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A
Ladies and gentlemen, what you are about
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B
to hear may be amazing, but it
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is not financial advice.
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It is for informational and educational purposes only. Nothing in this discussion should be considered
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A
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
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B
the True north team for your regularly scheduled programming.
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C
Whoo.
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A
Welcome back. True North Episode 70 the Investment Grade Bitcoin Podcast. We are here, we're talking about digital credit. We're going to talk about AI, we're going to talk about IPOs, capital markets, the state of what's happening in the market. And maybe we'll have some time for Q A at the end, but a lot to cover. We are off a week here. There's so many things that are happening in the capital markets and we are here to unpack them and take an analytical lens to, to what we are seeing in the market and talk through what's going on. So I'm your host Jeff Walden. We've got Soleil, Dan, Hillary and Adrian Morris today and we're here to go on a tear of information sharing. So first off, so many things are happening, right? Let's, let's just do a little bit of lay of the land. SpaceX IPO, largest IPO in history. We're now looking at what like a $2 trillion company. Elon Musk is now a trillionaire. Google, Anthropic, OpenAI Oracle, several companies are raising tens of billions of dollars of capital and they're doing it in a very short horizon. We'll get into that. STRC digital credit. We've seen a sell off in strc. The price of STRC I think closed the day at 88.50 or 89ish dollars. So it's got an effective rate around 13%. Interesting to watch how that is trading. I think we're seeing some, a little bit of a leverage liquidation flush here. We'll talk through it. We'll, we'll think about risk, we'll think about how to analyze this, we'll think about how the market is viewing this. There are several people that are making a bunch of noise on the Internet calling for death spiral, which I think is completely unfounded. If you actually do a tenth of the math that we will talk about and we'll get into that. We'll talk maybe a bit about just digital credit broadly. We've got our instrument. SATA is in the market. Soleil, I think your prediction of the take the car out of the garage and Put the car back in the garage at the end of the day. We're starting to see it happen here over the last couple days of trading. Really interesting to watch how that is trading. Spend a lot of time watching that.
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C
And I got my first $0.16 dividend payout.
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A
So thanks, appreciate that. You're welcome. You're welcome. And yeah, and we'll jump into it and open floor for any other topics and we'll get into some of the questions. But first, I mean maybe I'll kick it over to you, Dan. You've been putting out just tremendous amount of content on, you know, your thoughts on what's happening in the digital credit landscape. Maybe we'll, maybe we'll start with digital credit and STRC because it's the hottest topic at the moment. And then we'll get into the second hottest topic being just kind of what is happening in the Apple markets.
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B
Yeah, obviously stretches traded down to 89 today, which is massively problematic across the board. And I think I've been covering it and addressing it and we can obviously talk about it today. You know, I think this all started with the reduction of the cash reserve on strategies balance sheet and Strategies balance sheet for those who are new is a make up a mixture of a bunch of bitcoin, some cash, a cash reserve if you will to pay dividend obligations. And then in the capital structure there's senior converts, there's senior preferred equities, junior to the converts and then below the preferred equity there's common equity. And the dividends are paid out for the preferreds and the converts by the capital appreciation of the bitcoin. On strategy's balance sheet the bet that common holders are making is that the capital the bitcoin outpaces the dividend obligations. Those dividend obligations, the prefs are over collateralized by the bitcoin and the cash. And so strategy can choose to use whether it be the common equity or the bitcoin, sell the bitcoin to pay those dividends. Now they retired one of the converts using a portion of their cash reserve. I think it was last week or the week before. And ever since then STRC has been having difficulty reaching its par value, that $100 price point. And it seems like there was a lot of large players in the market that were banking on that as kind of stability for the instrument. Now I think the management's decision here was simply if you retire a senior liability in the capital structure, that being the convert above STRC while reducing the cash reserve, it's net accretive on bitcoin per share basis. But it also maintains the credit quality of sdrc, the equity, the preferred equity. It seems like the market is reacting harshly to the reduced reduction in the cash and that's why we're seeing this trade off. So obviously we can get into and love to hear your guys thoughts on that, but I think that's really what's happening.
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A
Yeah. And there's a couple things there and let's dive into each, each piece individually because I like it. It's a good conversation. Right. Because a lot of people are thinking about this as a stable instrument that's paying them, that's paying them an 11 and a half percent yield and they're thinking about holding that instrument for a period of time. This, this price action in my opinion, like it's not an enormous surprise to me. It's, it's why I've called this like a moderate duration instrument because there is going to be periods of time where there is volatility in underlying credit instruments. I've called it a moderate duration instrument since this thing has been launched. And it is the credit instrument. Right? It is, it is not a debt instrument. So if you're thinking about principal protection, your principal protection is the underlying liquidity of the instrument and the incentive structure. It is not a debt instrument and you're getting repaid at the end. So you think about what is the incentive structure, what are the people that are holding this, how are they holding it, why are they holding it, what is the risk profile, all those things. But Dan, you bring up the big elephant in the room here is that the cash buffer, the USD cash buffer dropped by 1.5 billion to retire $1.5 billion of convertible bond. Why they do that? They did that to remove the cliff maturity of $1.5 billion of convertible bonds that are deep out of the money from coming due in 2027 or 2028. Now thinking about timing, like when did this happen? This happened over the last couple of weeks when strategy was negotiating the convertible bond deal price of bitcoin was at $84,000. So there is a bit of a crappy timing element here in the fact that they retired the convertible bond when the price of bitcoin is around $80,000. And then the price of bitcoin fell to $60,000 and five days. They lost $16 billion of collateral value or balance sheet value in five days. Now the timing was just really crappy. Why you've got all of these other capital markets activities that are happening. You've got the largest IPO in history. The capital is getting sucked out of the room to go to these other opportunities. I think there's definitely a bit of a timing element that has played into this. The cash value, the balance sheet, et cetera. I think it might be helpful to jump into balance sheet construction because you brought it up Dan. Because we do this almost every week and I think it's valuable to just continue to hit on this. So what you can see on the screen this is the balance sheets of mstr. So this is doing a basic overview of the balance sheet and we've been doing this over time. So we actually have some data to compare to what the IPO, what the balance sheet looked like when strategy IPO'd. So strc and compared to what it looks like today. So this column cr here, this is the balance sheet as of today. 61726 Bitcoin held 846,000. Bitcoin price around 64,000. MSTR price about $118. The assets on the balance sheet are worth 54.3 billion. They've got $1.1 billion of USD reserve. The debt on the balance sheet outstanding 6.7 billion. 15.4 billion of preferred stock, 4. 48 billion of net assets. So this is taking the assets being the Bitcoin and the USD reserve minus the debt, the pure debt. So the annual dividend payment is $1.7 billion and the net capital, the years of dividend coverage they have on just the net capital. If you were to subtract out the debt Today they'd have 29 years of dividend coverage. So I think this is helpful and I put this right next to the IPO here. 7, 7 9, 20 25. I think the IPO was around 6:30. So this was around that time horizon in strategy. The Bitcoin held 597,000. Bitcoin price significantly higher. So they had $66 billion of assets on the balance sheet but they didn't even have a USD reserve which is you think about where they're at today. They got $1.1 billion of cash. They didn't have cash in the past. They had $8.2 billion of debt on the balance sheet. The preferred stock IPO they had 3.4 billion outstanding. They had 171 years of dividend coverage. The pref was priced at 9%. It was a 9% instrument at the time. I'd be curious to get your guys thoughts on this. The balance sheet from a years of dividend coverage is significantly less than the ipo. But the balance sheet status in my opinion is improved drastically because they have a dividend reserve, a $1.1 billion dividend reserve. They have less debt, less cliff maturity on the balance sheet. The price of Bitcoin is at the 200 week moving average. You can almost think of that as book value. The amount of bitcoin held has increased by 40% plus. And I think this looks relatively stable here. The leverage ratio is reduced. They've got less debt on the balance sheet. Obviously the coverage multiple being a number there that is reduced. But I mean, this still doesn't look spooky to me. Right. If I'm a credit underwriter and I'm underwriting this company's ability to pay me the dividend, I still look at this balance sheet personally and I think it looks incredibly healthy. They've got 60, $54 billion, 64, 50, 55 billion of assets on the balance sheet relative to a $1.7 billion annual dividend obligation.
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B
Yeah, I mean, that's all super fair. And I think this is a great way to underwrite the long term risk, long term performance of these credit instruments. I think the interesting thing about SDRC is it's a financially engineered security that's designed to trade at parentheses. And there's different mechanisms by which the corporation has decided to employ to try to reduce the volatility. And I know online there's been lots of discussion and touting about reduced sharp ratios and flattened stable volatility. So I do think, you know, the credit quality of the instrument may, you know, it's stronger now than it was because of the reduction in the cliff maturity of the senior debt. That doesn't, that doesn't mitigate the fact that this thing is now trading at 18% or 19% annualized volatility over the past couple months. And these are just growing pains and this will all resolve itself in time. But I do think it's in the best interest of the issuer to reduce this volatility in any way, shape or form possible. And I think there's multiple ways in which that could be done. But clearly those arbitragers that were stepping in in 97, 98 are not stepping in right now. And I, I think it's going to take time to rebuild that confidence for those institutional members to step in at a certain price point. And I think it would be beneficial for, whether it be a third party related to strategy to step in at lower STRC prices and make that arbitrage or strategy itself to Buy it back strc at $90 is effectively, it's like MSTR below book value, the liquidation preferences, the book value of the security. I think it would make sense at certain points for strategy to be like, we would buy back at, at this, at this price. And I'll offer one more thing there and I'm off. My kind of soapbox is like, so when you look at these securities, they trade real time in the market, ATM is issued in real time, but the dividend change is periodic on a monthly basis. So it's kind of a lagging, a lagging tool to get stretched back up to par. What is another way to pay out an intraday dividend? Obviously strive has already gone to daily dividends. So that's, you know, very impressive. I think you guys still change on a adjusted dividend on a monthly cadence. But you know, this is the same thing like when a corporation that has a $1 dividend, say Apple, if instead of paying out that dividend which is from retained earnings on their balance sheet, they were to use their retained earnings to buy back stock, that's effectively another form of capital returned to shareholders. So you could say when buying back STRC with cash on the balance sheet or selling Bitcoin or selling MSTR to buy back strc, that would be like a one time impulse of an increase in the dividend rate of STRC to bring it back to par. I think that would be a very effective mechanism and could be advantageous for price stability.
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A
A buyback, an SDRC buyback. Where would you suggest it come from?
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B
I think they could either sell mstr, common sell Bitcoin or from the cash reserve. I wouldn't do it from the cash reserve.
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A
What's your analytics on which would you lean toward if it were Bitcoin or MSTR and why?
