← True North Podcast
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- [00:22]
A
Ladies and gentlemen, what you are about to hear may be amazing, but it is not financial advice. It is for informational and educational purposes only. Nothing in this discussion should be considered investment advice or the offering of any security or other investment product. Please consult your own investment and tax advisors. And now I'll hand it over to the True north team for your regularly scheduled programming.
- [00:49]
B
Woo.
- [00:50]
C
Welcome back. True North Episode 60 welcome to the Investment Grade Bitcoin podcast. We're here, we've got a lot for you. So much has happened in the last, I don't know, five or six days in the entire world. It seems like there's chaos kind of going everywhere. For those that of you that are new here, we talk about bitcoin, we talk about bitcoin backed securities, we talk about financialization of bitcoin instruments, we talk about different ways to think about these things, we talk about risk profiles, we talk about options market and we try to cover everything that's hot this week. So appreciate the time. We've got Adrian today, Soleil and Dan and myself, I'm the host and let's get after it. And we've already got the Tim intro and let's jump right into it. So the last couple of weeks I've been passing it around to folks and see what they're interested in or you know, what's hot, what's the hot topic of the week. But I wrote a few down and I want to walk through these first to get a lay of the land and kind of kick off the conversation here. So at the market, what's happening in the market? So over the last five days, here's a list of the things that have happened over the weekend. Trump gives Iran an ultimatum. You've got 48 hours to respond and work on a peace deal or, or else we're going to keep bombing you. Okay, that happened on Saturday. You've got Elon Musk comes out with Terrafab. He's like, we're going to start building our own AI chips. Iran comes back to Trump, says we're actually going to target US Bases. Private credit continuing to pull, pull the door on people trying to exit the trade. They're capping withdrawals on private credit. This is happening across several different funds. Gold and silver on Sunday dropped like 10%. On Sunday night ended up ripping back 3 or 4 or 5% higher. But significant declines in the price of gold and silver. These commodities have dropped like $10 trillion in the last five days. We're now seeing potential digital price tags at Walmart So if you want to go get different goods and services like an apple or bananas or something, they might have the ability to change the price digitally and it might just change on you every day. So this concept of inflation is starting to become more of a concern. The market is starting to price in tax or not tax increase, rate increases instead of rate decreases, multiple rate decreases six months ago. Then Trump comes out, says there's a 15 point plan to end the war and we're potentially going to get a ceasefire. Then all of a sudden they changed the enlistment age from 34 to 42. The price of oil continues to rip higher. And then right before Trump talks or sends a tweet about ceasefire, there's billions of dollars that go in on options trades on the oil market right before that happened. Crazy deal. Some ships start getting let through the Strait of Hormuz, but there's a $2 million toll on any ship that comes through. And then we've got Morgan Stanley files a Bitcoin ETF, strategy changes or launches another 4242 plan, or I guess a $42 billion plan. 21 billion ATM on MSTR, 21 billion on STRC and a revision on STRK. That's kind of what's happened there. But my gosh, this timeline is insane. I've never seen anything like it. And I just want to start with the lay of the land there. What are you guys thinking about? What's on your mind? Adrian, haven't seen you a while. Welcome back.
- [04:30]
B
Well, yeah, been crazy busy. Everything you laid out just kind of shows how nuts things have been this year so far. We've got the situation with Iran, the straight oil prices, gold, silver, the broader market I like. There's just every single day there's one thing after another, so it's really, really hard to keep up to up with it. And also it's really weird knowing that just because you see something doesn't necessarily mean it's actually accurate. People are just out there tweeting stuff, they're just putting out information. You don't know what's what. It's really crazy out there how this year has kind of kicked off and we're only in March. So what, what, what's things going to be like by the summer when, when things really have a chance to settle and, and the market gets to make sense of it? I just, it's been wild, especially with what's going on with Iran. We're not going to get political here. I'm just saying it's just been Kind of crazy to see what's going on.
- [05:29]
C
Well, I think one of the craziest parts about the whole thing is that the communication is happening on Twitter. It's like you're in the war room. You are seeing the communication go from country to country. And then you see Trump says he's talking to somebody about peace deals. And then I guess the Iran military says, no, they're not. And, you know, it's like, what's real, what's fake, what's AI, who's in control, what. What is happening right now? And it's just. There's chaos everywhere. It's a. It's a bit hard to decipher with to that point.
- [06:00]
B
The fact that the Iranian military's Twitter page or like actual state pages that are run by the government are trolling our president. It's. It's. I never thought in my entire life that I would see two military, two states, two state forces trolling each other and tweeting back and forth at each other on Twitter.
- [06:21]
C
Yeah. Crazy timeline. Just an insane timeline. Maybe I pass it over to you, Soleil. I mean, how are you feeling right now? What's. What's cooking? What's on your mind?
- [06:32]
D
Well, we're going to get into a ground invasion in Iran. Kicks off a draft and second American civil war. But I got bitcoin and cold storage, so I sleep good every night. And I haven't missed a sunrise in March, So there you go. We can only do what we could do.
- [06:49]
C
We can only do what we could do. Yeah. Oh, my gosh. Hopefully there's no draft. I mean, fingers crossed.
- [06:56]
D
That would be.
- [06:57]
C
This is going to be crazy. I mean, with drones and everything. Yeah. Weird times. Weird times. Over to you, Dan. What's. What's on your mind? Tokenization. You're cooking. What's going on with Buck? What are you thinking about? You're on mute. Can't hear him. We'll come back to it. We'll work on it. Oh, I can hear you now. We're good.
- [07:28]
B
It.
- [08:11]
C
Oh, you hear that, Dan? Oh, really, Dan, you got to jump off and come back on. Sorry. Troubleshooting the new platform. Join on Chrome, Dan. Okay, we will.
- [08:25]
A
We will move along.
- [08:28]
C
So while we wait for Dan to jump back on, let's jump into the update on MSTR. Right, this week we've got a new updated 42 billion dollar plan. 21 billion dollar MSTR ATM. 2021 billion dollar STRC ATM. And then they downsize the SDRK ATM, I think from 21 billion down. To 2.1 billion. I think this is really not a huge surprise that they came out with this updated plan. The biggest signal, in my opinion, was the focus on the SDRC ATM, making that a $21 billion ATM and just downsizing the size of the SDRK one. It's really signaling this is the focus here. We are focused on building sdrc. I'm sure there's a lot of confidence in all the other products, but they're just. They're not mature yet. And they will mature over time as the interest in STRC as just a general instrument and these digital credit instruments starts to grow. And now I think we maybe have Dan back. Is he back?
- [09:30]
A
Yeah, I think I'm back, guys.
- [09:31]
C
Okay, we're back. Hit it. Dan, what's. What's on your mind?
- [09:36]
A
Yeah, sorry about the mishap, everybody. That's my fault. Adrian's point is very, very relevant. To think financial markets haven't changed since the 1980s, considering that we're seeing, you know, militaries interact with each other via Twitter would be a completely wrong assumption.
- [09:53]
C
Right?
- [09:53]
A
We're seeing information speed up, seeing the diffusion of information in record time. Not to mention that Mark Andreessen and Jordy Visser are outposting, saying the new consumer era is beginning with agents as the consumer economy. If in fact robots and agents become a dominant part of the entire consumption economy over the next 10, 20, 30 years, the speed of transactions, the way financial markets trade, the edge in the short term versus the edge in the long term is all going to be massively different. So I think largely in the short term, interest rate environment is actually. It matters for the way Trump is handling the war. I don't think it matters as a nitty gritty macro trade point. And more importantly, I think it's very hard to trade markets like you have in the past, macro equities, et cetera, et cetera. So I'm focusing really everything onto strc. There's a guy on Twitter named Flood. Pretty much everyone now knows, all the bitcoin guys, that STRC is the most important product in all of the bitcoin market. And I think people are starting to become aware that this is going to be a perpetual bitcoin buyback bid that's starting to occur. So watching how SDRC trades, watching, watching how it's built brought into. Into products, watching who's on the bid, where are the sales happen, how far does it depeg, how is the interest rate adjusted? I think it's the only thing really, to look at right now in the entire bitcoin landscape. So that's where I'm focusing all my energy.
- [11:18]
C
We've got one of those too. Love SATA.
- [11:22]
A
I know, I know.
- [11:23]
C
So, but this is a, this is an important topic and this is kind of exactly what we were on when talking about the change in the size of the ATMs, right? The STRC ATM is now significantly larger. And we had an update come out today is that we've options are now available on seda. And I think this is a topic worth exploring. And Dan, you hit on this. This is, I think just incredibly important to kind of like think through here. Who's on the bid, who's on the ask as well, right? Who's trading both sides of this instrument? So this is something I watched like throughout the day. I'm watching. How are these instruments trading? How are they trading relative to each other? I'm looking at different relativities throughout the day. Not just between, you know, SATA and strc, but SATA and strife, SATA and stride, SATA and strike. How do those all interact together? How do these look relative to hyg, how these look relative to tlt? How do these look relative to, you know, like real estate bonds? And watching the interplay between the two. And I think this is, and we talked a little bit about this last week, I think this is the most interesting and compelling ARB surface I have literally ever seen. And I think it's going to explode into the future. And the reason being is you think about the equity market, right? Like Citadel, Jane street, all the people that are doing high frequency trading, just getting fractions of a penny on the dollar in the equity market, they take significant risk, like downside tail risk in the equity market because you're trading for pennies, but you can have that one shock that could just blow up your trade. So that's interesting. The equity market has been developed and it's very fast, it's very liquid. And historically the credit market has been very illiquid. Now that's changed over time with the development of these ETFs like HYG and these other bond funds that have been able to provide like a liquidity layer over, over these like typically illiquid instruments. But I think in my opinion the most interesting thing here is that it fundamentally changes the risk profile of an arb, right? Like if you're interested in arbing a penny or two, your downside risk of like, okay, if I, if, if this goes the wrong way on me, I'm holding a credit instrument backed by a significant pool of capital that's paying me 11.5% to 12.75% yield monthly. That's fascinating. I'm really excited about the options market and seeing how this thing evolves here. It's not incredibly liquid, but it's growing in liquidity. I know Dan, you've talked a lot about the put market and that potential there, but the ability, the different optionality that opens up with having an options market is just, it explodes the number of possibilities of potential trades. And just how my brain is thinking is like what are we doing? This is a carry trade, right? You borrow dollars to buy Bitcoin. It's like perpetual carry trade. Well now other people can kind of create a similar type carry trade. And I think there are some really interesting trades out there. And Dan, I'm curious if you've thought about this, but I'm looking at like a theoretical short hyg, which is a high yield bond fund, long strc and there's, there's an ARB there. And the interesting ARB is HYG is a monthly bond fund. STRC pays dividends monthly. Now there's a difference in the record date. So not only does STRC have a larger interest rate, the borrow costs are relatively cheap on some of these bond funds. If you hold a short position on one of the bond funds during the record date, you have to pay the dividend. But if you open a short and close a short before the record date, I don't think you have to pay the dividend. So there's just an, there's a ton of different risk return trades that are arbable that I think can be very compelling from a risk standpoint when seeing what your other options are out there in the market. So this is going to explode. In my opinion the options market is going to get much more, I think much more compressed. If you look at zero DTE options on spy, you can, there's like dollar spreads between the options market and so like right now you look at STRC and you look at all the options strikes that are available and they're like $5 increments. I suspect that's probably going to go to dollar increments and it might even go to 50 cent increments and then 10 cent increments and just get tighter and tighter and tighter as the volatility of this thing gets tighter and tighter and there's more demand for these options products. And why is that compelling? Well, it's compelling because you see the history and the trading patterns of something like strc. And you know that there's this constant bid near the record date to push it back to 100. So after the record date, if the price drops off, the ARB opens up. It's like ARB window open. And there's people that are going to be interested in that trade and that I think this is like, it's going to breed massive liquidity. It might take a while, but those ARB windows right now is very big. And I think it will shrink over time. But as people start to recognize the downside risk associated with the relative arb. So a lot of words there. I went for a walk with my wife and she's like, what are you thinking about? And I tried to explain it and
- [17:17]
D
I was like, that was the wrong question.
