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- [00:57]
A
Ladies and gentlemen, what you are about to hear may be amazing, but it is not financial advice.
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B
It is for informational and educational purposes only.
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A
Nothing in this discussion should be considered investment advice or the offering of any
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B
security or other investment product.
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A
Please consult your own investment and tax advisors. And now I'll hand it over to
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B
the True north team for your regularly scheduled programming.
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A
Welcome back. True North Episode 68, a new regime True north, the Investment grade Bitcoin podcast. We're back here today. We've got Adrian Morris, Soleil and Dan, Hillary and myself and we are going to jump right into it as always. There's just a ton going on coming off of a holiday weekend, short week. So four days, four days of trading this week, but no shortage of excitement within the markets. Bitcoin still being a little bit volatile. Volumes are high. Volatile volatility of the underlying. Bitcoin is actually decreasing, declining. We've got a fun agenda for you today. We're going to talk a little bit about the MSTR balance sheet. We're going to do an update and just show some comparisons of what the balance sheet looked like over time, just from a numbers perspective. Get back into the Excel that we've kind of steered away from a little bit. We'll talk about the convertible retirement, what that looks like, how does that change the balance sheet, how to start to think about that, get into the AI trade a little bit. It's dominating the conversation. You see it everywhere on X. Any other platform that you're looking at, you can't walk down the street and hear somebody over talking about AI and the butt of every single joke that comes to light every day. So we'll talk about AI a little bit and then we'll get into the landscape of the Fed. We've got Warsh was now appointed chairman of the Fed and he's got his upcoming the first meeting starting on June 16th. And so we'll have an understanding of his perspective of the Fed and being in that seat for a month. And there's a interest rate decision on June 17, so we'll, we'll keep a lookout for that. And then the daily dividend company strive we will be launching daily dividends around the same time. So June 16th will be the first daily dividend that we'll pay on seda, which will be fun to watch how that changes with the market. Okay, without further ado, I'm going to jump right into it, you guys. I'm going to talk about the MSTR balance sheet and we'll give a quick Overview where we're at and what this looks like and what it looks like about a year ago and during 2022 bear market. So we'll direct your attention to this column. This column is as of today, 5 27, 2026 and we'll shrink this up a little bit. So Bitcoin held 843,000. Bitcoin price 74,000 MSTR price about 155. So assets held on the balance sheet $63 billion. Compared to the beginning of the year, they had 673,000 Bitcoin and their assets were valued at $61 billion. So despite the price of Bitcoin going down 18% year to date, the assets held on the balance sheet have actually increased 3%. The USD reserve has reduced by 61%. They used cash to retire one and a half billion of notional convertible debt on the balance sheet. The debt you see has increased about 18%. That's the reduction of the convert. The preferred stock has gone from 7.9 billion on the balance sheet to 15.4 billion. STRC has been a smashing success. That's continuing to grow. So the net capital held on the balance sheet, once you factor in all these different things is around $57 billion. That's the assets less the debt. And the annual dividend obligation has gone to $1.7 billion. So what does that look like? That's 34 years of dividends strategy has 34 years of dividend coverage on their balance sheet already. Again, I think it's helpful to compare that relativity to everything else that's in the marketplace. The debt to asset ratio is dropping because they retired $1.5 billion of converts. The debt to asset ratio has gone from 9.7 to 9.2. This is the leverage percentage. And the total amplification has actually increased from 25% to 35% year to date. So thinking about what needs to happen, what needs to be true for the assets on the balance sheet to be worth less than the debt. That number is $7,957. Basically the price of Bitcoin needs to go down to $7,957 for the assets to be worth the less than the debt on the balance sheet. That is an 89% decline from where we're at today. So it's a massive that would require a massive decline in the value of the bitcoin in order for plus a duration in order for there to be any stress on the balance sheet. Now the reason I've got several other columns Here is because I wanted to Compare this to 11:15, 2022. So 11:15, 2022, this is the depths of the bear market. So this is ftx, Celsius, Blockfi, et cetera. And at that point in time, Strategy had 130,000 Bitcoin that was valued at $2.1 billion. They had zero USD reserve and the amount of debt that they had on the balance sheet was $2.7 billion. So they actually had $648 million less in assets than they did debt on the balance sheet. Again, why do we bring that up? Because the health of the balance sheet is in a significantly different place today than it was back in November of 2022. In November of 2022, the balance sheet, they had 130% leverage ratio. Today they have a 9.2% leverage ratio. They are in a fundamentally different spot. The balance sheet has gotten incredibly healthy over time, despite issuing preferred stock and now having dividend obligations. Again, thinking about the relativity of the dividend obligation relative to the assets that they have on the balance sheet, they've got 34 years of net capital coverage already existing on their balance sheet. So I think it's just really helpful to look at it from this lens that there's still for some reason people that are very bearish on the health of the balance sheet, when in reality they aren't necessarily comparing how it's changed over time and looking at different periods and thinking about the mathematical construction of the balance sheet. So since November 2022, the Bitcoin held on balance sheet has gone up about 550%. The assets, so including the value of the increase in the bitcoin has gone up 2,846%. And the leverage ratios have improved drastically. A couple other things I wanted to point out is that from November 15, 2022 to January 1, 2024, strategy went from 130,000 Bitcoin to 189,000 Bitcoin. So they increased about 59,000 Bitcoin. And in the last five months, year to date, 2026, strategy has increased. What is that number? That's. 169,000 bitcoin in the last five months. So they've increased by 169,000 bitcoin. They only had 189,000 bitcoin in January of 2024. This train isn't stopping. The balance sheet is incredibly healthy. Last thing I'll bring up here is the okay, what if the price of Bitcoin were to drop 50% from here right A lot of bears are calling for 40,000 bitcoin and 50,000 bitcoin for some reason. And so I wanted to look at it and stress test it. So if the price of Bitcoin fell 50% from here to $37,450, that would be 39% below the 200 week moving average of $61,500, which has never happened in Bitcoin. Price of bitcoin has never fallen 39% below the 200 week moving average. Not to say it couldn't, but I think the likelihood is incredibly unlikely at that point in time. Strategy. We have $31 billion of assets on the balance sheet. The preferred stock that have $15 billion, the debt that have $6.7 billion, they would still have 16 years of net capital for dividend coverage on their balance sheet. And the leverage ratio would then go to 18.5% which again compared to where we were at, where our strategy was at in 2022 of 130%, it's a fundamentally different story on the balance sheet today than back then in 2022. So I'll pause there. You guys have any other context you want to, you want to add here? I think these are helpful context when thinking about the mathematical risk profile or the construction of the balance sheet.
