← True North Podcast
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- [00:00]
Mike
It.
- [00:52]
Jeff Walton
Ladies and gentlemen, what you are about to hear may be amazing, but it is not financial advice. It is for informational and educational purposes only. Nothing in this discussion should be considered investment advice or the offering of any security or other investment product. Please consult your own investment and tax advisors. And now I'll hand it over to
- [01:13]
Dan Hillary
the True north team for your regularly scheduled programming.
- [01:19]
Ben Workman
Woo.
- [01:20]
Jeff Walton
Welcome back. True North Episode 61 the Mechanics of Capital and Digital Credit we are back with the Investment grade Bitcoin podcast and we are excited to be here. We've got a lot to talk about. So many things just continue happening everywhere, all in the market all at once at the same time. The world just keeps moving forward. And yeah, we've got a crew today. We've got myself, Jeff Walton, we've got Ben Workman, Mason Ford and Grain of Salt and Dan Hillary. We've got a crew here today and we've got a lot to talk about. We're going to hit on. We'll talk about strategy, health of the balance sheet like we always do. We'll hit on the Federal Reserve new paper came out this last week forecasting what the Fed's plan is over the next 12, 24 months. It's pretty consequential report. We'll kind of think about that a little bit. We'll go into sharp ratio, think about risk return, portfolio optimization. Well that was one of the questions that we received on the True north website. I think is a great question. We could dive into it a little bit. Will hit on like what is the purpose of holding an equity? And we'll, we'll think through it, the philosophy, the philosophical perspectives of holding equity like what does it mean and how do we start to think about the whole world together. Just kind of take a step back and look at the landscape of the entire equity market, the entire credit market and think through those things and talk about capital structures and you know, we'll continue to hit on this. We will. We will also jump to our website t north.com which is new. It's cooking everybody go check it out. If you haven't had a chance to go do so, please like and subscribe the YouTube video if you're if, if you're interested and you like this content and you want to see more of it keep that helps us a lot. And we'll hit on the some of the questions that people asked on the True north website and what we want to make this kind of a continuous thing that we grow into and make sure that we are providing content that people want to hear. So without further ado, we just launched four people into space to go traverse the moon and go around the moon. And then we just had the Trump presentation. And let's pass it around. I. Let's see what people are thinking about. We'll go over to you, Mike, we'll start with you. You listened into everything that Trump was talking about. Why is the market nuking?
- [03:32]
Mike
Why is the market nuking? I think the reason why market's nuking is because if you listen to Trump and you hear it directly from him, he seemed like for the next two, three weeks, he's going to continue going against Iran. Straits of Hormuz, doesn't matter. He's relying on that to go back to the Europeans to open that up. He's not going to buy any oil from there. So we saw the price of oil spike up. And then I think the biggest thing is we don't know if he's going to change his mind tomorrow morning. And the market always seeks to have stability. And so with that, the reason why they use the term taco, Trump always chickens out. Or that's if you want to say it as an acronym or if you want to say it figuratively, taco, it's like a taco shell. He always folds. And so I think if the price of oil continues to stay above $100 or $105, whatever the price of oil is. And I think the biggest disappointment that we all see saw was that we want Kevin Warsh to come in, we wanted the Federal Reserve to cut interest rates. But if the price of oil spikes up, that means inflation goes up because oil is used not only for people to drive around, but for diesel trucks that deliver food. So food prices spike up. And so therefore, in order to keep inflation under control, you can't cut interest rates. So in typically cutting interest rates is good for risk on assets. So I heard this. Everybody else can watch it. It's 19 minutes. But what we see is that he could change his mind. He could change his mind in an hour for now. And so with that, I look at it and I see it as instability. And the market price is in instability. That's what I saw. And I do want to, I do have a personal announcement to tell people. I will not be moving to Texas and buying a Tesla and using self driving anytime soon. So thank you for everybody that wished me good luck for doing that. But. But I drive my car and I'm old school. I like to drive my car.
- [05:31]
Jeff Walton
Excellent. Thanks for the update. There and we'll fold that into, we'll talk about the Fed, we'll fold that in and kind of think through some of those perspectives a little bit. Mason over to you. What are you thinking about? You're running into people, you're getting recognized in New York. What's cooking?
- [05:44]
Mason Ford
Yeah, I had a really interesting encounter with, I was at the park this week. It's been, it's been nice in New York finally. And I saw a guy wearing a bitcoin shirt. And you know, I, I had to go up and say something and he, he actually recognized me, which was funny. But this was a guy who, who works in traditional finance, he works in the insurance sector. And I immediately thought of you, Jeff. And we started talking about, you know, this guy's been a, a Bitcoiner since 2019, but he lives the dual lives of being a capital allocator in the traditional financial system and also deeply believing in the future of Bitcoin. And what it really came down to was he deeply understood Stretch and SATA and the preferred equities, and he believes that they're amazing products and he believes that MSTR is deeply mispriced and Bitcoin is deeply mispriced. But there's a few hurdles which we've touched on in the past which continue to kind of stiffen adoption at this point. And that's basel, the banking regulations, which don't give Bitcoin its due. And it's also the fact that Stretch and SATA, these are new products and they're unrated at this point. But we, we all, we had a, we had a really interesting conversation because of course I'm, I'm at Melus and we have an operating business that right now at a, you know, a, a, a, we're trading at a very cheap multiple and we also have the bitcoin. Right. So from, from that perspective, from a capital allocator perspective, in the traditional financial system, if you are an operating business that has bitcoin attached to it, it's a much easier sell at this point than, let's say, a pure play or pure bitcoin exposure. Just because of the fact that we have an operating business and it's digestible to them in a way in which maybe the peer plays are not. So that was just a really fascinating conversation and I'm really excited that I met this guy and we're going to continue to have these conversations.
- [08:14]
Jeff Walton
It's a real life example of the true hurdles that we talked about. You ran into somebody and you're actually seeing it, it's like, okay, well he works there and he's telling you I can't do this because this is in the way. And so one of the things that we're thinking about is how do we one, help change the regulate regulatory environment. Two, how can we work around it and work with it? Like what, what are avenues that we can infiltrate without having to come up against that framework? Because we've got to go infiltrate all of those first and then kind of build, build the framework around it. And I think one thing that's become really fascinating and I saw this develop over time and we've talked a lot about private credit market, but kind of what's happened in the private credit market, just to give some history, is that they were, the market had started to create, find these assets and turn them into cash producing assets with different strips of volatility. So for example, you can go buy a natural gas field in Oklahoma. So that natural gas field, you're going to be able to pull gas off of that natural gas field. And there's this like curve of what the cash flow looks like. And you can structure and tranche that into different security layers. And so the most senior security layer is the most secure. It's going to get first dollar. And then if there's volatility in that cash producing asset, the lower tiers don't get as much money, they don't get as much return. And so what had happened was those, they were able to, that, that credit market was able to go get those tranches rated by different rating agencies. And so that was an industry that wasn't typically, or it didn't used to be rated and now is rated or at least some of the pieces are rated. And that kind of gives us a potential framework of how to think about rating the instruments that we've got as well. It's almost like you take this perpetual preferred equity instrument and how do you, how do you almost make it worse by making it more illiquid with the term just to appease a regulatory environment. And I think that's an opportunity for somebody looking at this landscape and you could potentially create another type of security with different layers and different tranches, throw a duration on it and that might have the ability to get rated by an entity because there's now a, a capital structure on top of a capital structure, which sounds crazy, but that has already happened in other asset classes and that is a potential opportunity in this marketplace. So really fascinating perspective to kind of view that. But that is out There. If anybody wants to go pursue that, I'm going to go over to you, Dan. Tokenization World, what's cooking with you? I saw you guys have an office in Florida, which is cool. What's cooking?
- [11:16]
Dan Hillary
Yeah, yeah, we've been working in our office. Obviously, I've been focused specifically on strc, looking at the Sharpe ratio on a daily basis and tracking the equity issuance. And then I have a video coming out this week on modeling out percentage of bitcoin traded volume that MSTR is doing over time, how that's growing, and specifically how STRC's traded volume is growing on a relative basis to MSTR and to Bitcoin itself. And I think what's so cool about STRC is finally we've got some traction, some real liquidity, some real volume. Obviously seeing that with SATA as well. And you know, I've always believed that the press will be very indicative of bitcoin risk, bitcoin future expectations, yada, yada, yada. And moving forward, we're able to track that interest, that open interest, that demand, both with the credit, with the interest rate and with the demand, the liquidity. So I think Stretch will be, you know, a 10, $10 billion unit quite, quite soon. And it will also be trading $500 million a day in the near term. So psyched to see that happen real time.
- [12:20]
Jeff Walton
Yeah. Liquidity is getting stronger and stronger across the entire ecosystem it's building. And people are starting to find more and more ways to trade about this or trade around the instrument. I think we talked about this last week, but we've got SEDA options opened, that options market opened. We're starting to see some open interest kind of percolate into that market. And I'd be curious to get your perspective on this, Dan. And you look at that market, the options market, on these instruments as well. But I noticed that there's five dollar increments on the options market, basically like a 95, 100 and 105. And it seems pretty silly, right? Like if, if you've got this instrument that's trading, you know, most of its time at $99.99, like what, what's, what's the use, what's the value of a 95 strike? What's the value of $105 strikes? I think that the market could use a $99 strike and a $101 strike. If the target range is 99 to 101, I would think that $99 strike would be one of the most traded Strikes in the general options market. Have you thought through that at all or looked into it?
- [13:27]
Dan Hillary
No, absolutely. I mean a lot of this is up to the broker dealers who are hedging and creating the options exposure. So I think these things just take time. I mean we're only starting to see intra week expirations pop up on ibit options which are one of the most liquid options markets in the entire kind of bitcoin ecosystem. We haven't even seen them with MSTR yet. But I think you're totally right. We'll see that, see those come online.
- [13:51]
Jeff Walton
I think you might need to request them. You might need to put a request out there for a $99 strike. I think it would be fascinating to see how it, how it operates. It should be very indicative of bitcoin price performance or almost like a forward looking, forward looking view of the performance of the security and with better downside protection. Much closer to the, I guess par. Much closer to par.
- [14:21]
Dan Hillary
Yeah, I mean, point me towards the survey monkey.
- [14:23]
Jeff Walton
I'll. All right, we'll talk about it afterwards. Okay, cool. Over to you, Ben. We've got a big exciting week. SEDA hit par for the first time since, since we've done the follow on offering. So a big week, A lot of news there, a lot of energy. How are you feeling? What do you think about.
