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True North Podcast
Strategy Sells Bitcoin, so what? w/ Adam Livingston | True North Podcast | Ep. 69
01:31:55
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- [00:00]
A
Sam. 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. Whoo. Welcome back. True North Episode 69. We are on a FUD busting mission today. A lot of scared people talking, running around with their heads cut off out there in the market. And we're here to talk about bitcoin. We're here to talk about the securitization of bitcoin. We're talking about securitized finance. We'll talk about taxonomy of words. We'll do a bunch of math. We'll get into some dashboards, we'll look at trading volumes. And I've brought here today Adam Livingston, and we are going to just try to eviscerate all of the FUD that's out in the market at, at the same time. And we're just going to run through everything going there. So. Adam, welcome back. I know you were on True north probably about 30 episodes ago, and it's. We're excited to have you back here and excited to have you just rip some bear heads off.
- [02:03]
B
It's going to be fun. Jeff, thank you for having me back. It was actually in October when I was last on True north, which amazed me when I actually realize it's been that long. And, you know, back then we were at a bitcoin all time high a couple weeks before the bitcoin all time high. And I know that stretch was paying 10.25% and we were all asking how high did the yields have to go for people to start, you know, buying this thing. And since then, strategies probably sold 8 or 9 billion dollars of it. So it's been lots of developments in that amount of time. But happy to get into it with you today.
- [02:37]
A
Yeah. Eight or nine billion dollars is the most successful preferred equity in history. And it's a new instrument. Right. There's never been anything like this before. And we've been able to see this thing trade. Now we're getting almost Stretch is almost a year old. SATA is about eight months old. We're year one into this thing and everybody's trying to figure out, what is it, how do we use it, how do we incorporate it into things, Is it a retail product, is it an institutional product? And there's just a lot of disagreement in the market right now. And at the same time, you've got the price of bitcoins going down. Strategy sold 32 bitcoin, 2 1/2 million dollars, which is effectively 0.0.00 for bitcoin of their bitcoin holdings. So just so much fud out the market. And yeah, let's. Let's jump into it. First of all, let's start with some taxonomy and just talk about the word digital credit, because this has been a huge debate for quite a while. I think you looked up on the Webster dictionary the number of words or the number of descriptions for credit. So maybe I'll kick it over to you and we'll just talk through credit for a moment and unpack it.
- [03:52]
B
Yeah, absolutely. I do think it's a difficult thing when you have a new beast that's never been created before. You have this Frankenstein credit instrument that's a variable rate made economically feasible by bitcoin. The bitcoin's not pledged, it's not collateralized. So a lot of people are, you know, super confused, or at least they have issues with using the term digital credit. And to me, I've always thought that, like, debt was always a legal obligation to repay any borrowed money. But I've always had this idea that credit is a very broad thing. It's this broad concept that involves trust, risk, underwriting, payment, priority, yield, all this stuff. And yeah, I pulled up that Webster dictionary because me and you both in the last 24 hours have been accused of gaslighting the public by using the term digital credit. And I found that so interesting. And really quickly here, I want to share it really briefly to show people what I'm talking about. Let me know if you can see the screen. Awesome. But as you can see, guys, credit is a noun. There are eight different definitions and about, I don't know, maybe another eight or ten sub definitions of credit. So this idea that, you know, in the strict legal definition of it being equity, like, yeah, you could technically be right, that it's not credit. But I just like to look at this very specific definition right here, which is the provision of money, goods or services with the expectation of future payment. And to me, when I think of stretch, when I think of digital credit, you are provisioning money to a corporation that's issuing an equity, and you do have an expectation of a future payment because there's a dividend obligation there. So to me, I don't think that we're obfuscating the truth, Jeff. I really don't. I Think that. To me, it seems like credit fits that definition. It seems like stretch fits that definition. And a lot of people just don't like that. You know, there's lots of examples of credit that is not debt. I loved what you said that, you know, all debt might be credit, but not all credit is debt. All squares are rectangles, but not all rectangles are squares, etc. Um, I think that's a great point. And I think that, you know, some people have an issue with us calling it a semantic disagreement, but I view exactly what that is, because at the end of the day, we are the contributors of our own language. We get to decide what definitions we want to use when we say credit. And if it fits one that's properly used, that'd be awesome. And maybe you could touch on the fact that Moody's has actually commented on hybrid equity. Maybe that'd be a good launching point there.
- [06:37]
A
Absolutely. I guess before we get into that, there's this amazing book out there. It's called debt the first 5,000 years, and it's by David Grabner, who's, like, a bit of an anarchist. And this book is one of the most dense books that you could possibly read. It's incredibly dense, but it talks through the history of debt, the history of credit. Like, how has it evolved? Debt has been around for a very long time. It's been. And it's taken several different forms. It's a form of trust, it's a form of principal repayment, but it was also a form of exchanging goods and a way for effectively, money to flow in different economies at different points in time. So thinking about contractually today, debt is formally an agreement where you give somebody money and they pay you interest, and then they pay you the money back at the end of the period. Now, credit is a concept, is a conceptual framework for a monetary agreement. And that is like when you're looking at a perpetual preferred equity. Like, what is digital credit? Digital credit is a credit instrument that is designed, backed by a balance sheet of digital assets. Digital credit? Yes. We're not calling it traditional credit. Yes, it is different than traditional credit because the balance sheet is different. The instrument itself is different. It is not a debt instrument. It is an equity instrument, and it is a hybrid between the two. So it's really. It's really easy to conceptualize. When you look at the STRIVE balance sheet, our balance sheet, because we don't have any debt on our balance sheet, you start to question, what kind of risk am I taking on with a perpetual Preferred equity instrument that sits senior in the capital stack. The type of risk that you're taking on is what is the credit quality of the issuer? What is the credit quality of the person that's saying that they're going to pay you 13% for that instrument. Do you think they are going to pay you that 13%? Yes or no. And you can put math behind it, you could put conceptual framework behind it. And some of it is beyond underwriting just the math, some of it is underwriting the trust of the management team, the company. How long have they been around, how have they been operating? Like how do they operate in the capital markets? Are they transparent? Are they opaque? Right. And all of these factor into how you would calculate or understand the credit quality of any of these instruments. So yes, it is not debt. Everybody has been incredibly crystal clear on this. Like the, the whole reason for moving and shifting to a perpetual preferred equity model is to avoid the negative covenants that are associated with debt such as margin calls, cliff repayments. The, the things that are, that challenge a balance sheet with a very volatile asset. Like the, the reason for shifting perpetual preferred equity is because it gives flexibility to hold a 50 Vol asset on your balance sheet and provide an instrument to the market. So, and all of this is risk taking. The companies that are issuing perpetual preferred equity, they're taking on the risk on their balance sheet utilizing the balance sheet assets. So this is a. They're generating yield. They're generating more bitcoin in the door by taking on risk on their entire balance sheet. It's not risk on an individual bitcoin basis, it's risk on the entire balance sheet. This is not a novel concept. This has been around for hundreds of years.
- [10:21]
B
Preferred equities, 1800s, maybe even older, probably.
- [10:24]
A
Yeah, hundreds of years. And it dates back to at least like the, very similar to the creation of the stock market. So it, so the creation of a stock market is vocal. First company ever to have tradable shares in the market. And what they did was there were these ships that were crossing oceans and they had spices and goods and individual people would insure those ships. So you'd have like four or five wealthy people that would go insure a single ship to cross the ocean and come back. If they crossed the ocean and came back, you'd get a 400x return. If they didn't, you'd, you lost everything. Okay, so there's only four or five wealthy people like monarchs on the planet that are able to insure those ships. Now the concept here Is like, okay, can we socialize that risk across a broader group of people? And that was the creation of the stock market. That's literally how the stock market created is they brought in capital in the door and they were able to spread risk across a broader audience that was interested in taking that type of payout. But because you, you brought in capital from a larger group of a larger audience, you didn't have to take on single ship risk. You were now able to take on a diversified risk of several, several fleets of ships that are going out. And that, that starts to improve the math. This is the birth of actuarial science. This is the birth of risk taking and putting math on top of, you know, risk taking in the world. So this is the same exact concept. You're taking a balance sheet and you're using that balance sheet to manage the volatility of a very volatile asset. And you've created an instrument that's helped provide a tool for a different pool of capital to get a similar type of exposure. And we are able to share that risk across the entire balance sheet and all of our shareholders that are along for the ride on taking the excess risk return of that the preferred equity holders do not want to take on so much there. But yeah, very simple.
- [12:34]
B
That's pretty much it. To me. It's like, can something be legally equity but analyzed through credit concepts that to your point, have existed for hundreds of years? Like, you think about the people that were insuring those ships. Do you think they were thinking of things like coverage? Like probably all kinds of risk that just comes with everything in life. Risk is omnipotent. You never escape it. And to me, it's this idea that if there's an equity that is having a dividend obligation, can you analyze it through the credit concepts that have existed through hundreds of years? To me, the answer is yes. But apparently that ticks some people off.
- [13:10]
A
That's. That's as simple as that is. Like, can you analyze the risk profile of them paying you the dividend? Oblig. The. The dividend. Like, are you.
