Dan (5:39)

Yeah, I mean I'm personally super excited about the Morgan Stanley etf and we'll get into some details about how not only is it an ETF but it's really them becoming a full, full on service provider. And I think what stretch is showing to these banks and you know I really do believe the banks are working with strategy on Stretch. You know maybe not the banks but large institutions that the banks are in contact with because this price behavior is not random retail people arbing below 100 like someone's got an algorithm running with billions of dollars or well millions of dollars in this case arbing these, these price movements. And it's either someone that strategy has talked to and indicated, you know, their own, their strategy of how they're managing STRC or someone you know, who's a big player and, and sees this as beneficial to make the market. So I think all the banks are starting to move in to, to really like what, what MSTR and STRC are doing.

Jeff (6:37)

So I, I want to, I want to drill in on this topic because this is such a fascinating topic and I, I think that not many people are thinking about this like why does it work? Like who's there on the bottom right? Like that's what you're trying to point out Dan is that there's someone there at 99.99 and a half a penny that, that's pushing it back up. It's like push it back up to 100. Sit there because we know it's not strategy, right? Strategy is not in the market. They're not going to buy it to push it back up. They're not manipulating it. There's somebody in there that's pushing the market back up. So why is this happening? And, and I've, I've thought a lot about this and you think about just the history of high frequency trading and how it's evolved over time and high frequency trading has all been about, about trying to get a squeeze a penny here and there of like relative risk free return. And it evolved on these companies were moving closer and closer to the New York Stock Exchange to get that one half a point of second advanced notice of a trade and get one penny in front of it, right? And that started creating different arbitrage opportunities throughout the market. This has evolved drastically over the last 20 years. I think the statistics nowadays, I think the last I saw was around 70% of the market. Trading in the equity market was algorithmic. I'm sure with the advancement of AI in the last year that number has continued to rocket and it could go higher. And it's not just corporations now that have access to these trading algorithms. Humans can do it, right? Theoretically, all of the people on the screen, even the people listening, they can go use these AI instruments or use AI, figure out how to develop a trading algorithm where that if you see an opportunity, if you had some idle cash, if you saw an opportunity, you could sit on the bid at 99, 99. And if it hits it, you buy it and you hold it until it goes up to 100. And you could just scrape a penny and you could continuously do this. I assume companies are doing this and they're probably doing it a little bit on leverage as well because it's a relatively low risk trade. The fascinating part here is that the, the downside risk of holding this instrument, if you were to go do this in any of the other equity markets, you generally target areas of liquidity. You target areas where there's high liquidity. I could go in and out of a trade very quickly. And now those instruments that typically have high liquidity have no yield profile. They have large downside risk. So if you're caught in a tail scenario, you have no yield. Now what makes these incredibly fascinating is that they've got the liquidity and the yield. So if you bought it at 99.99 and the price falls to 99.50, the downside is you're holding an 11.5% yielding instrument on an annualized basis, payable monthly. And so you're going to have multiple opportunities to get out into the future if you needed to get out of that position. And you're going to get paid along the way to hold it. And you know that they've got at least two years of US dividend USD cash reserve. So the relative downside risk profile of coming in and arbing that spread and pushing it back up to 100. So incredibly low relative to the other arb opportunities in the market. And that's this incentive structure, right? Like that's the design of the product. The design of the product is it creates that incentive structure to be there to do that trade. I think you're right, Dan. There's some big capital that's sitting on it. And whether that's a bank and they've got some partnerships doing that, I don't know. I guess it doesn't really matter even if there was. I guess they don't need a partner. But there could be a partner, but they don't. They just need the credit profile.

Dan (10:23)

Exactly. As long as they have the liquidity and they stay true to their guidance with how they're going to manage the dividend rate. They'll inspire trust in the high frequency traders that come in and make the market. So that's what Sailors always said. He's like, we'll let them participants say, CJ said this to me as well. We'll let the participants make the market for us because obviously they could buy back. They themselves could go out and tender the shares at below a hundred dollars and they could get all tricky in the market themselves. But why would they do that? They won't provide enough liquidity. They can't. And so they're seeing the incentives are aligned such that the market's able to provide enough liquidity for what will be a billion dollar a day volume instrument.

Jeff (11:00)

Yeah. So the other fascinating thing here is that, and this aligns with one of the questions that was on the true north astronorth is why do you guys call it credit? It's like it's an equity instrument and it really makes you redefine what is credit? This is a credit risk instrument. Is the company credit worthy? Are they going to pay the yield that they say they're going to pay? Are they going to pay it into the future? And you have to underwrite that credit profile. Now you're not a technical debtor and you do hold an equity position in the company, but there is a residual claim and you are senior to the common stock. So it's technically like a hybrid credit instrument. But if they get to the capital structure that they want to have by 2029 where they remove the convertible debt on the balance sheet and they're an equity only balance sheet, you're going to be the most senior. The prefs are going to be the most senior thing on the capital structure. You're going to have junior equity, you're going to have common equity. That's junior, but that's still credit risk. You're taking on credit risk on whether or not this company is able to pay that instrument into perpetuity. And that's why we're calling it digital credit. These are credit instruments with credit risk.

Mike (12:15)

With the Algo. Are you saying that the three shares of Stretch that I bought today was some algo's exit liquidity? They made three cents off me. I was actually, I usually put in my, my limit price but I actually just was too quick with it and I just hit the default and I went and checked my cost basis because I was going to be pissed If I paid 101 penny. But I was good to go. I got filled at 100. So we're safe mark. Safe from overpaying.

Jeff (12:41)

One penny marked safe. Yeah. And this is something I've been talking about a lot is that that liquidity profile like this is turning moderate duration capital management upside down. Like this is blowing treasury, like it should blow treasury managers brains. Like how do you interact with this if you're a Treasury manager? If you have more than 12, you have more than three month capital or six month capital and this thing trades $300 million of volume. You might be comfortable holding $150 million of volume in this thing if you had three or six month capital because you know that there's significant liquidity in the instrument. Now we've got to see it play out over time. Like does that volume continue out over time? I think it will because of the incentive structure that's been designed and the way this has been created. But that starts to create a very compelling opportunity for a Treasury or capital manager for moderate duration capital. The alternative is you go invest in HYG. And I think HYG is a high yield ETF which is pretty liquid but the yield is like 5 or 6%. And you think about the relative risk profile of that. It's all tied to high yield bonds. Do I want to be tied to high yield bonds at 5 and 6% for liquidity or do I want to be looking at the digital credit instruments between 11.5 and 12.75 with liquidity? And that 700 point delta might be worth the alpha on your moderate duration capital. But going from 450bps to 550bps might not be worth that additional alpha.

Mike (14:27)

You think those algos get tweaked near dividend date because if they're just trying to snatch pennies, but if you can just hold it for one more day for ex dividend and get paid almost an entire percent, it seems like that's way more profitable than just trying to squeeze pennies out of the art.

Dan (14:44)

I think you don't have to worry. These guys, you know, in talking to some of the people who work on the quant desks that Citadel and Jane street, they think about most everything you can think of times 10 times you can't think about.

Jeff (14:57)

So they understand everything. Yeah, yeah.

Mike (15:01)

Every time I have a good idea for an invention, somebody's already got it.

Dan (15:04)

Yeah, exactly. This is why you don't day trade 101.

Jeff (15:08)

Well, well the, the really. I think the most fascinating thing is the day after the record date or the day after the ex dividend date after the the first day where you don't get paid the dividend and watching the price performance on that day. So what's the dividend now is like 95 cents? I don't know, it's near a dollar, right? Near a dollar. But exactly. But the price the day after the ex dividend date didn't fall a dollar. It felt like 50 cents. For the past three.

Dan (15:34)

For the past three it hasn't fallen below the monthly dividend distribution.

Jeff (15:39)

Yep. So that, that's fascinating. And why, why is that happening is because again there's an arb opportunity. You come in like I'm going to hold this, I want to be in this trade regardless. And I might buy it on the day after the ex dividend date. Maybe I front run. Maybe I ha if I'm a capital manager, maybe I have some cash, right? USD cash and I hold it for 12 months and then anything over 12 months I'm gonna hold an STRC just for as an example and if I had that cash, there could be a situation where you would front run your dividend. You know you're going to get paid the dividend in 15 days. But I've also got cash on my balance sheet. I could just deploy my cash on the first day after the ex dividend date, snag a couple basis points of additional alpha and ride that puppy back to 100 knowing that you're going to get dividend and you're long this instrument anyway.

Dan (16:26)

There's kind of two competing investors on that ex dividend date. Right. They're those people that care about the time value of money. And right now I think ultimately it all boils down to the that fact fact. There's more buyers and sellers in the STRC market, but there's people that are going to enter on the day before the ex dividend date and then try to sell on the ex dividend date in order to capture as much of the dividend as they can while exiting at a loss less than the exit when they're paid. So they're essentially getting overnight risk free money. Okay, then on the competing side of that trade are those people that will buy the shares from them once they go to sell them on the ex dividend date are the people that Jeff are explaining. So those two cohorts are competing as the making the market between 99 and 100 on the ex dividend date. So that's where you're watching in real time. It's kind of interesting to see.