- [17:21]
C
I was like, we gotta stop, I gotta talk about.
- [17:24]
A
I think that's a super, super good point. Because we've seen the release of intra week options on ibit. So now there's options every two trading days for the IBIT ETF which are going to be used to hedge the credit quality of some of these preferred equities. And I know institutions are already starting to think about this. Ultimately it will likely be on the common equity issued by these preferred. The common equity of these preferred equity issuers. Right. So a lot of people are hedging their stretch exposure with MSCR puts, et cetera, et cetera. And I think that will be a theme that will continue and then on this idea of a massive trade. So I would, I personally would push back a little bit on being short the U.S. bond fund because ultimately by not owning dollars, you're implicitly short dollars. That would be a really interesting trade if you're betting on that. I think that trade would be extremely interesting for something like you'd be short the US ten year and long strife because now you're hedged on interest rate volatility. Right? Similar idea. And then furthermore, we know, and we're bitcoiners because we understand that M2 the way fractional reserve banking works is that when the bank reserves are increased at the Federal Reserve, all of the US bank reserves, those are then essentially levered and levered 10 to 1. Right. Because the actual reserve ratio is sub 10% United States across all banks. So money is being printed. Okay, well where do you. If you have money and the cost of that money is right now 3.8, 3.5% in an overnight repo market, a bank's job is to lend it out at A rate that is higher than that and that is how the money is created essentially. So what stretch is, is it's like a vacuum. It's like a pit for this money that is seeking a return higher than the risk free rate because that's how the institutions which create credit in the United States make money. That's how they're profitable. So I would say then I don't think this is going to happen in the next four months or five months. But I do think any rational actor, probably hedge funds first will capitalize on this arbitrage by taking this levered money that really isn't real and dumping it into a higher yield vehicle that ultimately is funneling all that capital into the bitcoin network which has a hard cap which then therefore powers up the network, increases the value of the coins and continues this perpetual, effectively short USD long BTC trade in the form of bitcoin treasury companies which are the speculative attack on fractional reserve capital.
- [20:03]
D
Dan, that was breaking news with the IBIT having three expirations a week. Because as an option seller one of the things that I think about is how often can I compound this investment. And with weeklies you can do that 52 times a year. You can just plug that into your compound interest calculator and figure out if I average my premiums this much and then compound it 52 times, that would be my profit at the end of the year and that basically triples it. So now you can compound your returns if you're reinvesting them all 150 times a year, which is, which is pretty insane. And then Jeff, what you were saying about maybe even getting smaller than $1 strikes, it does kind of make sense. I mean if you're going to be spending 90, 99% of the stock's life between 99 and 101, then like no one's trading the $80 strike on, you know, on these products. So we might as well have like the 99 and 10 cents or the, you know, 99.05, 9, 9, 10, 9, 15. Those are more interesting. But even with the way they are now, there was a guy in my live and he's like oh yeah, I sold, I sold some calls I think on stretch at the 100 strike and I'm like why? You know it was like 1% of the underlying premium for like a month out and I'm like that's like a quarter percent profit a week. Like it was very uninteresting to me but he was like easiest money I ever Made it was, you know, I mean it was just like, it was just like easy peasy. I'll just take the free money in his, you know, in his view.
- [21:46]
C
So, so let, I, I was fascinated with this. I did a little analysis on Stretch right before this and I just looked on, you know, Robinhood. I looked at the dates and just the dates. The expiration dates alone are fascinating. Right. We got April 17, May 15, June 18, September 18. The record date is the 15th. So the open interest on the dates that were after the 15th was significantly higher. Right. So there are people that are, I guess, selling calls on the hundred dollar strike after the record date. But you go look at May 15, the open interest on the $100 call is like a fraction of all the other dates because it's the record date. Like that's when you expect the most demand. And this is kind of what I'm getting at. It was like what, we're eight months in and we're like brainstorming these ideas. There are thousands of people and going to be 10 thousands of people and then 100,000 people equipped with AI and interested in these types of products and going to be making trading algorithms with it. That's going to happen all over the place. And Dan, you brought up not doing short the traditional bond long unless it's long strife. I disagree. Because you could do it in a day, you could short one instrument for a day, buy in on the record date, exit close the trade, not have to pay the dividend. Like that's interesting theoretically, right? I'm not, I'm not suggesting. I think it's an interesting trade and it's like an ARB opportunity. And I think there's like how much risk do you take on for that day of work or two days of work, eight hours of work. What does that look like relative to other risk return trades in the market? I think you're gonna have the high frequency guys jumping all over this and finding different opportunities here.
- [23:49]
D
Quick word of caution for anybody trying to sell covered calls. Even if you think you're slick and you're going to do it before, after the record date. If the price is close and it makes more sense for whoever bought your call, just keep in mind that the buyer has the right to exercise at any time. They don't have to wait for the expiration date so they can exercise and snatch your shares on the record date if it's beneficial to them to get that 1% dividend right. If it's close enough to the share price to make it worth their while. You can, you can get your shares snatched. So just, just be very, very careful with it.
- [24:29]
B
Yeah, with dividend paying equities are always different when it comes to options and they become far more risky because of that very complex.
- [24:39]
C
We're talking very sophisticated. I mean this is the investment grade bitcoin podcast. We're talking about sophisticated potential, potential things that you could do or at least consider, right? Like this is the stuff that people, people that do this for a living are going to be doing this. Right? People that are far more sophisticated than anything I've ever done and like literally been trading for a decade or two are, they're going to be doing this because that's like, that's their job. They're going to be making the markets. They're the ones making the options markets. They're the ones, you know, figuring out things. Unique trades here. But I mean, I've seen several people talk about like, oh, this is the, this is the ultimate carry trade. Like this. You can run your own effective carry trade. Dan, you've talked about it. You could borrow money. Borrow money in a cheap currency deployed in an expensive currency. It's just. Or deployed in a more powerful, more powerful system is exactly what you're talking about. I mean, Adrian, what's, what's your take? I mean, you're Mr. You're Mr. AI you've got all the computers underneath your desk running, cranking all the time. What's, what are you thinking?
- [25:46]
B
So I do, I do think that the arbitrage opportunity is going to be very interesting for larger players and hedge funds initially. I don't really think this is something that guys are going to be vibe coding their way through right now to figure out the market isn't mature enough and there's too many moving factors, just like the ones that Soleil pointed out around the, the record date. And however, as stretch becomes more mainstream, I do think that the biggest, and I'm going to sound really, really boring here, the biggest draw for it is just going to be that steady dividend. And that's what's going to create the opportunities to arbitrage different arbitrage plays with the bigger players. I don't know if, if smaller players going to be arbitraging it. I think that for most people it's going to be a way that they can get a steady dividend or engage in some kind of a carry trade where they're borrowing money. Money, one current currency deploying in another. Right, that makes sense. But the algorithmic Plays that we're discussing these kinds of high frequency opportunities. That's that I think that's where the big player is going to make their hay. And I think that it's going to become more and more interesting as volume becomes steady state. Because my view is that stretch is going to hit a normalized level of volume. That's going to become the new reality and then it's going to move up from there as it becomes more steady, as it becomes more return the market. Different players going to enter in for different reasons. But if I'm going to attempt any of this as of right now, I'm going to say no. One, I don't have the time and two, I just like the fact that I've got a wad of money in Stretch and I'm going to get the dividend and for the time being that's sufficient for me. Will I think through different ways to arbitrage this as it goes on? Absolutely,
- [27:33]
C
yeah, 100%. And again, that's the answer for 99% of people. But I mean, look at the chart, right? This is so fascinating, right? It opened the day at what, 99.97. Hit 99.99 and it traded $151 million of volume and it only moved 5,6 cents. Like what? Like what? What do you mean? It traded 150, $151 million of volume and only traded 5 cents. Like what is going on? Who is trading these things? And that like again, it's the, the. What's happened here is that there's an ARB surface, that it's got this natural gravity that's pushing it higher. Why? Because we all have the underlying thesis that this is probably the best risk return yield position in the marketplace. So it's almost like a safe haven, right? You could be in here, you could go find opportunities elsewhere and you could jump back in. You could, there's ways to go in and out of it and it's creating a liquidity pool and an ARB surface that has interesting incentives. Again, the downside risk if this moves against you is you're holding an instrument with 11 and a half percent or like our instrument, 12.75% return paid monthly. And then you're taking the downside risk of the collateral management, right? Like what's the collateral and the balance sheet look like? That's, that's the downside risk associated with it. But relative to other things in the equity market, it's so fascinating. Digital credit is the most fascinating instrument in the entire market. Right now, this is the biggest story in all of finance. This thing is trading $150 million plus a day of volume. And it's growing, it's just getting bigger and bigger. And we're right close to par. SATA's in 99 territory. We're approaching par. These are interesting securities that have never existed before. And that's just going to create new trading ideologies that again, have never existed before.
- [29:40]
D
Bitcoin or what?
- [29:41]
C
What's that?
- [29:42]
D
I said, you all going to buy some Bitcoin or what?
- [29:44]
C
We hope so. We hope so.
- [29:48]
B
The most common use case I'm seeing with this, and the thing that most people are talking to me about is using leverage on Stretch. Like they're taking out leverage positions on leverage with Stretch and they're arbitraging opportunity between the interest they're paying and the dividend payment they're getting. And that that's what most people have been talking to me about. So I think that there's a lot of different people going to be coming to this for a lot of different reasons, and that's going to aid its growth. The only thing I'm trying to be mindful of, and I haven't really thought it through fully just yet, is does this additional surface create an attack surface. But besides that, I think that Stretch, they really have a winner on their hands and it's going to be very interesting to see how it performs as this year goes on. Because even though bitcoin has gone down, Stretch has been relatively stable. Right. So that, that has implications for what they can do in a prolonged bear market or just in prolonged sideways shop. They'll be able to buy bitcoin even if it's a relatively small amount, every single, every single month, week, whatever. And as you were mentioning early on, they're going to be a consistent bid on bitcoin. And I really think it's going to be interesting how the market reacts to that.