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B
I would sell MSTR if it were at a premium
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A
or high base Bitcoin,
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B
I would sell MSTR if it was at a premium and I would sell Bitcoin if MSTR wasn't trading a premium.
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A
Yeah, Dan, do you think it's urgent?
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C
Because my first reaction was, oh, just stick to the plan, increase the, the rate to 12 or whatever and see what happens. But you think this is something that needs a little bit more of a quick fix?
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B
No, no, I don't think it's urgent. I'm just, you know, I love this product and I want to see it succeed. And the amount, you know, every day, every second it trades below 98 is room for improvement. And you know, maybe we rely on external market participants to reduce the volatility over time. That's totally, totally fine. But there are, you know, it's worth thinking through the different ways in which the issuer could reduce the volatility themselves.
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D
Sure, yeah, go ahead. My view on is a little different. I think everything that Dan said is valid, but I'm going to come at it from a different angle. So I've been kind of modeling out the price action and the behavior of Stretch since inception and then SATA since inception. And the way I view them, I view them as professional preferred equities. Yes. But I view them as Bitcoin derivatives first. And I think the market is treating them as such. Because if you take a look at Stretch for instance, at various points, if you try to do an attribution between MSTR and Bitcoin, they by themselves can explain something like 60 to 80% of the price action over any given period. And if you look at what Bitcoin was when stretch IPO'd versus what Bitcoin is right now, I think what we're seeing is a prolonged pressure that's being exerted on Stretch by the fact that it goes above par. They can atm, that's fantastic. But it's not as if they've been able to ATM over the entirety of the of the offering.
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A
Right.
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D
And the same thing with SATA. SATA's had a dial up right now because it has switched to daily dividends. It has that interest, it has that added volume. But I don't know if there's a way to engineer the volatility out of these products because the volatility isn't is necessarily because of Bitcoin. And if the market is treating it, it might the way I think the market is treating them as Bitcoin derivatives first and professional first second. That volatility is getting increasingly hard for Stretch to out engineer because the market cap has gotten so big and they have more players that are coming in. So in terms of what they can do, Dan brings up good points. Could they sell bitcoin? Could they sell MSCR to do that, to buy it back? Yes. But I'm of two minds of buybacks for a equity for an offering that depends upon share issuance. You're buying back shares today just to sell them again tomorrow. I'm not sure how you find the delta between those two in terms of what makes sense. So I think Dan hit on a good point that it is growing pains. I think these are going to stabilize over time. I think that as they get more market Share as they get more stability, as they keep paying that dividend, they're going to stabilize over time. But right now they are still very much in my mind, derivatives of bitcoin that are also preferred equities. And I think that bitcoin's price action and by virtue MSTR's price action is impacting a lot of the ways that the marketers are trading these things.
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B
All great points. The one thing I would say that I thought about today, agree with all that, is I used to be concerned about the, the possibility of buying back STRC because you're, you're essentially decreasing the outstanding amplification or the outstanding amount of sdrc. But the entire strategy is predicated on over a long enough time period, there being more net buyers of STRC than net sellers. That's the only way the market cap grows and they're able to issue more STRC at a hundred. So them being willing to buy back STRC at prices below 100 doesn't change the reality that there needs to be more net buyers than sellers of the debt to continue to grow amplification as bitcoin grows in value over time. So I used to be concerned about the fact that they may have to buy back, but we're faced with the reality there need to be more net buyers and sellers to grow STRC regardless.
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D
That's exactly right. The, I think what's going on in the market right now coming back to kind of synthesizing what Dan was saying. What I'm saying is that I think the market is trying to figure out how they want to trade these things and how they view them. The, the marketing of perpetual deferred makes sense, right? But if it's still being very, very much tethered to bitcoin in terms of perception, I watched the price action, I watched the correlation, I watched the attribution and price action as bitcoin was trending down, stretch was being pulled with it and there were times where it broke above and then it was getting pulled down again. So I think that in terms of what they need to do, as corny as it sounds, I think staying the course, maintaining, maintaining the dividend and keeping adaptive to market conditions is the best thing that they can do. Until those buyers do come in, I don't know if they're going to be able to engineer their way out of it.
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A
A few things here, a few takeaways. One, I don't think there's an enormous rush. I don't think. I mean, these are, this is a large issuer with $54 billion of capital on the balance sheet, $1.1 billion of cash. The cash position is growing. Their ability to pay the dividends is, is strong in my opinion. It seems like the market may, may not agree with that. But I think kind of what we're seeing right now is also just a function of this growing pains of like what is this, what is this market and how did this get here? This thing is under a year old. So who's investing in this? Right, We've, we've seen the defi degens come in, in mass. Right. Okay. Defi capitals come in and what are they doing it with it? They're leveraging it, they're looping it and they're, they're adding leverage to the underlying product. So what does that do in times of volatility? That creates more volatility. I think that's what we're literally seeing right now. And so I, I think one of the biggest things in my opinion moving forward is how do you bring in sustainable long only buyer that's not going to leverage this 10x over in a looped scenario and how do you bring in that sustained long term demand? And to me that's the goal of the next 12 to 24 months is how do you bring in institutional traditional finance capital that is going to be a little less degenerate on how they're utilizing the underlying instrument and scale it into a hundred billion dollar instrument. Like how do you go from $10 billion to $100 billion? You've got to scale with long, long only capacity that's there and consistently buying. In my mind I'm thinking banks, insurance companies, companies that have continuous cash that's coming in the door and they're looking for a place to park it for a moderate, a moderate duration.
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D
So I think, I think it scales with Bitcoin. That would be my, my, my long term read. I think it's entirely dependent upon Bitcoin. As bitcoin grows, as bitcoin goes up in price stretch will go up in price stretch will stabilize. Then I think the banks and the larger players come in after two to three years of steady state. That, that, that, that's what I think.
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A
Yeah, no, I, I, I agree. Like I think if Bitcoin, if we get a bitcoin moving to the upside, I, all of the noise and disagreement on X, this doesn't matter. It doesn't matter. All of this completely disappears because you know, if the, if the price of Bitcoin moves $10,000, your strategy's balance sheet increases 8. $8 billion, $8.4 billion. That changes the perception of credit quality. Just a couple of charts. Go ahead, Go ahead.
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D
Yeah, I think also a few needs to be aware of and this is also just my, my feeling on the matter. We are early adopters of these products 100% and as early adopters we are going to have to address and withstand these volatility storms. And because they are prefs, yes, but they're still Bitcoin derivatives. Everything in the analytics, everything in the way the market is treating them shows that we are going to see these periods of breaking away from the par. And I don't think it's cause for concern or panic. The amount of shit we're seeing on X right now, dude, is like every other post I scroll is someone calling for the death of stretch or the death of strategy. And I think it's just, it's way overblown.
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A
Yeah, they're going to pay the dividends. They're going to pay the dividends for a decade. People are going to be bewildered. Right, like this is going, this is going to be around much longer than people think. And there's a bit of unwind here. Just, just a couple of things to point out. This is a 6 month view looking at strc relative to btc and this doesn't capture the dividend paid over that time. So if you 6 months ago DE risked in January and you bought SDRC and you'd be down 9% less the dividend paid. So you'd be down about 3% in total relative to Bitcoin's price going down 26.8%. So again if you're thinking about a duration curve and a risk return profile curve, despite the volatility, this is, this is doing what it's supposed to. This isn't a stable coin. It is a credit instrument. It is designed to have low volatility, it is designed to perform better. But that is again just something to keep into consideration. A couple other things I'm going to show here. And okay, on your screen here you're seeing these little bubbles over here on the left hand side. This is JNK HYG. These are alternative high yield credit instruments. ETFs. These are ETFs that trade in the market JNK and HYG. They are high yield ETFs that take a combination of a bunch of high yield debt and put it into an equity wrapper. That equity wrapper is tradable and they have expense ratios but there's yield and volatility. Right. So there's different yield and volatility metrics that you're taking in taking on when you hold those instruments. You've got the purple is the preferred instruments and the blue is, is like bond money market funds. So I've got this plotted on an axis of excess volatility over cash and then on the left hand side, excess yield over cash. So it's trying to put into perspective how much excess volatility am I taking relative to how much yield I get. And as you'll notice there's a line going from zero to each one of these instruments. It's a little faint on some of these smaller ones, but you can see and the purpose is to show how do these instruments perform relative to alternatives out there, like how much excess volatility am I going to get relative to how much excess yield I get. And the point is to show the line that these are plotted on and how they compare to the other instruments that are on the market. While this may feel like a very uncomfortably volatile period, the amount of yield that you were getting for the volatility is in line with these alternative instruments, the alternative preferreds in the market and the alternative high yield instruments in the market. So I think that's a helpful perspective to put in, to put into consideration if you're, if you're buying a credit product. This is still actually very similar to how much volatility you'd be taking on if you bought PXG or PFF or hyg. The it just feels more extreme because it is on a nominal basis. But the amount of yield that you're getting compensated for it, it puts it on a similar trajectory. So you could go by hyg, you're going to get paid 5%, you're going to get 5% volatility. It's a very similar profile per se. So I think that's a helpful perspective also.
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D
Is it, and I'm kind of rusty on this, is it not rather common for preferred equities to break down from par,
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A
like preferred equities usually trade. Here, let's pull one up.
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D
Because I was looking into this like weeks ago and I, I stopped. But it's not as if a preferred equity breaking down from par is necessarily,
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A
they don't trade, they don't trade around par actually. So like this is, this is JP Morgan Chase. So JP PMD price as of today 2420. But this is over the last year it was about 2420. About a year ago it went all the way up to 25 and then all the way down just to 23.7. But this thing is paying you 5%. It's like there's still volatility here. The biggest, the biggest challenge in this instrument is the fact that it's only trading $2 million of volume A day. So while Stretch did have. Well, it's had a significant drawdown. Let's pull up some more data. While it's had a significant drawdown, the amount of, the amount of volume, I mean this thing is still incredibly large. It's blowing me away to be honest with you. So this is STRC, this is the volume. Today the volume was a 426 million. The 30 day average volume is 366 million. If you're in this credit instrument in size, you can get out of it. I'm like, yeah, the price is going to move like a little bit. As we've seen, it's down to 89. Just kind of depends on the marginal buyer and what's the pool of liquidity look like. But if you were to go try to ditch $20 million of JP Morgan preferred tomorrow, you're not going to do it. You'd be 5x the volume. If you wanted to go ditch $10 million of stretch tomorrow, you can like that. That is, that I think that is completely underappreciated by the market. I think it's something that most of the noise and, and everybody on X doesn't quite understand. I had a call this week with one of a very large institutional investor and we talked about this volume conundrum because it's real. If you have size and scale in credit and it has low volume, you're kind of stuck and you're kind of screwed because you, in order to get out of this and move, you are going to have a significant impact on the market. So this is a, this is a real conundrum that large institutional capital managers are thinking through is volume profile, liquidity of these instruments and how they, how they are trading. So again, while, while there's been volatility, I think it's helpful to continue to think about the, the volume on these instruments, how they're trading, how liquid they are, how it's moving relative to other things and keeping that on a long term view. Okay, so I also, real quick, Jeff.