- [13:20]
B
And it's almost like they make it easy for you too. Like, like as Easy as possible.
- [13:24]
A
24.
- [13:25]
B
7 on their homepage of the website.
- [13:27]
A
Right. Okay, so this is great because I think this will transition us into the next theme, which is talking about data and transparency. And let's focus on STRC for a moment because STRC has had some volatility. And you've got Peter Schiff out here saying that MSTR is near a death spiral. You've got Matthew Crater talk. Literally, he said I would be absolutely terrified. And this is quite literally the definition of fear, uncertainty and doubt is saying things like I would be absolutely terrified without showing any math or any calculus of what's actually going on behind the scenes and what's happening with these instruments. So let's jump into.
- [14:11]
B
I didn't see the Peter Schiff thing. So you're telling me that for the first time, and I didn't know that Matthew Crater said exactly that either, so we can have some fun with this one.
- [14:19]
A
I would, he said I would be absolutely terrified. And I was like, what? So let's, let's jump into it and we'll see where we go. Let's just start with this, okay? Let's, let's just do a lay of the land of what's going on with STRC right now. Just to, just to put data out there for the market so people can understand this. We're just looking at Yahoo Finance today. STRC closed around 9,470 over the last five days. Over the last month, it's gone from 9,984 when the div. The record date happened, and now it's down to $94.70. So it is down $5. And yes, if you, if you purchase this at $99.99 and you got the dividend and the dividend was a dollar, you, you're effectively, your cost basis is now 98, 99. And you would be underwater on your position if you held this for a single, like 15 days and you were concerned about the principle for 15 days. In my view, when I look at an instrument like this that is relatively novel, it's paying a high yield. I view this as a moderate duration instrument. And so what, what I mean by moderate duration, I'm going to hold it for multiple months because I want to harvest the yield. And I understand that there's volume that comes in the door to scalp the dividend every, every 30 days. We've seen this, this, we've seen this happen. So what you can see on your screen, you can see this. Adam.
- [15:56]
B
Oh, yeah, it looks good.
- [15:57]
A
Okay, so this is a dashboard I created. And we'll, we'll jump into it here. So on the bottom, let's put cumulative return away. Okay, so the yellow line that you could see here, this is the STRC price since inception. The dotted yellow line is the interest rate change over time. And then the volume bars on the bottom outline how the volume has changed going into every record Date. Every single vertical line is the record date. And what do we see? We see that the volume is creeping up into the record date. Boom. Record date happens, volume trails off, volume creeps up. Record date happens. Boom. Volume trails off. Record date is coming up, volume is up. Record date happens, volume trails off. So, and, and that has happened in, like, the five trading days. The increased volume has happened in the five trading days before the record date. So why do I talk about this as a moderate duration instrument? If I were holding this instrument and I wanted to get out of the instrument, I want to give myself maybe a month or two to get out of the instrument for. For what I. What I put in. Why? Because I know that every single month people are going to be coming in the door to buy the instrument to get the dividend. Why? Because we've seen that that's the trend, and there's incentive to do that. This is a trend that has been going on for the last, like, eight months now. And I think it will continue because the relative yield and the amount of risk that you take on for that very short period of time is relatively small. So I think that will continue. So if you're an institutional allocator and you've got $50 million of capital, I may want to think about how long do I hold this instrument and how long do I give myself? If I needed to get out of this position, I might need two months or three months just to wait for that dividend date to come, and then I'm able to exit that position. Because there's significant amount of liquidity, like multiples more than the average daily liquidity in the five days that are leading up to the record date.
- [17:59]
B
Yeah, I think a lot of people freak out about the stretch price without just realizing, like, that's just what the market is pricing the dividend risk at. Like, it's a 12.15 effective yield. And I think that people freak out about this peg. And it's like, well, do you think strategy can pay the dividend? The effective is a 12.15% right. Now, if we remember back to February 5th, which was the largest nominal price correction in bitcoin's history. People can go ahead and look this up, ask. I mean, you don't have to ask anybody. You can look it up yourself, I suppose, but you can look it up and see that stretch went back up by like four or five dollars the very next day after the largest nominal price correction in bitcoin's history. I think it might have been above 99 within two or three days. So we, what we've seen is that the drawdowns are getting lesser in magnitude, you know, which is a great sign. Obviously, the market's pricing the risk as if it's less risky. And, you know, when bitcoin shakes the foundation here, we could argue about whether or not the market's viewing this through the lens of the efficient market hypothesis or not. But yeah, I think it's really that simple. People freak out about the peg a little bit, but like, once again, there's no math presented about the death spiral scenario, and we're still waiting to hear that.
- [19:23]
A
So. So right here, what I just did is I added the BTC overlay. So now you can see the BTC price overlaid with sdrc. So you see the value of the collateral over here. In November, there was a big drop in STRC price. It was the first time it hit par. Boom, it dropped off. Everybody ran around with their head cut off saying that, oh my God, this is never going to go back to 100. I sold this to my mom and dad. Sailor's going to go to jail. It's just crazy talk, totally crazy talk. That was six months ago. And here we are today again. The instrument goes to par. We see the February bitcoin sell off happen. The instrument drops down and then snaps back up to par after the market kind of stabilizes. So, boom, it's at par. If you, if you purchased STRC at 99.99 in December, people lost their head in February saying the same, same stuff. Death spiral. Like, this isn't, you know, this is never going to work. And lo and behold, the instrument comes back up to 100 several times over the next couple of months. And you were able to get your principal out if you bought it at 99, 99 or 100, and you earned the dividend for multiple months over that period, I think we're more likely in a very similar scenario today where the instrument is like, traded off. If you are concerned about principle, this is something you can start to analyze and think about in the future of, like, strategy on getting your principal back out. It's like, what is the incentive structure? Is strategy going to pay the dividends or do you trust the credit quality? Are they going to pay the dividends?
- [20:54]
B
Is there probably going to be a liquidity rush two days before the dividend date? Like, these are the things that you need to remember. Just look to history, right?
- [21:02]
A
Exactly. And then there's also been a bunch of people that are yelling about strategy, needing to increase the interest rate. But what have they done? They've come out and they've said we're not going to increase the interest rate until the night, until the vwap of the instrument is below 99. And so strategy came out this last month and they said we're not raising the interest rate, we're going to keep it at 11 and a half. Why? Because the 30 day VWAP on the price of SDRC was still at like 99, 70 when it happened, despite the price being a couple dollars down. So that, for whatever reason that concerns people, at least that I think that has concerned some people. But we're getting closer here to a 30 day VWAP. Let's look at the STRC dashboard here. The one month VWAP, where is it? One month VWAP is $99.16. So what, like what is the, what is the VWAP? The VWAP is the volume weighted average price. So yes, the price of STRC is trading at $94 a day. But the VWAP, it takes into consideration how much volume traded at certain prices. So you can start to think of it like averages, right? It's like a volume weighted average price. I think that's what it's called. Volume weighted average price VWAP. So with it being at 9916, that also goes to show you the relative liquidity of the instrument relative to the volume weighted average is lower. We're in this lull period of time where if there's a lot of like people that want to get out of the instrument for whatever reason, X, Y, Z, they're going to get out of the instrument. But on a relative liquidity basis there's more sellers than there are buyers because we're not that close to a record date. And we haven't seen that energy of people buying into the record date. Coming back up to the middle of the month when the record date happens,
- [22:56]
B
it's clustering, it's clustering near a date. Like the liquidity still has to come in. It's.
- [23:01]
A
Yeah.
- [23:01]
B
And this volume weighted, volume weighted.
- [23:04]
A
Exactly. This is, you look at it, right? And it's like actually hold on, let's go to the Excel. I'm sharing a window. Let me share another window. Let's go to the Excel. Okay, so right here, this is the, this is strc. Over on the right hand side you could see that the average daily trading volume for the beginning of May was 234 million 249 million, 209 million and the price didn't move much. So that, that means that you've got people that are buying and selling in both directions. We, you created a liquidity pool. Right? There's a liquidity pool here. But as you can see, you go into the record date and the, the volume starts trading up drastically. So the week of the record date, the, the average daily trade, the daily trading volume went from 200 million to 400 million. It literally doubled. And then it was double for three days in a row. And then it tripled from the double. So it's like 5x more, 6x more. The day before the record day, they traded $1.5 billion of volume, came in the door. Okay. And now look at, look at what's traded the last few days. It's 300 million, 500 million, 300 million. And this is probably outflows of people that are utilizing the liquidity of the instrument to get out and go do other things. I mean, there's still people that have probably been holding this since the IPO that are still up significantly. They bought it at the IPO at $90. They've received six months of dividend payments or even a year of dividend payments. 11 and a half percent. They sitting pretty. And if they want to go utilize that cash on an AI IPO or something like that, then they're going to
- [24:46]
B
go do that or buy amplified Bitcoin. When we're at a historical level of oversold, that could be a incentive there too.