- [30:57]
C
Exactly, exactly. Okay, well, I mean, that's, that's topic number one. Let's see here. Let's get back to topic number two and which is I guess really just the credit market. We've been, we've been watching cracks in the credit market. We've got the gates that are, you know, coming up on many of these private credit funds. And this is the opportunity that's, you know, presenting itself. You've got several. It's hard to go a day on Twitter without seeing, you know, something about private credit, something about the private credit market. Somebody, you know, is trying to or stops withdrawals from the private credit market. And that is opportunity that's opening up for digital credit. You've got these opaque funds that you're unsure of what's in there. There's zero liquidity. Maybe it was sold with a liquidity wrapper. But it turns out when people actually want the liquidity, everybody's running to the door at the same time. And I think what's happening with these private credit funds, just for clarity, I think they have limits on how much can be withdrawn every quarter. So it's like, okay, we can only accept 10% withdrawals this quarter and then 10% withdrawals next quarter. What will be fascinating is to see the compound effect here. The same risk that is associated with these private credit funds is not going away. In fact, it's probably accelerating the compound effect. And the compound nature of this impact on private credit will be interesting to see how that takes shape. And again, as of right now, it's just a liquidity problem for the most part, not a default problem necessarily. But we did just see, I think a couple of days ago there was a triple B, a triple B minus investment grade private credit fund that did get downgraded from investment grade to junk status. Like we were talking last week. I think that's where the big potential concern is in the credit market. And I guess I would pose this question to you guys and I think it's probably pretty apparent, like, do you think the rating agencies have priced in AI risk appropriately and are they moving fast enough?
- [33:19]
A
That's kind of a leading question, Jeff.
- [33:22]
C
I, I mean, but I agree, I,
- [33:25]
A
I think it's, you know, obviously you can't price future cash flows in an age of uncertainty, especially with AI. That's the absolute truth. And capital will become scarce in a world of AI, especially when capital as we know it. Most of the collateral in the traditional financial system are backed by these MAG7 equities that have essentially been funding the sustained price and growing PDEs via share buybacks. So if cash flows decline on any big business, especially with them outlaying instead of their annual cash flow instead of into share buybacks, into CapEx spend, if there isn't a return on that CapEx, the collateral environment across all of the financial markets is going to change significantly. And that affects both the common equity of these big companies that are affected by AI, but also the credit markets, that being the bond markets or the private credit markets. And so I think there will be a starvation and a desire for capital. And what is Digital Capital When Mag7 and Digital Monopolies aren't as profitable as maybe they once were. And I think that's what we're trying
- [34:35]
C
to figure out here. Yeah, it's kind of that transition in capital. Historically, all of the large big tech stocks throughout the 2010s were the best store of value. That was the best capital. It was better than real estate, better than anything else. Go ahead, Soli.
- [34:51]
D
Yeah, I was going to say, I mean they're not even priced correctly now without the advent of AI and the threat of AI. Like they're just priced on vibes at this point. They're just built on air. I think it would be challenging to even figure out what they're basing their valuations on. I saw this interview Dave column on BTC sessions and they basically said that what you were talking about before, where they put limits, it's called gating. And some, some have it and some don't. And the only reason why there hasn't been a stampede is because so many of them are gated and you can only take out a certain amount at a time. But that's just going to start like a domino effect. And if you're looking for something that's performing, I mean the, the only two preferreds that are backed by pristine capital, Stretch and SATA, seem like they, they would be the inevitable recipient of that money. But here's, here's two memorable quotes from that interview. He said that the, the, the private equity market is a cottage industry of morons. So he had no confidence in their ability whatsoever. And I think what you were saying about AI is perfectly aligned to expose them as such. And the other notable thing that I wrote down immediately was he said that there were more private equity offices than McDonald's franchises. And so there's just this enormous,
- [36:38]
C
just
- [36:39]
D
pile of just nothingness to just go up and smoke at the first spark.
- [36:47]
C
Yeah, because all this capital was plowed into illiquid things and there was a scarcity of things to invest in in the private market and deals were getting done because there was some liquidity. People are taking 10 year horizons and now what is a 10 year horizon now that might completely, that might evaporate 50% of the market. I mean, who knows? And who's there to buy like whatever you have on the other side of it, when the younger people coming up today, like don't have any money, like who, who has the money? It's like all this money is like, you know, stockpiled and everybody, you know, boomer age, like what is that transition of wealth? Like, what is a, what does a transition of wealth to this younger age look like? I mean, right now? Like a, like a Gen Z, a typical Gen Z. They're not even looking. They're not even close to looking at buying a house. Right. They're like, they're just getting doordash Taco Bell to their minimum wage job and they're like, I don't even care anymore because I'm never going to afford a house ever. That's their point of view that they've got.
- [37:58]
A
So yeah, it's this demographic shift idea.
- [38:02]
D
Right.
- [38:02]
A
And there are going to be gen zers that inherit massive amounts of boomer wealth. And will that be reinvested into private equity? I mean, that's the bet you're making when. Because these private equity funds have a return period, like at some point the fund pays out and so you can roll it into the next deal or you're going to reinvest it allocated elsewhere and the landscape will look a lot different.
- [38:27]
C
Yeah, completely. Completely.
- [38:30]
D
Those pensions take a haircut though, before the next generation inherits them. And will their houses be worth what we think they will too? There could be a lot of young people thinking they're going to inherit a big chunk and it's just shrinking.
- [38:48]
A
Yes. But I've turned the corner. I am very bullish on real estate. I think land is going to be super valuable in the future. And my friend brought the idea to me. He was like, okay, look, yeah, obviously when you own real estate, you're largely owning the land. And if we have all these autonomous robots that are bringing the cost of labor down significantly, you're going to be able to build for really cheap, you're going to be able to refinish your house for very cheap. So the land again is the scarce asset. And especially in the United States where you have, you know, pretty good property rights. And in states where property rights are enforced, this is going to be a scarce, desirable asset, especially one that's so easily financed. And that leads me to believe it's like, okay, so financing homes are essentially what has inflated the prices and prices and keep prices sustained. I think mortgages are going to be taken out to 50 years, especially with a long, like a longer lifespan. And then that breeds the question, okay, so if financing real estate is so important for elevated real estate prices, I think we're going to see the financialization of bitcoin do the same thing to bitcoin prices over a long period of time. I did a tweet it was like, oh, can you put 10% down on a bitcoin? There's people working on that. But even just the extension of margin on ibit, big development, the bitcoin backed lending is the first step in that direction. Stretch is another way in which you're kind of financing bitcoin. It's a mortgage backed security. It's a bitcoin backed security offered by the most credit worthy issuer on the planet. So this is all the financialization of bitcoin that will lead to inflated prices
- [40:23]
C
over long periods of time. Yeah. What is a mortgage? A mortgage is credit on physical capital. What is a government bond? A government bond is credit on sovereign society, like your, your society. And then what is digital capital? Digital capital is credit on or digital credit is credit on digital capital capital. Right. The. I agree with you on real estate, Dan. The, the caveat is commercial real estate in cities. And that's a, I agree with that. We talked about this, yeah, we talked about this on the hurdle rate earlier this week. And it's like there's this one, we just looked up One example in 2019, it was this place in Houston. It got appraised at like 1.3 billion and then just recently in the last year got appraised at like 400 million. And it's like an office park or something. And the challenge is that like a lot of these commercial, a lot of these commercial real estate, a lot of this commercial real estate was in private credit instruments. And a lot of these leases are turning over, like pre Covid leases are turning over. So these companies that used to be in the offices are no longer having to go to the office. So the leases, they're just walking, people are walking away from leases that they've had, you know, 10 year leases and there's nobody there to pick up, pick up the bill on the other side. So what is the function, what is the value function of the commercial real estate? It's a function of whatever the cash flow is of the people that are renting that specific location and the relative cap rate in different locations, et cetera. So I mean that's fundamentally changing and that's tied like a lot of that is tied into the private credit market. So people are seeing not only this AI pressure on cash flows. You've got just a change in societal like how society operates in cities and like different businesses.
- [42:31]
B
Well to like, to the original question that you asked is the private credit market pricing and AI appropriately I'll say no. Financial markets and finance as a whole Tends to be very risk averse. And I think it's more likely that they'll wait for the AI flood to come in and then everyone's going to start piling into the same ideas. So I don't think that they're likely pricing it inappropriately. To the point about real estate. Yes, I do think real estate is going to become more valuable as time goes on, as it always has. But the caveat I would give with Dan's point regarding the ability to build more cheaply, more efficiently, I think that's going to happen, but I don't think it's necessarily going to be because of robotics. Robotics is actually. We don't have the manufacturing, we don't have the compute, we don't have the data centers to support a massive build out for robotics yet. But I do think the cost of production for the things that we build houses with will come down due to broader markets opening up globally, outside of China for instance. And I think that the ability to rapidly turn around homes, like flipping homes and building new homes and building in areas that are perhaps less than ideal right now, but as technology and different methodologies advance, will be able to build out into these areas. For instance, like in Arizona right now, they're building out in areas where 20 years ago they never would have because they couldn't effectively run water there, they can effectively run Internet there, they can effectively run power there. But that's all changed, right? So I think that real estate is going to become a very, very hot commodity, but for a different set of reasons. When robotics happens and when it, when you can have a whole bunch of robots building a house, I think all hell breaks loose. But I, I think that we are still quite a ways away from that.
- [44:15]
D
Well, we should already. Houses should already be a depreciating asset. It should go down in value as soon as you take the keys. It should depreciate like your car. The cost of materials has been going down, but artificially inflated by money printing. And the other problem is that cities wanting to protect the value of those houses are probably not going to ease up on the zoning laws. So you can want to build 500 more places for people to live in your city, but nobody wants the value of their house to go down. So the zoning laws can artificially prop up housing. Whereas maybe somewhere in the middle of nowhere those problems don't exist. And it's going to be a lot more affordable for people to live in those type of places versus the big cities.