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C
So that, that low liquidity, it's almost like it's unofficially gated because they could come right out and say, you know, you can't exit your position, you know, maybe 10amonth or something. I don't even know how they, they structure it. But if the liquidity is just low, it's, it's just gated anyway because you can, you might only be able to exit 1 to 10% of your portfolio anyway.
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A
Exactly. It's gated by the liquidity in the instrument, the lack of interest in the instrument. That's the gate. There's a couple billion dollars of this thing outstanding. So what should this really trade at if the market needed liquidity?
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D
Well, yeah, also the volume is a big factor people don't take into account. I mean just on the, like, just on the 15th it was at what, 1.5 billion. On the 14th of May it was 1.5 billion. Today it was 439 billion. 439 million. And the 20 day average volume is 314 million. So the, the liquidity is ridiculous on this thing.
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A
Yeah, it's here. Let's look at it from a sort on a color scale so we can see it.
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D
I'm just looking at this little dashboard I built out for it. So yeah, that, that's.
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A
There we go. Yeah. As you can see, I mean this is why you move to the more frequent dividend cadence as well. You look at what's happened in April, a couple billion dollars come in the door. What's happened in May, a billion dollars comes in the door. And then it just wasn't here going into the 15th, going into the most recent dividend date in my opinion. Why? Because some of the largest IPOs in capital markets history were coming, coming across the desk. They're going to go raise $75 billion of capital for the SpaceX IPO. I mean, that's part of it. Like you go do that, that is the rational thing, right? If the biggest IPO in capital markets history comes across your desk, you participate and especially if you have large capital and you understand how the market, or you take a guess on how the market is going to move and how it's going to trade afterwards. A couple other things I want to pull up here and this is something that I'm working to build out over time. I actually, I had a chat with Michael while I was at Prague and we were thinking about how do you look at what's happening in the broad credit market? Because one thing that constantly think about is how equities are trading relative to each other. So you're comparing your common equity relative to the Russell 2000 or Q. Q. Q. Just to understand are the ETFs having an impact? Is broad market ETF Capital flow having an impact on your common stock. Now, with credit, that is a different market, that is a different bucket of capital, that's moving at a different cadence. So how does the credit market move relative to these instruments? And so we've created an index here and we'll publish this here very, very soon. And this index is a function of hyg, J and K and all of these other tickers you see here on the different parts of the credit market. So you can look at the amount of volume traded. And the goal here is to identify again how the credit market moves in general on this broad index basis and how it moves relative to these other instruments. So what I've identified here, and this is looking over the last year, and this is actually really fascinating, and this coincides with Bitcoin too. Some of the largest drawdowns in SDRC's history have also coincided with this index drawing down, which was pretty fascinating. Like, you look at this period here in November, you look at this period here in February, and the actual credit index dropped pretty significantly with strc. And we're seeing it a little bit here as well. You're seeing the credit index kind of come down. So it's curious, right? Like, I ask questions like, is some of this capital flow leverage, long leverage, long defi that's having this liquidation wipeout, or is some of it people exiting the credit market broadly to move that capital somewhere else? And I think that does help explain some of the story here. And it's just super ironic in watching how these capital flows move in this entire market. So I wouldn't be surprised if this does turn around. Once this AI energy kind of gets out of the way, the IPO energy gets out of the way. Any thoughts on this?
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C
Yeah, that is interesting because my assumption was that STRC was so much better than these other products that people would be moving out of them into strc. But you're saying there's a broad kind of exodus in these markets out of all of the credit instruments, regardless of. Of the type. If they're getting spooked, they're just dumping it all.
- [34:42]
A
Yes. Well, I think there are buyers of just BlackRock's. Pff, right. I think the BlackRock's products own hundreds of millions of dollars of SDRC. Okay. So if people go and sell the credit, okay, the SpaceX IPO comes across your desk and they're like, hey, you got a chance to get $100 million of SpaceX. And you're like, oh, shit, that's awesome. I got to Go, that capital is working. Like if you go raise $75 billion of capital, nobody's holding $75 billion in cash. That capital is working, invested somewhere. Unless you're Warren Buffett and you're holding $300 billion. But he deployed that into Google. We can talk about that later. So where does that capital come from? It's like you got to go get it. So is it sitting in these low volatility instruments, is in credit, you know, is it in different equities? Yada yada, where does it come from? And, and I think that's, yeah, that's what's happened broadly here. But it's pretty fascinating just seeing the correlation between the drawdown in the index that I've created and the, the drawdowns in STRC at this point too. So obviously this is significantly different here with STRC dropping down into the 80s, but. So I think there's a couple other things that explain that move. But it's something we'll continue to monitor and watch. Right on. Okay, I got, I've got one more thing because I care very, very much about this. I care a lot about this. One thing that a lot of people are also making a bunch of noise about is mstr. Why would you buy msdr? How do. Who, who carries the brunt of the, the dividend obligation? It's like equity in any company carries the residual risk of any company in the future. Right. That's just Capital Markets 101. So if you just like who carries the burden of it? The equity holders carry the burden of the dividend obligation. They're taking on the risk, they're taking on the excess risk. And thinking about how MSTR trades relative to Bitcoin and relative to IBIT is incredibly important. We've talked about this a lot. There are people that are trading MSTR because of its leveraged expression on the underlying Bitcoin with convexity to the upside and zero expense ratio. And that interest makes MSTR incredibly interesting for computers to trade it. It's mark to market every day like that. You can see the value of it and how it moves relative to Bitcoin. And you could see this come through in the trading volume of the underlying mstr. So I've got this pointed out here. Maybe I'll make it a bit bigger and focus on this little area here. So MSTR, the 30 day average, let's make it even bigger for all the people watching online. I did this all manually. No AI, which is fun. MSTR, 30 day moving average is $2.6 billion of volume. The IBIT 30 day moving average is $1.8 billion, $1.8 billion volume. BitX, which is the 2x leverage ETF on Bitcoin, just for perspective, trades $126 million in average volume asst. Our common stock has traded $81 million in average volume. So almost very similar to the 2x leveraged ETF. Now you look at why does this exist and what am I trying to point out here? I think it's valuable to look at liquidity per Bitcoin, like how liquid is the common stock per Bitcoin held? Because that shows you a couple of things. It shows you the derivatives market is probably deep and it shows you the relativity what is the interest in this product relative to the underlying IBIT commodity. And so strategy holds 846,000 bitcoin. Ibit holds 766. So if you're looking at MSTR is highly, significantly more. It's 30% more liquid per Bitcoin than Ibit. That's interesting. People are trading this because it is more liquid. The options market is more liquid. Why? Because there's no expense ratio. If I wanted to go get 2x exposure to Bitcoin, it's 2.38% expense ratio. The trading volume is anemic relative to the underlying MSTR. If I want to move $100 billion in scale, I'm going to MSTR. I'm not doing it in BitX. If I want leveraged exposure to the underlying iBit, I'm doing it, I'm doing it in the liquid thing. I'm going to move $10 billion, $100 billion in the liquid thing,
- [39:37]
C
suffering a little bit of a victim of their own success. Then the people who are shorting positions to go Invest in the SpaceX IPO, are they attracted to that volume and liquidity as well? So it's like, hey, this is an easy place for us to, to grab a bunch of capital too because the liquidity is so high.
- [39:55]
A
Yes, yes, yes. I think this is, this is a fun analysis. We focus on this a lot is looking at the volume per btc. I mean our common stock, our volume per BTC is 4200. So we're 80% over and above IBIT, which I think is an interesting metric. Again, you're looking at liquidity, like how liquid is this equity per Bitcoin? And you think about the most successful equities in history have created liquidity diamonds, just like beautiful liquidity pools, thinking spy being one of them. And that is created interest in the markets, the ability to go raise capital quickly, like you said, go short or do big large options trades. That liquidity facilitates the entire market growing. And honestly, liquidity in my opinion is the moat. How do you recreate a moat of $2.6 billion of trading volume?
- [41:00]
D
Well, and so that's what I've been posting about a lot that and kind of what you said. People treat MSTR as their exposure vehicle for bitcoin in the market. And it's like a sentiment driven bitcoin optionality engine. So along with what you've been saying, like just last week they did $11.37 billion in trading volume. That's a massive amount, a massive, massive amount of liquidity. And then if you take a look at the open interest in the options market, it was 36 billion last week and it tends to average around 40 billion. So the liquidity factor is big and I think people get caught up in the price action. But what, what the market is using MSDR as is a leveraged bitcoin optionality vehicle. And the leverage doesn't necessarily have to come from mnav, it's coming from the options market. It's coming from a variety of different angles.
- [41:46]
A
And that liquidity pool again is the moat. That is what allows this structure to exist. And thinking about just a simple comparison, because MSTR is on its own, its own space, right? Our common stock, we trade $81 million 30 day average volume. If you look at it to like 21, I think 21's 30 day average volume is like, I don't know, 5 million bucks, 7 million bucks. Well, they've got more than double the amount of bitcoin we have. If you wanted leveraged exposure, where are you going? I think that interest or that creates this liquidity pool that's interesting to trade. And like any of these other bitcoin treasury companies, they would kill to have our volume, right? So that is a really true moat in my opinion. And the reason I did this is to also point out just this annual dividend obligation because I've got STRC outstanding here in this column. The rate being 11 and a half, we could play with that if we want. But if they were to, just for perspective, right, they got $10.4 billion this outstanding. If they were to move to a daily dividend obligation, they would have to raise $4.8 million per day. Well, the 30 day moving average is 2.6 billion. If they raise $4.8 million a day, that's 0.18% of the average daily trading volume. There's nothing. That is absolutely nothing. And I pulled this up because I looked at the analysis last week. Strategy. Last week, they traded $11.3 billion of volume. They raised $209 million of capital. That 8% of the volume traded that week. They bought $100 million of Bitcoin, and they put $100 million away into the USD reserve. They're able to buy Bitcoin, grow the USD reserve, and they're able to pay the dividend because they have access to the capital markets and they're able to do this, and the market knows what they're going to do. So all of this to say is the thing is working. Yes, it's volatile. I don't think there's an enormous rush. I don't think you'll come out and see them do an emergency meeting. I don't think that's warranted. This is a credit instrument and it is trading within the market. And there's a lot of things happening in the capital markets right now that is causing some volatility ultimately, in order to bring stability to this instrument. Long only buyers that understand the true risk profile and compare it to everything else that they're already holding is, is how this, how this moves forward or starts to move back to par. You know, I think. I think getting cute with some of the buybacks might. I think that just makes it a bit trickier to understand. I think that probably bring a lot more criticism than it would interest from the institutional side. But, I mean, it's a. It's a good idea to throw around, toss around.
