
- [64:42]
Jeff
Are you summing those probabilities or like, I'm.
- [64:44]
Soleil
No, no, no. Well, my, my, my. I'm introducing a little bit of game theory in there in that as soon as one large miner flips the bit, it's a domino effect and they all just panic. Because the one thing that you don't want to do is be left holding the bag when the rest of the network has flipped and you're mining on the shorter chain and all of your block rewards are getting orphaned and you're spending hundreds of thousand dollars and getting no Rewards. So there's 100%. Here's one thing that I will say. There's 100% chance that every single mining company is prepared to flip the bit, meaning they have done the work and at a moment's notice, they can press the button and flip. There's. That would be the most irresponsible thing that you could do was just say, no, we're not even going to prepare for that eventuality because if it did, your shareholders are going to be smoking mad if you're not prepared.
- [65:42]
Jeff
Yeah, I just, I just don't see the probability of why you would flip at the very, at the very end.
- [65:49]
Soleil
Like, well, and so they. There is a little bit of hesitancy in that. You kind of want to be the one that follows suit and says, oh, well, you know, we had to follow their lead, right. So everybody's kind of looking. It's like a staring contest, like, oh, who's gonna, who's gonna be the first one to go first and kind of have to deal with. I mean, you've seen the fallout on X. Like, whoever goes first has to deal with the headache of being the ones that went first. Right. And so there is a little bit of a disincentive for wanting to, like, take that first arrow. But I would say that the game theory does lean towards it because you have to do the work to prepare for it in case it does happen to you. Right. And at that point, you've done the work, why not just do it? There's a. There's a thought experiment. I don't know if you've seen the one where you can press the red button or the blue button. Have you seen that one?
- [66:46]
Jeff
Yeah, yeah, yeah, yeah.
- [66:47]
Soleil
So if you. If you press the red button, you save yourself. You. You cannot be killed, right? Yeah, yeah. If you press the blue button and greater than 50% of everyone who presses, presses blue, then everyone is safe. But if you don't get over 50%, everybody who pressed red lives and everybody who pressed blue dies.
- [67:09]
Jeff
Right? Yeah.
- [67:10]
Soleil
And so a lot of people have compared that theory to the mining companies, because all the mining companies have to do is flip the bit for BIP110 and they've pressed the red button. They cannot be destroyed.
- [67:23]
Jeff
Why is that?
- [67:25]
Soleil
Because it's a soft fork. So all of the BIP110 blocks are valid on the legacy chain. But if you don't flip the bit and the, the. The network does flip on you, now you're mining blocks that are not valid on the soft fork chain.
- [67:41]
Jeff
Yeah, but I guess like, any, Any mining company, blue. Yeah, but they could, they could change that at a moment's notice.
- [67:48]
Soleil
Yeah, they could, sure. But. And that's what I'm saying is, like, they have to be prepared to change in a moment's notice. Right? So you're already, you know, there are. There's 100 chance every single one of these companies could signal right now because they've done the work. There's no way that they're not prepared to do this. So you're having to trust that companies that don't really like each other, like Bitcoin, treasury companies can hold hands and go to the same conferences, but mining companies are fighting for the same blockchain.
- [68:16]
Jeff
They're all fighting. Yeah.
- [68:17]
Soleil
It's a completely different game. So Foundry would love nothing more than to screw Antpool out of those block rewards. They'll be happy to take those block rewards if one of them flips and, and one of them gets.
- [68:30]
Jeff
Then you've Got a period of time where you're like the major pool potentially mining, Mining those blocks.
- [68:38]
Soleil
Yeah, you're, you're, you're mining the difficulty because like 20 of the network is still mining on the other network.
- [68:45]
Jeff
But I think the probabilistic theory there breaks down because you're, you're assuming that again, you would have to make some probabilistic assumption that the other mining companies aren't prepared to do that. So what's your expected gain, really? Well, you'd have to. What's your expected gain from doing that?
- [69:06]
Soleil
Well, it goes to the red button, blue button. It's not you're expecting to gain something. It's what action can I take to make sure that I survive? What action can I take?
- [69:16]
Jeff
But you can survive in both of them.
- [69:20]
Soleil
Yeah, but only if your adversaries also choose to save you can you really.
- [69:25]
Jeff
But I guess on your. You can.
- [69:26]
Soleil
Your enemies to save your, to save your life.
- [69:29]
Jeff
I agree with that, like, theoretical concept. Yes. But like the, the, they can, like, it's not like they actually, they don't die. Right. Like they can flip to the other one at a future point in time.