- [45:06]
B
But to Dan's point about the land itself, maybe not the home, but the land. I think that that is a, a difference angle to it. So right now there's there across the country right now there are a lot of people that are fighting with these Mag seven companies and these big data center companies that want to build out these data centers because they don't want to sell their land. Right. So where we could have a situation in the future, let's say AI does what everyone thinks is going to do and we're going to have this, this massive need for data centers, this massive need for manufacturing, this massive need for all these other things. Are they going to do what they're doing in Arizona right now at TSMC and build somewhere further out and take on a very, very complex task? Or are they going to go into cities, perhaps in the urban areas that are somewhat dilapidated, into areas that have been a victim of urban sprawl and start repurposing them for data center buildups? What is that going to do to real estate prices when you now have cities that are becoming massively overtaken by technology and by data centers and by means of manufacturing just because it's easier to build there than it is to build 100 miles out? I think that there's all kinds of different things that can happen when it comes to the value of land versus the value of homes. I actually think the homes are going to become less of a long term store of value. But people that own the land that the home is on are going to be the, that's what people are going to focus on, owning the land, the home that you're going to build on it. I think that home is going to be coming down like up and down like crazy. Now homes that they build right now are not built to last 100 years. They're built to last 25 to 30 if you're lucky, before the roof falls out from under you. Right. All these new construction homes. So I can see that people are going to be buying a house, buying the house just to have the land. They're going to be tearing it down, building a new house on it. And I think that can have very, very interesting impacts on the prices of the homes themselves. But the land I think is where things are going to be really interesting because we're going to need it. If AI is going to do what we think it's going to do, we're going to need land and companies are going to be less and less inclined to build further and further out for the reasons you listed Soleil and also because of what Dan was talking about with the land itself. Why would you build when you could already just knock down some ghetto somewhere or some area somewhere that's low income housing that they're already doing right now and building apartments on it. Instead of building apartments, they'll be building data centers.
- [47:36]
D
I'm just laughing, thinking about a 30 year house with a 50 year mortgage. That just sounds about right.
- [47:41]
B
That's what's going on right now. It's true.
- [47:45]
D
I mean, damn thing falls down, you still got to pay for it for another 20 years.
- [47:49]
C
Yeah, if they launched it, I would take that leverage though, you know.
- [47:53]
D
Well, Jeff, you'll insure it, right?
- [47:55]
C
Yeah.
- [47:56]
D
You'll go put gap insurance for that for 30 to 50.
- [47:59]
C
Yeah, exactly. There's a deal. There's a deal to be had there for sure. 100.
- [48:04]
B
Well, the appeal of a 50 year mortgage is because you know your money is going to be inflated away. Right. So over time. Yeah, that, that's the whole, that's the whole benefit of it. But take it all day, you know, because, and, and also you, I mean. Yeah, well, the thing is, what Dan mentioned isn't that far, far fetched. I mean, didn't, didn't someone already float 40 year mortgages just like six months ago, I think?
- [48:24]
C
Yeah, yeah.
- [48:25]
D
Trump was talking 50.
- [48:26]
B
Right? Yeah, 40, whatever, whatever it is. Right. So 40, 50, boom, for all we know.
- [48:32]
D
I hear 100.
- [48:33]
B
That's what I was just gonna go with. People are going to start living to 120 before you know it. Don't be surprised if we're all in our 80s and they're going to start seeing 70 year mortgages out there. Right. And so, so what, what does that mean for the value of a home and what does that mean for the land that the home sits on?
- [48:50]
C
I just think that I guess there's so many, there's so many unknowns. There's like known unknowns. Like what does population do? I mean, nobody's having kids. So like, does population expand? Do robots just take over? Do people just live longer and like keep their brains alive and shift it over to like a robot body? I mean the stuff I've been seeing just the last couple of weeks on like Neuralink, there's people with ALS that are communicating telepathically with computers and it's like coming out with their voice and AI. I'm just like completely blown away. This stuff is changing how everybody interacts. I mean even just having Internet, like the, the, the fact that Starlink, you can live in the middle of nowhere and have starlink access or like, okay, well now, now rural properties just got way more expensive because the people that want to get away from people can now still be connected and get away from people. They can still do their jobs. That's fascinating. What becomes important, Fresh water, access to food, some of those things. But yeah, I think the world's going to look a bit different. And I mean, all this stuff is moving so fast. But the whole point of this conversation was getting back to rating agencies, right? These industries that are purposefully built to move slowly and not jump, react to anything are doing what they have historically done and move slowly and they're likely way behind on the relative risk profile on a systemically broad category of risk securities that the broader financial ecosystem relies on. That's a concern for sure. But that's also when we're thinking about digital credit and the opportunities here. Bullish digital credit, right? Like bearish that system, that design. Bullish digital credit. I posted about this. Maybe I'll share my screen. Is the, I mean, one of the reasons I'm bullish here on digital credit. Bullish case for digital credit. The dominant US rating framework values Bitcoin as worth zero on the balance sheet. I know we've said this plenty of times before, but it's worth zero, literally. The rating agencies say, hey, yeah, strategy, all of you know that $50 billion of Bitcoin that you hold on your balance sheet? Yeah. Actually we're going to mark it to zero, but we're going to give you a B minus credit rating strategy. Solve a B minus credit rating. And what does a B minus issuer credit rating means? It means that you're more vulnerable, but you're currently able to meet all your commitments but highly sensitive to adverse conditions. And like when you, when, when we think about this, right, we're thinking about. All right, well a lot of these adverse conditions that may happen, you know, we're putting, putting our head around the corner and trying to wrap our heads around them. They all seem very positive for moving in this future direction. And so right now the rating agencies believe that strategy was able to meet all of their commitments. This is before they raised two and a quarter billion dollars of USD cash, by the way. But they're highly sensitive to adverse conditions. So basically it's saying they could pay their dividend payments even if the capital didn't exist. Basically their access to capital markets is the only thing that is being rated as the risk rating for their company. Nothing to do with the capital. Now if that capital is worth just greater than zero. If it's worth greater than zero, they have to go up the rankings. It's gotta go to double B. If they get into triple B, it's technically investment grade. Right. So what is investment grade? Triple B means adequate capacity, adverse conditions more likely to weaken ability to meet commitments. So we think about, okay, how many years of dividend coverage does strategy have? Well, they've got 50 plus years of dividend coverage. They've got two years of dividend coverage held in cash. Yes. They have $8 billion of bonds, convertible bonds, on the horizon in the next three years. But they've got sufficient capital to cover multiples of that. So they've got, in my opinion, adequate capacity. Can adverse conditions more likely to weaken ability to meet commitments. Sure, adverse conditions would hurt anybody. But I think you could also conceptualize calling them strong capacity or even very strong capacity. Just based on our understanding of liquidity profile of Bitcoin, how it works, the size of the balance sheet, the relative size of the commitments, the perpetual nature of the instruments, the construction of the balance sheet being relatively healthy, 11% leverage ratio, et cetera. That's the bullish case right there. They're at the bottom rung. If they get any increase in that valuation, they move up. And just to put this into comparison, the ratio of US investment grade bonds to high yield bonds is roughly 5 to 1. So the amount of capital that could possibly come into these instruments is not just doubles, it may 5x, it gets materially larger. And for reference, here are some recent deals that were done in 2026. So Google $32 billion bond deal, Amazon 37 billion, Oracle 25, Honeywell 16. And these are just typical bonds. I think these have 10 year terms and I don't know, 4% interest rates. You've got strategy offering and strive offering significantly higher with assets on the balance sheet.
- [54:29]
D
I mean just reading the letter of this, and it says adverse conditions more likely to weaken ability to meet commitments. But with however many years of the cash reserve to pay dividends, wouldn't that be like adverse conditions most like least likely to weaken their ability. Like they're like, like the opposite of this. There's no way that they should be anything under freaking double A.
- [55:01]
B
Yeah, I think the assumption is, is that there's, there's cash flows to support the payment versus holdings to support the payment. I think that can be the big disconnect.
- [55:14]
C
Oh, it is, it is. Well that's, that's exactly the point, Adrian. It's like they, they're giving the holdings zero credit.
- [55:20]
B
Yeah.
- [55:22]
C
Which is just insane. Like the, there, there's a historical reliance. We're talking about a credit system that's been built and has evolved over time. But it's like historically archaic with some of the least tech savvy people, you know, working through some of these things. And like the implications. I think the other crazy part is just like the incentive structure, right. The implications of making a change are so big in both directions. Either moving strategy up or notching down anything that's investment grade to below because of AI risk. Like, think about that. Think about there's, I don't know, 50, $100 trillion of this credit floating in the market. Somewhere somebody's holding it. So if anything happens on the AAA investment grade stuff or the BBB investment grade stuff and it gets notched down, there's some portion of it that like just has to liquidate it because they, they can't proceed with their market structure. Or they've got mandates that says they have to hold investment grade or insurance companies. It's, it changes my cost of capital requirements. Now I need to buy more reinsurance and I can't afford it, so I have to drop these and, you know, go grab other things. So it's the second order effect of making a change like that, like holistically to a broad category is very, very, very large. Alternatively, the second and third order effects of going the opposite direction. So strategy going from B minus to triple B. Okay, well, what does that signal? If you signal that, hey, there's a company that's now investment grade, but they're paying 11.5%, what's the right cost of capital? Everything else investment grade is like five or six maybe. And so like now you've got an investment grade instrument at eleven and a half. Like, wait, wait, hold on. Right, like, what's the, there's, there's implications of that, right? Like, are you just now saying that, okay, the cost of Capital is now 11 and a half percent and you have to like, do interest rates float up to that or is there a change in interest rate? Like, do interest rates come down? What is the evolution there? And I think it's a, it's a really big decision.
- [57:54]
D
Yeah, go ahead, Adrian.
- [57:55]
B
Yeah, no, I agree. I think that the, the reality of it is rating the strategy preferreds as we think they should be rated, right? As, as a aaa. What have you fundamentally says to the market something very, very different about Bitcoin, right? It puts bitcoin on footing with the US Dollar puts bitcoin on footing with other currencies. What does that say for the broader market? To Jeff's point, I think the signal it puts out there is, and I don't want to sound, I'm not trying to sound like dramatic here, but if you signal to the market that bitcoin now has equal footing with other forms of currency in the most fundamental way, you can't just re rate the offerings. You have to re rate strategy as a company as a whole. And the overall message that sends, I think is kind of like a tectonic shift in what the market understands about finance. And I don't think the market is ready for that. That's why I've been saying for the longest while that I don't think The S&P 500 inclusion is going to happen anytime soon. It's not because I don't think strategy is necessarily worthy of it. We can make different arguments for that. I think S&P 500 inclusion literally drops 700,000 plus Bitcoin in the center of traditional finance, rerating it, giving it a fundamentally different understand, giving the market a fundamentally different understanding of it, which the market is going to have no choice but to perceive strategy as a company entirely different, which will have trickle down effects, all the offerings, which is just going to have this massive reflexive effect once that starts to coalesce in the market. And I don't think these agencies, I don't think these committees are ready for that just yet. And I think bitcoin is just going to have to get to such a size that it makes it almost cartoonish for them not to do it. But until then they're going to find all kinds of different rationales for why it shouldn't happen.
- [59:55]
D
Well, you read my mind, Adrian, because I was going to ask what's the minimum rating that they need that signals S&P 500 inclusion? Like how, how far do they got, get, got to get rated up earnings.