- [24:55]
A
Yeah, that's, that's maybe your strategy, Adam. Yeah, sure is. Okay, a couple other things I want to point out here because I love the data on the left hand side. And we'll go back to my dashboard as well because I show this visually in a few different ways. On the left hand side, this is JP Morgan preferred stock. On the left hand side, this JP Morgan preferred stock pays about 5%. This is JPM PD. Okay. JP Morgan's got $4.4 trillion of assets. They also have $4 trillion of liabilities. They're like 92% leveraged. This preferred stock trades every single day. You could go look at it. The trading volume. You go look at the trading volume of this instrument. Since May 5, 2026, this instrument has traded $70 million of volume. It's got $2 billion of notional outstanding. It's traded $70 million of volume. So what is that on a percentage basis? Basically point or it's four, three and a half percent. The trading volume in the last month has been three and a Half percent of the notional outstanding. Okay, so the notional outstanding on STRC right now is 15 billion. In the last month, it's traded 7.9 billion.
- [26:13]
B
Can you get out of that trade if you wanted to? That's the question.
- [26:17]
A
That's the question. So. So the. A couple things here. The JP Morgan preferred just paid a quarterly dividend of 35 cents. So the quarterly yield is about a point and a half, one and a half percent. The monthly equivalent yield, if you were to divide that by 4, is 0.37%. Okay. In this. In the last month, the JP Morgan Preferred is down 2%. Okay. It's gone from $24.35 to now today it closed at 23.85. Okay, now let's look at STRC. STRC, the monthly yield is 0.96%. It's traded down 4.3% in the month. And what is the relativity of the yield that you get for, like, that volatility? Okay, so the yield delta. So STRC, you get 2.6 times the yield of the JP Morgan product, but you also have 2.1 times the volatility. Is that worth it? Let's look at the last variable. The liquidity is 112 times higher than the JP Morgan preferred. This instrument has traded 112x the JP Morgan preferred in the last month. That liquidity should outweigh everything else in the market. I mean, I'm truthfully astonished that this instrument over the last five days has traded 2 billion. Over the last three. Over the last five days, this instrument has traded $2 billion and the price is only down like 3 or $4. That is insane.
- [28:00]
B
And what is that as a percentage of the outstanding, Jeff? Is that like 20? Roughly?
- [28:06]
A
Yeah. Well, it's about. Yeah. This divided by 15.
- [28:10]
B
The churn is crazy.
- [28:11]
A
It's 14%. Yeah, 14%. So in the last five days, STRC has traded 14% of the notional outstanding. And meanwhile, what is this? The J.P. morgan product. Has traded 1%, 1.1%. So the relative liquidity, is that right? No. Yeah, it's like 12 and a half times higher relative liquidity. So you get 2.6 times the yield. You get 2.14 times the volatility and 12 times the liquidity. 12 times the relative liquidity. That's interesting. I. I'm interested in that product. Why? Because it's creating a liquidity pool. There's. There's other things that are happening in the market. I. I think that's another thing that a lot of people haven't necessarily like, looked at or recognized like every other preferred equity instrument in the last month has also traded down. Pff, the. The preferred equity index is down 4% in the last month. PXG also down 4%. Basically, like everything in the market on a. On a credit basis is down. Why? In my opinion, I think there's. There's so much capital that's flying around in AI right now. I mean, Google just did a 70 or $80 billion raise. Anthropic just did a $65 billion raise. Part of Google's raise is a $15 billion preferred equity issuance. Right.
- [29:53]
B
Google's going to be hitting the ATM as well. That's fascinating.
- [29:56]
A
There's just, there's so much capital being raised. I'm not surprised. Some of it is fleeing some credit instruments. And like, this isn't a stablecoin. Right? STRC isn't a stablecoin. It is a credit instrument. And if it's like, if it's pegged at 100, strategy is a seller at 100, they're not a seller below 100. So it's market activity that's going to be happening underneath 100. So you start to think about it and say, if there's, if capital wants to move, it's going to move. And that's just, there's just periods of time where capital rotates and moves. It's not like. I think it's a little odd to expect it to just trade at a hundred dollars every single day, like forever, without any volatility. This is a, It's a function of a Bitcoin balance sheet. This is a credit instrument that sits senior on the balance sheet. It is equity. It's tradable in the marketplace. The, the last thing I want to, I want to point on here is, oh, let's. I gotta, I gotta switch my window. I gotta go back to my Chrome.
- [31:06]
B
One thing that's interesting is the scale. If you actually look at the top three or four biggest banks, if you have JP Morgan, bank of America, Citigroup, Wells Fargo, the preferred layer of JP Morgan, just the preferred layer of that capital stack is $20 billion outstanding. Bank of America is about 25 billion. Citigroup's at about 20 billion. And strategy is now ahead of Wells Fargo. Stretch is the most interesting thing that's happening in the market. And the market is telling us that with the sheer volume, with the liquidity, and you just have to ask, like, how long did it take Stretch to get here? This is including all of Strategies preferreds. Like it's 15 and a half billion dollars outstanding. But still it's, it's wild to ask the question how long these other companies have been around and you're seeing this level of activity around this instrument. It's just a fascinating thing and that's why it's such a hot topic.
- [32:03]
A
Totally. Oh, I guess I've got one, one thing that I'm going to go to after this and I wrote it down, it's going to be retail. Let's hit on that. Let's hit on that next. Most active high yield corporates. Okay, so this is corporate debt. I did an analysis of corporate debt debt. Okay. I wanted to get an understanding of how liquid it is. The these are the top 10 most liquid high yield corporate debt instruments. Meta has a corporate debt instrument that trades about $91 million a day of average volume. Google 51 million million. Oracle 47 million. Google 18 million. No idea who that is. Baker Hughes 15 million. Amazon 13 million. The reason I point this out is that this is creating a new category like this. Digital credit is an entirely new category and it's a category of a liquid equity instrument that pays a yield. These credit instruments, these are the most liquid ones. If you were to mark to market actual credit instruments 24, 7, 365 that had similar yields to strc, they are going to be way more volatile. There are going to be days where they're damn near worthless. Zero. Like there is no market for it because it's illiquid. And there are days where it's worth a lot. Like there's these things are like so transparent. It's breaking people's brains
- [33:38]
B
in comparison. Like you think, like who would want the other stuff? Like who wakes up thinking that you want that debt instrument from some zombie corporation in the s and P500. It is a category creator and that's why the term digital credit makes sense to use because there is genuinely nothing else like it with pretty much any attribute that it has, right?
- [33:59]
A
Yeah. It's creating a new category of you've got high yield, high liquidity, low volatility, relatively low volatility. That's like the trifecta. It's the holy trinity. If you can have all three of those in the traditional credit markets, you get two out of the three, right. You get high yield and low liquidity, aka private credit. Like you want to go get 10, 12% somewhere else, go for it. You're not going to be able to trade it for five years.
- [34:30]
B
Now you're Taking a bet that a distressed airline you're buying it from doesn't go bankrupt in two years. That's the problem.
- [34:36]
A
Exactly, exactly. And it's funny when you think about that concept, right? Like, private credit, okay, I'm going to give you my money to go get 11%, but you're not going to get, like, you have no liquidity for like five years or a decade. Right. And now people are looking at this STRC instrument and it's equity. You're going to get paid a very similar yield. But, like, it's so transparent and there's liquidity. It's.
- [35:10]
B
Private credit is marking it based on vibes. Isn't that the gist?
- [35:13]
A
Yeah, like, yeah, it's like, like they're
- [35:15]
B
marking it on vibes.
- [35:16]
A
Right.
- [35:16]
B
With illiquid. Like there's, you know, the redemptions always get shut off whenever there's stress in the marketplace. And then I don't think anybody had issues getting out of stretch today.
- [35:27]
A
Yeah, like, it's there. Like, if you needed it, it's there now. I think there's a. People are misconstruing, like, risk profile with volatility of the underlying instrument. Just because the underlying instrument is a little bit volatile doesn't necessarily mean that the risk profile of the balance sheet has materially changed. In fact, I would argue that compared to where the strategy balance sheet was when they launched strc, I would argue that the balance sheet today is healthier. They didn't have. They didn't have a USD reserve back in. In July of last year, the price of bitcoin was at $110,000. They had 500,000 bitcoin in July of last year. Now they have 843,000 bitcoin. The asset side of the balance sheet is actually very similar. Despite the price of bitcoin being down, what, 40, 50%, they have less debt and they have less debt.
- [36:21]
B
They have less debt. And on top of that, like, since it came out, they've had the most successful year of buying bitcoin and company history in terms of pace. Like, it's just not even. It's not even close. Like, they're smashing it. And it's just wild, like, how the capital markets are remaining open to them. You know, I think a lot of people, when they talk about the death spiral scenario, they act as if, like strategy management has zero opportunity for sequencing decisions on their sequencing. It's like almost like all the apocalyptic scenarios are them waking up and bitcoin is suddenly at 26,000. And I think that people are ignoring that the company has just more optionality now than they did nine months ago, which is amazing to even think about. They have the USD reserve, they have less debt. They have, I don't know, 126,000 more Bitcoin or something like that. Yeah, I think it's inarguable that the balance sheet's better.