- [44:55]
C
Nobody's criticizing.
- [44:57]
B
I haven't.
- [44:57]
C
I haven't seen any.
- [44:58]
A
You haven't seen any criticism? I haven't either. Oh, my gosh. Yeah. So anyway, that's. I think that's all I've got on this front. Dan, you got anything, Anything else you want to add here?
- [45:16]
B
No.
- [45:17]
A
No. All right. Soleil. Adrian.
- [45:21]
C
I'm good on this.
- [45:22]
D
I think we covered all the angles.
- [45:24]
A
Cool. Hit it. Hit it over the head. Okay, let's. The other thing I want to jump into is capital markets just for a scale. And this kind of plays into the whole. Into the whole picture here, which is the biggest capital market raise, the biggest capital raise in history. Right. So We've got the SpaceX IPO, $85.7 billion raised on the IPO. It's the largest ever in history. The. The valuation of the company was $1.7 trillion at the IPO announcement. That was a price of $135 it traded up to $220, something like that. It was trading like 2.2 trillion dollar market cap. I, I sent this around in our, in our group thread internally. For every 8 cents that SpaceX moved, it moved an entire strap. So like in, in one day it was moving, you know, a hundred, a hundred strives just, just in the, in the market movement. So significant. This is an enormous, not to be overstated here, this is an enormous capital event. Also what's happened is Alphabet raised 100, Google raised $140 billion. This is combined debt and equity. Meta did a $25 billion debt raise. Nvidia $25 billion debt raise which was oversubscribed at 3x and then Oracle did a $50 billion debt and equity plan. So there's just enormous capex on the horizon. All of these companies, which is very interesting to think about too. Over the last 15 years all of these companies have been laser focused on doing buybacks and now here they are in 2026 going to raise tens of, tens of hundreds of billions of dollars of capital to finance the future, finance this AI, this new AI world. I'm very curious to see how this continues to play out. But over here on the left hand side, I just want to point this out and maybe we'll use this to frame the next piece of the discussion here. Equity supply poised to surge. Net equity issuance seen rising at the fastest pace since at least 1999. And what this is showing is net equity issuance for 2026, 202027 is projected to be $1.2 trillion of equity raised. Again you look at what's happened over the last 15 years and it pales in comparison to what's happening this year in the capital markets. So Adrian, Dan, you guys were talking on about this topic before I got backstage. Maybe I'll kick it over to you guys on, on what you're seeing, how you're thinking through this.
- [48:07]
D
Kick it off Dan, please.
- [48:10]
B
Adrian, this is your domain of expertise.
- [48:13]
D
Oh sure. So with regards to the overall AI trade, one of the things I've been watching for a while now since you know, the chat GPT launch. If you look at January 1, 2023 as a benchmark, right, because GPT launched in or came public, mostly public, in November 2022, between January 20, January 1, 2023 and now the, the top 13 equities in this AI trade. So that's everything from memory. GPUs, infrastructure, they've had over $108 trillion in trading volume. And in that time, of course, bitcoin's run up and it's come back down. And it's just that I'm very, very curious to see how this thing plays out. If it doesn't slow down, I'm curious to see how one bitcoin gets bid, how the preferreds perform, how the broader market is going to react, how the broader market is going to absorb, at least from a narrative basis, what you just pointed out in terms of equity raising. You had SpaceX IPO was the largest in history. You might have anthropic IPO, they're going to be over, probably going to be over a trillion. If OpenAI gets to IPO, they might be close to a trillion. What kind of world are we living in when you have multi trillion IPOs coming online? You have over $100 trillion in trading volume. That's over a period that's only going to increase. And bitcoin's kind of coalescing and trying to live in that space. That's something I've been noodling over, trying to think through where bitcoin catches the bid, what kind of a narrative shift it requires, how does it impact the broader macro environment. I've got tons of thoughts on it.
- [49:57]
C
So the one thing that somebody was a little bit suspicious about is they said that usually these IPOs are reserved for institutional investors. And they were making a big deal about how there was a very large percentage for the SpaceX IPO that was reserved for retail. And that was seen as like, oh, they don't want retail to be able to miss out. But the conspiracy theorists were saying that's almost reeks of desperation. Like if they can usually just get the money from the institutions and they're desperate enough to ask retail for money. Is that, is that like a little bit of understanding that there, you know, may be some kind of AI bubble that, that that's going to burst at some point and, and retail gets left holding the bag on some of these.
- [50:48]
D
I'm not so I'm of two minds of that. So I think it's only something like, what is it? 4.2% of the potential float of SpaceX is available right now.
- [51:00]
A
It's a tiny amount. Yeah. Float is so small.
- [51:04]
D
Correct. So it's like so of all the potential shares, let's say it's between 4 and 4.5%. I forget the exact number. But something around that, that's like an artificial squeeze that's happening right now.
- [51:13]
A
Right.
- [51:13]
D
There's A lot of retail interest, There's a lot of interest in general, and that's kind of bid the price up. But I think the earliest unlocks are between or just after the first earnings report, and I think an additional 10 if it trades above 175 or 170. So you're looking at 30% of the shares that hit the market between middle of July, middle of August. So are people going to get left holding a bag? Possibly, but the interest in SpaceX has been building for like almost a decade, right. So I think that it can, it can really go either way. I'm not sure if it's a conspiracy theory in the sense that they're trying to leave retail holding the bag. I do think, however, that they are actively trying to create as much of a frenzied environment as possible around the initial offering with regards to the low float, with regards to the unlock periods, with regards to the benchmarks that they have to hit. So I don't know how big it's going to get before it corrects. Do I think it's going to crash? I don't know.
- [52:16]
A
I mean, this is going to be one of the most consequential companies on the planet over the next 20, 30 years. I think this company will probably do incredibly well. But companies trading after an ipo, they always go through a little bit of a tumultuous period because there is lockups, because there are initial investors that are looking to exit. I had the pleasure of sitting next to Michael Saylor right after the ipo. We had dinner together in Prague and we were literally just watching this thing trade. We're looking at our phones like, oh my gosh, do you see this? And a couple of the crazy things, just to put into perspective the valuation and the trading volume, again, we're thinking about volume and capital. So the initial valuation was 1.7 trillion. It ended up pricing up to, I don't know, 2.4 trillion or whatever that figure was. But on the first day of trading, $83 billion of volume traded. And, and so if you're thinking about, okay, the way Michael framed it is what was. He's like, somebody just made $400 billion, right? Like the, the, the market cap of the company went from 1.7 trillion to 2 point. Whatever. Somebody just made $400 billion. Like, I think, I think they're pretty happy with how this is working. And the amount of, just in the last four days of trading, this thing has traded $211 billion of volume, which is insane. Like that's, that's, that's money, that's trading hands. That's the setup of retail demand that probably didn't get access to this. Right? A ton of retail demand got access to it. And I think the over subscription, they had something like $250 billion of demand on a $75 billion capital raise. They had a green shoe that brought it to 85 billion. But that just shows that there's people that are going to want to buy it after the IPO hits the market. But your concept on retail Soleil is interesting. I think that's a good question. But retail is getting more and more sophisticated. Retail starting to make up more and more of a percentage of the trading volume in the market. AI plus retail. Retail is becoming as sophisticated as some of the fastest moving quick hedge funds in the planet. So, and then retail also encapsulates family offices. So if you've got like a super wealthy family office or something, that's like, that's, that's effectively a hedge fund. That isn't a hedge fund, it's just a family office. It's got a bunch of money.
- [54:43]
C
So now do the, do the institutions have different unlocks? Because I saw some people posting, they already exited their SpaceX IPO and took 50% profits or whatever. And people were saying, oh well, the only penalty is that you're banned from an IPO for like 60, 60 days or something. Which if you don't intend to participate in another one, who cares. But do the institutions have different unlocks? Just prohibited.
- [55:10]
A
Not it, it depends. It depends on the structure of the IPO and the institution and how they work with the brokerage or how they, how they work with the companies. But in general, what I know about this is yeah, there's a relationship component. If you get allocated to an IPO and then you nuke out of it. Like if you're a small investor and you act like that, your access to the next IPO might be less. But if you're somebody with deep pockets and you've got 10, 15, $20 billion and you go get access and you go launch out of an ipo, what's the banker going to do? Not come to you on the next one. It's like you got $20 billion. Yeah, like I don't, I don't care about Joe Blow with $2 million. I'm gonna, you know, not take him if he eats out of this ipo. Like that's just kind of, that's kind of how the banks work, which is a unfortunate But I think that's. Yeah, it just exists.
- [56:11]
B
Awesome. Guys, I have to jump here.
- [56:13]
C
All right, later, Dan.
- [56:15]
B
All right, later, guys.
- [56:16]
A
See you.
- [56:20]
C
I think the good news with that is, have you ever seen a video of a tsunami right before it hits and the water recedes?
- [56:28]
A
Yeah.
- [56:29]
C
Yeah. That's the way I see about all this money rotating. And when bitcoin runs, I think the tsunami floods back in, but it's just a matter of when that's going to happen.
- [56:40]
D
So this is not me trying to be a bear. This is kind of what I was talking about. Why would there be a tsunami into bitcoin? What is the narrative reason that's going to overpower the AI narrative right now or anytime soon?
- [56:58]
C
Well, I mean, I'm a bitcoiner because I think it's the gravity for all the capital in the world over a long enough period of time. But I've also got my other suspicions about the bitcoin network itself is in an uncertain period right now because the spam war has not concluded. That will resolve itself in August. So I think we have maximum uncertainty in bitcoin until then. And I think then it's. Maybe we can moon after we bottom out and get some kind of resolution to the. To the spam more.
- [57:38]
D
So I'm a bitcoin as well. So I'm with you. Right. I believe in bitcoin. I think bitcoin is going to become the monetary apex of the world. So I'm with you, Elon. Musk is not worth more than bitcoin.
- [57:50]
A
Yeah.
- [57:50]
C
So, yeah, there's no money. There's no money in AI software. There's no money.
- [58:00]
D
I don't know about. I don't know about that. But let's. Let's put that. Let's put it on the back burner for a second.
- [58:04]
C
Okay. We'll come back to it.
- [58:06]
D
What, What I'm saying is January 1, 2023, to when I ran it last, it was last Friday. The top 13 equities in that trade are $108 trillion of trading volume. Jeff was just talking about liquidity.