- [60:07]
C
It's just positive earnings is the last thing.
- [60:10]
D
No, but I, I think there's a stat that, that says that like no company under triple B minus has ever gotten in. So there is potentially some kind of like, it's not a written rule, but they can, you know, you can have any kind of un. Number of unwritten rules you want in baseball or anywhere, anywhere else because the committee gets to meet and you know, thumbs up or thumbs down, right? Yeah. So you know, like, like at what point is it rated high enough that just poly market explodes from like 10 chance they get into 80 chance, you know, like when is, when does the market sniff that out?
- [60:45]
B
I think inclusion has to happen before a rating.
- [60:49]
D
Oh, I assumed it was in the other direction. I, I assumed the rating was signaling the inclusion.
- [60:54]
B
No, I, I think the rating, I think the, If I were to guess, if I had to flip a coin on which way I think it was going to go, I think the SB500 inclusion and credit rating will happen in rest in rapid succession. That'll be my guess. Just because I think, and I could be wrong here, I'm open to feedback. I think giving the, the preferreds a credit rating before they are included in the SB500 seems counterintuitive to me. You'd be saying to the market, you have these credit ratings on these instruments, they're all, they're all aaa, whatever. But at the same time, you're not including the SB500 when you meet all the other criteria.
- [61:33]
C
Yeah, go ahead. You know how crazy this is. Strategy holds. 700, what, 65,000 Bitcoin. When the price of bitcoin goes back to all time high, they're going to have $100 billion of capital on the balance sheet. They will have the second largest liquid treasury on the planet. Back at all time high. We're not even talking about blasting into new all time highs or the amount of bitcoin that they're going to accumulate on the way back to all time highs. Right. That's as of today. If they had their holdings and were back at all time highs, we're talking $100 billion balance sheet. Like the next, the next one is Berkshire. Berkshire is a trillion dollar company.
- [62:22]
B
And this is, and I agree, but the thing is, this is where I'm not trying to sound bearish. I, I think they need to find a way to bring in revenue. I think that cracks everything open.
- [62:34]
C
I don't think so. Yeah, it's just like they're gonna, they don't need it. I mean, they don't need it. They could just keep doing what they're doing, right. They brought in a billion dollars. Like think about every instrument that they sell, right? The product is the credit. The product is a credit. Every share that they sell of STRC is like, you could think of that as like revenue. There's a loss ratio on every instrument that they sell. Right. So if you, if you sell a share at $100, there's a loss ratio that you have on that share that you sold. Like what's your terminal loss ratio like?
- [63:04]
B
You can think of it as revenue. Yes, I agree. Will the market agree with us though, though? That's what I'm saying.
- [63:09]
C
I guess that, like.
- [63:10]
A
No, yeah, that's a good point. And I think it's a case for sustained, relatively tame M Navs.
- [63:18]
D
Yeah.
- [63:21]
C
Do they agree on capital raising? Do they agree on selling a product?
- [63:26]
A
Yeah, you need, sure. You need. Sustainable. For them, it'd be like getting $10 billion in cash flow. But like, where are they going to go like spending of a business? It's just like $10 billion of cash
- [63:36]
C
free cash flow year. A billion. I mean, to be fair, they need a billion.
- [63:42]
B
I, I don't think they just need to. I don't think they need to spin up a business. I think this is, and this is just my view, I think if they're not going to do anything with the BI business, they need to kill it and just go full bore on what they're doing with digital credit and deal with the reclassification and deal with anything that comes with it. If, if the goal is, at any point, and this is just my view, that the goal is S&P 500 inclusion, I do not think that's going to happen anytime soon without them bringing in revenue of some kind. I just don't.
- [64:12]
A
That's a fair take.
- [64:13]
B
I just don't.
- [64:14]
A
Yeah, because then saying they need revenue, right. Like I would agree with you in saying that, like, there's probably some, you know, the committee is going to discount their liquid treasury if they don't have revenue in terms of inclusion potential. But I don't think they need the S P500 they demonstrated.
- [64:32]
B
No, that's the thing. That's not what I'm saying. I'm not saying they need the S P500. What I'm saying is if, if we are thinking in terms of getting credit ratings for the offerings, we're thinking in terms of SB 500 inclusion. What does that mean? How do they get, and let's take them separately, how they get the credit rating, the, the market and the communities and all these different external agents are going to have to fundamentally reclassify how they think about Bitcoin and what they think about digital credit. Now, that is not me saying I don't think that should happen. What I'm saying is there's the reality of what we think and then there's what the market thinks. And the market's going to dictate this. How long is it going to take for the market to cross that chasm? That's, that's the first piece. The second piece, if, if they're thinking about SP 500. Include inclusion at some point that I don't think that happens without them having some kind of revenue, some kind of a positive, consistent revenue that is separate from Bitcoin. Now, with that said, this is where I think their future could be more like a bank or something like that. They should forget about inclusion. They should forget about the indexes. They should go all in on digital credit. They should go all in on the financialization of Bitcoin. Kill the BI business. Just focus on this and they can become a massive company without any of this, any of these considerations. I think they just need to pick which, which lane they're going in. If the BI business.
- [65:55]
C
Yeah, it's break even. It's like, why do you have to kill it?
- [65:59]
B
Because, because it is still being seen as part of the overall enterprise. You can't say that the, the BI business does not matter and then functionally say at the same time that it doesn't matter and it shouldn't be considered even though it's functionally part of their overall enterprise.
- [66:22]
A
Sure, but it's a net positive if it earns free cash flow.
- [66:25]
B
If.
- [66:27]
C
And what I'm saying, it has free cash flow.
- [66:30]
B
Yeah, but that isn't. What are they. Is what I'm getting at. Are they a BI business or they, Are they a digital credit business? I don't think they can be both.
- [66:38]
A
I mean, like, what is a, what is a university with an endowment? It's a hedge fund that offers classes.
- [66:44]
B
That's not the same thing. That's not. I understand, I understand the corollary, but that's not the same thing. I, I think that. We.
- [66:59]
C
Berkshire Hathaway's in the S P500. That was actually a big deal. Into the S. P500 was a big deal because they're effectively an ETF. Like Berkshire Hathaway is an ETF. They own so much shit. You know, it's. It's real estate, it's insurance companies, it's reinsurance companies, it's See's candies. It's like all sorts of like weird conglomerate stuff. They, they buy companies when they're cheap. And then $300 billion of cash, it's like, it is an ETF, but they got included in the S&P 500, I guess, like, and why, Adrian? Because they got so damn big that they couldn't. They couldn't not. That's probably what's going to happen with strategy. They're going to be in a situation where like, holy shit, this company is so big. How did this happen? It's real. Oh, my God. Bitcoin is not a scam. And we got to do something about it. Right? Like, all of society that invests in The S&P 500 just missed out on this generational move to 100, 200 billion dollar company. And Sailor doesn't care. Right. Like he's. If it happens, great. Like they're just going to go be category killers in every single thing. Right. They went and killed the category. Like best performing equity. Okay, check. Best performing convertible bond. Okay, check. They're going to go be best performing preferred equity. Check. Best Sharpe ratio instrument on the planet. Okay, check. Best bond. Check. Right.
- [68:28]
B
I agree, but what I'm trying to tell you is that I agree with all of that, but I think we are grossly underestimating the power of perception and how the market perceives bitcoin and as a result perceives strategy and how that will impact any decisions that are to come in the future.
- [68:40]
C
Yeah, that's fair.
- [68:42]
B
That's what I'm saying.
- [68:43]
C
Yeah. And I completely agree with you. I mean, I've chatted with some of these rating agency people and they're just like, it's going to take so long. And I've gone through it.
- [68:51]
B
Worth the change?
- [68:52]
C
Well, I've gone to a few of them and just. It's so odd. Like the. It's so crazy to see like a technology and see it exist and not be intellectually curious about it. Like, I think that's the part that's pissed me off the most. It's like. What do you mean? Like, what do you like? They couldn't even believe we were having the conversation we were having. And not even intellectually curious. And like, it's just, it's blowing me away. But fun news. I'm going to risk world 2026. It's happening in May and it's in Philadelphia. And it's like all insurance and reinsurance.
- [69:35]
D
Risk world.
- [69:36]
C
Risk World. Talk about the nerdiest thing of all time. Yeah, I'm going.
- [69:39]
D
Exciting.
- [69:41]
C
Come hang out.
- [69:42]
D
It's not dangerous.
- [69:43]
C
Risk world. And I'm going to talk about digital risk. I'm going to talk about bitcoin risk. And I'm talking about reducing the volatility of an asset insurance company balance sheets are an asset. Reinsurance reduces the volatility of an insurance company balance sheet. We're doing the same thing. We're just carving off risk and creating. We're separating it out into two different instruments. And that's intellectually Stimulating. And that's kind of the approach I'm going to take is I'm going to do a case study. Like that's the stage amount. I'm on a case study stage. But we're going to talk about like being intellectually curious about this opportunity in this space and seeing it, the similarities. But I'm probably going to get laughed at. Maybe there'll be five or six people there, Soleil, if you want to come. Maybe seven.
- [70:34]
D
Yeah.
- [70:34]
C
How much are the tickets? I. I have no idea.
- [70:37]
D
You can give me a comp.
- [70:38]
C
Yeah, I'll be in the front one. So.
- [70:42]
D
So, Adrian, to your point, I agree with you in principle. I just think the time frame is probably. We're probably not on the same time frame. Like, I don't think that they need to worry about any other products until Bitcoin's CAGR is below 20. Like once we get there, then maybe what they're paying for Stretch starts to like tangentially approach Bitcoin. Bitcoin's CAGR and then maybe they have to pivot. But for now, if it's bringing in cash flow, it just seems like it's enough to overcome a little bit of the friction that's in the business itself. I think it's beneficial for now.
- [71:21]
B
Well, so I know. So the BI business, I know it has benefits for the return of capital for Stretch, for instance, and all that.
- [71:26]
C
Right.
- [71:27]
B
I understand that. What I'm trying to say is how is it going to be received at some future date, indeterminate future date, where Bitcoin is at whatever it is, strategy is at X number of hundreds of billions. And we're still having the same conversation whether they should be included or not. That's, that's the first thing. The second thing is. Yeah, I think, and I had. This is what I mentioned in the conversation with, with Fong that I had with him in the interview I did with them. I think that as a function of growth, the BI business is going to scale and it's going to get bigger. Right. I think that that's likely going to happen. What I'm trying to say is at that point we can draw the corollaries between, you know, Berkshire Hathaway and whatnot. But there's a, there's a fundamental difference. There wasn't an entirely new commodity that is still under 20 years of age that is still being adjusted to globally as the underpinning factor in this whole thing that fundamentally changes the way that this can go. And inclusion in credit ratings means you have People think that bitcoin is legitimized. As of right now, I don't think it is. I think when you start having it behind digital credit and it being recognized as we all think it should, that fundamentally says not to the market, but also to the world. You now have a truly 100 vetted, accepted, appropriately rated, appropriately leverageable asset that now exists. What does that mean? What does that say? And how long does it take for the world to want to accept that it is not just. It's not just about bitcoin getting big enough? I think bitcoin is going to be successful regardless. I think strategy is going to be successful regardless. What I'm trying to say is what does that success look like and what will that entail?