- [14:42]
Ben Workman
I'm feeling exhausted. But yeah, I mean it was a, it was a really big week and it was really encouraging to see the trading activity going into the ex div date. And you know, we're still so early in these products that we're still gathering the data on how these respond. You know, as they season out there in the market and as these securities gain more and more reach and more and more investors start to understand the, the risk profiles around them. You've started seeing it with stretch, I think they're in their, what, 8th or 9th month now of dividend payments. And so you've started to see that arbitrage that happens on the ex div date where it dips down, you know, lower than what the dividend being paid is. Which creates an opportunity for people that come in and prefer to buy low and take the capital appreciation over the next month and try to get out of these as they get closer up to par. Which is, which is interesting because they're operating both as trading vehicles right now and as income vehicles. So they've got a lot of optionality to them right now. Now with the options market out there, it opens up a lot of the hedging Structures and yeah, more strikes will be very helpful. I think that'll just come in time, Tom. But it was really fun to watch it develop. We've watched the stretch activity for several months and you kind of watch that volume ramp as you come in closer to the ex dividend date and you watch it start to ramp up. And it's really those two days leading in where you see the mega volumes really spike as people rush in trying to get those dividends. And so it's fun to watch that play out on our own security with SEDA and to see it get up to $100 one month after we made all the changes around it with the target range and you know, making sure we stated that we're not sellers of SATA below 100. And you start to see those changes percolate in the market now. It's a security that feels very familiar to everybody out there who's familiar with stretch. And we saw that show up in the demand, you know, leading in, in month one after all those changes. So really, really like to see that. You know, at the same time we've got kind of a, a wild market going on around us, both in the equities market, but also in the treasury space. You know, know you're seeing all kinds of different actions being taken by a lot of different companies, which shows, you know, how these companies start to diverge during bare markets. And it highlights, you know, we, I know on this show we've hammered on it a lot about how if you're going to run a Treasury company, you need to build that company for a bare market.
- [17:14]
Jeff Walton
Right.
- [17:15]
Ben Workman
You've got to be ready to endure a long bare market. The longest bare market and bitcoin has been about 18 months. So you got to be planning, you know, for 18 months of sideways to down action. You know, kind of as you're as your base case to be able to weather it. And you're starting to see bitcoin being sold off. You've got activists in the space going after certain companies. You've got several companies that have been offloading bitcoin and other assets. And so we're hitting that point now where it's going to be interesting to watch the responses kind of across the industry and see what different pivots these companies are going to take. And we can certainly dive into that more because I think there's a huge amount of learnings that you have when you watch this sector develop so, so closely, like we all have, you get kind of an inside view. And then when you're in the seat actually operating one of these. It gives you an entirely different view on what you're looking at and what signals that a company's finding success and that demand's coming in from investors. And so when you start to look at all those indicators, then you start to see stress in the market and you see how all of these equities and how all of the management teams are gonna respond to that. It tells you a lot about what the near and midterm future could be. So it's been just fascinating all around. For probably the last two, three weeks, I think I've seen as much interesting activity as I've seen in a very long time. And the longer we get, the uncertainty, like what we're seeing at this exact moment out there in the markets where there's just weakness all over the place and uncertainty and volatility everywhere, it's going to make sure that we're anything but bored. You know, there's a lot to do and these are the times. You know, one of the things I think a lot of people always ask is like, well, what do you do day to day when you're running these treasury companies? And Jeff, I think some of the things you just mentioned is a huge amount of it, right? You're out there, you're going to these exchange and these broker dealers and you're advocating for your securities. You're trying to bring awareness to these other platforms to list them. You're trying to get in front of the investors and start to educate the market around these products. You're trying to figure out what the right structure is for products. You're envisioning new product. You know, you're doing all kinds of stuff. So the slow times, you get really busy when the markets are hot and everything's going, you, you can narrow in and you focus on the operations at that time. But when it slows down, you know, the activity outside of the day to day capital markets activity just really, really ramps up. So it's been one of those really unique Q1s. It was incredibly action packed. And I don't think Q2 is going to be any slower. I mean, we're, we're looking at a lot of turbulence here and you know, that's going to create a lot of activity.
- [19:55]
Jeff Walton
Yeah, yeah, we'll just emphasize a lot of thinking, a lot of communicating, a lot of, you know, pushing the envelope, seeing where opportunity is, canvassing the market, talking with investors. Like these things don't trade. You know, the strategy doesn't stretch doesn't trade $500 million a day, they're doing nothing. Like our instrument doesn't trade 10, 20, $30 million a day, we're doing nothing. We're out there constantly canvassing the market.
- [20:22]
Ben Workman
Yeah, I mean, luck is not really a factor to these.
- [20:27]
Jeff Walton
Right? You.
- [20:27]
Ben Workman
You have to go out and you have to create your own luck in these markets. You know, and we look back and, Jeff, you and I were talking about this not too recently where I brought up, you know, every single action we've taken, we've never once yet gotten an assist from bitcoin. It's always, always nuked. Every time we had anything going, when we had the IPO for SATA, it nuked. As soon as we put out the acquisition with Semler, it nuked. As soon as we did the follow on, it nuked. As soon as we got into our record dates, it nuked. Like we've never once yet gotten an assist from bitcoin. But what it shows you is that you're not stuck no matter what the market's doing. Right. If you're out there and you're having these conversations and you're finding the right strategic investors and you're working with banks and you're pushing them to be creative and you're pushing on the lawyers and having them be creative and come up with structures, and you just find ways to get things done. Right. Not doing anything is not the answer. Right. These are the times where you get to separate yourself in the market. And you have to do that by pushing as hard as possible and going out and creating your own interest and educating people on the products you've got out there and finding new structures for them and finding ways to build new adoption, that's going to have a long Runway for you. And so when you start to see success out there in the market, it's not accidental. Right. That's months and months of work. And it's people behind the scenes, some of the unsung heroes of this entire industry. No one ever knows who they are, but there's such a huge infrastructure behind all of these companies that are out here operating on a decent scale that are pushing, they're pushing the boundaries everywhere. They've got specialized knowledge, they're outworking all the connections, and it's a huge, huge lift. So it's one of those where you get the opportunity to create your own path here. And as soon as we do get that assist from bitcoin, and it starts going the other way. These are the cycles Bitcoin goes In, you don't get to tell it to go up, but when it does, I think we're in for some fireworks here. So I'm pretty excited for that time in the market.
- [22:37]
Jeff Walton
Yeah, luck is where preparation meets opportunity. Exactly. Okay, we're going to shift gears. We're going to talk about MSTR balance sheet strength. Just a refresher of where we're at. We're going to breeze through this. Sharing my screen here, MSTR financial leverage. Let's just look at the company from the top four. 126 Bitcoin held 762,000. Bitcoin price when I did this was 67,000. I think it's now 66, 800. Let's just plug that in. Update here. Bitcoin assets held on balance sheet. They've got about 51 billion 2 1/4 USD reserve, $8.2 billion of debt, $10 billion of preferred stock net capital. They have $44.9 billion of net capital. This is backing out the debt. The annual preferred dividend payment is about $1 billion. And the net capital, if you were to take this 44 billion, almost 45 billion divided by the pref dividend payment, you've got 44 years of capital to cover the dividends. So their leverage ratio 11.8%. Incredibly healthy. The coverage multiple 2.9. So this is just showing the assets, the bitcoin assets plus USD reserve divided by the preferred stock plus the debt. And for the bitcoin price needed for the assets to be less than the debt on the balance sheet is 10,535. So an 84% drawdown in order for the assets be worth less than the debt. So when we're looking at health of a balance sheet here, again, completely different place than last and historic bear markets. When you're looking at November of 2022, strategies leverage ratio was 130% and they had $2 billion of assets on their balance sheet and $2.7 billion of debt. So we're looking at just a completely different company that's incredibly strong based on their financial position looking today. Okay, now I'm going to shift gears.
- [24:32]
Mike
I just want, I just want to chime in for one second here. 6 times 130 right? Is, is what? 786 times 6 times 130,000 is 780 is my math right?
- [24:49]
Jeff Walton
Yeah, yeah.
- [24:50]
Mike
So they have done November of 2022 is really close to the beginning of 2023. So 23, 2425. Sorry, 2324 25. And then 26 from the beginning. So in three years, they 6x'd the amount of bitcoin that they have. And I think that we just glance at this and if you would've asked me, if you look at January 1, 2024, they had 189,000 Bitcoin. If you'd say to me, oh, how do we feel about strategy? Are they going to break a half a million bitcoins? That's where I always keep on saying counterintuitively on X, they're able to acquire more bitcoin when the price is higher. And they had the second best quarter ever of acquiring whatever, 89,000 bitcoins. And so when I look at these numbers, I think sometimes we just, I think we gloss over them. And you look at your row 30, your debt to asset ratio, 130% at the bottom of the bear market, right? And now it's 11.8%. It. That's gone 1 10th, right?
- [25:55]
Jeff Walton
Correct.
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Mike
So it's gone the correct way by a factor of 10x, which is an order of magnitude. And they've almost got basically, you know, it's possible they can get to 1.3 million bitcoins by what, Q1, Q2 of, of 27, which will be a 10x in bitcoins. And I think that that's just, I just think that these are, they're real numbers because we're just looking at historicals and at the rate they're going, there's nothing to think that they wouldn't be able to do this. I mean, so how would you feel about a company that has one and a half million bitcoins in a year from now?
- [26:32]
Jeff Walton
They're going to do it whether you like it or not.
- [26:34]
Mike
Whether you like it or not now. And so we'll look back at this and be like, you know, anyway, so I look at these numbers and I think, I try and think of multiples. And I did want to just do a quick digression back to that post that I did comparing stretch and SATA. So congratulations for you guys hitting your peg. I think that is awesome. And so when I wrote that book about bitcoin treasuries, it was about efficiency. And that's how I look at this. There are multiples. I can compare strategy against itself. The preview, this is what you did here, Jeff. You compared the previous bear market, November 15, 2022, to where we are today. And we're in another bear market. Except this bear market, we have six times as much bitcoin. Right. And we've cut the debt to asset ratio by 1:10. So again, this is your math, this is great. And then when I looked at you guys comparing Stretch to Seda, it's a two horse race now. And this is what I was always thinking with the bitcoin treasury companies was if the smaller bitcoin treasury companies, right, if, if you do things right, then people say, you know what, I'm going to invest in the smaller bitcoin treasury company because their ratios are about the same as strategy. If they are. But I can now put money into this because it's smaller. And that was that efficiency that you guys traded seven times as much volume given the, that you have so much less bitcoin. And that's the way the bitcoin treasury companies should have been structured. That's the efficiency and that's having your multiples in shape. Clean balance sheet, very little debt or no debt and cash to pay the prefs on hand. If I, if we would have said November of last year, I don't know when you guys announced your cash position but before strategy did this because it was only in December and now we're in April. Oh, strategy is going to get two and a quarter billion dollars in cash. If you would have said that up until whatever December 15, people would be like that's crazy. But they did do that. And now we're in a completely different regime that they have whatever they have basically 24 months of payments. So when I look at these numbers, everything is different than what it was even four months ago. And so I think that people should realize that. And I think what, what we're seeing here is I think that Stretch and SATA, I think that as the biggest problem that's going to happen with these two products is that as the Sharpe ratio, it's running four. Right? It's a Sharpe ratio of four. I know, we're going to talk about it later. It'll be too good to be true. People be like, how do you have a sharp ratio and something that's pain more than 11, 11 and 12% a year? And people will be like, well that, that, that, that, that's just wrong. So thank you for putting this together.