- [09:33]
B
Yeah, I mean we can talk about the repurchase last week of the $1.5 billion of debt which is half, I think the 2029 convertible notes. I got the year wrong. But what was the, what's the expiration on those guys?
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A
Oh yeah, it's their 2029, but they've got a put date. So let's, let's jump into 2029 with
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B
a year, year before put date. What that does is significantly reduces any sort of obviously financial leverage on the balance sheet with retaining amplification. And I think when looking from a risk perspective, I talk a lot about the amplification being a potential risk for the common equity. Risk being increased volatility for the common equity. Obviously there's no default margin call callback provision on preferred equity, but there is. Well the convertible debt was non secured, so it already was a very robust balance sheet. But now considering that debt never comes to do right, there is no real refinancing risk associated with $1.5 million less of outstanding liabilities. So there's as strategy continues to decrease the actual debt burden on the balance sheet, the risk profile of the debt significantly of, sorry, the risk profile of the fixed income, that being the preferreds and the, the debt decreases significantly. Furthermore, you get further seniority in the capital structures. So when you remove $1.5 billion of senior liabilities to the preferred equity, the strength or the over collateralization, the bitcoin rating of the preferred equity increases by that same $1.5 billion immediately. And we're not really seeing that strength reflected in the trading prices of STRF structure, DE and STRK and strc. But I think over time, once people realize there's nothing senior to strf, you know, some of the preferred equities will be viewed differently by the market. STRF being 40 times over collateralized by bitcoin once they're done with this retiring of the convert campaign.
- [11:38]
A
Yeah, I think this is a very, very thoughtful decision by strategy. So if you look here, you've got the convert that they elected to retire was the convert with a $672 conversion price. So it had the highest conversion price out of any of the other converts. It also had the highest notional outstanding. So prior to retiring they had $3 billion of notional outstanding. So it was the biggest and highest conversion, effectively it was the lowest probability of converting into actual shares and the highest probability of having to pay back the notional outstanding. So when you're thinking about credit profile, you want to think about the conversion price and having to pay the pay back the notional at a future point in time. Now, strategy, they've got several different things that they could do here, right? They had cash on the balance sheet, they had two and a quarter billion dollars of cash on the balance sheet. And they elected to use the $1.38 billion of cash to retire $1.5 billion of the notional convert. At any point in time in the future. They could, they could refinance these. You can go get straight debt, you can exchange this with preferred equity, you can go issue another convertible bond, which they've said that they aren't going to do. But that market is wide open for business ultimately. I think this was very credit positive to your point, Dan. It shifts everything else more senior. So all the preferred equities technically shift more senior. It's, it's been interesting watching the price action of STRC over the last couple of days. I think what as of Today it closed at 99 14. Relatively low volume compared to the the 5 to 10 trading days prior to the record date over the last month. So the actual V. WAP calculation of STRC hasn't changed drastically. I don't know if you guys have been watching this. The one month VWAP So Strategy said they will only they will increase the dividend if the one month v WAP of SDRC falls below $99. And what, what that's trying to emphasize is volume weighted average price. So it's that how much is trading at a price of within the target range between 99 and 101. And at the last record date there was significant volume. It was, you know, hundreds of millions of dollars of volume right at the record date of people that are coming in the door to scalp the dividend. And so we saw that and then the volumes traded tailed off after the record date, which is what we've seen over the last few months. But the relative volume compared to the price on a weighted basis actually hasn't dragged down the VWAP very much. So the one month vwap hasn't changed much. So theoretically Strategy will maintain the 11.5% dividend rate because the, because the relative VWAP hasn't changed. Now they always have flexibility to change that or increase the dividend if they need to. However, I think we're just in a little bit of a lull within the market in terms of the fixed income instruments and the relative volume.
- [14:53]
C
Yeah, to Dan's point about it improving the capital structure, I was thinking that they would, I mean, they said they were going to do it, so that wasn't surprising. But I was shocked and pleasantly surprised that they used to the cash reserves. I was kind of hoping they would use the reserves to pay some dividends just to kind of like prove that I can. When they came out and said, yeah, we could sell Bitcoin if we had, you know, if we wanted to. Just, just to kind of say, look, we got cash reserves for a reason and you know, maybe pay some dividends, but to use them this way was even better. And I didn't think they would do it because I thought, oh well, the, the USD reserves is what guarantees and gives the press, you know, a more solid credit rating. But the fact that they're removing something that's above them in the stack was, you know, they must have said that that was, I guess, more positive than negative. So I'm glad they did it this way. And I was kind of surprised, but in a good way.
- [15:59]
A
Yeah, I think the market is, is trying to figure it out. Right. They put the cash reserve in place to bolster, bolster the view of the preferred stock. So, you know, in watching the price action the last couple days, I'm curious to see if that's, you know, people that are Spooked about the credit quality because of the cash reserve. I mean personally I'm not spooked by the cash reserve because of the strength of the underlying balance sheet, all of the bitcoin that they hold and just the relative construction here. But it is that psychological variable of like first line of resistance. And so the fact that it has been reduced, it is a psychological credit element. And you have to weigh like the value of that 1.38 billion in the USD reserve relative to a senior claim. Right. With a, a notional cliff maturity at a future point in time. So just an interesting cost benefit analysis. I think ultimately that will help in the long run. Especially you start to think about the relativity of some of these other debt instruments. The $672 conversion price is a little bit rich relative to where the price of the stock is trading right now.