- [73:26]
C
It probably takes three years, I think five at minimum. Three years track record, right? Like you're building a track record. As soon as these instruments are around for several years, like the amount of institutional capital this thing is, these things will get integrated into different systems. I mean, it just depends on how fast the world changes, right? Like we're seeing, like, how fast does the risk market change? How fast does the private credit market change? Is there a large global systemic credit crisis? If there's a large systemic credit crisis, is there significant money printing? What does inflation look like? What does the result of this war look like? How does AI change how we live in the world? There's so many things that can happen so fast or slowly. It just depends on the pace of. Pace of society and, like, its ability to keep up.
- [74:19]
B
Well, three years, though, is for traditional offerings like this. This is not traditional. So I don't know if we can make the same. If we can make the same assumptions. That's all I'm saying.
- [74:29]
A
I think, I think, I mean, I agree, and I think the timeline's uncertain. You know, the future is uncertain. All we can do is spread awareness. I think it's cool you're going to Risk Summit, Jeff. I'm super psyched.
- [74:40]
C
I'd love to come hang out Risk World.
- [74:41]
B
I even thought I was a thing. So, yeah, that is cool that you're
- [74:43]
C
going there, but okay, this is actually. This is actually perfect time and I should have brought this up earlier. We created a website. We have a new domain. It is super cool and I'm going to share it right now. And we are going live. Boom. New website, True north, investment grade Bitcoin podcast. So the domain is t north.com. check it out. We've got. I'm sure many of you have probably gotten Questions, hey, like what is this digital credit thing? Maybe can you give me something that I could read about it? Boom. You click on digital Credit, the definitive guide to digital credit. And here we got, you know, thousands, I think nearly 50, 60,000 of words that you can, you know, share with somebody. We spent a lot of time putting information out there, putting a guide on digital credit. I've even created a digital credit investment thesis. Boom, you could see it there. It's about 8,000 words. May be the base of a book that I write here in the near future. And we've got a research page. You can see all the research we've got. Adrian Morris has popped in a thesis in here. This is significantly long. This is a lot of work and energy has been put into this. And ultimately what we wanted is a place where we can house all of our information. We know that the X search function is absolutely horrendous. A lot of people are putting out fantastic content and we wanted a place where, you know, our entire group can house content in an easily digestible manner. So like for example, if you're curious about what Dan Hillary's been writing, boom, you can click on Dan and it filters his articles. You want digital credit articles, you could go check it out. Boom, you've got that there capital structure. Hit on that. Or Soleil, any articles about him. Boom. Different analysis and commentary. Fantastic. So please go check it out. The last piece, which I think is awesome. Just as everybody else is building out tools, we are also building out tools and we are going to have some more tools and calculators here. But I think the one that I am most excited for at the moment. And Michael, if you're watching, we built this for you. This is the Bitcoin24 calculator. So this is the open source tool, 21 year Bitcoin price model that you posted to GitHub a couple years ago. It was Michael Sharish and CJ that put it together and we have turned it into a calculator online. So if you have any updates to this, let us know. We can change the base assumptions. But you could pop in here and these are Michael Saylor's assumptions. You can pop in and plug in your bear case, your base case, a bull case. Look at what the starting bitcoin price is. This is live information. You can pull live bitcoin bitcoin prices here. Look at different growth rate assumptions, growth rate decline assumptions and terminal growth rates. So based on Saylor's bull assumption, this model based in 2024 by the year 2032, we're looking at a bull scenario of 2.6 million, a base case of 1.1 million and a bear case of 377,000. Obviously it's a function of where the bitcoin price is today and how fast that puppy moves. But this is, this is what we're looking at and this is in line with how we view the world of bitcoin as well as underwriting the long term view. What do we know about bitcoin? What do we know about the infrastructure? What do we know about the plumbing? We've got changing AI world, the world's getting faster, moving to computers. Infrastructure on capital is completely changing. There's a move to tokenization that you can't deny that you can't ignore those things. The regulatory environment's wide open. You've got banks that are accepting bitcoin, you've got these digital credit instruments that will eventually probably get ratings on top of them and infiltrate their way into traditional finance. And this stuff becomes systemically important. So we're well on the way of creating a track record and this type of stuff helps. So ultimately the goal here is to teach everybody, just like we've been doing for the last 60 episodes, spread education, spread information, spread knowledge and continue to build this out. We will be putting any new research on here and as well as the X page, there's a bit about the crew, there's a bit about us. Future events. You'll see future events that are coming out here. It'll show where we're at and what's going on. So if you want to come hang out and chat with us, that'd be great. And yeah, we are also hosting a Bitcoin for business event here in Oregon in later, later in May. So more information to come on that, that will pop up here. So yeah, check it out t north.com we'll put it in the show notes team. If you could put it in the show notes that'd be great and we'll blast it out here over the next week. The team has put tremendous amount of effort into this. As you can see. We've now built a website. Our stream is updated and cleaner. We've got a team that's helping production on the website. We've got cloud clips that are being blasted out a little bit more here and there. The support of our sponsors definitely helps that we've got Horizon now and Bitgo. So big shout out to our sponsors and that helps us continue to get this information out into the market and Our goal is to just spread education and information on digital credit.
- [80:02]
D
Yeah, it's pretty slick. Real clean.
- [80:04]
C
Super clean. Shout out, Dan. Oh, fantastic work, Trollstein. Yeah, Trollstein killed it. Totally killed it. Okay. I think the last thing I really had is this. I mean, again, we got to talk about AI, but open AI offering 17 and a half percent guaranteed per. I guess it's a perpetual preferred equity. I think it is. I think it is a prep equity instrument. I have no idea how much capital they're looking to raise. But I mean, have you guys looked into these business models? I'm super confused by this stuff. And I think, Dan, this is kind of what you're referencing in the beginning. I'm using the shit out of these models. I'm abusing them. I'm running it through as much as I can and I will have several tabs open, running complex analysis. And I'll do it in multiple engines. Right? Like, I'll, like, while one's going over here, I've got another on another screen doing something else over here. And like, there's no way, there's no way that this is like, profitable. Like, I don't know how much I'm spending on these. I don't know, maybe a couple hundred bucks a month I'm spending on these tools. But like, I'm using, I'm abusing them. And I'm curious, like, how much output is used on the other side? Like, you guys have any idea on this?
- [81:35]
B
I think,
- [81:38]
C
I just don't think these, these deals pencil.
- [81:40]
B
Right.
- [81:40]
C
Like, and they're all super competitive. Like, are they just. Are they, they gonna jack, Are they gonna make this so ingrained on what you do that as soon as you're hooked, they jack up the prices. But, but they can't do that because there's competitors. It's like a super competitive environment. It's moving super fast. So,
- [82:00]
B
yeah, I think, I think a lot of it is a lot of them are taking a what if you build it, they will come approach that they're just going to keep doing these deals and they're going to keep pumping money into getting money into these deals and they're going to build out the data centers. And I think that the hope for a lot of them, especially specifically OpenAI, is that things that escape velocity and they're able to catch up to their valuation in a way. I think if I had to really, really simplify it, I think a lot of it is that to your point about profitability, I mean, they can monetize a Variety of different ways. I think that OpenAI was looking into doing ads, I think right for some of it is what they were doing. The thing is, if you take a look at this just sheer size of some of the companies involved, I don't know if they're at any terminal risk of it breaking them. I do think there's a risk of at least one of these models becoming defunct, and that's going to be a bit of a seismic event in the market. But in terms of how they're financing it, people have called it, you know, they call it a bubble. They call it all the different names. I don't know if I'll go as far as to call it a bubble, but I will say that there is a lot of, you know, cannibalistic financing going on that is getting to the point where it could be somewhat problematic in the way some of these deals are structured. And with regards to open AI, I don't know what they're doing, quite frankly, with this, with this new offering that they're. They're trying to kick out. So it is what it is. I think we're going to see what's going to happen with a lot of this in the next 18 months. So a lot of this is going to get shaken out.
- [83:42]
D
I don't see any way that they can make money on these things. Kind of what you were talking about, Jeff, with the competition, it's almost like imagine before calculators were dematerialized and put on everybody's phone and you put out a capital raise that like the calculator company was like, oh, we're going to do a perpetual preferred to raise money for this calculator that's going to be free on everyone's phone in 10 years. Where's the profits going to come from? The only thing that I can think of is governments will maybe start issuing regulations and just kind of like enforcing monopolies. For a couple of companies that are deemed too big to fail or something, that's the only way is. I can see government is just kind of stepping in and protectionism basically is the only thing I can think of.
- [84:35]
C
Because if you have, if you have this like crazy intelligence tool and you want your society using it like it probably is systemically important at that point, or maybe, maybe, maybe don't want them to your point, Soleil on calculators real quick. Texas Instruments is $179 billion company. It's actually four times, like three times the size of strategy. And they make calculators. So like The. They figured out another way to.
- [85:02]
D
I gotta make something else.
- [85:05]
C
Yeah, all sorts.
- [85:06]
B
The thing is, I get what you're saying that the calculator analogy, but I don't. I don't know if it fits. So an L. So if we're using LLMs as the example, an LLM is not going to be a static instrument. Even if you come up with the most perfect LLM tomorrow, knowledge is still going to be expanding. The LLM is going to have to be updated. I think that's the future. An LLM is going to be like an OS that you're going to be paying a fee to update in perpetuity. I think that's one monetization route that they can go down. It's just a matter of which LLMs become the industry standard. And then I think we're also not taking into account that current language models are being applied to everything. They're definitely going to be highly specialized models for mathematics, for science, for medicine and so on and so forth. That's the next frontier, I think, that they're going to try to milk. And then there's also the fact that there's the world models that are going to be coming online. There's all kinds of other applications that come in with robotics, with driverless cars, aviation. You also have military applications. I think there are a lot of different industries and different verticals that this can spider web into. I just think that before we get to that point, one of these. I hate to use the term circular, but a lot of them kind of are. One of these circular deals is going to blow up. And I think the market is. Once that happens, it's going to be kind of a reset for the market. But the genie is out of the bottle for these LLMs. Even if OpenAI goes down tomorrow, it's not as if they're. What they're going to do. Delete all their source code. Source code?
- [86:35]
C
Yeah.