- [29:24]
Jeff Walton
Yeah.
- [29:25]
Mike
And why did you pick 11-15-2022? Was that the dead bottom?
- [29:30]
Jeff Walton
Yeah, I think that was near there. I don't know, I think I just picked a date of like 16,500 or something like that. Yeah, pretty close to the bottom. Yeah, pretty close. I think you bring up a really interesting point. I mean, yeah, you look At Strategy's balance sheet or their market cap, they're what, a $50 billion market cap and they've got the, I don't know, $10 billion of pref outstanding. We're at $700 million market cap and we've got 427 million pref outstanding. So it's like the relativity and the trading volume, it's fascinating. Like they're very interesting numbers to compare and contrast.
- [30:05]
Mike
Yeah. And by the way, when you look at these multiples. So the bitcoin did, did a 6x or almost a 6x, but the BTC assets in millions of dollars did a 25x.
- [30:16]
Jeff Walton
Yeah.
- [30:16]
Mike
From 2 billion to 50 billion. Right. It did a 25x. And you're like, and so when you look at some of this and, and you see, you see some of his commentaries on, on X and I can be aggressive with them. It's like, oh, well, what was the purpose of strategy acquiring $50 billion worth of Bitcoin if it trades less than the market, less than the acquisition price? You see this all the time. And to them, like, what was the benefit? Well, they went from being a, whatever a one billion dollar company or a 500 million dollar company to, to a $50 billion company. And that was the reason why they did it. So I think these numbers, I think people don't realize what they are. And the difference is that when you do a spreadsheet like this, you understand it. So that's my only point. Thank you.
- [30:59]
Jeff Walton
Absolutely. Absolutely. In being conscious of time here, I'm going to shift gears. We're going to jump to the Fed, talk a little bit about the Fed. We'll get into Sharpe ratio portfolio theory, just how we're thinking about some of these assets. Bring Mason, Dan and the rest of the team in. But there is a very fascinating paper that came out from the Fed. This came from, I think the guy's name is Steven mirren and it's federalreserve.gov you can go check it out. This paper is up there. I highly suggest everybody to go download this paper, plug it into your favorite AI and just go ask questions about it and work with your artificial intelligence to identify how this may impact how you view the marketplace or how like the world works. Because you think about the Fed. What is the purpose of the Fed? And I've got my notes here. The, the purpose of the Fed, the mandate of the Fed is max employment, stable prices and to moderate long term interest rates. So they control monetary policy. So if the Fed is making any changes or moves. If you're interested in anything related to money, you should probably have an understanding of what the Fed's doing. So that is my explanation for people to go pay attention to this. Additionally, as time has changed, thinking after the great financial crisis, there was a kind of second and third order effect of the Federal Reserve. And that was to reduce frequency and severity of banking panic and financial crisis and contain systemic risk and include being the lender of last resort. So this was a result of Dodd Frank, some of the regulation and legislation that was put in place after the great financial crisis. And you can kind of see this outlined here. So, right. We've talked a little bit about there's a new Federal Reserve Chairman on the horizon. I think Warsh is going in front of the Senate Banking Committee sometime in April and gets appointed potentially sometime in May. I think Powell's last day is middle of May. And this paper is a 53 page paper about. Here's an a la carte menu of all the things that we can do on the horizon. So if you're curious about what the Fed may do here in the future, this is it. Pay attention to this. So this, what you can see on the screen, this is the balance sheet of the Fed over time. So looking back 2005 to 2025, 2026, and what you can see here is there after the great financial crisis, the balance sheet of the Fed increased dramatically. So the Federal Reserve was buying assets and they were accumulating assets on the balance sheet. They were buying all the crap that nobody wanted and they were accumulating these assets on the balance sheet to help prevent financial crisis. And that ended up starting this new regime of what the Fed is into the future. What they've said here throughout this paper is that the plan moving forward is to reduce the assets on the balance sheet. And you can kind of start to see this happening over time. If you look on the right side of this graph, they want to reduce the assets on the balance sheet, effectively quantitative tightening and loosen banking regulations to allow banks to take a little bit more risk, which effectively gives the Fed a bit more capacity for a future financial crisis so they can provide tail protection for the market again. And so it's been fascinating kind of digesting this and reading it and coming back to it and thinking about it. But there's a few changes here. So they're thinking about, okay, quantitative tightening. They're going to release these assets off the balance sheet that should impact the market. However, there's talks of doing this with a rate Reduction at the same time. So you can reduce the assets on the Fed balance sheet and do a rate reduction at the same time. Same time. And kind of have, the goal is to have a net neutral impact. And then this also, again, gives capacity for a future crisis. So the Fed could step in if they needed to step in. And then on top of that, loosening banking regulations. One of my biggest takeaways through this entire paper is that I feel like the Fed's job is very tricky. I feel like they're trying to balance a feather on a thumbtack. Like, you know, one gust of wind, everything's wrecked. And you go look through, through here on all of these different things that they could do. Complicated acronyms, different second and third or third order impacts everywhere. Like, you change one thing, it changes everything. And then you've got all these different options that they could, they could, all these different things that they could do and each one impacts the other. So you'd think that they're probably using advanced analytic tools like these intelligence models that we're using, but they're just models. They could be wrong and they could miss the reality of how people may react to things in any one circumstance. So anyway, it's just a fascinating paper, really encourage everybody to read it. Actually, I didn't even read it. I just plugged it into my AI and I interacted with it. So it was much easier to consume and digest that way. But I know, Mike, you've had a chance to take a look at this and you've experienced the GFC a little bit more firsthand. I mean, what's your thought on this? What's your takeaway here?
- [36:17]
Mike
I think it comes down to second and third order effects. So first of all, it's a framework and I read through it and I think that a couple things, they wanted to get this out before Wash came into this before if he gets elected to lead the Federal Reserve. And so with that, I think that they're going to study this, they describe this as a slow rollout and they're going to go for stability. And I don't think that they really, it's really hard to guess what's going to happen. And then if you combine that with the unpredictability in the markets, and there was a clip of Jerome Powell, I like you said, it's like balancing a feather on a thumbtack. I, I this is not easy because you don't know how the banks or the people that are going to trade this, you know, when you make these changes And I think that's the hardest part. And, and anyway, that, that's the way that I look at this. I, I think that they do need to make changes because what happened was one of the key goals was they want to get rid of the, not get rid of, they want to reduce the repo facilities for the banks just looking to make money off by parking money at the Fed. Like if you have loose monetary and people and banks are not lending, so that's where the repo facility comes in. So the Fed juices the market, the money goes to the banks, the bank can't lend it out fast enough, so they park the money back for the reverse repo back at the Fed. And it's like it did not do what it was supposed to do. And so from that perspective, like for instance, money velocity, we saw that that dropped even though they increased liquidity. And the whole goal of increasing liquidity was to have more money velocity, how many times it turns over. But if you're parking the money back at the Fed on the reverse repo, it's not doing its intended goal. The bank is just profiting from leaving it there. So I think this is really tough. There's no easy answer here. And then how does it play out?
- [38:13]
Mason Ford
Jeff, can you, can you just scroll, can you just scroll this like just, just, just go down and, and I want to quote, I took, I took a picture of this slide and this is from, from El Salvador. And I want to quote safety in a Moose. All fiat economics is an elaborate excuse and a cover up for inflation. That's that, that's, that's what this makes me think. When, when, when you're looking at all these apps, acronyms and then on the slide he goes, why does the money supply need to increase? Question mark0 Good answers. Austrian economics makes you understand what is going on and leads you to hold hard assets which protects you from inflation. So yeah, I mean we could spend all day looking at this, but at the end of the day it's an elaborate excuse to print more money. And we all know that's ultimately where all of this ends up. And that's why we're in Bitcoin. At least that's why I'm in Bitcoin.
- [39:20]
Jeff Walton
Exactly. That's why we're here. That's why we're here. And one of the fascinating parts is so the Fed can't regulate the banks, but I think they can. Congress, I think Congress regulates the banks, but the Fed has some tools that impact how the banks treat reserves. So there's like a pseudo regulation that exists there. And if, if the whole goal of this is to reduce reserves on the Fed's balance sheet and allow banks to take more risk like that, that's, that's the incentive structure is not aligned with everybody else. Like the banks are going to, they're going to take more risk. That it just puts us back into a situation where we were at previously. And and so I was looking at past times where there's been quantitative tightening. There were multiple Times. It was 2019, there was a liquidity crisis. 2023, there was a liquidity crisis. Basically the Fed took it to the brink of reducing their balance sheet as much as they could and it ended up resulting in a liquidity crisis that needed to be addressed as quickly as possible. So the only way to get around that is to loosen how reserves are treated on banks balance sheets. But yeah, it's a great point, Mason. I think that's hits the nail on the head. That was my biggest takeaway is like, this is a lot of words, this is a lot of words to say, yeah, we're just going to step in if the market freaks out.
- [40:45]
Mike
Yeah. So I wanted to chime in. So what happened was I wanted to figure out, because Jerome Powell made the comment that they no longer look at money supply. And so I was like, well, this is kind of odd because Milton Freeman at Chicago School of Economics, what happened was. And the timeline's important. So in the 1950s to 1970s, this is when Friedman was Milton Friedman, the economist. Austrian economics was more dominant. And what happened was that's when it was monetaryism. Looking at the monetary supply. In 1979-82, Paul Volcker began experimenting with money targeting. But it did not work to control inflation. Basically from 1982 and onward, that's when they started doing yield curve control. And they switched from looking at monetary supply as being how do we control this with interest rates? And that's when it basically took over. And then you bring in Alan Greenspan where it brought it to the next level. And so what you see happens, it's like if people are like, well, how does money change? The dollar bill may be the same, but how it's controlled through interest rates versus monetary supply. So now they don't look at monetary supply for the most part. They look at these yield controls and then that's the purpose of this document. Again, it's like these things change and then they roll out over time. And then when you look back at the history, like, oh, they used to look at the monetary supply. But then they, then they stopped because inflation got out of control and oh my God, when did inflation get out of control? During the oil embargo of 79, which, which caused interest rates to go to whatever. 16 people were getting 30 year interest rates for 30 year mortgages at 15, 16%. But somebody will say, oh, grain, you're a boomer. No, I'm Gen X. But when my parents bought a house back then when I was in kindergarten, the house was $40,000. So things were a lot different. We didn't have $39 trillion in debt. Anyway, with that said, these things are important. They roll out over time and, and when you combine it all together, you know, that's how you figure out where things are going. So things do change.