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C
Right.
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A
$155, that's a 6.5X from here up to $672. So it was the furthest out of the money. Again thinking about lowest probability of converting into, converting into equity shares. But ultimately this does reduce the diluted shares outstanding as well. So thinking about this was BTC BTC per share positive, which is another interesting comparison. Thinking about that was a valuable BTC per share move for the common equity as well.
- [17:52]
B
Yeah, I think that's the most important. One of the most important points is the fact that these things are trading at a discount to their actual notional value means the market's really discounting the future value of the bitcoin as not being present or strategy's ability to raise capital into the future. So for that reason it's almost a no brainer to buy them back when they're trading at a discount on a positive bitcoin per share basis. And this is in keeping with their reaffirmation of bitcoin per share as being the key KPI for strategy. Their kind of North Star because they
- [18:24]
C
took a hit on their bitcoin per share when they built the reserves. Right. And so now they're kind of reversing that drag.
- [18:33]
A
Yep, reversing it back out. Another really interesting thing is like going to retire these is difficult. You've got to go out to the market and go find the holders of them. Again. This, this is trading 144A. So you've got to go out and you've got to find who's holding them, why are they holding them and what are they, what do they want, how do you, how do you trade it? And I don't think these things trade hands very often. They're not like incredibly liquid. And the people that are holding these, and we experienced this when we retired the legacy similar convert. The people that are holding it, they feel really comfortable holding it. They like it a lot. So because there's so much protection from assets that are sitting on the balance sheet. So I'm glad to see that they were able to retire them for less than the notional basically at a discount. But there is inherent value of holding these things and that negotiation can be a little tenuous, especially if you're trying to exchange for cash or they may not want the cash, they want to hold the instrument. So thinking about what kind of chips and tools do you have to negotiate? You've got strc which you can exchange for strc. Again, a lot of these converts. Thinking about all of our conversations we've had over the last year. Convertible bond holders are long the volatility of the instrument and they're not long. They're not as long the credit quality, they're more long the volatility. They like to trade the underlying and it's arbitrage. Yeah, they like to arbitrage the value of the bond relative to the value of the underlying common stock. So if you are taking away that tool that is, that is, that's got a value over and above like what the, what the mathematical value of the instrument is trading at. So anyway, it will be interesting to see how they continue to tackle these over time. They are little speed bumps that they got to get through. I don't think it impacts the long term value of the digital credit vehicle itself. If anything, it makes it stronger. This is a mathematically stronger credit profile. The BTC ratings increased on all of these instruments. The relative BTC risk and BTC credit actually improved. And that's even with the price of bitcoin falling again. The big bogey here, the big question mark is how much value does the market contribute to the cash reserve relative to future volume coming in the door on STRC or any of the other pref instruments. Okay, cool. Well, that's convert. We beat that one to death. I think the balance sheet looks good. We reviewed that and the relative leverage profile looks significantly better than 2022. And one thing that's been interesting and Dan, I'd be curious, Dan, Adrian, you guys, to get your perspective on this as well, there's this methodology, the SIEBE methodology that's been kind of percolating in the perspective of the digital credit vehicle holders. And the concept is basically if the value of the assets on the balance sheet fall to the notional outstanding, then the equity has zero value, which I fundamentally disagree with and Ben. Not Ben. Dan, you've been hitting on this point a little bit. You could see a situation. If the price of Bitcoin goes down, the M NAV on all of these instruments relatively or should theoretically rise because the value of holding the equity and the probability of default is just incredibly low. And that's what we saw in 2022. The value of the equity didn't go to zero, despite the debt being greater than the assets that they hold on the balance sheet. So I'd be curious to get your perspective on that.
- [22:15]
D
You can go ahead first, Dan.
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B
Sure. Yeah, it's definitely something I've walked through in my videos in the past. Understanding the value of the equity in the case that the preferred liquidation preference covers the total assets on the balance sheet. And it's like an infinite leveraged call option on Bitcoin. So theoretically, if Bitcoin is volatile, the MNAV should expand at those lower prices. But I think it'd be very, very problematic for the preferred equity itself. I think if the preferred equity, the liquidation preference of the preferred equity was the same value as that of the total Bitcoin on the balance sheet, no longer is preferred equity cushioned by an over collateralized asset base, but now it represents an existing asset base. You would have to make the shift in thinking that it's over collateralized now by the common equity and the trading volumes of the common equity instead of the assets in the balance sheet. So I think in that scenario the preferred equities would trade off. For example, if one of the Bitcoin treasuries had a 50% amplification ratio MSTR strive and the Bitcoin would fall 50% and they didn't delever during that period of time, then I think the preferred equities would trade off. I think they're the ones in jeopardy. I think the common equities would actually benefit because you have such a high amplification and the MNAV would expand.
- [23:32]
A
Yeah, they'd be volatile. The common act would be very volatile. The one thing that I think challenges that perspective is the, the fact that the preferred equity is equity and not debt and there's not a cliff maturity and there is no payback of the equity. So that notional, if you have zero debt, what is the value of the notional?
- [23:55]
B
Yeah, but if you have $100 million of Bitcoin on the balance sheet backing $100 million of preferred equity and preferred equities upside is limited at the return rate generated by the preferred equity, then you're essentially getting bitcoin risk with no upside.
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A
Bitcoin risk being the downside, being downside. Bitcoin risk. Right, right.
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B
If you're backing $100 million of preferred equity with $100 million of Bitcoin, I mean, you have bitcoin risk, you have one to one bitcoin risk.
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A
Right.
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B
But if the preferred equity has.
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A
Well, I guess the question is, is it one to one bitcoin risk? Right. Yeah.
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B
I mean, well, that doesn't account for the common equity. That's why I said the common equity would have to be thought of as the collateralization buffer for the preferred equity.