- [37:21]
A
Yeah, I mean just on the screen right now is a bunch of FUD that we've seen here. I don't see how MSTR doesn't go to zero here. They need BTC to go to 100k within 4 months or it's over. The push into prefs was based on him clearly thinking BTC was about to moon. That's the only reason to take that sort of miscalculated risk to screw up his balance sheet so badly. He must have thought BTC was about to fly and he could easily pay the prep dividends with future BTC sales. Peter Schiff STRC is trading at below 98 at that price. That will force Sailor to raise official Q, the official coupon to get STRC back to 100 death spiral. FUD.
- [37:59]
B
This is. I'm gonna go on a bit of a tirade here, Jeff, if you don't mind. I, I think that like for some reason people are ignoring the capital markets access despite being in a year where bitcoin has price corrected between 30 to 50%. I ran the math specifically. It wasn't this past Friday, it was the Friday before. But I looked it up with all of the filings. Strategy has raised $143 million per trading day in 2026. 143 million per trading day. Not even per day per trading day. I think that like people need to realize what that means. With the annual dividend obligation of $1.7 billion, that means that strategy, literally in 2026, they are raising 31.1 days of dividends every trading day. Every trading day they are raising more than a month of dividends. Like and this is with bitcoin again down 50%, 40% in that range when you can have one year's worth of dividends raised in less than 12 trading days. A year's worth of dividend coverage in less than 12 days after a 50 price correction. You have people that are not using math to calculate the, the downside. They're not at all. It's all hypothetical and they're just not. I, I have seen this like where. And maybe we could talk more about this at the end of the show. I don't want to cut you off too much, Jeff, but like there's this big debate about residual value right now and exactly how to calculate. And I've seen this from people who are bitcoiners and they're criticizing MSTR where in this hypothetical situation where Bitcoin goes to $26,000 per Bitcoin, where let's say the bitcoin nav equals the amount of outstanding preferred stock that MSTR trades at zero. So for at least half of the Bitcoin bears that are claiming this, that's the methodology by which they are calculating that. Like there's no residual value left over for the common stock. But in reality we know that it's like a call option. Like there can be lack of intrinsic value, but there's time value with this thing, it's like, can the market price the residual always like on a going concern basis, right? Absolutely. Like this whole idea that it means that the market prices the stock like this at zero. That's totally incorrect. So sorry if I'm going in too many different directions.
- [40:38]
A
It's an infinite duration call option on the underlying asset.
- [40:41]
B
Exactly.
- [40:41]
A
Yep. Right. Like if you're so it's crazy that the people that say the, the equity is worth zero. Worth zero. I mean they're just, they're not very leveraged. There's not a, there's not a ton of preferred equity. The amount of capital that they raised is mind numbing, mind boggling, to be honest with you. And I've got some of the math here. Let's, let's do the math because other people are not doing the math. Shall we?
- [41:03]
B
Yep.
- [41:04]
A
Okay. Boom. In four days, a short week, a holiday week, last week, Strategy sold 801,994 shares of MSDR stock. Here's the 8K boom. And they traded what, 59.2 million shares. So Strategy traded 59.2 million shares. They sold 1.35% of the, of the volume in those four days. Not. And they were able to pay the dividend for STRC for the entire month. And they raised $30 million to add to their USD dividend reserve. And the, the 32 Bitcoin that they sold was two and a half million dollars. It was really like, has nothing to do with anything. It was just like, hey, we sold some bitcoin and we were able to do it. And like the two and a half million dollars is there. They raised the money to pay the dividend. They didn't deplete their USD reserve to pay the dividend. And they added $30 million to their dividend reserve, the USD reserve, in this month. So it was like very effective month. Do you think they were able to do that? Yes, they were. They did it in a shortened, shortened period. They were able to do all of those capital markets activities. And Adam, I know you came out with a video today. You're talking about M Nav relationship and capital raising around M Navigation. Might be helpful to jump on that because that, that was a, that was another concern that came up as well.
- [42:27]
B
Yeah, specifically strategy. If you look at their, specifically their Q1 earnings presentation that came out, you know, a little bit ago, they were talking a lot about raising capital with a 1.22-xm nav for the break even. And that's just because the capital structure changed, which, you know, it did with the preferred stock. I don't think anybody's denying that. So like, I don't know, at the end of the day, like, you just have to run the math on it. Like, regardless of, I'll just say this, like, almost regardless of what the M Nav is, you know, depending on whether you're calculating it with an enterprise value basis, you know, a market cap basis. It's funny, if you do the math, if you take the basic shares outstanding and just, you know, just make it simple and you look at their market cap, it's $44.6 billion right now. If, if you want a year of dividend payments, it's 3.7% dilution to, to the MSTR common stock for a year of, not only a year of dividend payments, but what that gets you, it's the amplification mechanism by which you acquire that 40% amplified Bitcoin. Obviously there's the existing debt that's still on the balance sheet. But to me, it's like as an MSTR shareholder, how do you not want to take that trade given the fact that you're a bitcoin bull? And like, worst case scenario, if they just sell at the current market cap valuation of the shares outstanding, 3.7% dilution to get you the billions of dollars coming in for stretch, it seems like a good trade off to get 40% amplified Bitcoin.
- [44:09]
A
Yeah, absolutely. And I think that's something a lot, a lot of people don't understand as well is, you know, they, they're, they think they, they don't, they're not looking at volume, they're not looking at how MSTR trades, they're not looking at the relative volume of MSTR relative to Bitcoin which I look at literally every day. That's my job. Yeah, it's part of my job. So one thing we've been watching very closely here. You look at strategy. Strategy. Over the last. Over the month of May traded $52.6 billion. The monthly dividend is $100 million. Let's bring that back over there. Let's go.
- [44:44]
B
How does that compare to the 1% trickle that we just calculated? That's what I want to know.
- [44:48]
A
Yeah, let's. Let's paste values here. Let's bring that number over 100 million divided by 52.6 billion. 0.2%. Yeah. The monthly dividend is 0.2%. 0.19%. Let's take it out another decimal. 0.19% of the daily of the volume over the month of May would like. Do I care if they sell MSTR stock to pay the dividend with at 0.19 of the average daily trading volume? Absolutely not. I don't care. Do it like if they were. If they sold 0.19% of the average daily trading volume every single day. And like thinking about daily dividends, like if they were to go daily dividends and do that every single day, that would be. That would be an interesting approach. It's been, it's been fascinating. Watch how they. Watching how they've evolved using the MSTR security to pay the dividends and how they do it. It seems like the week of the dividend they generally raise the capital and they do it that way. You could do that several different ways. And I'm sure that they'll evolve even as they do semi monthly dividends. Hopefully that gets approved. Everybody go vote. If you haven't voted, they are that. That focus of where you raise that capital is also going to be spread. Instead of having it like the week before when they pay the dividend, it's going to be spread out a little bit with semi monthly dividends and that will continue to, to change and evolve over time. 100%. I wanted to hit on a couple more things here. The Michael Saylor's strategy. MSTR will begin selling 4 billion in Bitcoin to cover STRC.
- [46:33]
B
What?
- [46:34]
A
Like, it just comes out of nowhere. This stuff comes out of nowhere.
- [46:36]
B
There was another 146,000 views of total Nonsense. It's like literally fake.
- [46:42]
A
Complete, complete nonsense. There we go. MSTR is down 6% today. Crashed 70% in last year. Crashed. I love the terms. Just crashed. Right. Yesterday, for the first time in 41 months, Sailor sold 32 BTC the market cap has fallen. Boom. Wiping out $111 billion in value. This is actually a wrong number. I think that's why I pulled this in here. The market cap has fallen from over 160 billion. That's false. I was tracking it very closely. It only actually got up to like a hundred billion dollars. But they're taking the shares outstanding and multiplying it by the price at that point in time, which is not true. That wasn't the actual market cap. This is a completely false tweet.
- [47:22]
B
Enterprise value didn't even get that high either. I don't think. It's just.
- [47:25]
A
No, because they only had like $8 billion of debt and no press when that happened. So it's just like. It's just completely untrue. But I wanted to hit on Bitcoin because bitcoin sales. Because I think Peter Schiff even brought this up. It was like, they're going to have to sell 50,000 bitcoin. You know, it's like, no, you're an idiot. Even if they sold Bitcoin to pay the dividend, what would that look like? Let's do the math. Because very clearly, nobody else can do the math. So we gotta do it. Excuse my French. I'm a little fired up. Okay, let's look at the annual dividend obligation. So right now they've got one. The annual dividend obligation is $1.7 billion. Okay? If you were to split it out between quarterly and monthly, they have different. They have some instruments that are quarterly, they have some instruments that are monthly. So on a quarterly basis is 126 million. On a monthly basis, it's $100 million. So, and Bitcoin strategy's got 843,000 Bitcoin. If they were to sell bitcoin for the monthly dividend at a price of today's bitcoin price of $65,500, they would have to sell 1,535 bitcoin. Look, we just did the math on MSTR. We just went and showed you that it was zero. You got to sell 0.19% of the daily volume in the month to pay the monthly dividend. Okay? If you didn't believe that existed, if you thought that that just didn't exist, and they had no mark, just the volume goes to zero tomorrow, which it's not going to do. But if the volume went to zero tomorrow on MSTR and they had to sell Bitcoin to do it, how much would they have to sell? They would have to sell 1,535 bitcoin to pay for the monthly dividend. Okay, well, what about the quarterly dividend? 1930 Bitcoin to pay for the quarterly dividend. Okay, what is that on an annual basis? If just everything else was gone and the bitcoin price stayed at $65,000, they'd have to sell 26,137 Bitcoin. That's 3.1% of the Bitcoin stack. Now that would happen over time, too. It's not like you're going to sell 26,000 Bitcoin on day one. So you've got. What else is going to happen throughout the year?