- [42:58]
Jeff Walton
Nothing stops this train though.
- [42:59]
Mike
Nothing stops this train still going. And even, even if you get rid of, even if you get rid of the yearly deficit, which is not going to happen because it's $1.7 trillion that does not get rid of the $39 trillion debt, that's still there. You have to pay the interest on that. It's the second largest payment. We keep on beating these in every week. But anyway, nothing changes that. But continue. Yeah, so that was a good paper.
- [43:24]
Jeff Walton
This is a great segue. Yeah, this is a great segue. And we'll talk a little bit about our website here and we'll get into Astro North. We'll get into this first question. Let's talk which hits on some of all of these topics. But first off, let's hit on an event. We have an upcoming event, True north networking event, Bitcoin Vegas. This is on Tuesday of the Bitcoin conference out in Vegas. It will be held at Gatsby's. Again we have 100 slots available and the tickets are $50 for the first 50 and a hundred dollars for the second 50. That just supports us to help break even on this event and look forward to seeing everybody there that's going to be there. We also have a Bitcoin for business event coming up in May. We will talk more about that later. The quick update. There's also we are putting together a recurring series called the Weekly Signal. This is in Analysis and commentary under the Research tab. Please click subscribe if you would like to get email spammed this once a week. This is not a fee, it's just a subscribe if you want to follow along to everything we got going on and we try to summarize all that information there in one direct location. But continue to point out that we've got articles all coming in here. If you want just one place to look for, for all this information, it will all be there. Cool Shifting. Next we've got this new section, Ask True North. One of the biggest and most hit on topics or the questions here is could you ask presenters to discuss optimal allocation strategy of Strive fund strategy and Strive funds and portfolio selected percentage of the funds and optimal addition and how you adjust the allocation. Okay, so so many topics in this one question. Sharpe ratio, portfolio optimization, age, interest return metrics, volatility, type of assets, the world of assets. What's the point of holding a stock? What's the point of holding credit? What's the risk profile? All of these things get, can, can be covered within this one question. So first of all I'm going to start with just thinking about portfolio theory and capital structures and we'll dive into this bit and I think Ben, you've probably got a really good perspective on this given your, you know, families, some of your family's connections. But so thinking about portfolio theory, portfolio optimization, different assets have different risk return metrics. If you have, if you're looking at optimizing portfolio, this is a, this is a Nobel prize winning theory. If you're interested in this, go look up Marco. It's modern portfolio theory. It's the, the mathematics behind diversification. It means if you have different portfolios, different risk return metrics, if you add different instruments to a portfolio, it can increase the return and reduce the risk of your portfolio. Now if you're thinking about duration, how long do you hold these instruments? Now that has an impact on how much risk and volatility you may be willing to hold in your portfolio at any point in time. If you've got a longer horizon before you need to access the capital, you would theoretically want to be taking the high volatility assets with the highest return potential or having a heavier weighting distribution on that front versus if you have a lower or shorter time horizon, you want to focus towards shorter duration assets with less volatility if you need that money in a very short amount of time. Now this concept in theory applies to every corporation, every person, everybody thinking about cap capital allocation, capital optimization, for example insurance companies, you think about like liability profile of curve of liabilities you got to pay out in the future. I need my assets to be stacked up and matched perfectly to that so I can optimize for the best risk return trade off. So one of the stats that's available on all instruments is a sharp ratio and this is something that strategy has continued to hit on very a lot with strc. The Sharpe ratios. How many units of risk volatility are you taking on for the yield that you get on a certain or specific instrument? So that's why pointing towards a higher, a higher Sharpe ratio is theoretically you're taking less units of risk per unit of yield. So when you think about where I plot that in the world of assets, typically assets with higher Sharpe ratios are a better allocation to your portfolio to help increase your return and reduce the risk of your portfolio. So it's these instruments, as the volatility starts to dampen over time, they start to become very interesting portfolio allocations that reshape your efficient frontier of risk return metrics and can alter the, the trajectory of the math associated with it. So I'm going to pause there, toss it over to you guys. Sharpe ratio portfolio optimization. What are you guys thinking?
- [48:18]
Ben Workman
I actually start far more fundamental because I think for most people they actually probably never get to that level. When you think about how people are investing for their futures, a lot of times it goes on these autopilot programs. And I don't think there's a lot of deeper level thought there. But you know, there's a reality out there with where everybody's situation is so drastically different that the way you're going to structure a portfolio is going to need to be different than the way I structure a portfolio. So for instance, coming out of college, you know, you're just getting into the workforce right away. You've got a lot of expenses that are coming up. You've got to spend a lot of time focusing on building the foundation of your portfolio, right? In the early true North, I used to always talk about this about build the base. Never risk the base, right? And then you can take risk from there. I think that's incredibly important. I always say in the first 10 years, once you get out of college, you should be hyper focused on building that base and putting away as much money as you possibly can. Because if you are really aggressive in the first 10 years, you get to maximize the compounding effect and it's overlooked by a lot of people. A lot of people will play the catch up game, right? Well, I'll start putting in more later and later in my career when I'm making more money. The most valuable money you can put away is early on and to your point, Jeff. It then depends on what your risk tolerance is. Is this money you might need or is this money you definitely don't need until you're going to be in retirement age, that changes the way that you would allocate those. I can't skip past digital credit as a concept in here because I actually think it's very disruptive to this entire model. And the reason I think it's so disruptive to this entire model is that originally what you would put digital credit against would be the fixed income or the bond portion of people's portfolios. So normally what happens would be earlier in your career, while you've got a long timeline, you've got a salary, you have income coming in, you don't need the investment capital, you would go further out the risk curve, you'd allocate out into equities because you can take that excess risk to get bigger returns during that portion of your career. As you shift more towards retirement, traditional FAs would tell you, you've got to now rebalance your portfolio. You need to start taking less risk, allocating more to the fixed income portion of your portfolio as you prepare for retirement, where you need to live on those assets. Now, what's happening is if you look at products like STRC and SATA,
- [51:02]
Mike
while
- [51:03]
Ben Workman
we initially were always talking about these products through the lens of fixed income vehicles and competing with the fixed income market and having that be kind of the TAM for these products, there's an interesting component to this which is that the yields on these products are better than equity returns, right? So if you were putting equities in your portfolio, you would go and put the S&P 500, you put the Qs, you'd put, you know, all the standard funds in there. And that would kind of be the core portion of what someone's retirement portfolio would look like. And when you're doing that, you know, you're targeting an average return of 8, 9, 10%, right? That's what you're hoping for out of those types of funds on an average over time, right? You're hoping to average that well. Now you've got these new instruments with an entirely different risk profile to them. And obviously they're young, but they're disruptive because they're providing higher annual returns just through the dividend income than you're getting in your equities portfolio. So now there's a new option that people have which is I might not need to transition my portfolio at all because I'm getting equity returns. And if I don't need the dividends, I can reinvest or reallocate the dividends to something else. And then when I slide into the retirement portion of my life. Now I've got the fixed income and I can live off those investments, right? So they're these weird blended vehicles. And so I think we actually have done ourselves a little bit of a disservice early on talking about these as only really targeting the fixed income markets because I actually really.
- [52:39]
Jeff Walton
It's the entire equity market, it's the entire equities market.
- [52:42]
Ben Workman
And when you start looking at what's happening now, right, and you go out and you look at the futures and they're nuking like crazy right now. There's so much volatility out there that people are having a hard time stomaching it. We're as far out the risk curve as you can get in a lot of our portfolios. Although now I think a lot of us have actually reined in. Look at all the time we spent talking about fixed income products. But we got comfortable with the bitcoin risk and the volatility in bitcoin and that's a different feeling. A lot of people can't stomach the volatility in just their standard equities portfolio and the world's gotten really uncertain. So the volatility's ramped up across these entire portfolios. And now even during these periods of volatility, you're seeing these instruments providing equity plus returns and tax advantage structures that are holding stable prices. The volatility is compressing. That Sharpe ratio is going up. So I actually think these are revolutionary products for a portfolio because of that unique structure that's out there. You don't find that everywhere else. If you wanted to get a 10% plus return, you had to slide so far out the risk curve. You had to be off in the tech sector and well, that's anything but certain these days. We've been watching that all the big names start getting disrupted. All these new products are coming out, right? There's anything but stability there. Cash flows are under attack. With all the innovation happening and all the AI tools coming out, you're not certain how strong future cash flows are. Which starts to bring into question your PE ratios out there. Are those PE ratios significantly inflated? Because there was this unfounded belief in the future cash flows that were going to be coming in the future earnings of all these companies. Is that as certain anymore? Is there an adjustment that has to happen to the broad PE ratios? The markets are changing and it's calling into question very interesting portfolio construction ideas. It's changing the way that you have to look at those. I think we're just in this really Unique point in time now where these products are emerging, they're still in the battle testing phase. Obviously. Obviously you have to have the belief that bitcoin doesn't disappear. Right. Which is the same risk you're taking with a company as well.
- [55:05]
Jeff Walton
Right.
- [55:05]
Ben Workman
You're planning on that company being around, not getting disrupted, not getting pushed out of business. Same risk profile there. You're seeing all the mega players come in, Morgan Stanley's coming out, they undercut everyone on fees on their new Bitcoin etf, which certainly is not an accident. Right. They're not playing to be second or third. So I think there's no mistake of for why they undercut ibit. And so now you're starting to see all these traditional financial institutions get heavily involved with an incentive structure that leads them to support this area. So you start to feel more comfortable with the risk profile of bitcoin. And if you feel more comfortable with the risk profile of bitcoin, you start to feel far more comfortable with the risk profile of the preferred equities. And so we're in this transition period now that I think is going to change the way people think about their portfolios. I also think that there's a bit of a second effect here for products where the return is not just shown in like the price of the stock and the total value. Right. There's a different feeling that people get when a dividend payment comes in, feels more familiar and the more frequent they are. Right. Like there's almost a calming effect to that when you start to see it coming in month after month and week after week. And so it's just, it's a unique structure and a unique product to fit into a portfolio that I think is going to change portfolio construction here over the next, you know, two, three years where this could be a core base allocation within a portfolio because of the equity returns, the tax advantage structure and the fixed income component to it.
- [56:47]
Jeff Walton
Absolutely. People are used to income. Just broadly, you don't have to make a decision. If you're in a position where you don't have to make a decision, that's far easier. And one thing you said at the very beginning here, Ben, is I think valuable to think about is your time and energy is also an asset. So like, if it, you can think about where do you want to, where do you want to spend your time and energy? Like, for me, like, I resonated with what, how you explained that. Because early on I built a base foundation, I got rid of the debt on my balance sheet, I cleared my student loans and I built a base and then, and then over time I started taking riskier bets with riskier assets because I was like, I don't want to work where I'm working right now, so I'm going to go riskier gear. And if I can get an even larger base, build that base even larger, then I could take more risk in my personal life, which is what I wanted to do, take more risk with my energy and time. And that's ultimately how I've kind of landed here today, which is an interesting way to think about it.