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A
But if there's no event of default, then what is the value of the liquidation preference?
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B
If you're debt free, if you have a fixed income security backed one to one by a commodity, how is that fixed income security any more credit worthy than that underlying commodity?
- [25:05]
A
I guess it depends on the size of the balance sheet and the future expectation of the asset on the balance sheet. Totally. It's an interesting. I don't think we'll get there. I don't think we'll get there. It's just an interesting framework. Again, starting to think about if there's no event of default. If you don't have debt, there's no event of default. So how do you start to think about that relative liquidation preference relative to the dividend obligation and its value relative to the assets on the balance sheet? It's a good psychological analysis. And the concept of the holder and the sentiment in the market would be the true indicator of what, how those, how those instruments trade. Go ahead, Adrian.
- [26:00]
D
Yeah, you just kind of touched on what I was going to discuss. So for me, if I think about myself as a strategy holder and how I have been since the beginning, the benefit of holding strategy is the fact that it's a leverage spent on Bitcoin. Right. And all of the additional benefits that brings to me in the market, whether you're an options trader, whether you are just long term holder, whether you're someone that's looking to outperform Bitcoin over time. So that is the, that is the benefit of strategy as the equity in terms of the preferreds, I don't see them as a risk assessment. I see them as my capital in the preferred versus my capital in strategy. Which one is more beneficial to me at what time that, that is my risk portfolio in terms of How I assess it, the reason why I don't think of it in terms of preference or in terms of liquidation events is if we hit a liquidation event, it's all FUBAR anyway. So if I'm taking a long term directional bet on Bitcoin, I'm inherently assuming that risk in my overall investment thesis. So that's why I have issues with the CB tracker that we don't have to necessarily get into. But I think that it severely undersells the benefit of the equity itself.
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A
Yeah.
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D
In its entire framing.
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A
Yeah.
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D
You're not holding. You're not because. Just as I said, you're not holding strategy because you're thinking it's going to be a stable asset and it's only going to appreciate at 5% a year and so on and so forth. You're holding it because it's going to be volatile. And the idea is that over time, not over time frames, it'll outperform Bitcoin. Where does, where do, where do these trackers account for that in their risk assessment? Where they account for that in their potential valuation framework? I don't think that they do. They just treat it as kind of like a, as. As Dan accurately kind of framed it one for one. Right. So if you have like a one for one backing on a preferred offering, they're thinking of it in terms of overall net asset value via the shares and then taking it, taking into account the overall capital structure. I don't know if it really accounts for the, the value proposition of holding strategy.
- [28:07]
A
Yeah. Of like holding, holding the credit vehicle itself. Yeah. It's. I think, I think you have to take into consideration a probability weight of default into that like C calculation because the, the concept of the equity being worth zero is, is not true. You go back in history, you look at. Again, that's why I brought up 2022 at. If you believed in that methodology, you would say the Equity is worth zero in 2022. But it wasn't. The equity is still valued at.
- [28:35]
D
No equity is ever going to be worth zero.
- [28:37]
A
It's worth something until it goes have
- [28:39]
D
a value in the market.
- [28:40]
A
Yeah. Unless it does go into bankruptcy and the equity goes to zero and there's less assets relative to senior claims on the balance sheet. But you've got to take in that probability assessment into, into the calculation which is, which is fascinating. Again, I don't think we're going there. I think the probability is low, incredibly tail risk. And what does the rest of the market look like if we got into a situation like that but thinking about volumes would change. Volumes would be really fascinating. There would be people that would potentially be longing the common equity. There's potentially floor, there's periods of time where things, when things go down there are like little relief rallies and in relief rallies if you have an ATM they're going to have access to access capital on those instruments, which is a different perspective. And then how does that impact the credit? How does the credit trade relative to the equity? A lot of game theory to kind of work through and mathematics to consider in that dynamic.
- [29:36]
D
Well so, and that's, that's the other thing, that's the other value of the equity itself that isn't accounted for in a lot of these models. So you know they did what over a trillion dollars or whatever number it was last year. Huge in volume, the sheer amount of volume. Just as you said. Let's say that they are drops but then there are peaks and troughs. Right. They're going to be able to issue equity and raise capital in various market conditions. They're going to also be able to issue capital and raise equity using the prep. So let's use Stretch as an example. These models don't really account for that. They treat everything as if it's just an accounting measure and it doesn't account for forward valuation in the market. Doesn't come from market sentiment. It doesn't come for anything like that and how they can go into the market to prevent default. So how do you accurately model out and say that well what's the risk of the equity going to zero if you are not accurately modeling out all the ways that can prevent it from going to zero? Yeah, it's not a model as much in my mind as it is a way to algebraically kind of siphon out the capital structure in Bitcoin basis is the way I can describe it. Maybe that's a bit heavy handed but I just, I don't know if it accounts for everything.
- [30:52]
A
Yeah, there's so much more theory and like practice that goes into it. It's, it's, it's evolving. All this stuff is evolving and this is the most transparent balance sheet and the fact that it's transparent, it's getting heavily scrutinized. It's like almost if they were as opaque as other instruments in the market, maybe that would be, maybe that would be more valuable but that's not the intended goal. So late. You got any opinions before we move on? Switch to AI yeah, the reason I,
- [31:19]
C
I, I tend to agree with, with Dan that it would start to make me a little bit nervous because if it dipped below that one to one backing, then it starts to become more of a fiduciary media which would be like unbacked bank deposits or you know, purely unbacked fiat, which like, you know, after we took ourselves off the gold standard and you just have banknotes that, that have no backing behind them. It wouldn't have no backing, you know, as after it dropped below one to one it would start becoming, becoming like fractional backing, which would make me nervous. But as you had mentioned, I think on a couple of shows if the press started to dip in price, the dividend starts to become so much more attractive that it could lure investors in to come and kind of rescue it. And the fact that they're not encumbered means the possibility of a true bank run would be impossible. So it's this weird hybrid of it's not fiduciary media and can't be, but it's also not encumbered credit. So it's a weird new kind of thing that is interesting in your words to study.