- [49:34]
B
Exactly.
- [49:35]
A
What do we know about bitcoin? It moves. Bitcoin trades billions of dollars every single day. It's trading $20 billion a day. If the annual dividend obligation is 1.7 billion and Bitcoin trades $20 billion a day, Bitcoin's trading what, like, what's 20 billion times 365? It's trillions. It's trillions of dollars. Yeah, 20 times 365.
- [50:00]
B
If you want to look at it as a fraction, it's like, like what even is that? Like 1535 divided by 8, 43, 706. Like, like at one month. Like, what is a percentage of their stack?
- [50:16]
A
Hold on. There's a. Okay, so If Bitcoin trades $7.3 trillion a year and the annual dividend obligation is 1.7 billion, so it's 7,300 divided by 1.7. Is that right?
- [50:36]
B
I think you might have missed a decimal.
- [50:38]
A
Is it 1.7?
- [50:41]
B
Well, seven, actually, I think you're right.
- [50:44]
A
Or is it the other way around? Oh, no, it's the other way around.
- [50:52]
B
That's the number.
- [50:53]
A
There we go. That's. That's what we were looking for. That's, that's what we're looking for. Let's look at that strategies. If they were to sell bitcoin to pay for the entire dividend obligation. If Bitcoin trades $7.3 trillion a year, somebody go fact check that. I don't know what it traded last year. It's probably significantly more than that because there was very high volume days. There were very low volume days. Their annual dividend obligation is 0.02% of the estimated annual bitcoin volume. It's not going to move the needle. Like them selling bitcoin in order to pay the dividend obligations. It's just, it's literally not going to move the needle at all. It's just so infinitesimally small. Like today. Can it grow and might it be, might it be a bigger portion of like what the bitcoin traded volume is? Sure, maybe. But we're not even like remotely close. If this 10x and it goes to 0.2%, I don't care. It's not even, not even remotely close to being a concern of them selling bitcoin in order to pay the annual dividend obligation, which we just proved before this. I don't think they have to do and I don't think it's likely that they will. But they have, they have that tool in their toolkit to do so if they wanted to. Because why? Because the price of bitcoin moves. They have high cost basis bitcoin. They have low cost basis bitcoin. They can go sell high cost basis bitcoin and go pay the dividend obligation and then carry a tax asset on their balance sheet. Just go effectively get the deferred tax asset on the balance sheet. Yep. Some people have complained, some people have complained that there's no value in that deferred tax asset on the balance sheet because they have no realized gains. Well, guess what? They have unrealized gains and they have massive unrealized gains. Even though everybody likes to sum up the entire balance sheet and they have unrealized losses on.
- [52:59]
B
There are tranches of buys.
- [53:01]
A
Yeah, there are tranches of buys at $17,000 bitcoin price.
- [53:06]
B
They were buying during the dip a little bit, guys.
- [53:09]
A
Like, yeah, absolutely. Let's, let's show it. Let's show it. Because that's a, that's another topic. Purchases. Let's go look back at the purchase
- [53:17]
B
history before you get to that. Jeff, one quick point. It's funny, like if you just take the 32 years of dividend coverage on the balance sheet and you multiply that by 12, that's 384, 384 months. So I mean, you're selling 1 384th of your Bitcoin for one month of dividends. 1 384th of your Bitcoin for a month of dividends.
- [53:46]
A
Yeah.
- [53:46]
B
And that's what people have a problem with.
- [53:48]
A
Yeah. And it's if, if that, if 1,384ths allows you to go raise more capital because you have trust, right? The market trust that you're going to go sell bitcoin to go do that, more capital is going to come in the door and allow them to go buy more bitcoin to go do that. Because they're going to go. You're again. Goes back to like, what are you underwriting? I'm underwriting the credit quality of the person that's created this instrument. Are they going to pay the dividend? Like, my. My answer is based on everything I know today and all the math that we're continuously looking at. Highly likely. Highly likely that they're going to continue paying dividend. One thing I did want to actually. I'm glad you brought me back to the Excel. My brain is moving a million miles an hour. Old strc rate, 11 and a half. Okay, Jeff, death spiral. They're gonna have to raise the interest rate to 12 and a half. How does that change any of this math?
- [54:39]
B
Let's change a million dollars more.
- [54:41]
A
Let's Change it to 13. Let's change it to 13. Did you see that? Did you see how. Watch this. Watch this number. Boom. Percent of BTC stack goes from 3.1 to 3.4. The numbers are. And notice this number doesn't change at all. Yep, at all.
- [55:06]
B
25 basis points. Last I calculated on stretch, if they had to raise it to 11.75, I think it's like $26 million. More like it's nothing. It's. It's a penny in the bucket compared to the overall trading volume of mstr. It's. It's nothing.
- [55:23]
A
It's totally beautiful on a daily basis. So this is a. If they were to go to daily dividends, just to, like, conceptualize it on a daily basis, because you brought up daily how much capital they've raised per day, which is lumpy, but it's true. They've raised $143 million per day in 2026. The daily dividend would be $4.8 million. Okay. We're talking 29. Almost 30. 30x. The daily dividend obligation. All right, now let's Change that to 12. That instead of 30x the amount of capital raised and that, you're now at 28.4, 28.5x.
- [55:56]
B
You're only raising 28 times the dividend. Oh, no. Every day, on average.
- [56:01]
A
Yeah. Like, are they going to be okay? I'm on. I'm shaking my boots. Yeah, it's. The math is, like, really deafening here. And what I also did here is in this column is if you were just a crazy, crazy bear and you thought the price of bitcoin was going to go down another 50 from here down to 32. 750. I. I wanted to show some relativity so you could put that into perspective. As well. 30, 32, 750, that would be 47 below the 200 week moving average. Literally never happened in bitcoin's price history before ever the the furthest that bitcoin has fallen below the 200 week moving average, it's like 32, 33%. And this is like in the depths of FTX, Celsius, Blockfi. All of that mania collapse plus interest rates going from 0 to 5 all at the same time. And an environment where politicians wanted to kill crypto. A completely different environment of where we're at today. Let's look at this on how much bitcoin they would have to sell if the price of bitcoin went down another 50% to 47% below the 200 week moving average. Again, which has never happened in history. The amount of bitcoin that they would have to sell is boom. You go from 1,500 to 3,000 per month. Strive we bought 2,500 bitcoin last week. There are other people in the market that are continuously buying bitcoin and as they see prices of things dislocate, like the entire capital market is fluid. Capital is moving from all of these different pools every single day, all over the place. So it's moving to AI. There are different points in time where things are hot and momentum trades and moves and credit and capital moves 24, 7, 365.
- [57:55]
B
The lower price just creates an incentive and that's where people, they forget that when it comes to bitcoin, but they also forget it when it comes to the MSTR common stock price itself. I know that you mentioned recently Jeff, that you know, look at the MSTR stock price trading at 0.7 XM NAV in 2022, like what an amazing opportunity, right? Obviously like being below NAV creates incentives and like people forget that all the time. So it's like these death spiral scenarios where the residual value for the MSTR common equity shareholder, it's at zero, therefore the market price is it at zero. That has never happened before. Even at the most oversold bitcoin has ever been according to the four year moving average or the simple moving average, whatever metric you want to use in 2022, the incentives were there. And I think people forget that.
- [58:47]
A
Yeah, absolutely. I'm going to share my screen one more time and thinking about incentives and Matthew Crowder brought this up and he was talking about, well MSTR doesn't always trade at a premium. And I'm like yes, that is true. But I think what he was missing or what he was trying to say, or maybe he doesn't conceptualize, is MSTR trades at a beta to Bitcoin. It trades at a multiple to the underlying Bitcoin. What is the value of the common stock? The value of the common stock is a function of the Bitcoin that they hold on the balance sheet. And that expression of the underlying Bitcoin that they hold on the balance sheet is very interesting to the capital markets. The capital markets use MSTR to trade in all directions. They use it to hedge Bitcoin pricing, they use it to long it, they use it to short it. Market makers love this because it's incredibly liquid. It's one of the top 20 publicly traded equities by volume consistently. It's like an enormous liquidity pool that's tied to the underlying value of Bitcoin and it's got a moving beta. So what I've shown here, the bright yellow line, this is the 90 day rolling beta of MSTR relative to Bitcoin going back to 2021. And you could see that the 90 day beta is rolling.
- [60:05]
B
It's near all time high, actually.