- [57:48]
Ben Workman
But yeah, risk is a luxury and it comes with that early planning, right. Not everyone has the luxury of being able to take risk. So you have to stack the deck in your favor and be willing to sacrifice a little early on to put yourself in the position to take the swings that make the difference. Right? Everyone that's on here, that was all part of what happened, right? We all had high conviction. We'd all put ourselves in positions where we could take big swings and then we took big swings and that's how this happens. But for a lot of people, there's an acknowledgement that not everyone's gotten to that point. You're still dealing with student loans and you're dealing with car loans and mortgages and all these things and wages, not keeping keeping up cost of things, which is taking away the amount you can put into your investment accounts. Right? Like, there is certainly that type of a crisis. But I think that's why this type of education early on is so critical. Like, I have no doubt that, you know, Mason and Dan are going to be richer than all of us. Like, they got the foundation, it clicked for them way earlier than it clicked for, you know, any of the rest of us. Like, so in that having that time in front of you is such a valuable tool, particularly when you understand all these different concepts and put that structure in place to let you go a little further out that risk curve to try to get those higher returns over time that compound.
- [59:13]
Jeff Walton
Another really fascinating thing that's evolving here is that if you wanted to live in an entire bitcoin denominated ecosystem and just disregard the other equity world, you could, you could take different risk return volatilities across the bitcoin ecosystem. And I even pulled together an illustrative example based on some example risk tolerances, if you've got these are purely illustrative. None of this is financial advice, but looking at different color schemes here, high volatility, bitcoin equity, bitcoin, bitcoin backed digital credit, traditional cash and Treasuries. Now the typical bitcoiner that thinks the entire world is going to collapse is going to disagree with all of this stuff. But that is a different mindset. But this is a perspective that you could have on a portfolio allocation depending on your risk tolerances, having different exposure, depending on different points in time, depending on how much time you have towards your horizon of when you want to use those assets, that this is what a typical framework would have been historically. Something, something like this.
- [60:19]
Mason Ford
Jeff, can I, can I hop in here?
- [60:21]
Jeff Walton
Absolutely.
- [60:22]
Mason Ford
Because you know I kind of deject the traditional notion that volatility is risk. Right. Like for example bonds, bonds are not very volatile but for Dan and I they're incredibly risky. Right? Like imagine us holding, holding a 30 year bond. Like it should be illegal for anyone under the age of 60 to hold bonds. But yeah, from my perspective, I'm a young bitcoin maximalist and that's how I'm viewing my own portfolio and how I'm viewing the world. And I also like another factor here and, and Jeff, you, you, you touch on it. But is, is counterparty risk. Like that is a, that is a very, that's a very real thing. And this reminds me of Dan, Dan and I's presentation in, in Strategy World which is coming out shortly. But we, we put a, a chart that compared the S P and gold and I think from 2000 gold has outperformed and gold is a bare asset. You know, that's something that you could have just had in your basement and every night you could have said, looked at it and said nope, it's still gold, it's still there. It's, you know, and you could have done that for decades and you would have outperformed the S P. And you know, the S P is a far more dynamic, complex, obfuscated system where you really don't know what risk you're taking. There's no way to fully comprehend that. So bitcoin allows you to eliminate counterparty risk. Of course you're taking personal risk and that's scary as well. That's why I think there is room for both. And that's how I think about my portfolio is you do want to eliminate counterparty risk because there's a long duration. Like I, I plan to live for a while and I, I only see kind of the entropy or chaos in the world increasing unfortunately as there's these forces of populism, technology, technological disruption, multipolarism. And I think, I think that's the word around. Yeah, yeah, yeah, yeah.
- [63:02]
Mike
Around the world.
- [63:02]
Mason Ford
Yeah.
- [63:04]
Jeff Walton
Polarized.
- [63:05]
Mason Ford
Yeah. So, so there's just, there's a lot of chaos. So I do think like for me the foundation is bitcoin bear asset and I don't view that as risky. Yes, it's incredibly volatile but I want to embrace the volatility because I'm young, I'm making a cash flow and I don't need the cash right now. Now I'll move on. On the equity side, I'm looking, I'm just looking at equities denominated in bitcoin. Which equities are going to beat Bitcoin? The equities that have more bitcoin over time. Right. How do you beat bitcoin? More bitcoin? That's like the iconic Michael Saylor quote. And, and then finally I, I think for short term cash, something like if you are holding money for taxes or, or if you are, you have some cash that you're going to need to access in under probably four years, then something like Stretch or SATA is extremely attractive and it can fill that role which otherwise hadn't been available until, you know, eight months ago. So those are incredible products that I can now utilize as a part of a, a broader strategy.
- [64:21]
Jeff Walton
Yeah, it's all, it's all dependent on perspective, perspective, time horizon, your, your age, your understanding of the world and like where you want things to be and where you want to be, how much risk you want to take on in different places. I mean, I agree with you. I like, I view bitcoin as not risky, it's volatile. Yes. But I view it as savings. So it's like we view that world that way. But if I go talk to some of my old colleagues in the insurance world, they don't. So you got to meet them where they're at. And I mean these new design of these securities provides that framework for their ability to digest it, which I think is fascinating.
- [65:01]
Mason Ford
And one last point and Ben touched on this is I think equities in general are becoming more volatile as there's more disruptive technologies and that I think that is a systemic change in the equity market which I don't think it's a coincidence that digital cap or digital credit is coming in at this time of increased volatility. And I think this is the main catalyst to, to you know, that that disruption will, will force allocators into looking at alternatives.
- [65:41]
Jeff Walton
100 yeah, completely agree. I now I think this next topic ties all of us together like Fed Sharpe Ratio Portfolio Optimization, allocation, etc, what is the point of holding an equity? Question mark? Anybody take it like what's the point? What's the point of holding an equity?
- [66:04]
Mike
So the classic term that we were, that we, that I would describe it as and, and also Josh Mandel, welcome him back to to X was an equity, a non, a non dividend paying equity is the fact that it should be based upon a future claim of cash flow of the company, but it doesn't actually have a claim on it. So the stock, if the company makes more earnings per share then in theory the value of it would go up or you'd have a PE expansion. That's the way I would look at it in the traditional sense on Bitcoin. Treasury company for strategy MSTR would be I'm betting on the equity of the company based upon the future appreciation value of Bitcoin. That's the way I would look at it.
- [66:53]
Jeff Walton
I was aiming for this question to be philosophical because how did we get here? How did we get to this world where there are however many equities? You could go buy any of them, you go buy any of these equities and people are just buying them because everybody before them bought them and they've got these portfolios full of them.
- [67:13]
Mason Ford
I've been thinking about this because like ultimately in, in, in the cultural zeitgeist of America it is known that you make your money and you put it in an IRA 401k and that money is going into bonds and equities. And I think that structure, it was, it was created by the fact that, that like, I think, I think intuitively maybe not, maybe they don't understand this, you know, like really, but intuitively they know that they can't hold cash because it's melting. So you, you, you need to, you need to add some risk in order for it to be inflation. And that's what you know, if you think the S and P is, is at what was it done, you know, 9% historically and inflation is 7% that, that allows you to tread water, whereas if you're not doing that, you're getting crushed.
- [68:21]
Ben Workman
Yeah, well you just have to think about how inflation trickles down to the companies, right? So if all the goods start costing more, that means they have to raise their prices every year to maintain just top line, bottom line. So revenues are perpetually going up, bottom lines are perpetually going up and raw dollar amounts so that inflation is just trickling down into the financials of all of these companies. And then as those financials show higher and higher figures for revenues and bottom line, the equities keep expanding with it. Right. So you're just hoping that the equity expands more than the debasement is during that time.
- [69:02]
Jeff Walton
Yeah.
- [69:02]
Ben Workman
And so it is all a system that's built on around that one fundamental understanding. I won't say understanding because I don't think most people actually understand it, but that one fundamental issue, which is the money's going to be debased. Where do you put it in? Well, you have to put it into something where that debasement is going to show up in something that generates value somewhere. Now, it doesn't mean it's real value. Right. If you go and take the s and P500 returns and you normalize it and you back out, monetary inflation or monetary debasement over that time, the M2 money supply, it's basically flat. It's done nothing. There's been no real growth, no real value driven out of there. It's almost all monetary or M2 money supply growth. So it's just interesting that you get conditioned that way because you just see these equities always going up as long as you own a basket.
- [69:59]
Jeff Walton
Right.
- [69:59]
Ben Workman
If you're spreading that counterparty risk you were talking about, Mason, you're going, I'm not going to be a stock picker, so I'm just going to take on a tiny piece of everybody's counterparty risk into this one basket, which used to be mutual funds, and now it's ETFs or indexes or whatever. And I'm going to put that into my portfolio. And this monetary debasement is going to trickle down and it's going to help the revenues increase, it's going to help the bottom lines increase. And over time, those equities are going to keep being more valuable. And you see that with that steady line that just keeps going up. Little blips once in a while when you get a black swan, but then it always keeps going up. And that's just structural because of the problem with the money. And that's why I think all of us have become so comfortable with Bitcoin, is because you realize the value of scarcity. Right. It doesn't exist almost anywhere out there. And so when you find something that's truly scarce, that is also designed for the world we're moving into. Gold was great forever. There's not really a big fight between bitcoiners and gold bugs. I think that's more sport than anything. We all see the same problem. We disagree on the solution for the future moving forward. Gold served well for thousands of years. It was great. But we're not in that age anymore. Now we're in a digital age and all the value is being created and transmitted digitally. And so you want scarcity that's native to digital rails. You're not living and just operating in some small community where you've got 200 people around you and you're all trading and passing currencies back and forth in physical form anymore. Right. The world has gotten global. It's flattened out so there's no more barriers. And so an asset like Bitcoin that has that ultimate scarcity but is also natively aligned to where the world is moving, that's the bigger bet. Right. We think we found the scarcity that's in the form that is functional for the future. I don't see gold as being functional for the future. Does it mean it's not going to hold value? No, it might. I'm not against people that want to hold gold if that's comfortable to you have at it. I don't think it's the right answer for where we're going. All you have to do is look at the last decade and go, do you think we're going to revert back to a more analog system or are we going to go more and more digital? Now you've got AI agents, people are giving them bitcoin wallets. They're allowing them to transact. There's no intermediaries. It's the only decentralized asset that's out there that they can utilize. Right. Otherwise they got to play with some crypto token with a central issuer that can change the supply, roll back the chains, whatever you want that doesn't function the same way as something truly decentralized. When you move into a trustless world, you don't want to have to trust anybody anymore. And so transmitting value on those rails only works with one asset that's going to be bitcoin. And so that's the new bet. Right. So we see that it doesn't mean the US dollar is going to get ripped out of the system. I don't think that's realistic, not probably in our lifetimes. And I think if it did, it would be catastrophic. When you look at how big like the credit markets are that are out there, like, imagine unwinding all of that overnight.