- [32:38]
A
It's interesting, right? I definitely, I don't want to get there. I don't think that's, that's certainly not our intention. But it's something that's interesting to think about. It's like what would the balance sheet look like? How would the market trade it? And there would be significant disagreements on both sides. Again, thinking about the relativity, what would the relative security? Or if you're holding it for the dividend payment and you felt it, let's just say 90 cents on the dollar on a notional basis. One, does the company still have the ability to pay the dividends? What does the cash reserve look like relative to the bitcoin and the notional outstanding? Okay, so what does that horizon look like? How do you start to factor in a horizon? How are people looking at that? At what point does somebody not put a marginal dollar into the instrument? I don't know. It's a tricky analysis and I don't think it's anything that will any of these like strive or strategy will be faced with it at some point soon. But it, that is a, that is an interesting thought in thinking about the, the evolution of what these can look like, I don't know, ten years from now. Does the math change. Let's just hypothetically go with this. What if, does the math change? If you had $950 billion of Bitcoin and you had $1 trillion of notional preferred outstanding, does the size, does the size matter.
- [34:18]
C
It depends on how looped and leveraged all of the. The products that are built on stretch are potentially
- [34:28]
D
well, but the leveraged out
- [34:30]
C
to 100 trillion, then that could be a problem.
- [34:33]
D
Yeah, but the products that are on top of stretch going to a trillion. I don't know if that. Let's say that it is possible.
- [34:42]
A
Let's just say there's a trillion notional outstanding. Right. Again, this is versus the Rails.
- [34:47]
D
Yeah, versus the rails. Let's just talk about what's on stretch. The benefit of these for me is about can they pay the dividend? Full stop. That's pretty much it. Right. So that's why I, and maybe I'm being semantic here, I don't really think of them as backed by bitcoin. I think of them as supported by Bitcoin. If they need to pay the dividend, let's say that there's some kind of massive market event and they need to start selling off bitcoin. They can do that. Right. And they can. They can do that in a way that allows them to pay the dividend for however long until the market turns.
- [35:20]
A
So
- [35:23]
D
the risk profile, the overall thought process, and Jeff's example, if they get to trillion dollars, but they're only backed by $950 billion of bitcoin, is that really a negative?
- [35:41]
A
Right. What's the interest rate at that point?
- [35:44]
D
Yeah, it's if they're issuing because then if they're, if they're a trillion dollars, I don't think they're just going to be at 100. They're going to be a little bit above par for those periods of time. Right. In which they can issue equity and in which they can build up their cash. Coffee. There's all kinds of different ways you can play it out is what I'm getting at. Right? Yeah, I think that's what Jeff is getting at as well. But by that point, you have all kinds of levers that they can have pulled before it even gets to that point. So then what is the risk at that level?
- [36:10]
A
So that's kind of what I'm emphasizing is like, does size change the calculus? At one point, the size changed the calculus. How does that change the psychology? How liquid is Bitcoin at that future point in time? What does the equity look like? There's so many second and third order downstream implications that are just like, what is the relative trading volume of the credit instruments relative to bitcoin? Which is what Dan's kind of hitting on too, is like seeing that grow over Time. It'll be interesting to watch it. Right. And we're watching all of these different elements and how they're all kind of, you know, interfacing and working together. But it's just an interesting brain exercise.
- [36:52]
D
I think the most important thing out of everything is what is can they pay the dividend and how long does it take for them to hit steady state. So we're thinking three years before the market really thinks that they are steady state. That, that is, that's, that's going to impact everything. If at any point between now and then they have to sell Bitcoin to pay the dividend. I'm not sure if that's necessarily a death knell. If the, if the equity, the preferreds dip down and stretches at like 90 or 95 for a long period of time, I don't think that's a death. Now them not paying the dividend. I think any one instance of that, that, that is problematic and I think that kills it. And I don't think that's going to happen. So that, that's my risk.
- [37:32]
A
Yeah, that's not the intention. These want to be, they want to be high credit quality. And what is high credit quality is confidence that you're going to pay the dividend into perpetuity.
- [37:40]
D
And I think above all else, they will maintain that. I think that in their mind is an extinction level event. So my risk assessment is what is the likelihood that strategy is going to allow the preferred to not get paid even once?
- [37:54]
A
And that's really it, that time element of them just continuously paying this in people's face. It's like they slam it in their face. It's like dividend paid, dividend paid, dividend paid, slam it in the face. Right? And it's just, you can't, at some point you're like, okay, this is still continuing to work and that maturity starts to play out in the confidence in the market, the sentiment and the understanding of activity of bitcoin, all of those different elements. Yeah, super fascinating. Okay, let's shift gears. Boom. We've got, we're 40 minutes in. Let's talk AI. The AI trade. A couple of big notes here, just as an FYI, and I'm sure you can't not see this happen. Micron technology, boom last year. Let's look at their. Hold on, where'd it go? Market cap, Micron technology. Let's look at the micro market cap. Now a 1 trillion dollar company. I think it's the top, top 10, top 11 publicly traded companies by market cap. If you haven't heard of these guys. They're now a top company by market cap, and I hadn't heard of them until about a month ago. And absolutely ripping faces off. So what we've seen is there are companies like micron technology and SanDisk that are rapidly increasing in terms of market cap. And this is the, in my opinion, the picks and shovels trade. This is the, the memory of the AI trade, which seems like quite a bottleneck at the moment. But just to put this into perspective, about a year ago May 2025, the market cap of Micron was $95 billion. And today it's 1.05 trillion. So it 10x in what is this, a year? 10x in a year. And the balance sheet has only increased from what is this, about $78 billion to around $101 billion. Obviously the assets are their ability to create memory chips and those types of things as well, which is a bit difficult to quantify on the balance sheet. But just to put that in perspective, the assets increased by what, 30%? But the market cap has increased by 10x. Just an interesting relativity to put out there. Their revenue has also increased from $37 billion to $58 billion. If you start to think about strategy, selling SDRC as revenue, they've had $10 billion of revenue in the last year. I suspect in 2026 that number will probably be 20 to 25 billion. And in 2027, I think that it will double. It'll probably be around 40 billion. And then the big question is, what does it look like three years from now? Does it go from 40 to 80 or 80 to 120? And I think that relativity will be interesting to see how it plays out. Again, looking at revenue history here from Micron going from about 42 billion to 58 billion. 60 billion as of today. So, Adrian, I'm going to kick it over to you, our resident AI guy. What's your thoughts?