- [58:20]
C
Right.
- [58:20]
D
Jeff was just talking about how much that matters in the market. Also. That matters in terms of velocity, of trades. That matters for all kinds of reasons. Calling this a bubble at this point, I think is a little bit of a. Is. Is a misappropriation of terms. I, I think this is a fundamental secular movement. People are betting on Industrial Revolution 2.0 now. Could it. Could it still blow up? Sure. But even if it does, I don't think that's going to be a dot com bubble. I think all the crap companies are going to get blown up. But the Max 7, not, not a single one of them is blowing up. Not, not a single one of these companies right now. One of these 13, 13 companies that can even push it to 14 is anywhere close to blowing up. The PE ratios are not blown out. They are, they're. They have access to liquidity. They're not strapped for cash, they're not strapped for interest, they're not strapped for demand. They've got, they've got the, they've got all pillars firing right now. And then on top of that, if I want to take the opposite end of that is a bottleneck there. Yeah, sure. Energy, the infrastructure, our current infrastructure can't handle the level of growth that is unprojected to come online end of 26 into 27 and 28. So that can slow things down, but stopping it in the sense of there's going to be a rotation where people are saying, okay, it's done, time to move on. We haven't even really hit the frenzied phase yet. Until Nvidia. Until Nvidia. Until I see Nvidia at like 150 pe ratio or something crazy like that. I don't think this is a frenzy. The valuations aren't out of control, the demand is only increasing. And then on top of that, you just had SpaceX in the middle of all of this IPO and crossover, 2 trillion. You might have two more IPOs coming and people are starting to say, well, that's going to be the bubble. That's what's going to be, that's going to make it pop. Are we sure about that? SpaceX IPO people are saying that it's fugazi, it shouldn't be, it's overvalued, blah, blah, blah, blah. They raised 80 billion anthropic. They're going to probably be able to raise tens of billions. OpenAI. They're bleeding cash, but they're probably going to be able to raise tens of billions when they ipo. Where's bitcoin going to get the narrative shift that's going to cause it to moon in this environment Long term, yes,
- [60:39]
A
it's the what's next. In my opinion. It's the what's next. It's the what's next. Right. Like I think these, the noise and the focus is on AI right now. You could see it with the SpaceX IPO. You could see it with all of these companies coming to market and raising capital. It's like the hot hand, right? Like if you got anything IPO or you got anything AI related like capital is open and you've got anthropic and OpenAI. I mean all of these events are going to suck capital out of the market and there's going to be a moment of like, okay, now what?
- [61:09]
D
That's what I'm wondering. When is that moment?
- [61:12]
A
The fall?
- [61:14]
C
Maybe.
- [61:15]
D
Maybe.
- [61:17]
C
I can't stop thinking about what Jeff Booth said about the fact that a line of code is almost basically free. And with AI, you have lines of code writing lines of code. And if the cost of everything goes to its marginal cost of production, then the cost of AI is trending towards zero. So that's why I'm saying that there's no money in AI, But I kind of sound like a lunatic because didn't SpaceX announce that? Is it anthropic or who's going to pay them a billion dollars a month for AI compute?
- [61:50]
A
I thought it was Google.
- [61:51]
C
Google, Google, Yeah. So I'm saying there's no money in AI, but they're getting paid $12 billion a year to produce AI compute. So maybe I sound like a lunatic there to a certain extent, but at some point there's, the value proposition has to go to zero because it's just AI agents writing more code for more AI agents. And the marginal cost of production is barely over the cost of the electricity. And so I kind of feel like it'll become nationalized. And so this is going to be another scenario where the government privatizes the gains, everybody makes all their money, and then they'll say it's a matter of national security that the United States, you know, stays at the top of the AI boom or you know, technology. And then all of the, the taxpayers ended up having to pay for it. So the, the only real money and, and the guys like Teals and they, they figured this out a long time ago that the best customer is the government. So that's where I think the AI is going, is the governments will be the customer of last resort. And then basically that means taxpayers are paying for all of this.
- [63:10]
A
Well, so here's the thing with that national security thing.
- [63:13]
D
The code has always been free. So I think Jeff Bruce analogy is a little bit flawed. It's not the code itself.
- [63:19]
C
Hey, don't you say nothing about my Booth.
- [63:21]
D
Well, I mean, I've read his books. I think he's brilliant. But I think that people make a lot of flawed analogies. It's never been about the cost of code, because code has always been free. It's just a matter of, do you have access to information? Twenty years ago, if you were a COBOL systems engineer, you were considered a wizard within the world, right? Because you had the knowledge. But as that became more democratized, did the value of that drop? Yes, but what happened? Other systems replaced it. So as you democratize the access of code and as you make code, code, if we're using that example, more ubiquitous and easier to write, the only thing that happens is you find more efficient systems and more efficiencies as a result. So the cost of that does trend towards zero. The way you can scale it becomes exponential. So let me use myself as an example. My ability to code has always gotten me jobs. Now I've automated a lot of that. I've driven that down to zero, essentially. Right. But now I can take on two, three, four clients at a time. So the cost of coding has dropped to zero. What I can do with the code has gone exponential, and that's what people are missing. It is not what the AI produces, it's what you can do with what the AI produces.
- [64:36]
C
I think you just answered your question, then where's the money? Or where's the attraction or the money going to come into Bitcoin? If nothing else, Bitcoin is an accurate measurement of, of the free market and inflation. And if you're talking about AI delivering exponential efficiency returns, then Bitcoin, the price of Bitcoin, captures every dollar of that efficiency.
- [65:03]
D
If people agree that it's the proper medium, yes, if, and I don't think that's going to happen. I think that Bitcoin is going to be a million dollars a coin, and fiat currency is going to go nowhere. If anything, fiat currency would just be bigger and Bitcoin will have a bigger proportional piece of that pie.
- [65:19]
A
Kind of comes down to Soleil, what you're talking like your point is, what's a better store of value? I think you're both right. I think, Adrian, there's going to be significant number of people that are going to be using AI, that are going to make significant amount of wealth because they're running significantly faster than everybody else. I don't think that value, that value won't proportionately go to the company that provides that AI. It's going to be disproportionately delivered to the consumers of the AI product, which is like, good for society. I think it's like a net, a net positive for society. Now the question really becomes like, what is a better store of value. Do those people think that they have a moat on whatever they create? And the answer is all technological moats are going to zero. And that's kind of what you're saying. That's kind of like the Jeff Booth thesis, right? Like, if you have a technological moat, like it's going to zero.
- [66:16]
D
I think the moat just gets replaced by another moat. That's my point.
- [66:20]
C
Well, yeah, and maybe I said it badly because I do agree with you that the users and the producers of AI can print a bunch of money because with their efficiency. But I think the people who, like the AI companies themselves are just ripe for being disrupted. And that disruption is like, the exponential efficiency of AI is almost like now they're just ripe for exponential disruption. The normal disruption that technology places on technological processes is now actually increases at an exponential rate.
- [66:58]
D
Yeah, but you're talking about under the current pricing models. So the way the pricing models work right now is you pay your monthly fee, you have your API token usage. Right. I see it like cell phones. That's what the pricing model is going to evolve into. It's going to involve very, very, very fast and very, very aggressively, even into a usage model where the tokens themselves are going to have a much higher premium on them, and that is still not going to stop usage. So you're going to have tiered access. You're going to have local models that you pay for, like a separate OS in your system. So you have Mac os, you're going to have cloud OS as well. You're going to pay your $2,000 for that, and then they're going to release CloudOS 2, and you're going to pay 2,500 for that. The, the pricing models right now, yes, they are ripe for disruption, but that's what they do to get market share. They, they explode into the market. They show that they're, they're highly usable. They show the utility, they increase the footprint that they have, depending on user base, depending on GPU and compute, they're building it out. And what's being built out right now is that second moat. The first moat in terms of all your LLM is cool. That's done. I think what's coming next is the secondary mode is going to be access,
- [68:16]
A
then the interface with the people. How people, how people interact with the product itself integrated into like a lifestyle or like how they, how they operate.
- [68:31]
D
Like, let me, let me ask you an honest question, like, because I know you use AI a lot, Jeff, and I use AI a lot. Are you telling me right now that if they had like, let's fast forward two years and they have a new. Like I think everything's gonna, not everything, but many things are going to be local. They're going to have local frontier models that you can pay 2500 for, 3500 for. Wouldn't you pay for it?
- [68:52]
A
I'm buying it. Yeah, exactly. I'm buying it.
- [68:54]
D
And then, and then when they release version 2.0.
- [69:00]
A
Yeah, I'm buying, like, yeah, I'm buying it. Yeah, yeah, I get it.
- [69:05]
D
Instead of the APIs and the monthly fees, they replace it with the interface, the os, the integration. It becomes, it becomes part of everything that we do.
- [69:16]
A
Your, your computer, instead of having a, a cloud based system, AI system, you've got a computer like a local system where you own all your data. It just got, it's got all of the. Oh my God.
- [69:27]
C
Are you saying you're gonna have to replace it like the new iPhone every time the new iPhone comes out?
- [69:30]
D
Yeah, that's exactly where it's going. Yeah, that is exactly where it's going.
- [69:33]
C
What?
- [69:34]
D
That's how they got people with. Think about, think about how they got people with cell phones. I remember, I vaguely remember, I kind of remember. I think when I was younger and cell phone plans were. You had a thousand text messages a month and you had minutes, right?
- [69:48]
A
Yeah.
- [69:49]
D
And everything, everyone was like, oh, I have a thousand text messages, I have a thousand minutes. I can talk forever. And notice how what happened as cell phones became ubiquitous, as we went from 2G to 3G to 4G to 5G, it, the model moves, it went from minutes and messages to unlimited. Then it went from unlimited to package deals. Right. Do you see what I'm saying? So I think what they're doing right now, they have the build out that's happening. So you're gonna, you're paying for your monthly subscription, then you're paying for API tokens. So I do both. Then they're gonna have you pay for different tiers of access. You're gonna have different tiers of models. You're gonna have, you're gonna have local models that have access fees, you're going to have local models that have one time fees. So if you want to pay the monthly access fee, you pay 2 grand plus 2495amonth. If you want it unlimited, completely open that, you own it, lock Stock, you pay 3500. Then you update it every 18 months, every two years or whatever. The models themselves are the commodity. The access becomes the Moat and then the next moat after that is going to be when it becomes truly ubiquitous, when we have the real AGI moments. I'm guaranteeing you people will mortgage their homes to pay for these things. So it's not. I think that to Jeff's point and to your point, both of you have valid points. Jeff is correct in that it's going. The moats are going to quickly disappear. But what I'm saying is as one motor disappears, another moat will come in. To your point, Soleil, I think bitcoin is going to disproportionately benefit in that environment, but I don't think it's going to be a hyper bitcoinized world. I think bitcoin is just going to get a perpetually larger chunk of everything.