- [86:36]
B
The genie is out of the bottle. And I think optimization and application and then commoditization of the LLMs and the AIs is going to be the next step. They're going to be able to monetize them. We just don't see the pathway forward because we're kind of taken into account of like. Well, to Jeff's point, I'm using the hell out of these things. I'm getting so much productivity out of it, there's no way they're charging me enough for what I'm getting out of it. But that I think the monetization route is going to become highly specialized in the next two years and then things are going to scale appropriately from there. But this is all contingent upon data center build out. I think that without the compute, this whole thing falls apart. So if the build out doesn't really kick off and if these deals don't materialize, and maybe solely this is where it comes in, that maybe the government steps in and takes a stake of some of these and they start doing that kind of a thing. I think that is the real terminal risk. If we have the data centers, if we have the compute, I think everything else washes out and it sorts of stuff, stuff out.
- [87:41]
D
Now which one is Sam Altman? Is he the open AI guy?
- [87:44]
B
Open AI?
- [87:45]
D
Yeah. So that, that, that dirty bird, he said something along the lines the other day where he was like, AI is going to be like, sold as a utility in the future. You're just going to be like metered out how much intelligence you want to buy. And it just reminded me of Flowers for Algernon where you, you know, he concocted that stuff to make the mouse smart. And then they gave it to the guy with a low iq and then he got kind of like, you know, he kind of got addicted to being smart. Who, who, who wants to go back to being dumb? So it, it just seems like this, this kind of like a dirty trick they're going to play on us to get us addicted to being smarter than we are. And nobody's going to want to go back to reality. And we're almost, almost going to be like an intelligence drug and they're just going to be like dishing it out to us for fees. Well, it kind of ticks me off.
- [88:41]
B
Well, the thing with that is, and I understand where you're going with it, but let's think about what that means. We have metered usage for all kinds of things right now. Our Internet, for instance, on our phones, if you have, for instance, I have a 2 gig connection in my house that I have, it's metered because they don't have the full build out. So they're limiting how much bandwidth you, you could use at two gigs versus one that's metering. Right. So is it, is it really that they're going to get us hooked on it, on, on intelligence? Or is it just going to be another utility that we use and that we pay, we pay to play? So if you are someone that has an LLM on your phone and you're hitting your compute threshold, you pay for more compute and you use it. Sam Altman is a sketchy motherfucker, but he's not exactly far off with what he's saying. I think that a pay to play usage model is how they monetize this thing and think of it. Just think of us, right? Think of us as a group. Do you really think in three years hence we're going to say to ourselves, I don't want to pay an extra 25, 30, 40 bucks a month on top of what I'm paying already for compute when I can do all kinds of modeling, statistical modeling, I can do all kinds of research, I can do all kinds of things, things like that, just for that extra compute. I think that it's not going to get people addicted to being smart, because the Internet was a pretty big deal. It put information at our fingertips and most people are using it to look up stupid shit, post on Reddit and be trolls online. I think that reality doesn't change. You're going to have the super users that are paying for, that are going to be willing to pay for the compute. You're going to have the everyday users that are going to pay for the computer, and they're going to have everybody else that's using it to make cat videos and shit, right? The reality is not going to change. It's just going to become a different level of stratification. First it was. The first it was access information, then it was access to the Internet, then it was access to ubiquitous connectivity through our smartphones and our smart devices and so on and so forth. And the next layer is going to be compute. They're going to commoditize it. I don't know if it's going to create a dystopia that's AGI. That's a different story. But to your point, I don't know if I think people will get addicted. But just like people get addicted to the Internet now you have weirdos that play World of Warcraft for 15 hours a day still, right? Or. Or Warhammer 40K or. Yeah, well, I, I was too. So that's what I'm. But what I'm saying is I grew out of it at some point, right? But you have people that aren't going to grow out of it. You're going to have those people that, that get stuck in the web as usual, but you're also going to have everyone else that kind of adopts and adapts, and they're just fine.
- [91:25]
D
I mean, but if my robot's doing my job, what difference does it make? I can raid 24, 7 if I
- [91:30]
B
want to, yeah, you can. But I think you got about 30 years to worry about that. Until then, let's enjoy the compute, right? Let's enjoy the compute and what this brings.
- [91:39]
C
Okay.
- [91:39]
B
All right.
- [91:39]
D
This is investment grade, right? I got one more analogy.
- [91:42]
C
Ready?
- [91:43]
D
Star bellied sneetches. Anybody else? Parents read Dr. Seuss to the.
- [91:48]
C
Okay, it's the one.
- [91:50]
D
It's the one where, yeah, some of the sneetches got stars and some don't. And the ones without the stars feel bad because they're not as good as the ones with the stars. And so then the guy comes around and he starts selling stars that you can put on your freaking bellies. And then it was like a star race to see who had get the most stars. And then he just milked everybody for all their cash and then dipped. And that's like, I can just see them doing that. With intelligence, you're gonna have like competing AI. Oh, I can get you to 140 IQ. I get you to 150. I get you to 160. And then everybody just gets fleeced for their cash. And you know, the AI companies just run off with all the money.
- [92:26]
C
Okay, so here's, here's an, here's another one. This neuralink thing has kind of got me. It's got my brain. And we'll, we'll finish on this. Like, if you had the opportunity to plug an AI into your brain, like, would you like, would you do it if it was starting to become a commonplace and it was like reasonably affordable? Like right now one of the biggest constraints on compute is that you have to be focused on it and you have to really be like plugged in. And so it's like sucking information out of a straw. Like it used to be like a coffee straw, like a coffee stir stick. And now it's like, I don't know, like a bubble tea straw. But like, what if it was a river? And like anytime you thought about something, you're attached to it, it's like, boom, you got it. Would you do it? We're probably gonna have to make that decision in our lifetimes. Super weird thought concept, but it's happening. You can be connected and think about things. Would you do it?
- [93:27]
D
You guys are the ones that are all on MacBooks. You'll be getting it off the app Store and I'm over here on Windows and I'll just be on Android doing it analog style.
- [93:37]
B
No, but it's funny that you mentioned that. So I think the reason why Apple's kind of been biding their time with the whole LLM thing and they haven't really been trying to build their own. I think they're waiting for the best one, or at least the initial best one, and they're going to embed that on a laptop as a secondary. As a secondary os. I think that, I think that's the next big step. I think we're going to have local LLMs on our machines that we own
- [94:07]
C
the data where you.
- [94:08]
B
Yeah, exactly. So like. So, for instance, under my desk, as everyone likes to talk about, right, I've got, I've got my, I've got my towers, I'm running my local models. I think we're going to have local Frontier LLMs. Once the compression technology and once the algorithms catch up, we're going to have local LLMs on our machines and we're going to pay for them and then we're going to pay to update them and the price for them will just be high. So they're not putting out models like Mini and so on and so forth because they're saying, oh, it is good for this series of questions versus this series of questions. I think they're building up the pricing tier. We just don't realize it yet. So you're going to pay for Grok Mini, right? You're going to have your yearly subscription for that that you're then going to pay for every single year. Then you're going to have your Super Grok that you can pay for every single year and so on and so forth. But the thing is, it'll run on your machine, it'll be local. I think that's the step. And I would pay 1,000 bucks, 2,000 bucks, 3,000 bucks. Think of it as like a secondary brain that I'm paying for to have it run on my machine. If I know that the LMS have, have, have become significantly more advanced, they don't hallucinate as much. They are far more applicable to other areas of my life. They are more integrated into other areas of my life because they're on a machine that use case. I think that's the big step that they're working towards. Everything that we're doing is working towards that. And I think the two big cases are going to be that and tokenization, because I use my usage on tokens when I'm doing algorithm design and so on and so forth is significantly higher than, than the monthly premium I'm paying for Gemini and all these other LLMs that I'm using on a monthly basis. So I definitely think there's a path that we're working towards right now. Whether OpenAI survives that or not.
- [95:58]
C
I don't know if it matters on that point. On compression algorithms, I just saw Google just dropped a compression algorithm eight times faster while using six times less memory, zero accuracy loss.
- [96:13]
D
What's compression?
- [96:15]
B
This is what they're calling the best analogy is like losses compression for an MP3 file. So if you copy it from whatever source and you do it in a way that doesn't, the data doesn't degrade and it doesn't lose quality while also becoming smaller and more efficient. That's the simplest way I can put it.
- [96:32]
D
Oh, nice.
- [96:37]
C
Solely, you brought up a few episodes back where talking about bits like how much content is on a bitcoin transaction. So the AI models here, TurboQuant compresses that memory down to just three bits per value from 32 bits without losing any quality. It's like effective caching of your thread. So I don't know if you've noticed, but if go into a longer thread with one of these AI machines, it's starts to get like super slow and
- [97:10]
B
just like kind of your context window blows out.
- [97:12]
C
Yeah, yeah. So, but that, that should compress so like you can just have a, a full length thread going and going and going and it, it's not going to slow down on you because it, it's ability to like understand the context of everything gets better and better and it
- [97:29]
B
uses less memory and less compute.
- [97:31]
C
Interesting.
- [97:32]
B
So take that. Right, so take that and just kind of play this off in the next one minute here. When I was a kid, the first computer we had was IBM Activa. It had a 5 gigabyte hard drive. And it was used, right? It was used. The second computer we had was a 40 gig hard drive many, many years later. That, and I thought that was, that was crazy.
- [97:56]
C
Like they're never gonna get bigger than this.
- [97:58]
B
Exactly. Now, now I've got what, where is it? This, on my desk. That, that's, that's. I think that's 60 gigs.
- [98:08]
C
Right. I think my phone's like two terabytes or a terabyte.
- [98:11]
B
And this, and this is, this is a shitty drive that I, that I use when I, when I travel just to transfer word documents.
- [98:20]
C
Right.
- [98:20]
B
It's, it's not even a good one. I, I have other ones that are much better. I bring that up to say this. So imagine two, three years from now, you've got the ability to have a Frontier model on your phone top of the Line, localized model on your phone. You've got to be able to. You have it on your iPad. Jeff would have it on one of his four iPads. Right? Got on your laptop, got on your computer. Now just picture this. Someone like me. I've got five computers. Well, now six computers in my office in different areas. I've got a different LLM, a different frontier model on each one that costs me a lot of money. Right. I network them together and create a cluster. I've now got five frontier models working for me in my office, doing all kinds of things locally, like at like
- [99:18]
C
crazy speed, like crazy, no latency, because
- [99:22]
B
computers are getting faster. And the reason why I brought up Max is there's a reason why they're integrating neural chips and GPUs and they're going with a system on a chip model. It's because it's more efficient. So just, just imagine a future where you have five local frontier models running in your house or one frontier model. Whatever the hell you choose to do, it's going to cost you three grand a month. If you're someone that can afford it. Imagine how productive you'd be. Imagine how productive businesses would be. And this is not me talking about like, you know, people become unemployed or anything like that. What I'm saying is that is the
- [99:59]
C
model, car models you could run on digital credit.