- [40:57]
D
Oh, well, let me give some context here. I took these notes down directly from conversation I was having. So last year I specced out what it would take to get a pretty nice setup in office space. I'm looking at opening up and last year for, let's see, four server setups with dual GPUs. It was going to cost me about $30,000. I spoke to someone last week about a similar setup. It has now gone up to 77,000. So what we're seeing right now is a very, very real bottleneck when it comes to memory. That's what's driving Up Micron, right? Everyone was focused on compute and GPUs as being the bottleneck. But now the secondary bottleneck in some ways the more or the less elastic bottleneck is memory. And you got, you got, you know, you got three, you got three kinds, you got hvm, which is high bandwidth memory. You got DRAM and then you got nand, right? High bandwidth memory is what's really going to have the most impact in terms of the LLMs and their performance, right? So that's like the rocket fuel for the GPUs. The more high bandwidth memory you have on a GPU, the better the GPU performs. And that's going to impact things like how the LLM remembers, how the context windows, everything, right? Then you have dram, which is going to be working memory for servers and the overall server farms. So that's another bottleneck that's adding up. And then you have the final, the NAND memory, which is going to be for where they're holding the data sets, the training data and so on and so forth. So at every single layer of the AI buildouts, you have a memory bottleneck that's building up. You have the data center build outs that are coming online that are projected, even the ones that have rolled back in 26 are still projected to create grow into 27 and 28. You've got the very, very real need for growth in compute capacity and bandwidth, not just in terms of raw GPUs but in terms of the high memory bandwidth. And then you've got the overall AI trade that's creating this massive, seemingly unending demand for memory and compute. You throw all those three things together and with Micron being the only US manufacturer of, of these products and there you go, that's, that's how you 10x market cap in a year. I'm not saying whether it's, it's valid or invalid. I'm just saying that what we are seeing right now is the market trying to forward, model and forward price the demand. And the fact of the matter is there is a bottleneck and it's going to be very, very real until at least 2028. And that's even if China starts flooding the market with cheaper alternatives for high bandwidth memory. So it's to your point about picks and shovels, you kind of nailed it. That's kind of what it is. You have the GPUs that have created this massive demand. The GPUs are going to need to be in data centers. The data center is going to be able to Effectively handle the GPUs. The entire AI trade demands and depends on memory. And you have both of them operating in synergy right now. One bottleneck is now created, the other bottleneck neck and there and all that tension is what you're seeing in the market right now.
- [44:09]
A
The real question is what's next in terms of what point. At what point do like is the. I think mathematically so I'm thinking of like growth curves of like. So what point do you hit the derivative where the rate of change of the rate of change hits zero. Where like the demand, the demand for the GPUs and the memories does that rate of change rotate?
- [44:38]
D
That's almost impossible to say. But if you want to like how
- [44:41]
A
big does it get? Right. Like how. How good do these computers get? How. What if there's a change in, in the technology that's able to, you know, create the memory chips faster, quicker, et cetera.
- [44:58]
D
If you want to talk hypotheticals in terms of how good can they get and how big can it get, we are still operating off of silicon. If we move to photonics, which is the next curve, that's going to be a whole other growth curve right there. They're going to be faster. They're going to, they're going to operate more, not only faster, but more efficiently and they're going to be able to handle higher, larger packets of data on a, in a smaller surface. So when, if that's the next curve, then we're going to see another long curve.
- [45:27]
A
Yeah. I guess my question is like, how does. I mean this is all just totally ripping the surface of how society like interacts. Like how to. How do people use these things? How does it change business? What kind of business, you know, grabs onto it and is able to utilize it? What kind of business doesn't? And where's the opportunity in that realm, that regard. What's these things.
- [45:51]
D
Yeah, I would say that bears the
- [45:55]
A
brunt of the cost is another one like who is. Yeah, it's a. Keep going. Sorry to interrupt.
- [46:01]
D
No, no, no, it's fine. This is all very theoretical and hypothetical. No one could really predict the future. Right. So we're just kind of just trying to talk it through.
- [46:09]
A
Yeah.
- [46:11]
D
How do I see it playing out? Well, I talked about another true north streams. I think that models are going to go local and I think that the, this, the stress on compute and memory is also going to go decentralized. So you're going to have a lot of paradigm changes and pricing changes in terms of how we interact with these tools. So, you know, you and me, Soleil Dam will have our laptops, we'll have a very high end frontier level model on our laptop that can actually run because the memory will have the memory, the high bandwidth memory technology will evolve to a point where you can run them locally. So I think that's one other, that's another curve that can kind of steepen things a bit and maybe see a little bit of a downturn with that part point like that happens. But even still, there's emerging technologies right now, like photonics, like even graphene processors. There's all kinds of things in a pipeline that can extend this significantly. And in terms of how big can it get the developing world? So you have, you have entire regions of Africa, South America, Asia that are nowhere near as advanced technologically as we are here. There's a lot of growth that can come, there's a lot of expansion that can come. And there could be a whole other worker class that, that interacts with these devices and perhaps even robotics in an entirely different way. So how big can it get? A lot bigger.
- [47:34]
A
Yeah.
- [47:36]
C
Yeah, it probably doesn't slow down until we go up a Kardashev level. Like we're at the lowest level right now. Like maybe when we start collecting all of the energy from the sun, like maybe then we stop needing processors.