Jeff (17:10)

So the fascinating thing Dan on that point is the I think that establishes the new risk free rate. Right. So if you did that every single month, if you bought on the record date and you exited on the day after, and so what is that? Like you're going to do 12 trading days work. Yeah, you're gonna do 12 trading days of work for whatever that return is. And it might be 6%, 7%. Like how much, how much risk?

Dan (17:37)

It's, it's a little less than half the div. Over the past three dividend payouts, it's been like a little less than half the div.

Jeff (17:44)

Okay. So yeah, 5%. And, and that will, that will compress. It'll be interesting to see how people start to think about that. Right. If you're thinking about that as like a risk free trade. Because you know the game theory, right? Like everything we're talking about right now is the game theory of the people that are in and thinking about the trading, who's trading these things, who's longing on them, who's shorting them, who's in out, who's arbing certain things, what are they doing, what are they going in between? And yeah, it's, it's, it's totally, totally fascinating.

Dan (18:13)

And to add to that, it's, it's going to be a function of whether or not people believe that the dividend will be increased or decreased over the, in the coming month. So like if, if the dividend is expected to increase in the coming month, then the drop on the ex dividend date should actually be less than the dividend paid out because you're getting, you know, actually increased yield when you buy after the ex dividend date on an annualized basis because you're expecting the yield to increase and vice versa. You, you know, the drop in the ex dividend date may be greater than the dividend paid. If you're expecting the yield to fall the following month because the cost of capital is actually, you know, your return on capital is less after the ex dividend date because of an expectation of drop in yield. So that stuff's going to be like, I mean it's just going to get worked into the algorithms.

Jeff (18:55)

Yeah.

Dan (18:55)

People don't have to worry their heads with that.

Mike (18:59)

So, but the, the, the rate has only ever gone up, right?

Dan (19:03)

It's made flat this month.

Mike (19:05)

So if it goes down, is that like, is that a huge deal the first time it goes down?

Dan (19:10)

I think so. I think it's a massive deal simply because obviously they have two mechanisms to suppress the price. One, ATM capacity, right? The ability to ATM and then Two, the dividend rate decrease. So if they decrease the interest rate on sdrc, they're essentially signaling the market. We have more demand than we have capacity to issue atm. So either there's a real problem with their ability to expand their balance sheet by issuing MSTR common and they're hitting their max amplification ratio, which clearly isn't the case, or two, they have infinite demand for the product. So I think it'll actually be a bullish signal.

Jeff (19:42)

Yeah, we see. Should be. But the, the fascinating thing here is that the actual true risk spread between everything else is so huge. Like it doesn't change, it doesn't change the, the mechanics. Right. Like it could be, it could be nine and all of the mechanics still make sense.

Dan (20:03)

Totally. I think it's more indication for management, right? Yeah, it's going to be a cool indication management, but you're totally right.

Jeff (20:08)

Yeah, because I'm so. Go ahead.

Mike (20:10)

Yeah, go ahead. I was going to say I was wondering about it because there's, there's such a thing called the, the, the tariff. I'm sorry, the, the taper tantrum. So when the Fed wants to like raise rates, sometimes the market will just get pissed off and the whole market will tank. And I was wondering, is there, is there any possibility of that, of like stretch holders just being so spoiled that if they try to lower the rates they'll you know, throw some kind of tantrum and, and you know, tank the price or anything?

Jeff (20:38)

You could exit, but what do you exit for? Okay,

Grain (20:46)

that's the key point is that if you, if, what else do you put your money in right now? You know, one of the cool parts about STRC is that when it got launched, what in July, and Fong said this on his interview with Natalie Brunel, is that now it's functioning in a bear market in a crypto winter. And it's been doing great given the price. You know, Bitcoin is down 40% from all time highs and it's done great for the past three months, as Dan just said. And from that perspective it's being stress test and the fact that it's working this well in a bear market, I think in a bull market it works even better. And people are like, well, in a bull market everybody's going to leave STRC and go straight into mstr. And I don't think so that I think there's two different buying criteria or two different cohorts of people that buy these instruments or pools of money. Like we've heard this before, somebody that Buys a bond buyer is not an equity buyer. And so I think from that perspective, I think in a bull market, I think this product's going to work even better than it's working now. And it's working great right now.

Jeff (21:48)

Yeah.

Mike (21:49)

There's a few people that I, that I know are happy to have a certain amount of their fixed income, and they're literally just buying strategy with the dividends. So they almost kind of feel like that's a steady drip into strategy itself without having to worry about 100% of the volume.

Jeff (22:06)

I've seen people do that with STRIKE as well, do Stretch and SATA into Strike kind of rolling. Rolling them into different instruments. It's a fascinating structure, but the. Yeah, I, I'm obsessed with the algorithmic trading and just the design of this thing. Right. Like the fact that it's traded $300 million and two pennies is just insane. And we've been seeing this with our instrument as well. Like, we just paid the dividend, it hit par and it dropped down to I think like 97.50. Now if you look back to 15 days prior, after the strategy dividend, it dropped down to right around the price that it was right after the strategy dividend. So which is about in line. People are what it seems to be making that same ARB decision, but also factoring in price appreciation. So it's price appreciation less the dividend. And if there's still a buffer there that that trade still makes sense. It's the same rational perspective. And the instrument is traded within that. Within that price range, which has just been fascinating to watch. We're effectively riding the coattails of what strategy has created with stretch.

Grain (23:17)

Yeah. But I want to say something a little bit differently. Using an electrical term, they're out of phase.

Mike (23:25)

Right.

Grain (23:25)

Because you have. You guys are two weeks apart from your. From your ex dividend dates. So whatever, whatever strat would. I want to use that word, whatever algorithmic trading they're using for strc, they could then assuming that it works also for seda, they could apply that to yours, and those are offset by two weeks apart. And so having two instruments that work like this is very helpful in the market. If you guys were aligned on the same ex dividend date, that really wouldn't work as well. So I think that that's a really great thing that, that, that SATA is, is offset.

Jeff (24:01)

It.

Grain (24:01)

It. This is one of those things where it's like a simple thing. Oh, the dates are offset and that's really, that's really great. So I, I think that's, that's how these algorithms, they've already figured this out. Yeah, months ago.

Jeff (24:13)

The, the trading, the trading pairs, like just the number of different trading profiles that you can create between the two. And, and if these both start pegging at par with high volume and high liquidity, that starts to become very fascinating again, the arbitrage opportunities between the two. I mean you don't have to do that, but I think just the fact that it exists that you have these yield instruments backed by big balance sheets of bitcoin that are relatively liquid publicly traded risk can be managed and viewed 24 7, 365. And the price of the underlying Bitcoin can be priced 24, 7, 365. It's just, there's never been anything like it. The arbitrage surface is so large. I think this is the most lucrative arbitrage surface that has ever existed between all of these digital credit instruments. And as they continue to evolve and become more liquid and more mature, they're just going to get more exciting.

Dan (25:14)

I think you're right. And it's such a big idea. I always go back to that Hal Finney quote. Like banks, Bitcoin will be the collateral reserve settlement layer between banks which will issue their own digital cash on top of the settlement layer. This exactly what this is like. These are competing monetary systems, stablecoins, issues of payment currencies issued by large corporate holders of the assets. It wasn't banks at the beginning. This is exactly how paperbacked or paper notes were issued against gold in gold vaults, you know, throughout the 18th, 19th and 20th centuries. So it's remarkable to see it happen real time.

Grain (25:54)

Yeah. And the other part I'm going to say is that, you know, assuming it's amazing that if it moves at one penny, there's enough trading volume, you know, for today it was 22. Pick which metric you want. 2200 bitcoins were scooped up by strc. The number could be a little bit higher. So. So if you use that. But the interesting part is that 3,298 bitcoins were picked up for the whole week, which is Monday, Tuesday and Wednesday. STRC does not trade on Saturday and Sunday. So when you look at that 3150 being the amount of bitcoin that's produced for the whole week. So STRC and today's only Wednesday and has already purchased 105% of the mined bitcoin. Now we know that they don't sell 100% of the mined Bitcoin every week. But that's a good metric to look at. You know, back in the old days there was a metric coin, days destroyed. You know, you know, you know if you're moving your bitcoin, that means you wanted them to stay more stable because that would mean the supply is moving. So this is just a new metric that we have right now in this new regime. And so when I look at that, that were 105% of the, the weekly Bitcoin and you have two days left. So as long as this continues positively, I think that strategy could potentially just on strc could buy let's say 5000 bitcoins or 7000 bitcoins on a weekly basis, which is a huge number because seven times 12, like everybody knows is 94. Right. Did I do my math right? I did, yeah. So that would be 94,000 bitcoins if they can maintain 7,000 bitcoins a week. Now some weeks they don't acquire as much. But anyway, the other thing is the seven day volume on STRC dropped down to 0.6%. It's not even 1%. Yeah, yeah. So you know, we could talk about Sharpe ratio or wherever you guys want to go with this, but that volume continues to drop. So the other thing is that to make the math simple, strc is $100 par value. And when you talk about bips. So when Saylor says one penny, that's one bip. Right. And 100bps is 1% which is $1. So the reason why you use the term 100bps is because, do you mean 25% of the total or 25% nominal amount? And that's why they came out with bips. And so when you're talking about something that moves one penny, it's, it's one bip because a hundred bips is 1%. And so when he says it trades at one penny, people are like, I don't get it. I'm like, that's one bip. And if you say that to a tradfi guy like Jeff, you started this off by, this is the most interesting. It traded one penny either direction. Yeah, right, right. So from 99.99 to a hundred dollars and one penny, it's crazy. The volume sharp ratio is going to

Jeff (29:02)

go, go explode higher astronomical. It's going to blow people's brains. Right. Like, and I think that's, I think, I think sailors just excited for that day. It's just going to be like, oh, our sharp ratio is 40, you know.