- [73:20]
Jeff Walton
Oh my God, no.
- [73:21]
Ben Workman
Everything denominated in the US dollar, you evaporate quadrillions of dollars of wealth out there and you just move on to a bitcoin like that's not realistic. There's got to be a transition.
- [73:32]
Jeff Walton
Yeah, that'd be.
- [73:32]
Ben Workman
Which is why the other reason I think that these digital credit products are so transformative is because it's providing the first time that you have an off ramp from the credit products that are denominated and held in US dollars. And you're now moving that into a system that's backed by something.
- [73:51]
Jeff Walton
Right.
- [73:51]
Ben Workman
It's backed by that scarcity that the bitcoin that's being held. And so it's providing an off ramp for the credit markets. And I think over time it's going to draw more and more capital out of those. As these weaknesses bubble up and start to show themselves in the market, it's going to become unavoidable. So I think there's a long transition period here, but I do think it's coming.
- [74:14]
Jeff Walton
I want to boil it down even more, which sounds crazy, but what's the purpose of equity? Why does it exist at its foundational form? It exists because the Dutch East India Company wanted to go raise capital, Right? It exists because a company in the 1600s wanted to go raise capital. And they're like, you know what? I'll give you a piece of my company in exchange for money today. And I, and I don't have to pay you back, but you get a piece of my company, if somebody's willing to trade it, go for it. But they like the whole entire purpose was to raise capital. Like, why do companies IPO the ipo? Because they want to go raise capital and go operate into the world. Go ahead, Mike. You want to jump in there?
- [75:01]
Mike
Yeah. So I looked at it from the investor's perspective, but what you're saying is 100% true from the company's perspective, so. Exactly right. What can you do? You could float a bond, right. You could take out a loan or invented the equities where you don't pay that back. And the benefit is that there's a secondary market for it where it could trade. And you're exactly right. And so from that, if you look at it from that perspective. Yeah, that's a. And that's why we talk about the difference between with the, with the capital stack and you look at the prefs and you look at the equities where they're in that capital stack. And then you look at bonds or for the converts, for strategy being the highest in the capital stack.
- [75:47]
Jeff Walton
Right?
- [75:47]
Mike
And so, and then, and then with the, with the converts, if they don't hit those converts, they have to pay either in. Either it converts or it's cash in stock, or it's all cash. And so go ahead.
- [75:59]
Jeff Walton
So, yeah, so we're operating in this ecosystem that's existed forever, right? It's existed for a really long time because a company in the 1600s wanted to go issue equity. And that actually created, oh, let's create a capital structure. Let's have equity at the bottom. And then if I have debt, I could. Everything that's operating and happening right now with strategy and our company and everything that we're doing is. It's all happened before. Capital structure has been around for a really long time. And I was just playing around here with perplexity, and I think this information is fun to share. Equity is an ownership claim on the net assets of a firm. Assets minus liabilities. Equity holders are residual claimants. They get what is left after all the debts and other fixed claims are paid. So thinking about this, a company issues equity to raise capital, but there's a claim on the residual assets of the company. Now, one thing that's fascinating, and this is where I'm trying to tie this all back together to where we're at today. Because historically, right now, today, the entire equity market is pretty focused on cash flow. And it has been for the last 40 or 50 years. And there was actually an inflection point and it was the 80s. Before the 80s, most companies had far stronger balance sheets. Most companies were balance sheets companies. And surprisingly enough, we go off the gold standard fiat liabilities rocket, and then everybody's really focused on cash flow because it's all about what can you do in the future? What can your capital do today? Can it, can it do in the future? Because you understood, I think naturally investors saw that the dollar was fleeting and I needed to go out into the future in order to get value as opposed to the value of a company that's existed today. So go ahead, jump in, Mason.
- [78:00]
Mason Ford
Yeah, and this goes back to why investors invest in equities in the first place. Corporations can short fiat cheaper than an individual can, right? Like, like, like they've got more money,
- [78:19]
Jeff Walton
they've got more money. They could short fiat because they've got a capital infrastructure. They're making more money than, than individuals are.
- [78:28]
Mason Ford
And I, I think, I think like something about the corporate entity, you know, it's, it's not an individual, it's a little bit more, it's, it's less risky in, in the eyes of, of a lender. And so 1971, you know, we come off the Gold standard. You're saying in the 80s did companies essentially take on more debt? It is, that's what, what happened there, there.
- [78:57]
Jeff Walton
So an explosion happened in technology as well at the same time. So you had more of a focus on quarterly results. Earnings per share became a term, return on equity became a term. And people were starting to like create these new mechanics and statistics based on all this data that was coming out that, that was novel, like new. It was, it was happening more often, more frequent. And then there was development of analysts that were starting to go figure out like what are these terms? Like what are the value, how do I compare these companies? And everybody was operating on the, on the same infrastructure structure. And then one other thing that I saw which is really fascinating because this was also an explosion in dividends. Dividend paying stocks started increasing and number of buybacks, buybacks started becoming more popular and obviously they've become very popular here in the last decade, 10, 20 years. Now the fascinating thing here is executive incentives. So executives, most executives throughout all of the equity market have very option, option heavy pay structures. So and they're all focused on earnings per share. So if you're focused on earnings per share, how do you grow earnings per share? It's like, okay, well if I, if I have good earnings and I buy back my stock, my earnings per share is going to go higher, I'm going to get paid more. So it's like a little bit of an incentive structure just based on how corporations became founded and became more popular. Executive comp started ballooning and exploding. It was shifting into option structure which challenges incentives. The board is generally aligned with what the executives are doing. They've got similar option type structures. So this incentive system has infiltrated and is everywhere in the existing equity market. And now you've got question marks on what future cash flows may look like. You've got potential volatility in any of these other equities. Yet all of that incentive structure and everything's still there. So it's just fascinating to unpack it and see how did we get here, right? Like a lot of people say like, like you mentioned the very beginning Mason, you get money, you put it in your 401k. You don't even think about it. 99% of people do that. Why do they do that? Because they do that because their parents told them to do that. Like if you can't buy a house, go just put it in your 401k or like invest your IRA. And why did, why do they do it is because their parents told them to do it or didn't tell them to do it.
- [81:39]
Mason Ford
So, Jeff, what's really fascinating here is that I think we've been living through on these periods in the past, since 2020, right. Since the bitcoin standard era. And all these metrics have come up like bitcoin per share and now the rise of digital credit. But going back to my point about companies being able to short fiat cheaper than an individual, that's like, that's why bitcoin treasury companies are important. And it's not necessarily because they can do it cheaper, but it's about duration. Now they can, they can, you know, short fiat at a fish forever.
- [82:26]
Jeff Walton
Yeah, yeah. More efficiently without margin calls.
- [82:31]
Mason Ford
That's the best trade in the world. And then you're buying the best asset in the world. And it's like, like, how many times can we do that?
- [82:39]
Jeff Walton
Well, it's a tectonic shift in, like how a global financial market could be structured. And I think that's the part that like a lot of people can't comprehend. This idea is huge. This is one of those ideas when it hits you, you kind of got to like walk around the room a little bit. You're like, oh my gosh, no way. Right? It's, it's just so big. Right. It's hard to wrap your head around. And you almost can't accept that. It shatters your entire reality of everything you've known. Like, that's hard, that's hard for people to do. Like shatter an ego. Really hard to do. And that's, that's kind of what we're living in right now. And it seems like every in everybody's got Amazon attention span brains now too. So I want number go up tomorrow. But the reality is we're living through this enormous tectonic shift in global financial markets that doesn't happen overnight. It happens by 10 people working in this ecosystem, then 100 people working in the ecosystem, then 1,000 people working in the ecosystem, and then 10,000 people working in the ecosystem. It's all, it just takes time to infiltrate, infiltrate out. I mean, look at me, like, I don't know, 18 months ago I was working in reinsurance. Now here I am, like having phone calls with investors and rating agencies and stuff about bitcoin. And I'm here and I'm going to be here for a long time. And I think there are others that are starting to like, I mean, look at you guys. Your first jobs are in the bitcoin ecosystem. Twelve months ago, you weren't working in this marketplace. And, you know, fast forward a year from now, and you're going to have three or four friends that were previously working somewhere else that are now working in the bitcoin ecosystem that just kind of keeps infiltrating its way because there's so much opportunity here, right? Like, Dan, your entire business model is a function of the press existing. The press didn't exist eight months ago. Come on, guys, this is it. This is the signal. This is the signal of everything that's happening right now. Now, like, right here. This is the biggest story in all of finance. I say it. I say it all the time.
- [84:52]
Ben Workman
Feels like it's one of those items, right, where I've always had this theory that everybody gets about five chances at something that's really big and transformative throughout their life, and your decision is whether or not you decide to take that journey or not. And that was one of the buckets I put bitcoin into. And the longer you're in it and the more time you spend on these structural issues, you realize how secure you feel in that bet, because you quickly understand that there's no way for them to unwind. What has happened. You can't put that genie back in the bottle now.
- [85:30]
Jeff Walton
It's.
- [85:30]
Ben Workman
It's reached escape velocity, right? Doge was kind of like the last attempt to see if there was a way to, like, stem the bleeding long enough to come up with something to stabilize. But you realize that the entire system's been built around this existing and continuing to exist. It's how you stimulate the growth in the economy. And so, you know, when you realize how structural that is, taking the other side of that bet, you know, if you're saying, will they print more money? Yes. No. Like, taking the yes side of the bet feels pretty secure. The other thing I was thinking about when you were talking about equities, Jeff, is it was kind of like, there's a lot of focus on tokenization right now. Equity was kind of the first analog tokenization project, right? It was taking an asset someone held, which was ownership in a business, and fractionalizing it so that they could unlock value out of that and transact it. So it was really like the first version of tokenization, you know, if you. If you really think about it. But what's interesting. And I had one of the partners while I was at kpmg. I was having dinner with him one night, and he had. He built and sold a business. And, you know, so I was just asking him, you know, advice about life and finances. And things. And he goes, there's only one thing you really need to know. He goes, nobody gets rich on a salary. He goes, you have to own something. He goes, it's really that easy. You have to own something. He goes, and that can be a business you built, that can be an asset you acquired, that can be equity ownership. And companies, if you're going to really create wealth, you have to own something. And so the decision is, what's the best thing to own? And that's at the individual level.
- [87:20]
Jeff Walton
Yeah. And risk, it's like, it's risk analysis. Right. It's like, what is risk? How much risk am I willing to take? And what does that look like? What does the risk return, trade off look like for?