- [60:08]
A
It's near all time high, yeah. Which is interesting. And you can look at it relative to the underlying Bitcoin price. I just made this right before we jumped on here, so I haven't had a ton of time to analyze it. But the most interesting part here is the, the yellow line that's sitting above the white dotted line. A majority of MSTR's pricing history has had a beta greater than one. So that, that makes it an interesting trading product. Like it will always have volume because people are trading it, because it is, it is effectively a derivative of the underlying. Matthew Crowder, hated that Sailor has talked about this being a derivative of the underlying, but it's the reality. The market treats this as a derivative of the underlying because it is a very pure expression. You could understand the risk. It's got some relative relationship, like there's correlation, there's relationship that makes it a derivative. STRC is like another derivative, but it's just a different construction. Yep, the same with our balance sheet. Strive we, we've seen this, we've seen, we've seen our company. We traded a beta to MSTR because we've got higher amplification, we've got no debt on our balance sheet. Our instruments are a very pure expression of amplified Bitcoin and digital credit. It's such a pure comparison of the two. So these are derivatives, they traded a high beta. Yes. The premium doesn't always exist. But that may be not necessarily the point. That's not how the broader capital markets they thinks about this. Yes, that might be how retail thinks about it, but institutional capital is using this for different reasons. And if you're an investor, you need to think about the entire market. How does the entire market view any of these instruments? How are they using them, how are they thinking about them? And how do they fit into the entire global capital landscape? This is important.
- [62:04]
B
It's a complicated question to solve depending on what type of investor you are. And you just simply can't deny that the incentive is there and the liquidity is telling you that, like you said, there's many different ways to use it. I don't think that should be surprising to anybody. And, you know, this idea that it's functioning as a derivative. To me, this is always the way that pragmatic adoption was going to go. Like there was going to be some guy running a corporation to put Bitcoin on his balance sheet, and this was always going to happen. Did you really think that nobody was ever going to buy Bitcoin and realize that it's the apex asset and put it on the balance sheet? And then did you ever conceptualize how the market might perceive that? So it's. I think that there's a split in the Bitcoin community ideologically where it's. You're seeing the. The pragmatic adopters versus some of the ideological ones. They don't like the idea of a derivative on Bitcoin, but, you know, that's fine. But this is reality. This is the way the market's treating it. And you cannot get around the liquidity or the math around the instrument.
- [62:59]
A
Yeah, right, right. 100%. And I think that that kind of is a perfect segue to. One of the next criticisms is retail involvement in this instrument.
- [63:09]
B
Yeah. And that's a negative 80% people.
- [63:12]
A
What's that?
- [63:13]
B
It's a negative. Apparently, if 80% of the holders are retail.
- [63:17]
A
Yeah, it's. And apparently, like preying on people. It's like, no, we're talking about this instrument. Like, we are being incredibly transparent. We're filing information with the SEC very frequently. So you understand what our balance sheet looks like. We have multiple podcasts, like we do the Hurdle Rate podcast. Every single week. A CEO, a CIO, and a CRO get on and talk about what's happening in the market every single week. Name another company that does that. We've done 60 episodes. We have True north where we talk about what's going on in the market. We talk about these equity instruments, we talk about these things. We go on several different podcasts across the entire landscape. We are going to talk about these instruments, they have been created. We are operating in the capital markets. We're talking to you about what we see, see that? And it's, it's, it's very transparent. Now, thinking about the retail involvement, Bitcoin, let's, let's think about bitcoin for a moment. Bitcoin was 99 retail until 2024.
- [64:17]
B
Now it's bad that retail's in something 15. Isn't that weird?
- [64:20]
A
15 years. Retail had 15 years to front run institutions and then once the ETF launched, I guess you got the strategy that came in in 2020. So maybe, maybe you say 11 years before you front run institutions, but 15 years before there's an ETF, right, like retail. Retail had the opportunity to figure out before institutions did. Well, guess what? Institutions happening. The same thing's happening right now. It's like you've got this new credit instrument. It's a new category. Yeah, it's a hybrid instrument. It's a, it's a hybrid equity instrument with a high yield, but it's also highly liquid. Low, low volatility. It's really interesting. And if you're constructing a portfolio of assets and you subscribe to Markowitz modern portfolio theory and think about like, you know, living your life on these instruments, having an instrument that's like long, the underlying thing that you care about with a different volatility profile, I could build my life around that. It's really hard. Unless you have, you know, millions and millions of dollars of bitcoin, it's really hard to build your life around a bitcoin standard. Like yeah, I'm super happy for all the OGs that can go do that. But guess what? The reality isn't the same for people that are getting into the bitcoin ecosystem today. People don't have a lot of free savings or money and it's just really difficult to live on a bitcoin standard without different, different tiered risk return profiles.
- [65:51]
B
And they probably printed 60% of the existing money supply. Since a lot of these OG bitcoiners bought bitcoin, that's one thing. Like yeah, maybe some people need some income because of this and like maybe they don't have a lot of money left over because inflation takes a huge percentage of, you know, their take home pay with just essentials. It's strange to me like the pearl clutching about just this, you know, this Whole bitcoin only thing. Like, it's, it's weird that you're seeing people getting upset at winning. There's no way that you can tell me that if you got in a time machine and you went back in time to 2015 or 2016 and you told the bitcoin community, hey guys, there's going to be a billionaire who puts bitcoin on his balance sheet and launches the ultimate speculative attack against the dollar. I bet you every single one of them would have thought that is the most awesome thing I've ever heard in my entire life. And they would have loved it.
- [66:46]
A
Yeah. And tell them they've got 843,000 Bitcoin. Right?
- [66:50]
B
Exactly. And guess what? They're going to issue these perpetual preferred equities, you know, to the people who want income out there. So you can feed these different investor classes. Like, you cannot convince me that nobody would be in love with that idea.
- [67:02]
A
Right. I think the struggle for a lot of those, a lot of the OGs that are, that are kind of taking this perspective is this stuff is earth shattering, like the creation of a new category. Imagine you've been working in this field for nine years and you're like, bitcoin, you've built your whole life around it. You started building a business around it. And then all of a sudden digital credit comes along and shatters your reality. Just like bitcoin shattered your reality when you found it. Digital credit shatters a lot of realities. And it's uncomfortable because you're like, well, if this thing does well, maybe my business that I created and built around this is threatened by it. And I think there's a lot of people that feel threatened by the success of this potentially working. And it's, you know, maybe against the ethos of what they, when, when they originally bought bitcoin and it's different than how they imagined it happening. Well, it's like bitcoin doesn't care. People are going to use the instrument. Like how the capital markets will let them use the instrument. And guess what? Yeah. If you go back to 2016, if you talked about like, hey, there's now an instrument that opens up the $300 trillion credit market to be interested in this product, to be interested in bitcoin, you'd be, you'd be super fired up about it.
- [68:21]
B
You see this same sentence over and over again. I see the bears on bitcoin X, it always starts with this. Bitcoin was supposed to be that sentence. Bitcoin was supposed to be. And to me I'm just like, according to who? Yeah, like to me, bitcoin just is. And the market will react accordingly. And for some reason people have a problem with that. They need it to be treated the way that they want it to be treated. Which is very interesting.
- [68:54]
A
Yeah.
- [68:56]
B
Bitcoin just is like, is it a peer to peer electronic cash system? Did Satoshi write that? 100%. But people are going to treat it the way they want to treat it. Bitcoin just is. It's decentralized.
- [69:07]
A
Yeah. And thinking about like I, I've done a. Oh man. I mean my brain's been a million places but thinking about what this future looks like, it's moving more digital. Everybody knows that. It's moving more AI, it's moving more agentic, it's moving more digital. Defi is like, you're not going to stop it. Crypto. I think a lot of the crypto projects are probably going to die, but some of them will survive. And you're taking this thing bitcoin. A lot of people thought bitcoin was going to be money. Well, what's the reality of having a money that moves 50% in a month? You don't want to spend it. I love bitcoin. I don't want to spend my bitcoin. It's like the last thing I want to do.
- [69:51]
B
Yeah. It's opportunity cost.
- [69:53]
A
But unfortunately, like people will have to
- [69:55]
B
tell you that the pizza transaction was a great use of your capital.
- [69:59]
A
Yeah.
- [70:00]
B
Like if you want to follow that line of thinking down, like that was a brilliantly smart decision for that guy to trade his bitcoin for two pizzas. Where do you draw the line? That's the question. Like, where do you draw the line?
- [70:13]
A
Well, it's like it's, it's the concept of like, I think it will be used as a capital asset for like very large transactions. Like I could see homes being transacted in bitcoin. Like things that are just really, really large or like global trade settlements between different states and different countries that you could transfer value quickly across the globe. Like that just seems super rational. Right. Instead of having to send gold from the US to France and put it on a ship and have insurance and security and all this shit, or carry a global trade deficit. You could just transact back and forth in bitcoin. Like it could just be digital and simple and large scale capital transactions can happen cheaply in that direction. So I guess the point of bringing that up is by having a derivative of bitcoin that's low Volatility, you can start to conceptualize, well, maybe that's the medium of exchange. So I do think that there could be a future here where digital credit is the medium of exchange. And it's just consistently compounding, like, any. Any capital that's coming in the door on digital credit. Like, boom, that's going to support the entire bitcoin network. Anybody that's long, bitcoin, that's good for them. But it's also, like, that would be an interesting medium of exchange between people. Like, Adam, if you and I went out to the bar and got a beer, would you accept digital credit as payment? If you paid for the beers and I wanted to pay you back, like, would you accept it? Oh, heck yeah.