Dan (29:16)

Yeah, no And I think, and I think, you know, we talk about, and I know Ben likes to chime in here, like sharp ratios and the best risk metric. Yeah, I agree. Okay. But when you think about the credit quality of STRC specifically looking at a corporate risk perspective, a cash reserve dividend buffer plus the total assets of total Bitcoin collateral assets, you know, is there really a difference in the credit quality of strc if bitcoin, like if it's 3x over collateralized by bitcoin or if it's 2x over collateralized by Bitcoin? I'd argue no.

Jeff (29:46)

Right. Because you have two years mathematically. No.

Dan (29:49)

Like you have two years of the dividend coverage plus you have an expected growth rate of Bitcoin. The different coverage is the difference between 30 years and 50 years. For most investors, it doesn't even register in their lifetime. This is all kind of esoteric credit rating. So my question is we all think of SDRC as being directly correlated to Bitcoin price. And it has been during bitcoin sell offs over like a few months ago. But my thought process is the credit quality doesn't materially change If Bitcoin's at 70k or if Bitcoin's at 40k for strc specifically. And then in the future that same math will apply for higher and higher Bitcoin prices. So there really isn't any reason for it to trade off unless there's some sort of auto deleveraging event, which I still think is possible at some point in time. But again, the credit quality is. It's just very interesting to think about.

Jeff (30:42)

So, Dan, I have this visually built out. This is Strategies. So if you go on Strategy's website, they've got a credit tab. You could go over here, you could see all of the debt and the preferred equities and they've created this credit column. This is the credit spread necessary to offset BTC risk for a given security. So you can plug in different volatility metrics here, different ARRs, annual rate of return for Bitcoin and try to get an understanding of what is the value, what is the credit default swap value of the BTC rating effect, the effective collateral. If your asset is compounding at that and your volatility is compounding at that. So what this does. Just to your point, I just want to emphasize your point, Dan. And I've got SATA on here as well because I was looking at this separately. But let's just say Bitcoin has 40 Vol and 30 ARR. So this blue line is stretch. So you come here and you look at. So the credit spread between a BTC rating of 4 goes from what is this, maybe 5 bips to 7 bips if you go from 4 to 3. And if you go from 3 to 2, it goes to 19 bips, mathematically. And if you think the Vol of bitcoin is going down, you could see how this just compresses effectively to zero, right? Like, so if the volume goes down, this stuff compresses effectively to zero. And then you can think about having a thinner BTC rating because the volatility of your underlying asset is going down. And you can, you would theoretically be able to have a higher amplification ratio as the volatility goes, as the volatility of bitcoin goes down and the ARR goes down, which you would think would happen as the asset itself becomes larger and larger, as it becomes a larger $5 trillion asset, $10 trillion asset. Takes a lot more capital to move it in any one direction. It's just a math, just a math equation on how much volatility there will be in the future.

Grain (32:40)

But. So I want to, I want to, I want to address that for, for, for, for an interesting point. So if you go to true north.com and we have our website and it says when, when, when strategy will hit a million bitcoin. If you look at the historicals and what's crazy about this is that the top 5/4 strategy has been acquiring Bitcoin for 24/4. So if you scroll down, and you scroll down here, this is where it gets crazy. Is that. Keep on scrolling. I'll show you where this is. So it's a little bit weird. So there's a quarterly ranking. Go back up again right there and hit the. Where it says view all 24 quarters. Okay, what's weird about this is that the top five quarters out of 24 quarters, right, acquired 62% of all their bitcoin. And the price of bitcoin was much higher than if you look at the lower quarters. So what's happened is over the past, since 2024, end of 20, if you look at, and you look at the dates, right? If you. This is Q4, 2024, Q1, 2026. And then if you go, you know, 2025 is the next. Is. Is. Is the next three. And then Q3, 2020 is an, is an anomaly. But if you look at the. Sorry, Q3, 2025, the top five, they acquired 62% of all their bitcoin and the price of bitcoin was higher. Diminishing returns has not set in for strategy. And this is the counterintuitive part. They're at 760,000 plus bitcoins and their ability to acquire has gone up. So I think it stays like this until they get to one and a half million bitcoins. And this is the part that's super counterintuitive. And the other thing, the way percentages

Dan (34:35)

work,

Grain (34:37)

assuming if you scroll down to the next table where it's the quarter over quarter and it shows the percentages keep on going a little more. Okay, so if you look at the quarter over quarter percentages and you scroll down to the bottom there, it's, it's, it's 16%, right? 16.14%. But they have some quarters where the fourth quarter of 2024, they acquired, what is it, 70, 77%. So the average gets skewed by their ability to do this. So, so I totally get that. But the weird part about this is that they're able to acquire more bitcoin as they have more bitcoin. But let's just assume it drops to 10%. If they have a million bitcoin or 760,000 bitcoin, and they're accumulating at 10% a quarter, 10% a quarter, that's 76,000 bitcoins per quarter. That's where this stuff gets crazy, is that as the base builds on a nominal amount, the bitcoins continue to get larger in nominal amounts. Even if the percentages stay the same, and even if we get diminishing returns from 16% down to 15 or 14%, that's still a huge number. So I think, I think for the next year and a half, this is going to surprise everybody. I think once, you know, what's the narrative, once they get to a million bitcoin, when do they get to 2 million? And as they acquire this, as the, the volatility on stretch drops, their ability to acquire is going to go up

Jeff (36:14)

and the common gets more interesting as well. As the underlying price of the bitcoin moves, the common gets more interesting as well. That means every, so what, they've sold a billion and a half of this stuff. With the price of bitcoin down at like 65,000, the price of the bitcoin hasn't really moved yet. But when that all of the bitcoin or all of the stretch that they've sold with the bitcoin price of 65,000, when that puppy goes back to an all time high 126,000. Almost like all of the stretch that they sold is paid for forever.

Grain (36:49)

Yeah, and that's the part that I keep on saying to people. I've been on a lot of spaces and what I say to them is, look, STRC is amplified versus mstr. And what does that mean? Well, STRC is not counted in the basic shares outstanding or in the Adso assumed diluted shares outstanding. So they're buying this bitcoin. It's issued in shares, but because it's in a different bucket, Digital credit, which is more like a hybrid form of debt, it's not in the same bucket as mstr. Now, STRK is if you go. If you were to go to the strategy website right now, we can show this to people real fast. So if you go and you go to shares.

Jeff (37:30)

Yeah, we talked about this.

Grain (37:31)

Right. And then scroll up, if you see here, you'll see that the converts are listed. And if you scroll up to the top, you'll see basic shares outstanding. So you have your basic shares outstanding, which is 349. And if you scroll down to the bottom, you have Adso. This is where I keep on coming. Assume diluted shares outstanding. Right. That's the bottom row. But strc, you notice, is not on this page. STRK is because it can convert, but STRC is not listed on this page. And that's the amplification that we're talking about. And when I tell us to, people, like, I don't get it. And I'm like, I. I don't know how else I can explain this. I mean, and that's why the amplification comes in, because they're able to buy Bitcoin, which goes to the bitcoin per share of MSTR and strk, and obviously the converts. But that increases the bitcoin per share. But those shares are not counted. It does not raise the denominator.

Jeff (38:28)

Yeah, but it goes into the valuation of the company. And this goes back to. What's the purpose of MSTR? What's the purpose of STRC? I mean, MSTR, I think today traded two and a half billion dollars. MSTR traded more volume than IBIT by like 25%. Okay, so why is that? Because it's an expression of Bitcoin. MSTR is an expression of Bitcoin. It is amplified Bitcoin. This might be interesting to walk through here. This is kind of getting to this margin. This is something I've been trying to think about how to frame. Right. Like every product, every. Every share of STRC that they sell is going to make money over time, right? Because they sell a share of strc, they take that money that they brought in the door and then they go buy bitcoin with it. Theoretically, they could sell the bitcoin to pay the dividends. That's one option. Or you could raise capital to pay the dividends, that's another option. Or you could use your operating business, pay dividend. That's another option. And what I wanted to assume here, let's just pump strategy. And so you could see annual dividend rate of 11 and a half. What I've built here, you can have three different, I've got three different Bitcoin return epochs. So I just broke them down into four, into four year categories. So if we assume the next four years of Bitcoin price appreciation is 35% and then the following four years is 25% and then the following four years Is 20%, every share of and strategy has the ability to access or, or to use the ATM to pay the dividend. Each share of STRC sold today would, after 12 years would have a 1,681% margin, profit margin. It's like the total return of the bitcoin held as a function of the STRC that was sold at that point in time. If you create an iPhone, when you sell that iPhone, you have revenue coming in the door, but you have cost of goods sold. The margin on that iPhone might be like 70%. Like this is the business model, it's just a, it's a carry, it's a long term carry business model. And you look at the trajectory of this and like this doesn't seem super crazy that the bitcoin price path, this assumption assumes 10 years from now, which is 2036, the price of Bitcoin's at 800 9000. That assumes four years from now the price of Bitcoin is 230,000. So by 2030, 230,000. I think you look at most people's price projections, that would be pretty bearish assumptions on this trajectory. So I think that's a helpful way for people to start thinking about it is the margin is expanding for every share that is sold. And people don't really wrap their heads around it, which I think is fine. People, people will understand this.