- [69:45]
Dan Hillary
Sure.
- [69:46]
Soleil
But if they've already lost a quarter million dollars worth of block rewards, their shareholders are not going to be happy.
- [69:53]
Jeff
You know what I mean? What's the probability they lose a quarter million dollars of block rewards?
- [69:58]
Soleil
Well, as soon as it flips and you're mining on the shorter chain, your bitcoin is not, the blocks are getting orphaned. So if you're not on the dominant chain and you're not mining blocks that are compatible and they're not going to be spendable.
- [70:17]
Jeff
Yeah, I hear you. I think the game theory breaks down a little bit right there with the theoretical flipping. I'm going to take the opposite side of your probabilistic theory. I'm going to take the 5% side because I think the probabilities are flipped the other way. But I mean, we'll see. Find out.
- [70:39]
Soleil
Yeah, it's definitely going to be an interesting time. And if you've been looking at X at all, everyone is supremely confident in what's going to happen. So there's going to be a lot of confidently wrong people very soon. I'm hoping it's not me, but, you know, the network can do whatever the hell it wants to do. It doesn't really necessarily care what I want.
- [71:04]
Jeff
That's the cool thing about bitcoin.
- [71:06]
Soleil
Yeah. Yeah. And there was a really good, there was a really good podcast I saw. Seemed like he was an OG because he was talking about Bitcoin from, like, 2012 or whatever, and I think he called it the machine in the basement. And a lot of people are afraid of forks. They're afraid of coin splits. And there's a lot of bad blood and PTSD from the block size wars around the big blockers and the small blockers and the B cachers and the BSVRs all forking off or whatever. But he said that he felt like forks were bitcoin's superpower. It was like, this is how we resolve things that we just can't resolve. If you and I have a disagreement, we can agree to disagree. And really, we've accomplished nothing. We both wasted our breath and nobody's minds were changed. But if you just want to put your note on the table and be like, hey, this is what I believe in, the network either agrees or disagrees with you, and bitcoin chooses the direction that it's going to go. So he actually was kind of a fan of softworks in general, and he kind of felt like it was part of bitcoin's DNA. So a lot of people, a lot of new bitcoiners probably cutting their teeth in the space right now. This is probably the first one that they've ever been through. And I remember when I went through block size wars, I didn't care, really. I was like. I was kind of thought it was cool that bcash forked off and I got free coins. You know what I mean? I was just like, I was just happy that my. I think I had a camera. If I had a ledger at that time, I was like, as long as my ledger is supporting that, that new coin, I'm like, I'm cool with getting free coins, but, you know, it's. That's ticking a little bit too lightly. Like, it is a serious thing and it shouldn't just be dismissed. It's not a. It's not trivial. So it is serious business. And we're going to find out real soon.
- [73:08]
Jeff
Yeah, I think within a couple weeks. Two weeks.
- [73:11]
Soleil
Yeah. And I'm. I'm excited because then, you know, I don't have to worry about my stupid portfolio. Because what you mentioned earlier is, you know, I sold a bunch of my treasury company stocks because they had come out basically against BIP110 or not in support of BIP110 or whatever. And so basically the decision that I had to make is I am trying to get BIP110 successful. Right. But am I going to be Donating my economic power to a company whose custodians are probably not running it. So that was like, that was an inconsistency that I had to deal with. I'm like your principal. Yeah. I'm fighting myself here. Right. So I was like, I appreciate that. Okay. So I, I had no choice really, but to. To. To. To really do that. So I'm kind of dying for this to be over so I can yolo back into my. Yeah. For my leveraged bitcoin treasury company plays and you know, sitting out on the sideline. Settle sidelines for a month while I wait for the wash sale rule to. To tick off is fine. I mean, it is costing me a shitload. I booked a quarter million dollar capital loss on my strategy shares that I sold at. I think my cost basis was like 3, 350 and sold at like, I don't know, sub 1 hundreds and you know, my covered call premiums. I'm probably losing three to five grand a week to do this. So this, if anybody is unhappy about the state of affairs, I promise you, you're probably not as unhappy as I am and cannot wait for this shit to be over with.
- [74:56]
Jeff
Right. Right. Well, thanks for the perspective. We were significantly over an hour here. Appreciate the time, everybody. We. We will pay attention to everything else going on next week. I think we'll be a little bit heavier on AI. We're going to bring Adrian on. Talk a little bit what's going on in AI because the capex spend is changing. AI is breaking down AI and that's evolving pretty quickly. All right, that's it for episode 74. We'll catch you next week. See you.
- [75:25]
Soleil
See you.