- [71:38]
A
It's the slow burn. Yeah, exactly.
- [71:41]
D
Are we going to be really unhappy if in 10 years Bitcoin is a million dollars? I don't think so. Are we going to be unhappy if we're 80 years old and Bitcoin's 15 million a coin? I don't think so.
- [71:50]
C
Well, I'll be unhappy if it went to. If it went to 50 million first and then it goes down to 1. I'll better be pissed.
- [71:57]
D
Yeah, well, right. What I'm saying is the. There doesn't need to be an either or. I don't think fiat currency is going anywhere. I think that strategy is going to be seen in the future as a key player in the growth of bitcoin globally with all the products that they're doing and then strive and then some of the other companies. Right. And in that world, bitcoin gets a much larger pie of what we're seeing right now. $108 trillion over 13 equities over three years, that's going to be 150 trillion in two years. It's going to be 200 trillion in 10. Bitcoin is just going to get proportionally bigger and bigger and bigger, but it doesn't need a rotation or a crash for that to happen. Because if this were to crash, bitcoin is going to five grand.
- [72:45]
A
Yeah.
- [72:45]
D
It's going to annihilate bitcoin.
- [72:47]
A
It'll recover if AI crashes. Yeah.
- [72:51]
D
If this thing is a bubble and $108 trillion worth suddenly goes up for grabs, can you imagine the unwind that's going to happen? I don't think we want that. Yeah.
- [73:02]
A
I think these things are probably going to scale. They're probably going to scale. At the same time, I think there's so much that's going to happen. There's so much uncertainty on the horizon and how exactly this looks too. I mean, there's political uncertainty, there's population uncertainty. Do people rev. How does, how do jobs change? How quickly are people able to pivot away from like people are getting fired at jobs left and right. That's still happening, but they are getting hired too on the other side on new jobs. But how, how quickly does the population shift? How does that change? I think there's going to be a massive rotation in like the companies in the s and P, 550% of them are going to rotate out because they're going to get eviscerated by companies that are moving faster and quicker with better intelligence. How do people interact with that stuff?
- [73:49]
D
And that's how Bitcoin wins, I think. Yeah, I think because of that, that's why bitcoin wins. The uncertainty, the risk is going to go further and further out in the risk curve. And what's going to happen is the risk curve is going to go from here to here. And Bitcoin's position instead of being further out in the risk curve is just going to be.
- [74:08]
A
Starts to shift. So, yeah, it starts to shift into, into true savings technology that the people, people are trying to understand. I, I think that, I do think the digital credit is going to play into this narrative. I mean, obviously what's happening with STRC is making a ton of noise, but I feel like for now, right, like, wait, let's wait, let's wait a couple months and see. Let's see how that, how that changes. But I do kind of, I have this feeling like that we lit the fuse with daily dividends. It's going to make some noise here for a consistent amount of time. And I think it fundamentally changes how people interface with capital, how AI and compute will interface with the capital markets, the evolution of things that can be built on top of this. We're just so early in the evolution of these products. I mean, I have conversations every day about, and I hear other, other conversations about people that are building on top of this stuff. And I'm super excited about that.
- [75:12]
D
Well, it's kind of like Sailor's article the other day. People like to jump on him, but what he is doing is that he's building, he's. He's thinking about building the rails on top of bitcoin. Right. It's the entire ecosystem. Exactly. Because he's an engineer, so he takes the various systems and engineer view of things. Now, solely, I know you have your issues with the potential Ethereum and stuff like that.
- [75:36]
C
Right.
- [75:36]
D
And I'm with you on that. I'm with you on that one. But Stretch SATA, those are rails that exist on top of bitcoin. Right. And the way I think things are going is that they're going to be differentiated offerings that give more direct exposure to the bitcoin that's on a company's balance sheets. I think there's going to be all kinds of products that exist on top of bitcoin. And I think that whether we like it or not, strategy is kind of blazing the path. Strive is along that path. There's going to be other companies that are along the path creating an entirely different ecosystem on top of bitcoin that is only good for bitcoin long term. It's only good for adoption long term. People like to talk about lightning and all that stuff. Yeah, that's great. Can that happen at some point? Yes, but we need the rails to grow adoption for people to want to come into the system.
- [76:30]
A
Yeah. I was just in Prague and was there. I love walking into the booth area. Prague was cool because it's very bitcoin focused. There's no other non bitcoin companies there.
- [76:43]
D
Bitcoin miners, other stuff.
- [76:45]
A
There's miners, yeah. It's like bitcoin miners and stuff. But there's no xrp, more chain link, no, nothing like that. You think about our company and you think about strategies like what are we doing? We're underwriting bitcoin. Okay. So part of underwriting bitcoin is underwriting the network, like the ecosystem, like how people interact with the ecosystem, the incentive structure of people working with the ecosystem. Prague was cool. Very clean. I think what's incredibly necessary moving into the future is that the health of that ecosystem continues to grow. Like, how does the health of the ecosystem continue to grow? Well, scaling capital into it so everybody has the ability to build on top of it is actually incredibly valuable. Scaling the capital network again, we've talked about this several times. It's just really hard to convert somebody to hold bitcoin in cold storage and understand the value proposition. It takes hundreds of hours to understand and conceptualize it. And having a bridge that brings people into the bitcoin world is super helpful. And I think that digital credit is that bridge. And something that I think. So Saylor posted about this. The bitcoin, digital credit and digital money, just the concept is like Terra Luna. One of the reasons Terra Luna collapsed is because they took the capital and they went straight to the money. You've got this volatile instrument that went to. Straight to trying to create money. They missed the credit piece in between. They, like, needed the credit component. They needed a transformer to transform it into a separate alternative, perpetual before you can turn it into a third item, something that can build on top of it that's not connected to the underlying commodity. So I am bullish on that horizon, and I think the things that could be built on top of this are. Are pretty massive now. They need to be directionally and structurally long, not structurally leveraged.
- [78:50]
C
Yeah. So, Adrian, the. The problem I have with ETH is, you know, my investment grade issue with ETH is it's very technical. ETH has cooties, and if you touch.
- [78:59]
D
It's a hacker's paradise. Yes.
- [79:01]
C
Yeah. If you touch it, you get cooties also. So you can't get too close to it or, you know, you don't want cooties. And Solana. Solana has hags. You guys know what hags is?
- [79:12]
D
I haven't heard that in so long, but, yes, I do.
- [79:14]
C
Yeah. Herpes, aids, gonorrhea, and syphilis. So you don't want to get anywhere near.
- [79:19]
A
Yeah, okay.
- [79:20]
C
Exactly.
- [79:21]
D
He's got some strong feelings on all coins. Yeah. But all. All jokes aside. No, I agree. I think that. I think a lot of the noise in the space right now between Stretch and SATA, like, the competing products. I don't see them as competing products. I have them both. And full disclosure, so they. They both serve.
- [79:40]
C
But let me say this. I don't think. I don't think we need them. I. I don't think we need Defy. I think our homie here can take SATA and. And Sailor can take Stretch straight to. Straight to people. Like.
- [79:56]
A
Yeah, I agree.
- [79:57]
C
Like that Fidelity product that I was talking about where they'll sweep your checking account into the freaking mutual fund. I don't need to take yield coins and looping and freaking triple leveraged or whatever bullshit. I think we can take digital credit straight to people. And this was inspired by what Mason was talking to us about on Monday. And I forget exactly how he said it, so I kind of tweaked it for my own purposes. So if people like it, he gets the credit. And if I screw this up, then it's all my fault. But it was kind of like if you have a person, the metaphor of the person who holds cash, they're bleeding out, right? Because their cash is being devalued. It's a melting ice cube. So if you're holding Cash, you're like a sick patient who's just slowly bleeding out over time. And bitcoin is like giving someone a transfusion and saying here we're going to replenish you and now you're not going to. And it'll be losing blood volume. But Bitcoin drops 50 or 75% every so often. So it would be like getting a transfusion but then like you randomly they take a pint out.
- [81:05]
A
Yeah, five pints out.
- [81:08]
C
Yeah. And so the people, there's been some criticism. I have seen it. And so people are like, why are you onboarding people to digital credit? You should be onboarding them to bitcoin. Right? Okay, Yeah, I agree with you. However, some of these people, you know, this opinion is coming from people who have 20, 30, 40, 50, maybe hundreds, maybe thousands of bitcoin. It's real easy for you to live on a bitcoin standard when you're still filthy rich. And after bitcoin goes down 75%. But if some guy's got like $1,000 in his emergency fund in case his car breaks down and you onboard him straight into bitcoin and then it drops 75% is, you know, and then he has a car repair and the thousand dollars is worth 250. Like there, there are uses for these things and I think there's a little bit of pie in the sky thing of like everyone's supposed to be orange pilling everyone all the time and like that. It's just not, it's not low fall enough for that yet. There's, I think they, they don't want to hear about the bridge. Oh, we need a bridge. Like I, some people do. And the previous bridge was like, oh, we'll just put 5% in Bitcoin. But what's the other 95% in your 90 day emergency fund? There's better products out there than freaking treasury bonds.
- [82:31]
A
The harsh reality is like 99, maybe 90% of, let's just say Americans, they have the financial literacy of an anti.95. Right?95. So like, okay, you go talk to somebody about this. And they're like, well I don't know anything. I don't know. You know, I don't know anything about anything. Right.
- [82:49]
D
Most people don't even know what an ETF is.
- [82:51]
A
Like you graduate high school, like how many people don't graduate high school? I don't know, 20, 30. And like the people that don't graduate high school, okay, even the people that just graduate high school, they don't go on A secondary education. They. None of them have learned about money. None of them, like, what you know about money is genetic, right? It's like what your family knew about money is like, what did your family know about money? Nothing. Why? Because it's been, it's purposefully not taught in school. And this. So you're up against a populace that is completely illiterate. It's like, oh, hey, you're like, let's just say bitcoin is a book. And you're like, hey, read this book about bitcoin. It's like, well, they can't even read. It's like, I can't even, I can't even conceptualize bitcoin because I can't read. Right? That's 95% of the population, right? So, well, what do you do is like you, you create something that makes it so you can't read. Maybe you listen to it. It's like, okay, now that works.
- [83:48]
C
Read me a bedtime story about.
- [83:49]
A
Bedtime story. It's like, yeah, it's digital credit. It's like, here's, here's your bedtime story. It's in, you know, it's in, in the format that, you know, you can kind of maybe conceptualize and, and that might change. And one more thing. Soleil, I watched, I went to the airport the other day. The person in front of me paid with a Fidelity Cash Management card. And I thought of you. I, I was blown away. I was like, this person's buying a five dollar coffee with a Fidelity Cash Management card. I'm like, holy moly, this is it. Like, I gotta do that.