Grain (41:29)

But Jeff, let me be a little bit aggressive here. Okay, go ahead. Okay, so, so Fong said that STRC is, is revenue.

Jeff (41:40)

He, he, I agree with that.

Grain (41:42)

I agree also Jim Chanos did not like that. So, okay, so let me explain, let me give an explanation why. And this is what's difference between a person that's a trader and sailor that's changing the rules of the game. We all know this. And I keep on going back to this Sailor petition fasb, the Financial Accounting Standards Board change gap accounted to Mark to Mark, Mark to market on the Bitcoin. So we know quarterly that bitcoin can be marked up and down. Then the next problem we had was CAMT that we had to deal with for a year and a half to be, oh, so they don't sell the bitcoin. They mark a profit. But then they would have to pay taxes on it because they booked it as a GAAP accounting profit. Then they got the IRS to sign off with, oh, if you sell it and it's GAAP accounting, you don't have to pay taxes on it. So they got to. So Saylor announces this stuff is not making this up, but people forget this. So not only did Saylor petition FASB to get them to change, that went into effect January of 2025. Then he petitioned the IRS to say that would not be taxable. So is that. It's like saying if I buy, if I was to go buy $1 billion worth of real estate, I get paid two ways on it. One way I get paid on it is that is the monthly rent roll that comes in, right? Which is, you know, for, for real estate, it's the cap rate is somewhere between 4 and 10%. Oh, my God. And CRC pays out 11 and a half percent. But the interesting part about this is that this is growing at a 20 to 30 or 40% CAGR, not like real estate that grows at 2%. So the theory is that this will grow way faster than real estate. And that's the balance sheet that the way that this works. And Saylor's like, I will happily pay 11.5% to keep 88 and a half percent of this going up at 30% a year. That's it. And people are like, dude, you went too fast.

Jeff (43:40)

I don't know. Even the, the crazier part, the crazier part there is like the cost of goods sold is the dividend. Okay? They can utilize the common stock ATM to pay the dividend.

Grain (43:58)

Yeah, you guys, you guys want to hear. Totally agree. You want to hear crazy metric? Let's assume that Strategy has what, 1200 employees, right? What's the number? 3000?

Jeff (44:08)

Yeah. 1500.

Grain (44:09)

1500, whatever it is, thousand employees. Let's assume, you know, somebody has said there'll be a person that builds A billion dollar business with one person using AI. A billion dollars. It already happened. There's this one guy that did it. I think that strategy is making a hundred billion dollar market cap company with freaking 10 employees. How many employees out of the 1500 does strategy need in house in order to manage what he's doing? I'm not saying he doesn't use a law firm and KPMG to do, to outsource that.

Jeff (44:44)

I'll tell you, it's about 15. Yeah. Because we got.

Grain (44:46)

Okay, it's 15 people to build a business that. And he doesn't have to do really anything with the bitcoin because he has custodians. Right. So he's got 15 people that are going to have a 150 to $200 billion company within a year, if not sooner.

Jeff (45:02)

Yeah, I mean they were already were a hundred billion dollar company.

Grain (45:04)

They already were a hundred billion dollars.

Jeff (45:05)

I think add another comma grain. I mean this is going to be a trillion dollar.

Grain (45:08)

I'm going to agree with you. And they're going to come back and be like, hey, we did really with 15 employees. And I'm not taking anything away from the other employees that are working there. But there's no way they could beat that because Bitcoin works 24 by 7, 365 days. Those other people don't work. They just don't put in that amount of hours.

Jeff (45:23)

It's just, it's crazy how scalable it is because like you don't have to. They don't have to deploy any more people. Right. It's all digital. They don't have to deploy any more people to go sell more of the instruments. They just created the instrument. It's just divine. They created this instrument and now the capital just comes in the door and they're able to turn on the machine and the money printer. The money flows out of it. That's it. And the other thing to think about is I kind of had this realization last night and thinking the common stock is their laborers as well, because they've got, because they've got the bitcoin on the balance sheet. It makes the common super active because the common's moving in both directions and they're monetizing it to pay for the cost of goods sold of the strc like the instrument that they're selling. So I think that perspective of revenue, like every, every dollar of SCRC sold is revenue. I think we've been talking about this for a long time and, and yeah, I mean this whole thing is Just so. It's so fascinating. The reason it exists is because of it's. It's so elegant. Everybody says it's so simple. I think simple is the wrong word. I think elegant is a better word because it's combining so many different things that already existed. Right. Perpetual preferred equity, the atm, the common stock, the digital capital instrument on the balance sheet that's getting traded and marked 24 7, 365. And all this stuff is like, they've learned about all these things over time. And, I mean, we've been at the forefront of just following every single innovation that they've had. But I think they're at their final form or damn near their final form. It's just now facilitating everybody else building on top of this stuff because there's so much room in the yield and the characteristics of this. This is so similar to bitcoin, right? Like, when bitcoin came on the scene, everybody, like, the people that were into bitcoin were like, oh, my God, this is so much better than fiat. Fix the money, fix the world. They're like, okay, cool. Fix the money. Bitcoin's better money, right? It's amazing. Okay, what's next? Well, now, this instrument is so interesting. Fix the credit markets. Fix the world. These instruments should reset the cost of capital for the entire credit market. The entire credit market. Every dollar, every new dollar that's coming into STRC or SATA or these digital credit instruments is a dollar that doesn't go to traditional credit. At some point, there's a tipping point where people understand that the opportunity cost is so high. Like, no, I'm not going to give JetBlue another hundred million dollars for their shitty airline business model. Like, I'm not doing it at 8%. It's got to be 15. It's got to be better than the risk profile of these digital credit instruments and that, like, that's how the cost of capital gets reset. But, like, people need to understand it, think about the risk profile, talk about it, banks need to adopt it, and things need to grow. That's what we're here to do.

Mike (48:28)

Yeah. The team needs to have at least 20 people because five of them are making memes, right? You got the people building the products and five to make memes. But going back to your example about the, you know, if you sell an iPhone, that. What's the. What's the returns on that compared to this product? And I think it was Elon that said complexity appeals to stupid people. And I understand that building phones is like, you Know, it's got utility for people. Everybody wants one. But you got to manage supply chains like, okay, now I need money to build another factory. How big of a factory do I buy, you know, or do I build? Because how many phones am I going to be able to sell? I don't know. How many employees do I need to hire? I don't know. But, you know, what did it take to make a better product than anything else in the credit market? Just sailors sitting around with a couple of people. Yeah. In an AI, like, oh, okay, here's a better product than anything else that. That exists. And all they got to do is press a button to, you know, to vertically integrate the entire supply chain. So it's. It's insane. The opposite of complexity that it is.

Jeff (49:38)

And there's no human capital. Just going back to this human capital component. The entire equity market that everybody knows of today was built on human capital like the last 20 years. Think about the tech market. It's built on people that are using data and technology and computers to build things. Like, all of the top companies are tech companies, and there were humans that built the tech. Now the tech's building the tech. Right now you just need the best tech, and the tech is building the tech. So the need for the humans starts to diminish over time as all of these business models are going to have to get rethought. And so then it's like, okay, well, what is your business if the tech's building the tech networks?

Dan (50:26)

Right. All that's left are, like, monopolies in the form of networks.

Jeff (50:30)

And Dan, to use your expression, it's the thought leaders, the senior idea guys. Idea guys. That's what it's like. You need a senior idea guy. You need a junior idea guy.

Grain (50:42)

You know what? It's not only the idea of. You know, I saw some people that were, you know, skewering. Oh, you know, they would say, sailor created the prefs using AI. Like, and that's a negative. I mean, the whole idea behind AI is. Is you now have. You now can run an idea past AI and without spending $1,000 an hour on a lawyer to see if it makes sense and do that. And by the way, he didn't. They didn't get it right with the first pref. Is not saying the other prefs don't serve a purpose, but this one ended up being different. And I think that's the part where we're keying on this. And I think people are just. It's not about just having a good Idea. It comes down to execution. And then not only is it execution, but do you have an ecosystem? So the execution is, did STRC get out? Yes. Was it launched at 80 bucks? And like, and then you hear this, this fud. Oh, well, he had to launch it at 80 bucks. Well, he could have launched it at $95 and then he could have paid, you know, $500 million in an advertising campaign to get it to trade up. Or he could just launch it at 80 bucks. That the people that buy it or arbitrage that difference. That's the part that he chose. And people are like, well, that, that, that's just absurd. I'm like, well, no, that's how this is. I think people are jealous that he was able to not only come up with the idea, but he executed on the idea. Then this other company strive came along and said, oh, well, we're going to come out with our own called SATA. We're going to be offset by two weeks and now we have two offsetting products and it makes an ecosystem. I'm like. And people are like, oh, well, I don't know why. It's, you know, I'm like, no, you're, you're just either envious or jealous. I mean, just call a spade a spade.