- [47:50]
A
Oh yeah, it's, I guess it's more of like a, like a, like a trend. Right. Like there's, there's going to be a, these things are going to be cyclical. I, like maybe it just goes.
- [47:58]
D
The thing is, you're trying to say is, like, when does it stop? What I'm trying to say is I don't think it stops. If you take a look at history, adoption curves don't. They get steeper and steeper and they taper off, but they don't necessarily stop. It just seems like it because, you know, we get to one level and we maintain incremental growth within that level until something else happens. Right. So we had the Industrial revolution, then we had the Internet revolution, and now we have the AI.
- [48:25]
A
It's going to keep going. Yeah, I agree with you. The concept of the derivative is when does the rate of change, of the rate of change go to zero? Like at what point does the steepness of the curve reduce?
- [48:39]
C
I'm less worried about the physical then than the people actually trying to profit off of the software itself. But from a trading perspective, I took some notes here. So micron was $30 a share in January of 2000. Ten years later in 2010, it was $9 a share. So down 66%.
- [49:05]
A
Yeah.
- [49:06]
C
Another 10 years. January 2020 is, it was $50, $53 a share. So yay, it's up 74% in 20 years. And meanwhile spy was up 136% in that time. So you would have been trading in the volatile risky stock instead of the index fund and underperformed. January 2026, it was $415 a share. So 1,266%, that's great. But it took you 26 years of hodling this thing before you got your 10x. And then, you know, in 2014, 14 years, if you, if you bought at 14, if you bought in 20.
- [49:47]
A
Eric.
- [49:47]
C
Sorry. In 2014 after 14 years, you finally had a chance to sell and break even. Like if you bought at 30 and you know, wrote it down to nine in 14 years you could finally sell for break even. And if you fomoed into the top at $80 a share, it took you until break even in 2021. So 21 years to huddle through that. And I'm low time preference, but I don't got time for that.
- [50:15]
D
Well, microns, so there's two points. So coming back to your thing about rate of change. The rate of change, of the rate of change, when is it? I don't think that, I don't think that happens. I think the rate of change, of rate of change will always be moving forward. It's just a matter of how much. I don't think it's ever going to stop. And I don't know if it ever recesses. If we're talking about things in terms of historical trends, we're talking about things in terms of technology adoption, network effects, we can go on and on and on. I don't think that the rate of change, of rate of change ever stops. I think it just slows at best. And to your point, Soleil, that is true, actually saw something similar, but they're also a fundamentally different company than they now than they were then. So I think, I think what we're seeing right now is they had a, they had a very, very gradual pivot towards more purposeful memory build outs. And they just did a massive build out in Idaho in 2022, 2023, one of the two. It was like a $1502-000000-00000 build out that they did in Idaho and they're doing another one right now actually, or they may have just finished it. So they are like a fundamentally different company. Imagine strategy in 20 years is kind of what, what, what we're thinking about. Right. Strategy had the dot com peak and then it crashed and then it just kind of languished and then they moved on to a new paradigm and then now they're into digital credit paradigm and they're probably going to be onto a new paradigm after that and we're going to be looking back on it and someone might be saying, just imagine if you bought strategy at the peak in 543 and you had to hold it for 14 years until it hit 10,000 a share. Right. It's going to be something similar.
- [51:48]
C
Yeah.
- [51:48]
D
So, and that's what I mean by change. I don't think change ever stops. I think there's going to be peaks and there's going to be troughs. But if we're talking about technology adoption, it's always been an upward curve since the dawn of human history.
- [52:01]
A
And I don't think it's just moving faster. It's like compressing too. It's like the time periods between things, it's just getting so fast
- [52:11]
C
soon. But do they have a bitcoin balance sheet that can't be disrupted? That makes me a little queasier about trying to HODL for 20 years for this to rebound when Bitcoin, four or five years is the longest anybody's had to wait to be up on their position.
- [52:30]
D
Those are two different things. I see what you're saying, but the reality of it is we are in a period of time right now where we have bitcoin, we have AI, robotics is on the horizon. Things are going to be very, very disruptive and transformative. I think what Jeff is hitting on is what people are trying to figure out. But the challenge is once you figure something out, it changes on you. So if you take a look at Nvidia, Nvidia was languishing for years, right. And then they had a bit of, they had a bit of a boom when it came to focusing on, on gaming. And then, yeah, then chat. GPT happened right. In 2022 and it's been off the races ever since. And people have been waiting for Nvidia to crash for four years now. I just really think that there's, there are moments in history when something becomes a paradigm shift. And bitcoin in my mind was a financial paradigm shift. But what we're seeing right now with AI and with the LLMs and with the build out is that it's another fundamental paradigm shift that's taking place. So modeling out when does the Rate of change of rate of change. Stop. I don't think it does. I just think it shifts from one to the next.
- [53:51]
A
Here's an interesting chart. Just throwing this out here. Micron Technology price to book ratio. Again, think of this as like your M. Nav, right. Your multiple over and above the. The book value, the assets minus liabilities on the balance sheet. And over the last 25 years it's varied between effectively like 1 and 3 or 0.25 all the way up to 3.09 until about six months ago and it broke through that and went to 4.53 and now it's sitting at 4, 40, 14.4. So like the multiple over and above the assets that sit on its balance sheet. But I guess they're taking into consideration the revenue, the income that projection. Yeah. Of the net income into future. A couple things I was just looking up in the back here is they've got no active ATM issuance which feels like crazy if you're. If your stock 10x's I feel like you should be capitalizing. They raised about a billion dollars of debt but they're sitting on a trillion dollars of equity value value. They could go raise $50 billion tomorrow and have a bolstered balance sheet. It's just a very interesting tactic.