- [87:33]
Ben Workman
Well, the big wins are concentrated, but that's uncomfortable for a lot of people. Diversification is really what comes from either being unwilling or unable to analyze the risk and the opportunity. If you don't want to put in the effort, you just spread it around round, right? So there you go, all right? One might lose, but maybe one will hit, you know, and that, that'll be enough. When you actually have the time and you get passionate about something and you dig in and you're in a sector and you're focused in and you're finding out exactly what's going to be the winner within that sector. And then it becomes so obvious that if there's one or two winners out of this, you know, 20 company, if you're looking at any sector in the market, if I go, these are the two winners, Right? Right. Well, then I would concentrate into there. And the deeper you're able to go, the more convicted you become in those bets and the more you're going to be willing to pursue those. And so I think that this is one of those interesting times because this is the first time where I think people have a sector that's understandable to them.
- [88:41]
Jeff Walton
Right.
- [88:41]
Ben Workman
You look at the complexity of all these other businesses. I could never explain to you Tesla's business model. You go look at all the business lines and the manufacturing lines. I could never explain that to you. I don't know what risk I'm taking on when I do that. I like the company, but I couldn't possibly explain it to you at any deep level. And so there comes an understanding when something's simple to explain. If I believe printing is going to continue, if I believe they're going to have to continue, continue to stimulate and ease, to keep the economy growing, to keep the GDP growing, then I want to take the Bet on the other side of that. I want the ultimate scarcity. I want the asset that's currently denominated in that whatever they're debasing US Dollars or pick your fiat currency around the world, I want the asset with the fixed supply because I am willing to put a long term bet on continued printing.
- [89:38]
Mike
So, you know, I agree with what you're saying there, Ben. I wanted to briefly talk about the same thing with equities. One of the reasons why I never started like a separate side business was because every time I looked at a side business and I said I thought, oh, I'm going to stick 5,000, 10,000, $30,000 into a side business, I was like, how much time can I put into it and will it be successful? And do I have to build everything to make it work? Do everything the sales, get it running and get it going, Hire an employee. And then I thought if I could start a business, what would I like to do? I'd like to be able to make a really cool phone that has all these apps on it, which is impossible. But just go buy Apple stock or when Google came out and you could buy the Google it assume that it's the best search engine. Oh, what would I dream up being in Silicon Valley? Oh, the best search engine. What's easier to do? Don't go build a better search engine. Just take whatever $5,000, just go buy the stock in Google. I'm not going to build a better search engine than Google. And so I looked at my side hustle being investing that I'm not going to build a better phone than Apple, I'm not going to build a better search engine, I'm not going to build, you know, I'm not going to be able to do any of those things or social media site like Facebook. And so then I just invested that money because to me that was a lot less risky. And once I put the money in it, I kind of do nothing, you know, besides buy it and just watch it and just watch it and then. And that's what I did. Because when you think about, I'm not saying not trying to be entrepreneurial or say that there's anything wrong with that for me because I had a really good job in tech. That's what I did with, that's how I just looked at it. And so I agree with what you guys are saying there. And volatility is not risk. And when you say that, Mason and when I say that to people, I go, when they say, oh, that's risky, I Go, no, you mean it's volatile. And the look on their face is like, what? I go, no, it goes like this, like this. But it's volatile. But that's not the same as risk. You know, I'll give you a good example. Difference between volatility and risk. TSMC makes the best chips in the world, and they're in Taiwan, right. Maybe the stock is volatile, maybe it's not. What's risk? If China decides to take Taiwan, that's risk. And you're like, well, what's the chance of that? Oh, see the Straits of Hormuz with Iran, right? A month ago we weren't thinking about that. So as soon as I say to a traditional investor, TSMC makes whatever the best chips in the world, they're like, oh, yeah, it's not really risky. Yeah. Until China change their minds and rolls out an aircraft car. I'm not saying that that's going to happen, but that's the difference between volatility and risk. And that's the easy way to say this. Like oil is. Was oil risky? Oil wasn't risky a month ago. It seemed to be trading in a range, and now all of a sudden, then it's the biggest rise of oil in the shortest period of time. That's due to risk.
- [92:47]
Jeff Walton
But the carbons haven't changed.
- [92:50]
Mike
Right? Nothing's changed. And we don't even get our oil from. 20% of the world's oil goes for straight to hormones, and we're a net exporter, but our oil price has rocketed up and we broke $4 a gallon in the US for something that we don't even buy. It's like, but that's the way the world works. So that's the difference between risk and volatility.
- [93:08]
Mason Ford
Jeff, I, I have a question for you. As, as the chief risk officer, do you see, like, when I think of risk, I, I get, you know, I guess my question here is how would you define risk? And do you think there's a. There's something inherent about risk, which means, like, when I think about risk, I think about like existential, like, going to zero. Like, like in, in Grain's analogy, Bitcoin's volatile, but, you know, it's gone down 80%, but it's never gone to zero. Not once has bitcoin gone to zero. And, and that would be the, that would be, you know, how I would. But I guess that's not exactly right because there's a probability. I view bitcoin underperforms.
- [93:57]
Jeff Walton
Yeah. I view risk as a As a spectrum of probabilities. And volatility is just data. And so I see data as informing a risk profile. So I don't know, thinking about my past life, the insurance world, my job was to offload future volatility of an insurance company's balance sheet, like offload catastrophe risk. And you don't know what that risk is, but you can create a probabilistic framework to understand how it would impact your portfolio if it did happen. So it's the probability distribution associated with volatility. I think that's my perspective on risk. It's the probability distribution associated with the volatility and the outcome. It's like weighing the volatility and the outcome of the relative, the relative probability distribution and the tail. So it's the distribution, the skew and the tail throughout all of the data and information that you have. So that, that's like my view of the world. And it's, it's all, it's all a function of like underlying data. Like what you know. So in underwriting it's, there's qualitative factors and there's quantity. There's quantitative factors and qualitative factors, as you mentioned. Right. Like you could take all of this past data and that gives you one perspective. But then there's also this uncertainty element of the qualitative factors. Right. Regulatory environment, infrastructure, future threats, if quantum computing, regulatory threats, infrastructure threats, et cetera. It's like the holistic view of the qualitative world and the quantitative world combined together into a view of risk. That's how I see the world.
- [95:56]
Mason Ford
Do you think humans are good at judging risk?
- [95:59]
Jeff Walton
No. Very bad at judging risk. And it's like you could, you could see it everywhere. I mean that's why people buy insurance. Right? I mean like most of the time you, you, I don't even want to say this. Like most of the time you're probably better off. Like the math says you're better off. Like not buying like insurance most of the time, but like you buy it because of the tail, uncertainty of it. And sometimes you just have to. If I want to sleep at night, I need to buy the insurance product because if I don't, I have anxiety. So there's like some mental and physiological elements of risk analysis that break rationality. Like a lot of people are opened
- [96:44]
Ben Workman
up and rained down, golf ball sized hail on my house. And insurance came in kind of handy.
- [96:49]
Jeff Walton
Yeah, yeah. I mean it's.
- [96:51]
Ben Workman
Once in a while it pays off.
- [96:53]
Jeff Walton
Oh man. Yeah, it's. But people buy insurance on Weird things, right? Like, you buy a thing on Amazon and it's like, do you want the six dollar insurance on this computer screen that you just bought? Like, no, I don't want the six dollar insurance on the computer screen I just bought.
- [97:08]
Mason Ford
Like, but somebody's clicking it.
- [97:10]
Jeff Walton
But so many people are clicking it.
- [97:13]
Ben Workman
Dude, it's financing guacamole at Chipotle. I mean, someone's clicking everything.
- [97:18]
Jeff Walton
Yeah, Yeah. I think there's an inherent. And I think that boils down to so many things. And I, like the Secretary of the Church, like, Besant was just talking about increasing financial literacy. Like, we made a website so we can increase financial literacy. It was like, well, you don't teach any humans about money in any education system ever. So cool. You made a website. How about you just teach people about.
- [97:48]
Mason Ford
We also made a website.
- [97:50]
Jeff Walton
We did make a website, but you know what? Like the government. I mean, come on. But like, just. Just that concept, right? Like, people don't. Like, people are becoming less literate in math. Like, money and finances is never taught. Like, instead I learn about. I'm told I have to memorize 400 vocabulary words for AP literature. It's like, okay, you know, maybe that was helpful for how I communicate now. But, like, I probably. It would have been nice if I knew how a stock worked in, you know, 2008, 2009. Like, if I, like, that would be cool to buy the dip in high school, you know, like, but you don't. Like, I wasn't. So many people don't even graduate high school yet. You're thrown out into the world and you have no idea how a credit card works. You have no idea how debt works. You have no idea how to buy a house. You know, like, unless Taxes. Taxes, right. Like, yeah, you have to. You start working and you get paid and you're like, going, school. I get a paycheck now. Why does 40% of it go away? You're like, you don't get. You don't get taught any of that stuff. I had to take a personal finance class my junior year in college. That was the first time anybody even brought up taxes, which is just insane. Just totally crazy. So to your question, Mason, I don't think people are very good at analyzing risk, period. Instead, you have to learn trigonometry and sign curves and a bunch of.
- [99:24]
Mason Ford
And. And justify inflation.
- [99:28]
Jeff Walton
Yeah, exactly.
- [99:29]
Ben Workman
So they're going to tell you, you should have money, and then you're going to ask, well, how much is there? And they're going to say, don't worry about it. Treasuries.
- [99:38]
Jeff Walton
Yeah. How much money is there?
- [99:40]
Mason Ford
Yeah, it's like the universe. It's constantly expanding.
- [99:43]
Ben Workman
Where does it come from? Don't worry about that either.
- [99:48]
Jeff Walton
Yeah. How do I get more of it? Yeah. Get closer. Just get closer to the. To the supply. Right. Buy assets. Yeah. Okay. Well, we're getting getting close to the end here. I built a. I built a retirement optimizer. I'm going to save that for another time just to avoid. Avoid any challenges. But you know what? I'll flash it the. These AI things are getting so good. I built this in an hour where you can plug in different assets and try to optimize an allocation to those different assets based on your time horizon frontier. Your portfolio, your growth projections over time, your age, your retirement age, what your initial investment is, monthly additional deposit, desired income. Do you reinvest the dividends? What's your debasement rate? So you can see how that plays out over time. And you can see. Simulate this. Run Monte Carlo simulations. These AI tools are insane. Use them. They are totally incredible and they will change the way that you view the world. So check them out.
- [100:54]
Mason Ford
Jeff, can I. Can I put something out there maybe once, once a week we can look at like a. Use like a. A viewer, right. Who's made a model and sent it to us. I think that'd be pretty awesome.