Jeff (52:18)

It's. It's funny. People are grasping for reasons to hate this. They're like running around grasping for reasons to hate it. Which is to your point is it's very.

Grain (52:28)

Or the Sharpe ratio is going to be too high.

Jeff (52:31)

It's like, like, okay, it's like, it's just a metric. It's. It's a metric of volatility. Right. And it is one data point. It is not the ultimate data point. And it can be arbitrage. Like, I think I brought this up last week. Like Matt Cole, he worked at Calpers and they were, they got paid their bonuses on Sharpe ratio of the portfolio.

Grain (52:50)

Wow.

Jeff (52:51)

And Matt, Matt was like, oh, I could game this.

Mike (52:55)

Yeah, for sure.

Jeff (52:56)

I figured out this is just math. Like, I could just be in the right thing at the right time and like, you know, move it around and make a Sharpe ratio portfolio that blows the socks off of the whole thing. And that's how he climbed the ranks of CalPERS.

Mike (53:07)

Yeah. There's a. I can't remember which law it is.

Jeff (53:10)

Sharpe ratios at like one of the largest pension funds on the planet.

Mike (53:15)

Yeah. I can't remember which law that is. But there's one that states when you turn a metric into a goal, it no longer functions as a metric. And so if you say that Sharpe ratio is good, but then you start incentivizing your people's bonuses on the metric, you completely destroy the value of the metric because the like. Like he discovered he can just game it and it's just going to people, you know, him competing against his, his colleagues, all of them trying to game the damn thing. Kind of like when Adrian's Flywheel article way back in the day where S&P 500 people are just gaming their market cap.

Jeff (53:50)

It's so, so the funny, the funny thing about it, right, is what would be interesting to see is compare the sharp ratios of all of the, the digital credit instruments next to each other, like strf, strk, strd. And that's probably a more pure view of the relative Sharpe ratio. Because the reason the Sharpe ratio is so low on STRC is because the yield is so high, there's so much demand and they're just sitting on it. They're sitting on it at 100 and a half a penny. Not even 100 at a penny. They're sitting on 100 and a half a penny. Didn't even know like trades could be done at 105 a penny penny. You look at it, it's like there's actually little jags, like right there at half a penny. But like the structure dampens the volatility and creates a sharp ratio. Doesn't mean it's irrelevant. I get why they're talking about it. I would go take it around the entire market and say, look at my Sharpe ratio. It blows your entire portfolio up. Like if you want a better risk return of your entire portfolio, sell everything. Sell everything and buy this ranking sharp

Mike (54:59)

ratios is going to be like private credit. Go ahead, go ahead, dad.

Dan (55:03)

No, go ahead, go ahead.

Mike (55:04)

I was going to say if you, if you rank the sharp ratios, this is going to be the, the, all the prefs in order, like 1 through 5 with the top sharp ratios. And you just can't even compare them to anyone else because like apples and oranges.

Dan (55:15)

Well, I've seen the other have terrible Sharpe ratios.

Jeff (55:18)

Yeah.

Dan (55:19)

I think what Jeff is getting at because the volatility on them are so high.

Jeff (55:23)

Right? Yeah, right. But, but it doesn't mean they're not risky products or that doesn't mean they're not good products. They're good products. So I'm really good risk profiles. Yeah.

Grain (55:34)

So, so I wanted to explain this for a second because I wrote two articles. One was on Sharpe ratio and, and I, I had, I had taken Saylor's quote from April 6th when he said that STRC traded within one penny. And I wrote my article and I published it at whatever 12:45 local time. For me, the market closes at 1 o'. Clock. Saylor posted again today that STRC traded within one penny. He wrote the same thing. And I'm like, I already wrote the article but it's because I based it on his April 6 post or tweet when he said that. So I posted that there. So, so when you, when you look at these Sharpe ratios, they're just going to ratchet up really high but you have to compare them against like instruments. And I think that's the hard part that people have to, you know, to look at this and it's just not in, in isolation. The other part about the Sharpe ratio is it's not, it, it's not really a value of risk, it's a value on volatility, price volatility, just volatility, price volatility. But so many people think because the risk free rate is in it, it's looking at risk, it's not looking at risk, it's looking at volatility. Because the risk free rate, if it's 3.7 on STRC, but that risk free rate is the same for all assets in America. Right? It's versus the Treasuries. Right. That number doesn't change that often. So in math we call that an invariant. It's a variable that doesn't really change. The other thing that doesn't change is the 11 and a half percent. It can change monthly but it's typically only going to move by 25 bips. There's, there's a coming back in. So that doesn't move that much. Easy, easier. But if the volatility drops from 1, drops from 1, let's say it drops from 2 down to 0.5 and the denominator just dropped by a factor of. It boosts the Sharpe ratio by a factor of four. Yeah, right. Point five is times it by four equals two and that boosts the Sharpe ratio by four. And people will be like how did he get a double digit Sharpe ratio? It's like, well obviously you don't understand second grade math. I'm trying to be nice.

Jeff (57:44)

Yeah. I mean the explaining a Sharpe ratio to like a Tradfi asset portfolio manager is so much easier to do than like on their website they've got the credit column and even the stuff I've been trying to do, I've been trying to get to like the mathematical true risk profile of these instruments, which might be a futile exercise because it might just be like nobody's ever going to get that. Nobody's ever going to do it might be good for us to have so we can manage things internally. But explaining that true risk profile and just say, just look at the Sharpe ratio. The volatility is so low, the yield is so high compared to everything else you got. It's just an easy metric where you can cross contaminate and compare STRC to everything else and just put it on the same efficient frontier. That's part of the Markowitz modern portfolio theory won the Nobel Prize. People comprehend it. And the people running finance companies now, they've kind of, in my opinion, lost the plot. I worked in insurance for a decade and everybody running the insurance companies was all people that worked in the family, that their families ran the company for the prior 20 years or whatever. And they're not very impressive like thought leaders thinking about capital. Like a lot of them are very focused on underwriting and things like that. But they just accept the dollar. They just accept that the dollar is the dollar and the investment portfolio is the investment portfolio and they hire it out to some third party investment manager and then just Bob's your uncle. Keep making my million dollars a year and I'm good.

Grain (59:22)

So I want to talk about Andy Constant for a second damp spring.

Jeff (59:26)

God, you're obsessed with that guy. Go ahead.

Grain (59:28)

He blocked me. So, so, so, so yeah, Andy, you know.

Jeff (59:35)

Yeah, yeah, you go both name and the damn spray.

Grain (59:39)

Damn spring. That's the guy. And I got into an ar. I'll give the quick backstory. So I got into an art. I believe that there's two things that go on with money in America, okay? One is the CPI, the consumer price index, which is whatever, two and a half, 3%, whatever number you want to pick and pay. People say, oh, the number's higher. That is inflation. Consumer price index. That's inflation. And then there's M2 monetary debasement. And that we know is 6% and a half a year. And so I add those two numbers together, 6 and a half and 3 and a half. And he says, you can't. Economics doesn't work like that. I'm like, well, I do have a degree in economics and I add those two numbers to get. And so when I got in this argument with him three months ago, I just said to him, what is your number for inflation? Because you don't add them together. Well, he comes back and says it's 5%. Then everybody turned on him was like, dude, you think inflation's only 5%? And then he had to block me because then I. I embarrassed him. So what he said today was, he said he'd made a dig at Sailor. And he said, sailor posted it's 11 penny. And Andy Constant said, oh, so you may. So strc now has an infinite Sharpe ratio. I'm like, I don't think that's the flex that you think that is. I mean, the difference here is that, again, people are jealous or envious that Saylor built a product. It wasn't the first prep that he made. He used AI to do it, which everybody is a super expert on it. And not only that, he got it built, got it out there and attract. Attracted $5.4 billion worth of capital. And other people are like, you had the same tools as him. How come you didn't do it? And they're like, well, and that's the reason why I get. It's not only about having a great idea and it's not only about putting it on paper. It's not only about getting. Raising money. But not only does it work, does it function. And I think that's the part where we are right now, people.

Jeff (61:30)

It's. It's. Do you have the courage to go out there and do it when everybody's telling you you shouldn't do it? Right? It's like, do you have the balls? It's like these guys that are all complaining about it, it's like, yeah, they're mad. They're envious. Working through ego, trying to understand it. It's like, look, they raised $6 billion on this one instrument. It's trading within two pennies. It's literally the biggest, the best, you know, credit instrument in the entire market.

Dan (62:02)

It's like, it's like, obviously it's not a Ponzi. It's the most transparent.

Mike (62:05)

Like. Like,

Jeff (62:09)

people.