- [71:41]
B
A hundred percent. I could sell that asap.
- [71:43]
A
Right, Right.
- [71:44]
B
Or I could keep it and get a dividend, you know, it'd be awesome.
- [71:47]
A
Right? And so, like this, again, earth shattering. You're thinking about, like, what, like these things are a year less than a year old. What does it look like two, three, four years from now? Like, they're going to survive. I got a harsh reality for all the bears out there. These things are going to survive. Yeah, they are. Incredibly. Like, the downside risk is so tail. Like, there is. There is a tail probability that this doesn't work. If that's likely a correlated tail probability that something happens with bitcoin, which hasn't happened in the last 16, 17 years. So I think that's a tail probability that's incredibly low.
- [72:25]
B
There's just this big.
- [72:26]
A
Yeah.
- [72:27]
B
Sorry, I didn't mean to interrupt you, Jeff.
- [72:28]
A
Sorry. Just like the. I think there's a high probability that these are going to last three or four years. So, like, okay, well, what gets built in the next year? Or two or three?
- [72:36]
B
Yeah, like, people aren't conceptualizing that digital credit can be built on. And as some people are seeing what's happening, like, Saylor himself has talked about tranching stretch and defi. And then you have what he's calling digital money. That's upsetting some people. You know, like, if you have something that's zero volatility but paying you 7 or 8% and you call that digital money, to me, like, that is more of a. That is more of a medium of exchange.
- [73:01]
A
Right.
- [73:01]
B
Like, what we were just talking about. Like, would you take digital credit for money? Dude, you pick something with zero volume that pays you seven. Like, I would.
- [73:09]
A
I would. I would totally reconstruct my entire life. Like, unfortunately, I still have a bank account. I hold dollars. Why? Because my My mortgage is payable in dollars. Like my credit cards are payable in dollars. Like, I still have to interface with a bank. Unfortunately, I could take on bitcoin risk with 100 of my life, but I choose not to because I don't need to stress about it. I work in the industry. I don't need to stress about it. Like, I'm going to hold some dollars in a bank and I have to do that. If I had the ability to hold all of that in digital credit. And if I got paid in digital credit, no brainer, like, oh, that's an interesting concept. What if I paid somebody in digital credit? That's interesting. What like, what if that became a way that like you, you were able to pay people? Or like, I don't know, we, like, we, we like to look at us
- [74:07]
B
talking about this and then at the same time, you're seeing Jamie Dimon get on Fox News two days ago and have a temper tantrum because they knew that they are losing to the digital world. Like, this is happening. So the bears need to get on the team of Bitcoin. It is the new monetary infrastructure.
- [74:23]
A
The most fascinating thing is it's almost like the clarity act is like, is like the distraction. Digital credit actually operates in safe harbors. Perpetual preferred equity, safe harbor, ATM safe harbor. And these instruments are getting tokenized which are already like, that's already approved. But it's like the equity market itself is starting to turn digital and you're having a similar type product that can exist within the existing equity market that you can't shut down. You can't stop Saylor or us from paying the yield. Right? We're going to keep doing it. And they're publicly traded instruments tradable on the nasdaq. If you try to stop perpetual preferred equity, it's like these instruments are everywhere. You got to go stop the banks from using it. You got to go stop the banks and insurance companies and any other company using an atm. Like, the likelihood of that happening is just pretty close to zero.
- [75:24]
B
You can't stop the market from innovating. That will never happen. Like, yeah, it's not going to happen. And you think of SATA paying a daily dividends like you think of how, you know, DeFi might get their hooks into that type of thing and you start to see just all kinds of ideas. I guarantee right now there was at least 100 people in the world that are going to their AI terminals, their LLM, their favorite model and typing in, hey, Strive is paying a 13 daily dividend how can I disrupt the stablecoin market, et cetera? Like, people are starting to think of these things.
- [75:55]
A
Yeah, yeah. I mean, the daily dividends is a huge innovation, right? Like that. And that starts in, like, 13 days. We pay our first daily dividend in 13 days. How does that change how people interface with capital? It's just like, completely changes your perspective on how you can interface with capital. It changes the risk profile of an instrument. It changes what you can build on top of it. It changes what happens in defi land. Like, the speed and the fluidity of that should. Should fundamentally change. It'll just be interesting to see how, like, trading volumes operate and, like, you know, how the. How the market starts to evolve with it. I'm hopeful. I'm hopeful for. For that, but.
- [76:35]
B
And we're a year into it, right? A year, yeah, into digital credit, and it's happening this fast. This rate of innovation. It's incredible.
- [76:43]
A
One thing we fantasize about is like, the Digital Credit Open. Golf, right? Like, you got the US Open, you got the Digital Credit Open, and you're like, well, what if the. What if the payout is in SATA? Like, that's, that's. That's interesting. How can you start to rethink, like, everything? Like, anywhere that money is kind of interfaced with capital or like any of the athletes that currently get paid in bitcoin, what if they were like, wait, hold on. I want to get paid in this other thing that's interesting that starts to get into society. It starts to filter in places. I think there's going to be so much change that happens here in the future. I'm not bearish at all. Despite the price action of bitcoin being down, it feels very similar to me, honestly, to like, September of 24, like, September of 24, like, price of Bitcoin, it went from like 30,000 up to 60,000, and then it just like 65, 70,000 and then just kind of like trickled down. And then in September, there was like this dip and it went down to like 58,000 or like 55,000. And I just remember sitting in my backyard and I'm like, none of this makes any sense. No, I was like, none of this makes any sense. And then sure enough, like, we ripped from 55,000 to 90,000 in like two months. And it was one of those. You, like, step back and look and it's just like, wow, this is. That the market will try to fool you in different ways. Like, structurally understanding everything I think is super helpful to quell the noise and the fud. There's so much FUD out there on X and so much of it is so bad. It's so horrible. It is so, so, like, misleading. There's no math. There's zero analytics, there's zero. Like game theory. There's zero ration rationalization. There's zero comparison of these instruments to the other instruments. There's zero understanding that this is a new category. There's zero understanding that it's.
- [78:47]
B
It's FUD for clicks, man. Yeah, like, it's, it's. It's like really gross human incentives, like willing to spread falsehoods to get paid aid. It's distort and obfuscate the truth to get a paycheck. It's. It's really sad. But that's why bitcoin will win out, because bitcoin is a. It is a rational bet that humans will be rational and they'll follow the incentive structures. And like, you know, that comes with bitcoin itself. But obviously, like the people that are seeing these opportunities with digital credit, what you can build right now on top of these things, I just think, like, I see the world. How does bitcoin not win out? Like, the bull case is structural and the emotions are noise. So I just think, like, people get mad at me for being bullish, but I'm like, I'm looking at what's happening. I'm looking at humans following incentives and it is awesome.
- [79:35]
A
Yeah. You're like seeing the entire landscape, right? Yeah. I've been watching this so closely and, like, obsessed with it. There's a reason you're bullish is because you're watching it so closely. Exactly. I guess the last thing to hit on is, like, people have seen the defi. The people that are building on top of SDRC. DeFi is going to move first. Why? Because it's the most flexible. There are no rules in Defi. So like Apex and Saturn, like the companies that are building on top of this, they are growing on top of digital credit and they are really showing you what you can do. Right. Like, they're showing the market what can be built on top of this. And there are several other. I have phone calls every single day and some of them are with people that are building on top of this stuff. And there's other people that want to build in this area. There's. There was concern about like, leverage, looping and unwind and like, if there is leverage and there's unwind of shares that happen in the market, which maybe we're seeing some of that today, maybe not. I think this could just be like market movement or rotation like that provides an opportunity for somebody else in the market because it has no exactly.
- [80:40]
B
The, the decrease in the price will create the incentive. It's beautiful, right?
- [80:45]
A
It's, it's like self healing. It has no impact on the underlying balance sheet. And yes like the relative size or scale might start to cause unease if there's, you know, if it's like 80% of like the demand, which I highly doubt that's going to be the case. Like as these things scale, they will scale other parts. Other areas of the capital markets will be interested in these instruments. People are going to build on top of this in tradfi. They're going to be people that are holding in a different jurisdictions like all of those sorts of things. So I think the probability of any one of these digital defi protocols making up 80, 90% of the average daily trading volume, I just don't think it's going to happen.
- [81:27]
B
No, right now between the two of them it's about like 400 or 500 million. So if there's 10 billion stretch outstanding,
- [81:33]
A
15 or there's 10 billion of stretch outstanding, right?