- [100:03]
B
That's what I'm saying. Just imagine the different ways that you can take it. Imagine all the different options models you can come up with Soleil, just with a Frontier model that is local, that, you know, Big Brother isn't necessarily watching on. Right. You can even have it air gapped if you want, because once the model is downloaded, you can air gap. You don't even have to hook it up online. You can just work on it fully locally. So not just local on your hard drive. You just, you don't have to hook up the Internet whatsoever.
- [100:28]
C
Right. Wow.
- [100:30]
D
Yeah. I wanted to ask you about local inference because I'm still too paranoid and I like, I don't want the cloud to have, you know, root access to my machine is, you know, is local inference something that we're all just going to be able to do cheap?
- [100:44]
B
I think, I think that's where, I think that's where it's going. So the. Right now the local model. So I haven't, I haven't upgraded my model yet. I'm still running llama 70B, right. So that, that is okay. Now, when you compare it to what Claude has, right. With regards to opus and Gemini, and 3.3.1 and whatnot. Right. But when they have an ability to have a Frontier model. So let's say it's a. Let's say it's a giant file. Let's be ridiculous. Let's say it's a 40 terabyte file that you have to download. Right. But it's a Frontier model. You paid the thousand bucks for it. You paid the 2,000 bucks for it. It is your GPT6 or whatever, right. You run that locally, the LLM, if you have. And if it's. If it's properly compressed and if they make it so that it can run locally more efficiently and the model can run on your machine. Because the computers have gotten faster, Right? Computers are getting faster and faster every year. So we're talking two, three years hence, and we actually reach a point of equilibrium where we have the local gpu, the local cpu, and the local LLM at a point where they can run as a Frontier model. People will pay out the ass for that.
- [102:06]
C
Then there's gonna be competition on it. It's like. Yeah, exactly. Oh, my God. Just a race to the bottom, though, at the same time. So it's like a race to be the fastest, but erase to the bottom. Yeah.
- [102:19]
B
So, like, as you pay for your OS right now, like, we already have a. If you have, if you have Windows. Well, even if you have Mac os, you have. You have Microsoft Office. Right. I still remember whether that was a disk or a download.
- [102:31]
D
Yeah.
- [102:32]
B
And then if you wanted to upgrade, you chose to. Now. Now it's a subscription model. All right, so now your LLM is a subscription model. That's how they. I think that's how they.
- [102:43]
C
That's probably how they do it, right? Yeah, yeah, that's how they do. But it's a function. Like all of the, all of the systems are going to be a function of, like, how much compute they can. Well, I mean, the compute would be run locally, like if you help. If you had your. Oh, interesting.
- [102:58]
B
So. So what the. What I'm running Llama is running on, it's running on my tower right now. I, I don't, I don't have any other external compute power besides what's on my tower. But that. That's why I'm saying a Frontier model versus a local model, that there's a wide difference between Frontier models and local models right now. It's massive. What I can do with Claude, what I can do with Gemini, nowhere near Llama is nowhere near that. Right. So what I'm talking about is the frontier model. So imagine the lowest tier of a frontier model that we can run locally right now. Like in the future is the best we can run right now. So imagine Claude right now locally. I think that's what's coming. I think that's what they're working towards. And the reason why they need all the computer and the compute build out is to be able to compress, refine, restructure, get the LLMs to that point where we have the ability to have the individual local compute match the frontier model, the frontier model specs, and run it locally. That's what the build out is for. That's what they need to compute for. That is my view. So, you know, I think that the ability to have your own local model that you can do all kinds of proprietary work on becomes a very, very attractive proposal. And I think that is when the acceleration takes off, because then businesses no longer have to worry about what. I spend 60% of my time when I'm talking about these businesses doing AI implementations.
- [104:31]
D
All.
- [104:31]
B
All of my conversations for the. For 60 to 70% of the engagement is internal compliance and information security. They don't want these systems having access to files. They don't want these systems having access to proprietary information. If you have segmented local models that are frontier quality, that no longer becomes as much of a concern. So I think the boom that everyone's talking about is still three to five years out, but when it hits, it's going to be very disruptive.
- [105:02]
C
Yeah, that's what everybody's working towards. So, like, the AI models that we know of today are just gonna.
- [105:07]
B
They're gonna look different, fundamentally different.
- [105:10]
C
They're just gonna be on a different platform. Yeah.
- [105:13]
D
Yeah. So to answer your original question, Jeff, if I was paralyzed, I would stick a whole bunch of shit in my brain and move shit with my mind and play video games or whatever, but as long as I can carry my ass down to the sunrise and on my own two feet, he ain't plugging nothing into my brain. I've seen that movie.
- [105:36]
B
Yeah, the neural link is.
- [105:39]
C
I don't know, man, but like, I'm not there yet. I'm not talking about your, like, local computer AI machine in your brain, like, plugged in. Like, do you. Do you fall behind? Like there's a prisoner's dilemma problem, right? Like, if you. The people that do it are gonna. Are going to be more intelligent and faster and better than you.
- [106:01]
B
Well, has anyone here seen Ghost in the Shell? I don't mean the movie they made, I mean the Original anime. Has anyone ever watched Ghost in the Shell?
- [106:07]
D
I gotta go back and watch it.
- [106:08]
B
You should if you want to. If you want to see what a world where people plug into their, plug their brains into computers and what it can look like. That. That's Ghost in the Shell. I'm not ready for that.
- [106:17]
C
Dude.
- [106:18]
B
That's, that's, that's a bridge too far for me. I'm all about tech, but
- [106:24]
C
problem. Let's kick that one out. Yeah, yeah, yeah. All right, well let's, we're, let's wrap it up here. Final thoughts. Dan, let's kick it over to you. You've been observing, observing the landscape here. What, what's final thoughts?
- [106:39]
A
Yeah, I mean I think there's big developments in the credit markets here. Like the, the fact that we're seeing a bitcoin local bottom coupled with an STRC max bid for two weeks every single month, plus a fracture in private credit and uncertainty with regards to future cash flows which finance the entire credit market across the globe, I think is an interesting intersection of what it means to have capital that outpaces the interest on bank reserves, short term fed funds rate. I think all these things are really important and I think Bitcoin's becoming the base layer settlement mechanism that is funding the higher interest rate environment we're going into. So I think that's part of the reason why Stretch is such an important instrument is because it doesn't take on principal risk and it can absorb interest rate volatility moving forward. Because ultimately I think interest rate volatility, the next 10 years is going to be massive. There's going to be massive 10 year, 30 year interest rate volatility. The MOVE index. Right, the MOVE index, which is a index of bonds in the U.S. this measures sensitivity and uncertainty across capital markets and that's what we're going to be seeing more and more of as AI becomes a more disruptive force. For all those reasons, you want an instrument that has principal protection in different interest rate environments. And I think that's why STRC has such significant and important product market fit and look forward to seeing that play out.
- [108:09]
C
I mean so many things. Great review there. Corporate bonds, corporate credit are a function of the productivity of human capital. Like the last 45 minutes we've been talking about how digital intelligence is going to make human capital. Maybe it makes human capital more productive, but it's almost makes it a little bit more irrelevant. So if you've got all this corporate credit as a function of how productive your human capital is, if Your human capital is not keeping up. Digital capital is going to be a better form of credit because of the productivity of AI and computers and that intersection there, that's interesting. And then you bring up interest rate volatility going back to sovereign credit. Sovereign credit is a function of your society. How, how well are you able to tax your society? And like what is a function of the, what is a function of inflation and monetary supply and your ability to control like how your society is moving and changing? If you're, if your society is leaving and moving and you know, taking their capital into different forms like that is, there's going to be disruption and volatility. I totally agree with that. Great summary. Pass it over to you, Soleil.
- [109:33]
D
Yeah, so Dan, I think you mentioned this guy in your recent video as well, Sminston with, and he had a very interesting graph. He's a power law guy and he graphed the ratio of the bitcoin's price to the cost of production power law model. And if you, if you look at those trends, it actually looked like there's a possibility. We were, we've been in a bear market since 2022 and if that's the case, it was almost kind of like a crab accumulation phase. And if that's the case, then we actually had, in USD terms, we had a bitcoin, a bitcoin all time high in the middle of a bear market. And, and I can't think of anything more bullish that I could possibly say than that because when the bear is over and we've already had an all time high in the bear, you know, like what happens in the bull market. So I, I couldn't be more excited. I, I hope it's all true.
- [110:40]
C
Completely, completely agree. Completely agree. Yeah, like the interest rate environment's completely different than 22, you know, capital still relatively tight, not a ton of credit expansion, still some concerns on inflation and all, all systems go. Right. Like Dan, as Dan mentioned, you got stretched as a permanent bid becoming a permanent bid on bitcoin on the bottom end. And it's created this surface for people to be trading in and out of this instrument, just like the common equity.
- [111:11]
D
Oh yeah.
- [111:12]
C
Over to you, Adrian.
- [111:14]
B
Yeah, so I think that stretch has been very, very fun to watch these last few weeks. I, I'm very pleased to see that it is getting to a steady state sooner than I thought. I think that strategy has a real winner there that they can leverage in a variety of different ways. It's going to be a consistent bid on bitcoin. I'm very curious to see what happens geopolitically. This is not me getting political, this is me see. I'm very curious to see what's going to happen and how it affects the markets also. And I'm watching the developments in AI. I think there's going to be a lot of crossover between the impacts that AI expresses on the market and how people view money, kind of to the points that, you know, you and Dan were just discussing. I think that having instruments that are backed by pristine collateral are going to become more and more necessary in a world but where you have no idea of what inflationary pressures are going to take place, what deflationary pressures are going to take place, and what kind of disruptive events can happen in markets at any given moment. If we've seen anything in the last 18 months is that volatility is now becoming something that spikes and troughs within 24 hours, very, very unexpectedly from a tweet. So it is going to be very interesting to see how people navigate that in the future and what kind of instruments they gravitate towards. And I think that in a future like that, something like Stretch has a home. Bitcoin obviously has a home. And it's very exciting to be part of this. I guess you can say build out of a new digital capital infrastructure in the world is the best way. I'll describe it most succinctly. And it's going to be fun to watch it grow and be part of it.
- [113:08]
C
Capital's changing. Absolutely. Absolutely. My final thanks, Adrian, and glad to have you back. Appreciate it. And my final thoughts are the world is in total chaos and there's a lot changing and bitcoin feeds off of that chaos. And digital credit is a category killer. I mean, these instruments appear to be performing incredibly well and provide a really good opportunity cost against the existing credit system. It's taking this old credit world and moving it into the new credit future. So I couldn't be more bullish about just the structure, the plumbing of this entire marketplace, the relative health of the industry, etc. And how that's shaping up. So appreciate the time. Thank you everybody for joining. Like and subscribe, please. That helps push out more information and content. Go check out our new website, t north.com and look at the digital credit topics. Check out the thesis, it's really long. If you want to, you know, bore yourself to sleep, go check it out. And yeah, appreciate the time, everybody. We'll catch you next week. Signing off.
- [114:18]
A
Cheer on.