Dan (62:09)

People are like, okay, where's the yield coming from? Well, it's come from the common or selling Bitcoin. Like, I don't know what to tell you. People seem to still be buying the comment. Literally, the messaging is, we will dilute the common. Excuse. Excuse my. My abrasive language. We will dilute the common and pay the yield on the press. That's the strategy. That's what they do. It's not a Ponzi. That's just two people bearing different types of risk.

Jeff (62:30)

And the volume on the common is going, like, just trajectory. And the volume of the comments going up and up and to the right. Why? Why because there's more bitcoin on the balance sheet. The, the value of the company is a function of the bitcoin on the balance sheet. And bitcoin moves like, that's it. That's the, that's the whole thing here. That's like the whole, the whole reason this whole thing works. Bitcoin moves. That's it. Because bitcoin moves. Mstrmos right? So people are hedging both directions. People are buying, people are selling, people are longing, people are shorting. Everybody's, everybody's doing stuff around it. That's the reason this whole thing works. Because bitcoin moves. There's never been anything like it, Mark to market like your real estate, your $200 million real estate, building, hotel in New York City. It doesn't move. Right? It's, it's liquid. Once in a, once in a generation.

Grain (63:25)

So, so, so let, let me say why I'm more bullish now than I was in, in August or, or September of 2024. I'll tell you why. We were hoping that strategy would get S&P 500 inclusion. We were hoping that we got a credit rating. This was before the prefs were invented. In January of 2025. We had no idea. I, I did. I know the prefs existed. Should. Sure. Would I ever buy one? No. So I, I, I just never really thought of it. If somebody asked me about it, I go, oh, that's a prep stock. I'm like, it's a type of equity. That's all I would have said. So why am I more bullish? I'm not waiting for an external thing to happen here. Do I want a credit rating agency to rate the prefs? Absolutely. But I'm not waiting on it. What I'm working, what I'm more Interested about is strc buying 3,000, 4,000, 5,000, 10,000 bitcoins per week and strategy getting to a million. Bitcoin. That's under the control of strategy.

Jeff (64:25)

Relentless execution.

Grain (64:27)

This reflexive loop is under their control. Not to a third party. The other thing is we have clarity, like I said on the FASB and the camt. And we know how this all works. And it's all been stress tested multiple times. So my view is that strategy just has to execute. They have how this is pinned High frequency traders, algorithmic trading. So be it.

Jeff (64:50)

Yeah.

Grain (64:51)

And, and there's a second player SATA that's in there also. So my view is we're in a completely different regime than we were a year ago or two years. It'll be two years ago August, and I'm more bullish now because strategy's gone from having a shade over 200,000 bitcoins to fast approaching a million.

Jeff (65:09)

Yeah, I just want to talk about that real quick. I left my job in finance. I watched what Saylor was doing intimately for three years in a row, and there became an exit strategy pulled out. I need to do exactly what he's doing became very clear. And here I am working on a very similar type product. And now I get to go to my old. Like, tomorrow. I. I'm meeting with my old colleagues tomorrow to talk about these instruments, how they're changing the market. This is, this is. I get to. You know, how about them apples, right? Like, to all of my old colleagues that laughed at me, laughed in my face, like, what are you doing? This is stupid. You're crazy. You're never going to do this. Like, this doesn't make any sense. Government's going to ban it, whatever. And it's like, boom, I've got two publicly traded equities in the market. Go look at them and then think about it, talk about it. Like, hey, you remember that company that you ignored when I talked to you about it three years ago? Yeah. They hold $50 billion of capital. Now it's in bitcoin. They have more capital than Lloyd's of London, a company that's been around for 300 years gaining and garnering capital. They have more capital than that company. They've been doing this for five years. Like, you need to pay attention to this stuff or you're going to get left behind. It is too late. It is too late. People need to pay attention to this stuff or get left behind. That's it. Okay, I'm going to shift gears real quick because we're having a party at the bitcoin conference. And if you want to come hang out with us, come hang out with us. You do not have to go to the bitcoin conference, by the way. I do need to say that you could just come hang out with us if you want to come to Vegas and hang out with us for a couple hours. We're going to be at Gatsby's. This is the True north networking event. You go to our website, t north.com forward/events. Boom, it's up here. You click learn more and it pops you over to our Luma, our website. We have sold a quarter of the tickets so far. There are 74 tickets left. I believe a few of them left at 50. The rest will be a Hundred dollars. That helps support us having a good time and look forward to seeing you there, meeting these people in person, talking about these things. It's so great because there's still so many people that think you're crazy. I'm sure. And this is one of the few places that you can talk and converse with a lot of people that have the same mindset and brain that you do. So come hang out with us. We'll be in Vegas. I think almost all of us will be there and yeah, it should be a good time. And then on top of that, I will mention that we've got. We're just continuing to build. Every single week we have this new website. We're continuing to grow and build. We want this to be the digital credit hub. We want people to have, you know, information here. We've got articles, we've got tools, we've got research, we've got all of our shows and all of our content kind of all housed in one spot. And we, we really found out that like X was very bad at doing that. So go there if you want to find everything all in one location. If you're interested in sponsoring, I also have to say this thank you to our sponsors that are sponsoring, but we have a partners tab here. You could scroll down if you want to be. Have your logo on the stream that is down here as well that supports us continuing to build this out. Get clippers, do all of the things if you're interested in clipping. Yeah, let us know. Okay. And then what else should we get onto? Astro north section. We've got a couple of questions and Dan, we've got to hit on Morgan Stanley as well because. Because I know you've got some good info there. Maybe let's start with that. Let's start with Morgan Stanley real quick and we'll go into the ass section next. Sure.

Dan (68:47)

Yes. I'll quickly hit on it and we can then talk as a group. So MBST launched today as Morgan Stanley's first Bitcoin ETF. It has a 14 bips annualized management fee which is half that of the IBIT and FBTC management fees at 25 basis points respectively. Right now they use Coinbase as a custodian. So same as BlackRock and six other of the Bitcoin ETFs. Fidelity uses their own Fidelity Digital Custody. They registered as an OCC Digital Assets Bank Trust, Federal Trust, which is a similar structure to how Coinbase structures their digital assets custody. That was in February of 2026. And the goal is that they will be a registered custodian for the Bitcoin in their ETF over the course of the next year. So they'll go from having Coinbase custody to having their own Morgan Stanley custody brokerage and financial services. So both execution of trades over the counter trade structuring custody, etc. Etc. So what they've essentially done is they've not only entered the market as an ETF provider like many of their competitors, but they've entered with a competitive management fee and then with an extremely aggressive kind of structure to become the leading bitcoin financial services provider across the whole ecosystem. So that's super important. And Soleil made a great point at the beginning of the stream. He said how would these banks, if they wanted to accumulate Bitcoin discreetly, how would they do it and are they doing it in size? And I said well the banks get free money from the Federal Reserve as the Federal Reserve expands the balance sheet. Right. So they don't really need price number go up, but they do need a deal flow and access to the actual finance. They want to own the financial services, the distribution, the custody, all of the official relationships with large players. And that's what they're doing with this kind of rollout, this phase rollout here. So super, super bullish. I think.

Jeff (70:53)

Yeah, this isn't a dip the toe in the water, it's a cannonball. They are jumping head first into it to hit the entire infrastructure. I think the other distinguishing factor and these numbers aren't exactly right but I don't think BlackRock has a wealth management advisors. Like I don't think there's a wealth management arm. Morgan Stanley does and I think the number is very large. I think they've got like 11,000 wealth advisors or something like that across like all of their jurisdictions.

Dan (71:27)

So those are, those are AUM. Across all their wealth management.

Jeff (71:32)

15. 15 trillion A.

Dan (71:35)

Across 9 trillion. Morgan Stanley and then with their sales representatives of Merrill Lynch, UBS and Wells Fargo, it's 15 trillion.

Jeff (71:45)

Okay. And I think previously they were able to recommend the Black Rock IBIT ETF and maybe they did, but now there's even more incentive. If you're a Morgan Stanley wealth advisor, I'm sure there's even more incentive to roll that to Morgan Stanley Bitcoin ETF and continue to grow that. Right. I'm sure as a salesperson there, there is an incentive structure such that if you are growing your asset capacity with that specific vehicle within the company, there's probably, probably a higher incentive for that structure. So I mean, it makes so much sense. It's so exciting to see. Morgan Stanley is an enormous bank. This is serious, this is very, very serious player coming into the space, which is good for the entire ecosystem. It's good for potential assistance on Basel banking standards as well. If you've got large institutional, too big to fail banks that are interested in all these products, there's likely some political pull to make this $1.3 trillion asset slightly less risky. From a banking standard perspective. Right now banks can't hold it because you effectively get zero ability to leverage against it. There's a 1,250% risk weighting against Bitcoin. Basically your cost of capital goes higher if you hold it. And so that incentive structure can change as Morgan Stanley comes on the scene and these other banks start to garner a bit more power here because ultimately it's all power. Right, like this is all, it's all electricity, it's all power as these companies get larger and larger.