- [84:20]
C
And if the banks don't want to, don't want to play ball, then they can get disrupted too. We'll just, yeah. Make our own banks.
- [84:25]
A
And so that, that's, that's a, that's a big, that's a, you know, that's a big disruption. I think you want to play, play relatively nice with those people to avoid. Oh yeah, them coming after you with all of their capital, which would be bad.
- [84:42]
C
You gotta, you gotta sneak up on them and make sure you, you kill them. Because if you, if you leave any fight in them, then they can turn around and bite you.
- [84:50]
A
Yeah, exactly. Stealth.
- [84:52]
D
And, and to your point, about, about people that want to live on that. They have about the bitcoin standard, right? Living on a bitcoin standard. I bought my first bitcoin 14 years ago now, damn near right? Like, no one lives on a bitcoin standard. What, what do you, how do you transact day to day, if you sell bitcoin to do you to, to get fiat, do you borrow against bitcoin? Like I have. No one's on a bitcoin standard. So I think that people that have issues with the digital credits and the rails being built on top of it and saying that you should just bring people to bitcoin. To your point, I don't think they're living in the real world, they just aren't. Bitcoin is not anywhere near where it needs to be for people to live on a bitcoin standard. The network can't handle global traffic. So it's just, it's not only a structural limit, it's a practical limit as well. So I really think a lot of the tribalism and infighting and all that stuff just needs to stop.
- [85:49]
A
Yeah. To your point again, on the need for defi, what we're doing and what we're building is effectively bringing the technology of Defi into the equity market. That's what Strive did, right? Like daily dividend. We took the technology of Defi and we took it into the equity market and it's up wrapped in a brokerage that, you know, everybody's familiar with. Like there's more innovation that can happen, right? We're like there is more that we can do and we're thinking about it and we, we think that that op, that like landscape is going to be blown wide open, right? Imagine you've got an investment grade digital credit instrument that gets rated by a rating agency that's trading open 144A in the market and you've got other equity products that are wrapped and packaged up that's providing demand. Like I said, I feel like the fuse has been lit. I don't know how long the fuse is, but the fuse has been lit and the structure is there and it's ripe for innovation. And so Adrian, to your point of what is the next flow back into bitcoin? I think it's advancements of all of these people that are using AI to come up with these really brilliant ideas built on, on top of this stuff. And it's going to take 612 months maybe. And when this stuff does start to move, right, like I said, the price of Bitcoin moves $10,000. Strategy makes $8 billion. When it moves $100,000, they make $80 billion. Okay? That's the amount of money that SpaceX just raised in the largest IPO in history. How much noise does that make?
- [87:30]
D
And all that can happen without needing a massive market crash and all that stuff. I think that there's room for everything. It's just a matter of when the impetus to the market actually meets bitcoin. And to your point, is it possible that that can happen in terms of the building and development on top of bitcoin? Yes, but we need to build and develop and not infight for that to happen. So I think that strive strategy, all these, all these companies, some of the rails are being built on top of bitcoin. I think that's all net positive. And as long as the base layer isn't being mutated or corrupted, I think that we are moving along the right path. And what sailors propose is doing that. What stripes propose is doing that. What others are proposed are doing that. Soleil, to your point, all the Ethan soul and all that kind of shit, we can move away from that. But to your point, I don't think we need them. I think that we have a model that can be scaled and I think it's being scaled and it's just going
- [88:27]
C
to grow right on.
- [88:33]
A
We want the bitcoin network to do well. I think that's the craziest thing about all the arguments is like, that they're trying to take us down. It's like, well, we want the same thing that you want. I actually am a bitcoiner and I actually hold bitcoin too. And I actually like the network and everything that you like. I just wanted to get bigger. Like how, how can I make it get bigger if, okay, I can make a credit product that, you know, other people can buy that brings more people into the industry and to like, I, I want to pump my bags. Yeah, like, I want to pump my bitcoin bags. I think that makes the most sense. And I'm going to use my skill set to try to do so and create, you know, a capital structure that's interesting in the market. So, okay, we are, we are. We've just plowed through here an hour and a half. I'm going to jump over to the Q and A because we've missed it the last couple of hours.
- [89:20]
C
Couple.
- [89:21]
A
The last couple. So I am going to jump in here and let's, let's do a couple minutes here.
- [89:28]
D
So what do we got?
- [89:29]
A
We'll do it. We'll do a couple. We'll just make it quick. We'll try to plow through here. Okay. What is this? The first one didn't make sense. I'm gonna skip it, go to the next one. Doug Byrne. What is sailor going to increase the data in strc how high did investors lose confidence in strategy when they blew the whole cash reserve? All right, well, we hit on cash reserve. Does anybody want to take their thoughts on increasing the dividend?
- [89:54]
C
Yeah, I mean if it, if it meets their standard. What is it? The, the weighted average for the month? Yep. Yeah. If it's below the standard then they'll raise it. Yep.
- [90:04]
A
I'm fine with 1 month VWAP, 96.2. I think if that's below the target range of 99, they will aim to increase the interest rate. I think that is on the horizon. In terms of how much, I'm not 100% sure. I think they've given some guidance that it could be 25 to 50 basis points. I've got to go back and look at.
- [90:20]
D
I think it's 25 bits.
- [90:21]
A
Yeah. But if, if the, the V WAP's below 95, it might be 50, 50 bips. So.
- [90:27]
D
Yeah, yeah, yeah, I think you're right.
- [90:29]
A
I think it's in one of the earnings calls, one of the earnings presentations, they came out with that guidance. So I would, I would look to that. I, I wouldn't be surprised if they raise it. But I'm also not incredibly convinced that raising the interest rate at the moment is going to bring in like a marginally more demand. I think, I think there's a bit of a leverage unwind at the moment and it will, it'll work its way out. And honestly, I think what's happening right now with STRC is way better to happen when STRC is a $10 billion thing as opposed to being 100 billion dollar thing. Right. If we saw STRC at 100 billion in this type of like unwind, like it's better for people to learn this now than it is when it's double, three, four, five, six times the size. So honestly, probably a good thing. What is the likelihood a Treasury company like Strive outperforms bitcoin and bear trend if they manage to accumulate more BTC with perpetual preferred equity? One of you guys want to take this?
- [91:24]
D
I'll say, I don't think it's likely. No offense Jeff, because the performance, the performance of the equities are tied to bitcoin. So if bitcoin is underperforming, I don't see a model, Even if they're accumulating bitcoin where the equity itself outperforms bitcoin because they're accumulating bitcoin while bitcoin is underperforming, I don't see that happening.
- [91:46]
A
Yeah, with the preferred equities, we're taking the excess risk return of the preferred or of the Bitcoin itself. And that goes to the common stock. So our common stock is effectively the dampening buffer between shock absorber. It's the shock absorber. So it's going to amplify, we call it amplified Bitcoin because it's going to be moving with a beta relative to Bitcoin. Now that, what does beta mean? That's a, it's a relative performance relative to the underlying commodity. And what we've seen is our common stock, for perspective, has moved at a 1.6 beta. So when the price of Bitcoin has gone up, our common stock has gone up 1.6. And when it goes down, it's, it's also moving at a elevated, elevated, you know, difference between the underlying commodities. So, and that's also to point out to the volume. Why does that exist? It exists because there's people that are trading the instrument multiple different directions and they're identifying a liquidity pool opportunity. Other treasury companies, it's more difficult to say because the underlying capital structure is different, the underlying business structure is different, the underlying reason for holding the entity is different, and they're viewed differently in like trading algorithms.
- [93:00]
C
Yeah, I think, I hate to pile on, but yeah, I think Adrian's correct in that anyone who's going to be amplified, the only way you could do that is if you somehow time to the top and reduced your amplification to zero. You know what I mean? Like, how would you, how would you manage that? I guess if you could pull that off potentially. But yeah, the other treasury companies that are not leveraged in any way, if you're just like some company that offers products and services and you don't leverage at all and you just own Bitcoin and you stack sats. I guess they could, but they're not going to be amplified on the way up in the same way that you are either. So I think you got to take the good with the bad on this.
- [93:39]
A
Yeah.
- [93:39]
D
And I think we have to differentiate between what we mean by amplification. When I think of amplification, the one I always default to is performance relative to Bitcoin.
- [93:47]
A
Right.
- [93:48]
D
So the likelihood of the equity breaking away from its entire, essentially the basis of its entire capital structure. And then to Jeff's point, the way that the market trades these things are Bitcoin optionality engines. So I don't see the optionality engine revving while the actual fuel for the engine is stalling is the simplest way I can put it, the correlations between the equities and Bitcoin is very, very strong. So I just. The market isn't forward pricing bitcoin accumulation. The market is forward pricing bitcoin optionality. I think that's my opinion. I think those are two things that people get confused. So I don't see that happening.
- [94:31]
A
Interesting perspective.
- [94:32]
C
Possible you could slow the decline because if you're accumulating during the bear, then your net asset value is going to be increasing. So you might like, you might prevent the full, you know, if you're 1.6 up, I don't know, maybe you go 1.5 down or I don't know, something like that might, might work out.
- [94:52]
A
I think that's what makes the trading in these instruments so interesting to institutional capital or, or even algorithmic capital is because there is upside convexity because of that and there's no expense ratio associated with it. There is that probability that you're accumulating. Historically, strategy hadn't accumulated in the bear market. Go look at any of the other companies that are buying Bitcoin right now. Are there any other treasury companies buying Bitcoin right now aside from strategy and us? Smarter web DDCs bought some, smarter web's bought some. But the scale is different. I guess that would influence how somebody views the instrument as a, as a trading instrument.
- [95:42]
D
And also we already have an example of that. Right now strategy has been accumulating Bitcoin
- [95:46]
A
in a downtrend, which, which was not the case in last bear market.
- [95:51]
D
Correct. So they're accumulating in a downtrend, but they're not outperforming Bitcoin.
- [95:56]
A
Yeah. And we haven't seen what the other side of that looks like before. We haven't seen the bull case for a perpetual preferred equity model in a structural bullish environment for bitcoin. So I'm excited about that. I'm continue to be long here. These instruments. I think these are some interesting and very good prices to accumulate in my opinion.
- [96:27]
D
Set up Stretch, I think long term are going to be just fine. A lot of the noise we're hearing right now is just that noise because just three weeks ago everyone couldn't stop talking about Stretch and all of a sudden Stretch is dead.
- [96:40]
A
No, it's. No, it's not just dead. It's a death spiral for the entire company with a 10 leverage ratio and $54 billion of capital. Yeah, it's apparently a death spiral.