- [81:36]
B
Yeah, 10 billion of stretch outstanding and then I think it's about 500 million is a, is a good estimate. It might be 400 or 500 million total between Apex and Saturn, total value locked. So if it's about 5% of the total stretch outstanding, how much liquidity is there in stretch? Like what's the churn look like? You know, how much does that make up the actual liquidity? Like to your point, like could these things grow to be these monstrous beasts where you know, they make up 80 of the issuance? I don't think so. But yeah, right now it's, we'll find
- [82:08]
A
out, right, we'll find out.
- [82:10]
B
And if that's the case, the dividends probably get paid.
- [82:14]
A
The dividends probably get paid. That means that more capital is coming in to buy Bitcoin too. So like if the demand, like let's just say the demand 100 x's and it goes from 500 million to 50, let's just say 10 x's, 500 million to 5 billion then now you have 15 billion of stretch outstanding and that now that makes up like, like 18%. That's assuming no additional dollars come in the door to buy strc, which is probably just not the case. Then you've got a $5 billion bid on Bitcoin. So again the math is just like not mathing from the fud. Like anybody that if you have a brain, just do a little bit of math, like go in Excel, you don't even actually have to do the math anymore. You could just do it in perplexity or ask AI. Choose your AI. And I will caution anybody on using AI because these are new categories. You kind of have to inform them that this is a new category. Like, if you put garbage in, you're going to get garbage out, and you kind of have to give context of what's happening here in order to actually get good feedback or good output out of your AI machine. Because I've seen this happen several times, and I think this is a lot of the FUD that we're seeing in the market right now is people going to AI with like a preconceived notion, and they plug that into that preconceived notion into the AI and it's going to spit back out exactly what you put in.
- [83:43]
B
It's a confirmation bias machine.
- [83:45]
A
Totally. It's like. It is the biggest confirmation bias machine I've ever seen.
- [83:50]
B
It wants to flatter you. Oh, you're right. There is a death spot. Spiral imminence.
- [83:54]
A
Oh, you're right. That is gaslighting.
- [83:56]
B
Yeah.
- [83:56]
A
It's like, no, like, we are getting
- [83:58]
B
gaslit by the people saying that we're gaslighting.
- [84:02]
A
Right, right, right, exactly. Yeah. People trying to prove to us that we're gaslighting. But that's gaslighting. And of the gas of the
- [84:11]
B
what's
- [84:12]
A
happening makes me feel so weird. It's like my narcissistic mom trying to gaslight me and say that I'm not doing something. I'm like, what? Hold on. What is going on here? Yeah, so, yeah, it's crazy. Anyway, we're at an hour and a half. We should do final thoughts. Adam, any. Any. Any final thoughts? Anything we didn't hit on the FUD busting episode?
- [84:32]
B
No, I think that we did a good job, man. Like, obviously we touched a bit on how oversold bitcoin is. And, like, I love. I was going to go a bit on, like, if we crashed down to 35,000, then you filled it in the Excel spreadsheet. But yeah, I've never been more bullish on bitcoin or stretcher strategy. I think at the end of the day, as long as you go back to the math and plug in your own assumptions, even if you don't think bitcoin will have a 30% CAGR year over year, if you think it's a 20? Well, does the math work? If it's an 18, does the math work? I just implore people to really exit the FUD and do your own soul searching and analysis. Like serious. Hit the books, hit the math. And like steel man everything. Like, try to prove yourself wrong is helpful too. Like, if you ever have a question like, I don't know, I've. I found that I. I like to steel man myself against AI to make sure that I'm not crazy. Because in this world, it feels like we're taking great crazy pills, Jeff. It does feel like that sometimes. So totally.
- [85:31]
A
You look around and you're like, wait, how did. Wait, hold on. How do they not see what I see?
- [85:36]
B
Yeah. You feel like you're insane, so you need to steel man your own argument.
- [85:40]
A
Yeah. And the best way to do it is by math. Like, look at everything. Look at everything in the market. Look at all the credit instruments. Start to put, like relativities. Like, we don't live in a bubble. Like, we do live in a bubble on X, but the capital markets are the capital markets. Right. It's global capital is looking at this instrument. And guess what? Not everybody that trades this is on X. I'd probably say 20% of the people that trade bitcoin globally are on X. Maybe it's probably less than that.
- [86:12]
B
The market's voting and it's beautiful. You want to know why Stretch is winning? It's because the market is voting. It would not be able to raise billions unless it offered an amazing risk return. That's what it is.
- [86:25]
A
It's just as simple as that, really.
- [86:28]
B
If it's the best risk return that's out there in preferred equities, then capital is going to flow there.
- [86:34]
A
Right? I think that's it. That's all we got. That's all she wrote. Episode 69. Yeah.
- [86:42]
B
Thank you for having me again, man. I love what you're doing at strive. Absolutely amazing. You guys are innovating, putting out amazing content all the time too. Thank you for having me again. It's awesome fighting this fight with you. So thank you.
- [86:53]
A
Yeah. You've been a. You've been a warrior out there. You're sticking up in all of the FUD that's happening in the market. And it's helpful having some rational brains that are in here talking and doing some math and actually showcasing that math publicly. So that's what we're all about here at True north is just the people that are putting out real high quality content, talking rationally, using math, using Data. This is the investment grade Bitcoin podcast. We're here to talk about things from an investment grade lens. Very serious and very rational. So thank you. Adam. Completely agree with everything you've said about. I'm bullish bitcoin. Might there be more volatility in the future? Yes, but the math of the balance sheets looks healthy. There's a lot of innovation happening in the entire ecosystem. There's obviously a lot of wind, capital wind being sucked out of the market from AI. These enormous record setting. Oh, we didn't even hit on this record setting IPOs like SpaceX. Think about that. SpaceX is doing like a trillion dollar IPO and all of the index funds are changing the rules to include SpaceX in their IPO. What is happening right now?
- [88:15]
B
And they have bitcoin. What M nav is that? Yeah, you know, that's an interesting question.
- [88:21]
A
They should have an ATM for sure. And it's, it's just going to be so fascinating to watch how this all plays out. I mean, AI, like I, the revenue side of AI is starting to become really interesting to me. I'm trying to like understand how these companies are making money because I just don't see that the valuations don't make a ton of sense to me. I think they are going to exist and continue to continue to do well. Like these AI is changing how everybody's like interfacing in the market. So that's, that's really fascinating.
- [88:50]
B
But how do you price the future? That's what it's making us ask ourselves, right? Like how do you price the future when you're on the brink of something like this? Like, should you be paying for Tesla earnings in the year2426?
- [89:04]
A
Right. Another, another man. I guess we could just probably talk all day. But another thing is like, because everybody's saying it's not a bubble, does that make it a bubble?
- [89:16]
B
Yeah, everyone's so sure, right?
- [89:19]
A
Everyone's like, it's not a bubble this time. Like I'm telling you because like there's so much productivity and all this stuff and you know, you're like, yeah, yeah, yeah, okay. But if everybody believes that then is there, is there a bubble? Like the game theory from that is, is pretty fascinating because the sheep follow what the people say.
- [89:38]
B
Yeah. It's a question of like, where would the capital exit to? Right? Like that's fascinating to me because like the incentive to not sit in cash or US Treasuries is so much stronger than the last big market crash or bubble. Like where would the capital go? That's the ultimate question.
- [89:55]
A
Where does it go?
- [89:56]
B
Like, because if you leave it, it has to go somewhere, right? That's the million dollar question, hopefully.
- [90:03]
A
But it's like, are people going to start using Nvidia as money? Like, are they? They're going to have to solve the same problems that we're solving. They're going to have to solve the same problems that we're trying to figure out at the same time. Yeah, it's like, where does Google did
- [90:22]
B
a convertible preferred, didn't they?
- [90:24]
A
Yes.
- [90:25]
B
That's interesting. Like maybe some people are starting to think a little bit.
- [90:29]
A
Yeah, convertible preferred. The capital markets are just continuing, continuing to evolve. But like all these people that were early investors in SpaceX, the IPO is exit liquidity.
- [90:40]
B
Yeah, of course.
- [90:40]
A
Where do they go?
- [90:43]
B
They sold for a huge gain.
- [90:45]
A
Yeah. Like, where do they go? Like, where are they going to go park their money like that? I don't know, is it already like the next six to eight months, 12 months are just going to be so fascinating to watch. They're coming up on a midterm election. Like the war stuff is still like bouncing around. You've got a new Fed chair, we've got a new, We've got a Fed meeting coming up in like 15 days.
- [91:09]
B
The 10 year odd daily dividends paid. Like, I'm telling you, like, people are going to build on that thing. I don't know, like, if we're talking about where does the capital go, where does the attention have to go to? Like, what's the second best option if the first best option is perceived as not the first best? Bitcoin, hopefully.
- [91:31]
A
Scarcity. Scarcity, right, yeah. Fascinating to see how it plays out. Thanks for the time, Adam. Appreciate it. Episode 69, the investment grade Bitcoin podcast. Appreciate the time and we will catch you. Actually, not next week because we will be in Prague next week, but we will catch you two weeks from now. Take it easy.
- [91:51]
B
Thank you, Jeff. Have a good one, guys.
- [91:52]
A
Yeah.