Grain (73:21)

Yes. So I'll be more, I'll be more precise, Jeff. It's vertical integration. If you've got a bank, you've got the salesforce. You don't want to sell BlackRock's ETF, you want to sell your own. And so it just, it's like the oil companies also own the gas station. So not only do they drill it out, drill it, refine it, they have the distribution, they have distribution for it. And so, and so that's what they want to do with this. And I think that we'll see some rotation out of it. But this is, this is going to pick up. And you know, the other good, the other thing is that Morgan Stanley is benefiting from good timing. The fact that they're doing this when Bitcoin is whatever, it's 70,000 and they're not launching this when it's at an all time high is a stroke of luck for them. I don't think that they engineered this launching point. I mean it's possible they could have and that would be a great idea because if people buy in now from inception, that that's the key term you have, you know, year to date, year over year, quarter over quarter. And you have funds from inception. And so starting a fund when it's a very low price, that will always be from inception date for the next forever, 10, 20, 30 years. And so starting at 40% of the all time high makes this fund look better. You call it window dressing, but it's legit. And so they benefited from good timing.

Jeff (74:51)

Bingo.

Grain (74:52)

Yeah.

Mike (74:53)

It definitely made me raise an eyebrow when you told me that they're planning to custody their own Bitcoin. And then with that really low fee, it just seems like they're not coming in here to kiss blackrock's rings. Right. They're like staking a claim in the space.

Dan (75:14)

Yeah, I think that's really the right way to think about it. Yeah, it was quite a big statement. They could have just come out and matched the first fees and that's what actually, you know, sophisticated participants likely would do. This was something that happened between like Uber and Lyft during their kind of capital wars is they'd come out and. And price match the other participant simply because they didn't want to drive margins to zero. Right. Like an unsophisticated market participant would go and try to undercut their competition, undercut their competition until no one has any margin. And what they're doing is exactly that. So clearly the prize is big enough of owning the capital flows around the bitcoin network and the finance dominating the financial services that they're willing to drive cost of fee or the fee revenue down towards the marginal zero cost.

Jeff (76:01)

Such a huge signal. Such a huge signal. It's like he cut it by like 40%. You cut the margin on, which was already small. Right. We're talking 25 bips. Actively managed ETFs are 100 bips. I think most passive ETFs I think vanguards are down to like 7 or 8 bips. So that fee also covers their custody. So, I mean, what's the custody fee on top of that? Would they get that down to like four or five bips? I guess they're custodying in house, so they got to build that out. But what's the cost of doing that? What's the infrastructure look like? Yeah, they're driving that marginal cost to zero. And they said, you know, put up or shut up.

Mike (76:44)

Yeah. My friend is a, he's a wealth manager at, at Morgan Stanley. And when I was ranting and raving to him about Bitcoin in like, I don't know, 2017, 2018, he couldn't touch it. Like, he'd get fired if he, if he tried to hold any of it himself. And it's, it's kind of crazy that, you know, even, you know, Morgan Stanley is bending the knee to Bitcoin, but they're not bending the knee to the other competitors in the space. They're really trying to make splash.

Jeff (77:12)

Yeah. And we'll, we'll see. We'll see if anybody else comes out with a digital credit etf, we've filed a prospectus on that one. And that's, that's about all I could talk about it, but hopefully that incentivizes some others to come out to the market with digital credit ETFs as well. I think it will come.

Dan (77:30)

Yeah, it's pretty sick. I'm super excited about that. I looked into the specs and you know, it uses all the financial tools that are a part of kind of traditional leveraged ETFs that haven't been brought to the digital credit markets yet and I think are absolutely super, super interesting in the digital credit markets. One is this idea of a total return swap, which is a financial instrument that's used to create a lot of different leverage ETFs. The total return swap transfers risk between two parties, one of whom is. You're essentially swap the price action. So you can create leverage exposure without owning the actual underlying asset. And what you can do is you can create leveraged income exposure to a product like Stretch. And I think this ultimately be like a massive part of the Stretch ecosystem, obviously by way of, you know, the new Strive etf.

Jeff (78:18)

So.

Dan (78:19)

Psych to see that online.

Jeff (78:20)

Yeah, it's, it's cool because there's two, two markets, right? I mean you've got, you see what you guys are doing at Buck and what Saturn and Apyx are doing, that's like the modern, modern tokenized ecosystem. But then there's also the existing traditional ecosystem that is interested in these types of products as well. So it's like they're both kind of doing the same thing in a different way, in a different environment, operating in those different environments. I think maybe it was a hurdle, right? We were talking about how publicly traded equity is like the first version of a token. Really the equity market is just like a token market.

Dan (79:00)

Well, that's what this idea of crypto has been so flawed all along. There's one money, right? And then everything else is security. It's really just not complicated. In my opinion. Most crypto is just tokenized security without fucking regulations. So therefore it's worth nothing. But it's the regulations and enforcement of, you know, like fiduciary duty and the court of law that makes securities valuable and like whatever.

Jeff (79:32)

All right, you're passionate about that. Let's shift over, let's do some speedrun of the questions and this will be good. We can hit on some of these topics and, and maybe we'll pass it around. Most people are deep in the Red holding common stock mstr. I think we've hit on this quite a bit over the, over the last few episodes. When will we see last year's highs again? I really enjoy your videos, especially with timestamps. Maybe, maybe over to grain to you. What are you thinking about this? We're talking about MSTR a million bitcoin in September.

Grain (80:04)

I think it all comes together in September and it's kind of like a weird timing again, whether it's September, people are going to get excited for the narrative. And by the way, a million bitcoin, it's a seven digit number and I think people are just going to be excited about it. Oh, strategy got to, you know, one or one nakamoto or once he totally. I don't know exactly how many bitcoin Nakamoto Satoshi has, but you know, it's about a million. And once, once they exceed that number, you have a lot of positive people piling into this. And you're also going to have, see you've got April, May, June, July, August, September. It's another six months of STRC functioning. So I, I think that, you know, if, if, if this continues to play out with the volatility and the sharp ratio jumping up, I think we're going to see a lot of positive movement into mstr. Really are. And, and by the way, I've said this, you know, trying to think right now, whatever, 80% of my wealth is tied up in MSTR stock. So for me, I have no problem saying that I want the stock to go higher. I prefer for it to be a lot higher.

Jeff (81:16)

Yeah, well, just, just thinking about that math there. Grain six months of SDRC working and they traded $150 million today or the $300 million at 50% of it was ATM. That's about $150 million. There's about 120 trading days in the next six months. That's potentially up to $18 billion of capital raised. Assuming they're on the ATM for $150 million a day from here until there. I think there's going to be periods of time where there's more capital and there's going to be periods of time where there's less capital. It's all about capital flows. I think that's what Saylor even, even tweeted about this. It's like the four year cycle's over. It's all about capital flows now and how that capital flows into, into this marketplace via all of these different avenues. Right. It's the Morgan Stanley ETF it's the MSTR common stock. It's. It's strc, it's SATA, it's all these different avenues that are piling into the bitcoin world. So I think, personally, I think the stock is going significantly higher. I'm still incredibly hyper bullish on the stock. And I think we will see a comma in the stock price at a future point in time. And I'm excited for that future. There will be bewilderment. We will have another period of bewilderment. And I think it's like a couple months from now when this thing is just continuously printing and we see, you know, big prints on earnings per share over the next couple. Over the next couple quarters, it's going to get loud again. Right now, it's just a quiet lull. And these things are just really picking up steam, which is so exciting to see. So I think we've got a bright future. Okay, let's go to the next one. Lots of discussion on strc. Discuss strf, and this is actually in line with the third one as well. Is STRF or, or strc, the future lowest risk instrument, STRF capital stack peak versus strc, lowest duration consistent high yield. You guys want to take that?

Mike (83:06)

Yeah, I mean, I still. I don't know. STRF seems like it's the redheaded stepchild of the preps for me. Like, I've been using STRC as my dry powder. I like STRK for upside. I like STRD because it's got a higher dividend. And I really don't see STRD being any riskier than STRF other than being a little lower in the capital stack. But I don't really see a way that SDRD fails and they all just don't fail. So I don't really see the point of STRF being less risky, except to institutions. But for me personally, as a retail person, strc, STRK and STRD are my top three. And STRF is kind of on the outside looking in for me personally.

Jeff (84:03)

Yeah. And this is what we're talking a little bit about earlier. What is risk? Is volatility risk, or what is risk profile? Because technically it is more senior to strc, so it is less risky. It's more senior in the capital structure. But there is price volatility. Like, do you see price volatility as risk? Maybe, maybe not. Like, do you want upside? Like, if the interest rate environment changes, do you want upside? Like, if the market recognizes the actual risk profile of these instruments? Like, do you want upside on that? Like that, that's part of the instrument. If the risk profile of strf, because it's a fixed dividend rate, if people recognize the relative risk profile, theoretically the price should go up and the, the technical rate should drop in line with the true risk profile. So there is a price appreciation vector on all of the fixed, the fixed rate instruments. So I think that's a good way to think about it. STRF is senior. STRC is, is more, more junior than strf.

Mike (85:02)

STRF junkie. So, you know.

Jeff (85:05)

Yeah, you are.

Mike (85:06)

Take my opinion with a grain of salt.