- [96:49]
D
It's ridiculous. People need, people really need to relax like honestly.
- [96:53]
C
Yeah.
- [96:55]
A
Okay, gonna move on here just to one more. At what point is beneficial to buy BTC on exchanges instead of otc? Large purchases can create volatility. Reducing the supply on exchanges would force others to go otc, make it harder for shorts in this environment. Well, I think the reality is like otc, the. Anybody trading in the OTC markets, they're. They're going to all of the venues to go source bitcoin. And once that bitcoin is purchased in any of the venues, that bitcoin is then taken off, off of, off of that location is really taken out of supply. It's really. This market is so liquid in so many different places. It's not like there's one transaction between two separate companies and that's done otc. It's really different venues that are, that are gone to by these OTC markets are different exchanges and different places to go source and acquire bitcoin.
- [97:40]
D
Also, the OTC buys are done in tranches and they don't want to move the price because if you're moving the price, the price can move against you at some point. At some point. So I think that they buy OTC for several reasons. I don't think they want to be accused of market manipulation either. If strategy was buying, you know, spot bitcoin on Coinbase or something. One, I don't even know if that's possible at that scale. Two, they'll be moving the market. I think they want to be a market participant, not a market mover.
- [98:05]
A
Yeah, yeah. I mean, if you're going to go buy 100 million, $200 million of Bitcoin, you're not going to go to like one market. You're not gonna, you're not gonna go to like just Coinbase to go source $100 million of Bitcoin. Like you're gonna go, you're gonna go source $100 million of bitcoin from all of the exchanges. You want to go get the best price, the best execution. Recognizing this is a structural. Yeah, like you said to your point, Adrian, a structural participant in the market.
- [98:33]
C
Cool.
- [98:34]
A
All right. That's all I got. I'm gonna stop sharing my screen. Maybe I'll start with you, Soleil.
- [98:40]
C
Yeah. So I just got out of three weeks of jury duty. And so, Jeff, I heard you like calculating risk. You kind of find that, that whole thing interesting. So I want you to calculate the risk on this offer.
- [98:57]
A
Okay.
- [98:58]
C
For an investment. So guy gets, decides to do a private air travel timeshare kind of thing. So you can buy private air travel by the hour. And it's like a couple thousand dollars a flight hour or something. Right. And what we're. Yeah, we're gonna. Exactly. We're gonna fly jets around. And what you're gonna do is you're gonna get 20 people together, they're gonna form an LLC, and each person is gonna come up with 150 grand. You're gonna get like 100 flight hours or whatever. But the company is going to take your 3 million, and instead of leasing the planes like they've been doing, they have a monthly lease payment. They're going to take your 3 million and buy the plane so that now that their company is improved, they don't have this monthly lease payment and they're growing their fleet. What you're going to do to protect your investment is take the title for the plane and send it to escrow. And in the event that the company goes out of business, you'll be able to get the title for the plane, sell it for a couple mil, maybe recoup some of your funds.
- [100:07]
A
Okay, so you got an equity ownership in the plane.
- [100:10]
C
Exactly. Calculate the risk that the company and the founder and CEO doesn't just spend all the money and go on trial for wire fraud. Like, and we're talking about. And now calculate the risk on the maintenance for the plane. Because even if he buys the plane, the landing gear is sourced by one manufacturer in the entire world. And it's six months, like, waiting time. So your plane is grounded for six months just to replace the landing gear. And the engine is down for. It's down for a year, and it costs a million dollars. Like, calculate the risk for something like that.
- [100:58]
A
Yeah, go ahead.
- [100:59]
C
And so the guy just didn't buy the plane. He took the three mil and he just kept leasing the damn thing. He never sent the title to escrow. So the protection that the people thought they were getting, they still didn't get. So these people were just asked out of all their money.
- [101:15]
A
Oh, God. This is the problem of private. Anything or private equity or private credit or, you know, anything is you have no transparency into.
- [101:27]
C
Yeah. And can you imagine this? The guy got the money to buy bitcoin or. Excuse me, buy airplanes. Right. But. And then just didn't do it. He just leased them. Can you imagine if you were selling SATA and you leased the bitcoin?
- [101:40]
A
Yeah. Oh, my God.
- [101:42]
C
You didn't buy it. Oh, my gosh. Like, leased it for 48 months with a bubble payment at the end? It's. It's Ridiculous. So, you know, it's so easy to calculate the risk on these products if you're a bitcoiner. It's just completely night and day. And it was, it was a very eye opening experience. I learned a lot about the law and about just the insanity of private investment. And like, these guys just were like talking on the golf course and like, oh, I know a guy and he's doing this, you know, startup. Oh, sure, let's all put in $150,000, like 20 people per LLC. You know, 150k a pop, $3 million per LLC, five LLCs. They gave this company $15 million to buy planes. And he didn't buy any planes.
- [102:28]
A
He bought no planes and then spent all the money. So there's no money left.
- [102:32]
C
Yeah.
- [102:34]
A
And you have no access to the planes. You got nothing to recoup.
- [102:36]
C
You got nothing because the other people still own the freaking planes. And like, so check this out. This was a gangster move. So they, they call this guy up to the stand and he just looks like a super nerd. You know what I mean? Like, if you saw this guy in the street and he stepped on your shoe, you'd be like, dude, watch yourself because I'm gonna, I'm gonna, you know, I'm gonna thrash you, dude. So he gets up there and he's one of the guys who's leasing the plane to them. And they're like, and didn't you have to repossess your plane from, you know, the defendant? And he's like, yeah. And they said, well, did you file any paperwork? You know, did you go through the courts? And. And he's like, no, I didn't do any of that. He's like, I just sent a pilot over there with the keys and I flew it away. Like, that was the most gangster move I have ever heard in my life. Like, this guy was not playing with his money. I mean, I've heard of people getting their cars repossessed, but he literally just went over there and was like, that's my plan. And I'm flying it out of, out of this hangar. Oh, I don't know how that stuff works, but that guy, he was, he was, he was, he was something else. He was my hero when I, when I heard him say that.
- [103:40]
A
Crazy. Crazy. But yeah, risk just shows you, like, the, the importance of, like, having some structure, like, like financial structure for any investment. And private. And private. Anything is significantly more risky.
- [103:55]
C
There you go.
- [103:56]
A
Yeah. Bingo. Over to you, Adrian.
- [103:59]
D
I don't have anything that interesting. I'll Just say that. I think that Stretch is going to be fine. People need to relax. Bitcoin is going to be fine. And all of the, the FUD against Stretch seems very, very coordinated. Everyone from on Ramp to Etc. Like, damn, she noticed how they just kind of just showed up out of nowhere.
- [104:22]
A
Yeah, they just appeared.
- [104:24]
D
Yeah, they just appeared, like all at once. And then, oh, by the way, where's the Coffee Zilla video? I, I, I want to see Coffee Zilla. Put that on his YouTube channel. Because you released it. If you didn't release it, no one would have seen it. So I want the Zapruder tapes. I want the Coffee Zilla video released on his YouTube. Own it. You were talking. Own it. Put it on there. Everyone wants to see it.
- [104:48]
C
Adrian, have you heard of the Lego scandal?
- [104:51]
D
Which one? There were a couple.
- [104:53]
C
So there's the one. Well, the one that I'm thinking about is the, the guy, his father was like, sick, so he took his like 200, 000 Lego collection to, to hawk it, you know, and have this business hawk his products. Well, they just kept his freaking Legos and like, didn't, didn't pay the guy off. So there was a YouTuber that was trying to help him out with it and, like, try to get the money back from these people, you know, trying to basically expose them. And Coffeezilla covered it and he's like, I found the missing Legos. So of course, immediately I had to reply to that tweet, you know, did you find the missing Punter Jeff episode?
- [105:32]
D
You know, I saw you post that. Yeah, yeah, I saw you post that.
- [105:35]
C
I did, yeah. I was like, dude, like, you, you found the Legos, but you couldn't find the Punter Jeff episode.
- [105:42]
D
We, we need. Well, I want the uncut Coffeezilla version. I'm sure it's gonna be the exact same version or something. Right? But yeah, I want him to put it on his YouTube channel. Like, he made a big deal out of this. You guys spoke for damn near an hour.
- [105:54]
A
Yeah.
- [105:55]
D
And nothing. Or even sometimes.
- [105:58]
A
Yeah, like make, make your commentary. Let's, let's talk about it.
- [106:01]
C
He was trolling.
- [106:02]
D
He hasn't even give you a good reason as to why he hasn't released on his channel nothing.
- [106:06]
A
I think the reason is I front, right? Yeah, I front run them.
- [106:11]
D
That's the reason.
- [106:12]
A
Yeah, everybody's front running everybody all the time. And that's, you know, that's just the way it is.
- [106:17]
C
An oldie but goodie.
- [106:18]
A
Yeah, the, yeah, hopefully he puts it out. I doubt It. I'm not going to hold my breath,
- [106:25]
D
but yeah, that's all I got.
- [106:27]
A
I love it. Final takeaways from me are, yeah, I completely agree. I mean, stretch isn't, isn't broken. This is a credit instrument. It is less than a year old. We are experiencing volatility in the capital markets. Yes. It has had volatility. Yes. Couldn't it be communicated a little bit better? Sure. I think this is. Their strategy is going to continue paying the dividends. The balance sheet still looks incredibly healthy. Even if you look at a stress scenario, it still looks incredibly healthy. Their access to the capital markets is still wide open. They raised $200 million last week, which was about 1% of the trading volume. The dividend obligation is less than, less than 0.15% of the trading volume. So it's a fraction of what's happening in the entire ecosystem. I'm structurally excited about the future for bitcoin. I do think there are some large capital events that need to happen in industry and just the broader capital markets before there is a next leg higher and we could see some volatility. I wouldn't be surprised if we saw it, you know, drop down and then move back up and we'll, we'll see how it goes. And yeah, I think there's a, there's just so much noise out there and I think it's unfounded when, when talking about, like, what we're doing in the marketplace. We are, we are aligned with the, the long term bitcoiner. We are bitcoiners ourselves. We do care about the health of the network and I think that we are getting treated as slimy Wall street salesmen. I have never worked on Wall street in my entire life. I've lived on the west coast my entire life, actually, and I've gone to London and Bermuda and worked in reinsurance capital markets. But I'm not a slimy Wall street guy. I'm literally a structured finance professional and I've been doing this for 11 years. So I don't think we deserve a lot of the hate that we're getting, but hate it is nonetheless. And Anyway, we're almost two hours in. Appreciate everybody for the time. Episode 70 in the books and we will see you all hopefully next week. Cheers.
- [108:36]
C
Yeah.