- [101:06]
Jeff Walton
Oh, yeah, yeah, yeah. That's a good idea. That's a good idea. I've actually got a. I've got a project on the horizon that I'm working through to involve the entire community. So hopefully we can get that going in Q2, maybe that maybe later towards the end of Q2. I'm excited to tell people about it, but that's on the horizon. But it's kind of on that same vein. It's a great idea and more to come. I think there's going to be a lot of energy pouring into this space here in the near future, but maybe we'll pass around final thoughts. I might start with you, Dan. It's been. It's been a little quiet over there. You're out here grinding, working on the press. There were a couple people that were asking about STRF strk. There were some drops in the SDRK price recently. This last week. I did get a note from one of my friends. That margin was increased for STRK this last week. I think it was doubled on some brokerage accounts, I think interactive brokers. So it may have led to a little deleveraging on the STRK instruments.
- [102:10]
Dan Hillary
Yeah, I think that's an interesting segue. And I'll leave my final thoughts. As we talked about risk this whole time, and I think we talked about volatility. Is that different than risk? There's this idea though that in these equity instruments is risk illiquidity. And I think what we saw with STRIKE over the past few days is that, yes, an illiquid instrument is in fact risky, especially if you have to exit the position because you're leveraged elsewhere or you have capital requirements you have to meet. So liquidity is as important as volatility in these markets.
- [102:45]
Jeff Walton
Yeah, liquidity is an element of that entire quantitative qualitative equation. Right. Big element. Cool. Pass it over to you, Grain. What, what's final thoughts? What do you think about.
- [102:59]
Mike
Look, I. Look, I'm really excited that we have two, two instruments, SATA and Stretch. I think the volumes are going to continue to go up and I think that those, I think those products, I think they're huge and they're going to continue to put buying pressure on bitcoin and it's going to suck up, you know, the mine supply. And I think that, I think that's the biggest thing that we see. We, we, we have a large institution, we have a super large institutional buyer and we have a smaller one strive buying bitcoin and it's public. We know they. You guys, what I can tell you is there'll be an announcement sometime in the future and you'll say how much you bought and that'll be great. I look forward to reading that when it comes out publicly. And, and for strategy, we'll see on Monday how many. Or wait, Monday's are we. Is Monday holiday? No.
- [103:48]
Jeff Walton
Is it a holiday?
- [103:49]
Mike
No, maybe not.
- [103:50]
Jeff Walton
Is there a holiday in April? No. Easter?
- [103:53]
Mike
Yeah. Easter's on Sunday. So it's a. Monday's not a holiday. So anyway, with that said, we'll find out on Monday. Well, we know that strategy typically does their announcement on Monday how many bitcoin they bought. And so in a bear market, we have a large institutional buyer that appears to be buying every week. And then, you guys, I hope that, I hope that your product continues to be successful. And look, that's what I'm looking forward to.
- [104:17]
Jeff Walton
A lot, A lot of things moving. Yeah, I think it's great. Things moving.
- [104:20]
Mike
Congrats.
- [104:20]
Jeff Walton
Absolutely.
- [104:21]
Ben Workman
Friday is a holiday.
- [104:24]
Mike
Wait, stock markets closed on Friday?
- [104:27]
Ben Workman
Yep.
- [104:27]
Mike
Oh, I got it wrong. Okay, that's good to know. Oh, it's only one more trading day.
- [104:33]
Jeff Walton
Okay, Mason,
- [104:39]
Mason Ford
one thing that we didn't touch on this episode was the, the sailor ad that, that blew up. And man, I think I got like 4 or 5 million views. And yeah, people were unhappy. And you know, it's a broad range of people. It's, it's Jason from All In. It's, it's Crypto Bros. It's Martin Scarelli, it's, it's all of these like traditional finance people or, or even Crypto Bros who haven't done like a lick of research into this, have done zero math, who are just kind of, you know, sitting in their, their armchairs and just praying on preying on the downfall of strategy. Was the ad a little odd? Maybe? Like, maybe. And is that, like, it was crazy? Is it, is it good publicity? Is all publicity, good publicity? Probably, you know, at this state. But something that, that got me excited was like, we have such asymmetric information right now. The whole market thinks he's going to blow up. They're calling it the next Luna Terra Luna. And what I'm really excited for is in three years, Stretch is still going to be at a hundred. It's still going to be paying its dividend, Bitcoin's going to be higher. And all these people who were, are laughing at it at some point are going to have to deal with the fact, you know, look themselves, you know, look themselves in the mirror and say, hey, yeah, the ad was weird, but this is real. And this is like a fundamental shift in the market. And I actually need to do some research because this thing isn't going away. Will it take three years? Will it take six years? Will it take 10 years? I don't know. But the beauty of it is there's a very high probability that all those people are going to flip at some point. And I'm just excited.
- [106:57]
Jeff Walton
Yeah, the incentive structure, right? I, you think about that ad and the, the weirdest, most controversial ads are always the most viewed and popular because it just stirs people up. Like, why did it get 4 million views? It's because people, like, didn't like it. People thought it was funny, right? Like, yeah. So I, I think it worked, right? If your whole energy, if the whole goal is to get eyeballs on. It definitely worked. It definitely worked. And you know what? Like that, that also increases the energy in the common stock too, right? Because what, what happens? And I've seen this, people are like, oh, let's dive into this. And they, they do their very first intro analysis of the capital stack and they're like, how does this work? And then they're like, I'm shorting this and. Okay, well, now you got people shorting. Shorting the common stock, which is increasing the volatility of the common stock, which just makes it trade even more, which makes the whole thing work because there's more trading volume in the common and they have more ability to raise capital.
- [108:02]
Mason Ford
Yeah. This week made me think Sailor has the quote, the only thing worse than being hated is being irrelevant. And. And we're certain, like, strategy is certainly not irrelevant, right?
- [108:17]
Jeff Walton
A hundred percent. Over to you, Ben. Final thoughts.
- [108:23]
Ben Workman
Yeah. Well, I'll just chime in on the ad. It worked. All these guys, you know, it's hilarious because the people that hate it the most are advertising it to their audience. They don't know it, but they're advertising that product to their audience. So, you know, all these, you know, Krellis and all these other guys that are out there that, you know, dislike everything sailors doing are out there advertising his product. And what happened, it went right to 100, well in advance of the ex div date, well in advance of the record date. So it, like, it's a lesson in being willing to, you know, put things out there that you're willing to just live with the ridicule. You also learn quickly, and I think we've all learned this. The outrage cycle of Twitter is four days. That is the outrage cycle. I've watched this more times. Every time something comes out that everybody hates, I like to track, you know, you can do kind of the trends to see how long these terms are out there. And, you know, it's four days, and then everyone's off to something else.
- [109:26]
Jeff Walton
Right.
- [109:27]
Ben Workman
We're so distracted these days, we can't keep a grudge on anything anymore. So, you know, it's. It is a master class in marketing, because what he did was he gained reach into audiences that are not his typical followers because everyone was passing it around and throwing in their comments on it and forcing everyone to go watch it, go look at it, watch the ad. You see the rage come up. And, you know, you know, there were at least a few people that went 11 and a half. Sounds pretty nice. It pays me every month. Like, that's sounds like a good product.
- [110:02]
Jeff Walton
I stretch into that. Yeah, yeah, yeah.
- [110:05]
Ben Workman
So sometimes you have to use the outrage of the Internet and all your critics as your greatest marketing distribution tool, and they work for you, and they don't even know it.
- [110:13]
Mike
So you know what the. You know what? I think the craziest part of it, because the ad was all AI generated. I mean, what did it cost him to do the ad? Whatever the subscription is for that AI or it was like nothing. Whatever it was, if you wanted to go film that ad with a real person, it would have been a quarter million bucks and now it's whatever, 25.
- [110:36]
Ben Workman
Well then you know that they doubled down on it because then today they had the, you know, the CEO told me, you know, follow up version to it, right. So they're leaning into it. They know exactly what they're doing. They're rage the reality that all these critics have to live with, which is they are the new distribution channel and they're the ones marketing this product, you know, so here's what it is.
- [110:58]
Jeff Walton
But anyways, that's game theory. That's masterful. Masterful game theory.
- [111:03]
Mason Ford
It's master max ad is like stretch. Stretch helps me. Looks max. Like they, they need to lean.
- [111:10]
Ben Workman
Weaponize outrage. Right?
- [111:12]
Mason Ford
Yeah, yeah.
- [111:13]
Ben Workman
Turn it. Broad distribution with it. I mean it's, it's a master class in marketing. But I thought Dan brought up a really good point, right? Like what's been highlighted here over the last several weeks is liquidity risk. And most people didn't understand how much of it they were taking in their investments. And you're starting to highlight just how valuable that is in any of the investment vehicles that you're holding. Because when times get strained and all of a sudden you figure out liquidity doesn't exist, that's a risk you probably were unaware that you were taking. So, you know, there's, there's a shift out there and these weaknesses and a lot of investments are starting to get highlighted and it's going to change the way people think. And when people are looking for new solutions, I think that's what brings them to what I think is going to be the initial on ramp for Bitcoin, which is the prefs because they just provide an attractive return profile and cash flow. And I think ultimately from there it's going to bring people into Bitcoin itself. You figure out that, you know, you can take ownership of that asset directly. You start to see the value in it. You understand what thesis it's working on. And that starts to build that foundational part of your portfolio where you're decoupling yourself from all the games that are happening out there at the Fed and the treasury and all across the world. So we're in a transformative period and it's going to be really awesome to watch this unfold. And I think this time next year we're going to be in a Very different place than we are today. I think we're going to be far more mainstream.
- [112:43]
Jeff Walton
Absolutely. This time next year. Oh my gosh. April. April of 27, man. We're going to look back for sure and see where we're at. Hopefully much higher across the board everywhere. Okay. Yeah. Thanks, Ben. Appreciate it. And my final thoughts is there's so many things happening in the entire world right now. There's a lot of chaos everywhere and we've been continuing it on this. The Fed is in a difficult position. There's somebody newly likely going to be newly appointed here in May. They've got a bunch of challenging decisions to make on the horizon. They've been handed a balance sheet that's chock full of reserves and got to figure out how do I manage the entire world economy effectively with all of these second and third order effects that I can't control. So some interesting impacts there. And the world is changing and these instruments are starting to enter into the world into different ways and it's starting to permeate the different capital environments. People are starting to figure out how can I create portfolios and different things with these instruments? And that's only going to get more advanced and expand even further into the world. So I encourage everybody to use the AI tools, figure out what you can build, talk to as many people as possible, don't be shy. I mean, people are going to hate your ideas 100% of the time and then eventually one will crack and you find some people that you can work with and start building on new things. So encourage everybody to get out there. Thank you everybody for your time. Go check out our website if you, if you've got some time, come see us and hang out with us in Vegas. That will be fun, like. And subscribe to the YouTube channel if you can. That helps us a lot. And we will see you next week with episode 62. Cheers. Thank you.