Jeff (85:07)

Yeah, you are. That you are the max of all junkie. Exactly. You're buying the 1080s. 1080s might be interesting actually.

Mike (85:13)

I know they're starting, they're starting to pull my attention again.

Jeff (85:17)

We might need to think about the 1080s again. Okay, strk. What's that?

Dan (85:23)

Let's get to 300 first, boys.

Jeff (85:27)

Yeah, that's all right. Tail's fun. Okay, STRK deep dives. STRK is straight structured bitcoin. That's exactly how I think about it. The only challenge with STRK in my opinion at the moment is that you look at the capital stack. Strf strc STR E strk. STRK sits below strc. Very apparent that STRC is the, the crown jewel at the moment. All of the energy is being shoved into STRC because, you know, Sharpe ratio. A lot of capital. It's really interesting. A lot of people love the product. Every dollar that comes in in STRC that pushes STRK a little bit further out. Like a little bit further out. A little bit further out. Just depends on how the capital structure builds with STRC and the rest of the pref instruments. Doesn't mean it's a bad instrument. Again, like we were talking a bit earlier thinking about the BTC rating. I showed you the tail, right? We looked at the tail. If you think BTC volatility is compressing the relative tail of having a BTC rating between 4 and 3 and 2 is like, like effectively very low. So it kind of comes down to your assumptions on what, what the volatility looks like in the future and if there's interest in the product. I think what happened with sdrk, there was a lot of retail interest that came in the door when it was first launched and we saw a lot of price appreciation on it. And because STRC is offering 11.5% interest, it effectively priced down to be kind of parapassu on a yield perspective, which brought the price down to where it's at. Again, don't think it's a bad product. I think it's a very, very interesting product. It's structured bitcoin with downside protection. You get paid a yield to hold the position. And if the price of the common moves like STRK should theoretically move with it. So really like it. Okay, here's a question on strive. I probably can't answer that. You guys want to read that one? Strive skills. It's bitcoin holdings, spot coverage. I don't know too long. This makes me.

Dan (87:24)

These are a lot of. All these questions are so, so good. It's just going to take a really long time to go deep into every single one.

Grain (87:29)

So. So I'm going to briefly talk about the Strive one. You know, you know, some of these metrics take a while for them to settle or to reach an equilibrium point. So they bounce around until the, you know, strategy uses the term seasoning. And so, you know, you see that STRC as, as, as it's hit its par now, what is it, three months in a row or four months that a lot of these metrics move around until it hits that equilibrium point. So sometimes when you look at the metrics now, you know, because he's saying, oh yeah, the normal price springs could drive 20, you know, 10, 10x to 20x change and report its coverage ratio. So at this point it's kind of like it's too early to tell. And that's the part where it makes this hard for any investment. And so that's where, you know, it matters over time. So you use good risk weighting. You buy something with low percentages of your portfolio and wait for it to settle down.

Jeff (88:27)

Yeah. Again, I guess getting back to coverage ratio, this is a very similar metric. Right. Like this has SATA and stretch on it at the same time. So you look at different BTC ARRs and you look at the credit profile. Like, one thing that's interesting, if you start to compare, like mathematical credit spreads using Strategy's model here, right, this BTC credit column, that's what I've done. I've mapped the theoretical credit spreads between the two instruments with a different Bitcoin ARR. So let's just assume a 25% BTC ARR and a 40% BTC volatility. This blue dot down here, this is STRC. And this red dot up here, this is SATA. So the mathematical credit spread between the two within this model is 34 basis points. The market is pricing it at 137 basis points. So like, the interesting thing I've talked about this. I did this on my little individual video. Like, if you. If you're comparing tail risk of two instruments, like. Like this, right. The tail, the delta between the tail. Like, if they're both tail risk scenarios, the delta between the tail is actually very small. And if you go into like a. More of the probabilistic distribution, the delta between the two can be much larger. But I think what's a fascinating comparison is like looking at these again, relative to everything else in the rest of the market. Like the relative. The mathematical credit spread between the two, I think is based on this format is relatively small. So, yeah, there might be changes in the coverage ratio, but the mathematical credit spread is relatively small. And I think we could see that in the. In how the price performance and how it's performed. Our liquidity is increasing. It's been fun to watch. Cool. I think that's enough. We. We will hit some more next time if you. Maybe we'll put a character limit so the questions can't get too long. And maybe a AI suggested shortening of the questions so we can read them quicker. All right, we're at an hour and a half. I appreciate the time, everybody. Let. Let's cut this puppy. I've got to. I gotta get up to the Pacific Northwest. I gotta get up to Seattle so I can go talk to some other colleagues about. Or old colleagues about bitcoin and digital credit. Go try to orange pill a bunch of people in the Northwest.

Dan (90:56)

Go get him, Jeff.

Jeff (90:59)

Anybody, final thoughts? You want to pass it around? Maybe Soleil.

Mike (91:04)

Yeah. So I was watching an MMA guy getting interviewed. He's a bitcoiner, actually. His name is Eamon Zahabi and he was on Tony Carrera's Proof of Pain podcast. And I made some notes. I'm going to read from this. There's a couple of inspiring quotes there. And I think it really relates to this bear market that we've been kind of struggling to get through. And it goes. The more you go through to get it, the better the feeling and the bigger the reward it feels like. And the other one is hardship is a blessing if you're doing it on purpose. It is a misery if it is imposed on you. And I thought bitcoiners understand that intuitively. I mean, this guy is going and getting punched in the head. Right? But bitcoiners understand this is how you forge your diamond hands and it's voluntary. Right. We do this to ourselves. We're a bunch of masochists. And once we get through this bear Market, it's just going to make the bull that much sweeter.

Jeff (92:05)

Absolutely. Pain is temporary. Over to you. Over to you, Mike.

Grain (92:13)

Yeah, I'll just wrap it up and say what I said before. I'm more bullish than I was before because now this is in strategies control. They're going to hit a million bitcoin in September. We have the countdown timer. STRC is sucking up more than the, the weekly amount of bitcoin that's mine. So it's just a good metric to look at, I think both being offset between STRC and SATA. And there's an ETF that's going to come out to combine those two together that Dan talked about. And I think the Morgan Stanley part. And if, if assuming that they wrap up, they, you know, wrap up what's going on with Iran, we get a new Fed chair in and they're very quickly confirmed. I think that the second half of this year is going to be very bullish and that, that's my view for it. And, and I think the narrative, it'll become a self fulfilling prophecy or self fulfilling narrative. When strategy gets closer to a million bitcoin, mainstream media will pick this up and say, oh, he acquired a million bitcoin just because it's a big number. Just like in 2017. Can Bitcoin break 10,000 and eventually it went to 20,000. It just missed it by a few hundred dollars in 2017. That'll be the new narrative for the last half of this year.

Mike (93:24)

Yeah, Mike, put me, put me down for October. You got September, I got October.

Grain (93:29)

Okay.

Jeff (93:29)

It's over. I mean, can you, can you imagine, I mean if the, if the chaos in the world just cools off for a little bit and everything, everything has a, has a chance to just start cooking. Man, that could be good.

Grain (93:43)

We saw that last night. You know, once, once the ceasefire was announced, bitcoin jumped up $3,000 in, in whatever an hour. So I think we're going to, you know, we're going to be full risk on. And anyway, with that said, I'm very bullish on this, specifically the second half of this year and looking forward to it.

Jeff (94:02)

Right on. Awesome. Over to you, Dan.

Dan (94:05)

I agree. If we're looking at a traditional equity, we'd be looking at growth in revenues over long periods of time and forecasting out future cash flows, discounting them, et cetera. What we have with bitcoin is adoption trends and there seems to be no slowing in the adoption trends. Specifically that within TradFi we're seeing this With Morgan Stanley, we're seeing this with simply spot Bitcoin ETF inflows almost outweighing the total net outflows since we started into a bear market last October. So all of these things point towards a positive direction and simply, you just don't want to overthink the trend here.

Jeff (94:42)

Yeah, the trend is your friend. Everybody's underwriting Bitcoin. Like a long term, a long term view of Bitcoin and everything's moving in the right direction. Yeah. Yeah. Well said, Dan. Every. Everything there is. Yeah. Capital flows are controlling how this moves into the future. Right. I think the four year cycle is dead. We saw a 50 drawdown. I think this is safe to say this is definitely a bear market. It's a little bit of an extended bear market here. I think we've been down here 50, 60 days now. And the signal is the capital that's coming in the door on the digital credit instruments. These are historically in past bear markets like strategy did not have access to the capital markets. They were not issuing capital. They were over 100% leveraged on their balance sheet with debt and now they are 10, 11% leveraged on their balance sheet and issuing these digital credit products and able to buy Bitcoin when the price is depressed. And I think we haven't seen a perpetual preferred equity model in a bull market. And I cannot wait to see that time because this is, it's not dead on the balance sheet, it's amplification and it's equity. So I'm excited for that future. I am looking forward to Q3, Q4, Q2 too. I mean, everybody's building. We're building. Come visit us in Vegas and appreciate the time everybody. We will catch you next week. Take it easy.

Mike (96:14)

Good night.

Grain (96:14)

Hey, thanks. Good night.