- [55:09]
D
But that's coming. I think all these companies involved in AI trade, they're going to start issuing equity more. I think that's the next. That's the next trend. It'll be stupid for them not to. Nvidia has traded that averages like $30 billion in volume A day. If they even did a trickle on that for a period of any substantial amount of time. The amount of capital they can raise is just unreal.
- [55:36]
A
It's interesting. They issued two. They've got no shelf registration, so no active ATM. They've issued $500 million of debt on April 29, 5.65% coupon and 1.25 billion with a 2035 maturity at 6.05 coupon which was just interesting.
- [55:57]
D
But coming back to the price to book ratio thing and I'm just playing devil's advocate here as people that are invested in bitcoin and bitcoin equities. If when people were saying that strategy should Never trade above 1m NAV or should never trade above 1.5, we were saying that. Well, that's ridiculous. Obviously it should because these are the reasons is very much the same when it comes to Micron, Nvidia and these other companies. There are reasons for them. You Just may not agree with it. And that's another thing that the market is working through. I think the market is trying to say, are these forward valuations? Because the market is. Markets are forward looking. Are these forward valuations valid? But there's really no way for them to gauge that until something fundamentally shifts. But the only shifts that have happened is more upside.
- [56:47]
A
Yeah.
- [56:47]
D
So everyone keeps getting caught on the wrong side of these.
- [56:49]
A
Yeah, it's so interesting. It's like you're also comparing apples and oranges. Right. A credit vehicle, a capital credit vehicle versus future cash flow of these AI memory systems, GPUs, et cetera. Yeah, it's just difficult to compare that.
- [57:08]
D
Matter of perception. Yeah, that what I'm saying is that how are people perceiving the trade versus.
- [57:14]
A
Yeah, I think that's it. It's. There's, there's a lot of sentiment. It's sucking all of the air out of the room right now at the moment. And.
- [57:22]
D
Well, yeah, well that. And that's one of the reasons why. And I know people disagree with me. I think markets move on sentiment. And what we're seeing that is kind
- [57:30]
A
of like this is a sentiment trade.
- [57:33]
D
This is a.
- [57:33]
A
This is definitely a sentiment trade.
- [57:36]
D
All tracer. Sentiment trace on some level. But this is, this is it being kind of dialed up because as one thing shifts, another thing comes to take it off and it becomes this reflexive cycle. And that's. And that's what we're seeing. We saw it with the GPUs. Now we're seeing with memory. We might see it next with photonics, you might see it after that with robotics. There's just going to be one series of shifts. And I think that by 2050, the world's going to be fundamentally different. And I'm not trying to sound like a futurist or anything like that, but I do think that what we are.
- [58:03]
A
Adrian, you are a futuristic.
- [58:07]
D
But what I'm trying to say is that every so often something happens that fundamentally changes the way the world operates. First, like in human history, we can just use very, very quick examples. First was agriculture. Then it was rather organized centralized agriculture. Then it was industrial revolution that took about a century. Then there was an Internet boom where we went from what the hell is the Internet? To we have Internet on everything down to our headphones and our phones and our fridges. And now we're seeing that next shift. The only thing is only took because things accelerate over time. It went from taking tens of thousands of years to 100 years from the Industrial revolution to the Internet boom to 25 years, from the Internet boom to AI boom. Do you see what I'm saying? The shifts are, are getting short. The paradigm shifts are becoming shorter. And that's why I think that if photonics or graphene or robotics, if you think things are crazy now, if robotics gets to the point where, you know, some of these guys are like Elon Musk. Well, I think he's. His claims are somewhat ridiculous, but let's say what Elon Musk was saying is valid, right? And we're going to have a robot in everyone's home. How do you produce all of that? What kind of need is there going to be for memory, for GPUs, for silver, for palladium, for. For all kinds, for copper, for all kinds of instruments and, and materials and technologies to get to the point where having a robot in your home is just as commonplace as having a cell phone? That, that is another paradigm shift that's going to completely upend the planet. So that's why I keep coming back to the point of like, your point is valid and I see what you're trying to say, but I think the challenge that everyone has is the rate of change, of rate of change assumes that it's one curve, but if it's going from one to the next, several.
- [60:01]
A
Yeah, it's several. It's like, yeah, several.
- [60:03]
D
Yeah. If you, if you cannot accurately gauge the starting point, you cannot possibly project the end point if it's just one series of staggered growths in a stair step all the way up through all the progress. And that's what's been happening with technology and adaptation throughout human history. We just haven't realized it yet because you rarely plot out the entire trajectory. But when you do, very, very recently, you see that we haven't had a breakdown, we just had one shift to the next.
- [60:32]
A
Yeah, yeah, that's fair. Let's shift gears. We've got about 20 minutes left. And let's shift gears, move on to the base layer. Thinking about the dollar, the Fed on the horizon. I've got a few charts and graphs to help frame this next part of the conversation. Try to peel everybody back in here. Obviously, AI is changing the world very quickly, as you can see through that conversation that we just had. But I don't think that changes the fundamental trade of what's happening with the dollar, what's happening with US Debt crisis, debt to gdp and the fundamental base layer. I think there's a little bit of a pause. It seems like sentiment is definitely following the AI trade. But it does seem to me that there's just a miss in the catalyst on the horizon relative to everything that's happening with AI at the moment. Thinking that there's no having cycle narrative that's flowing through the market, the I ETF salespeople are probably having more success on some of the AI trade than thinking about IBIT or exposure to these other things. I think that could change over the time. And we are getting into what I think is going to be an exciting Bitcoin summer as digital credit continues to take off. So I want to throw out two graphs here. The compounding problem, US Federal debt as a percentage of gdp. So that's the yellow line here, and that's increasing over time. So this is debt, US debt relative to the productivity of the us. So the gross domestic product and how it's changed over time. So currently the debt to GDP is 122.6%. And since the great financial crisis, it has been compounding at 3.7%. I've also juxtaposed this on the second y axis with the federal debt per capita, showing how that's changed over the last 25 years. Now at around $112,000 per person. And just at the. At the beginning of 2000, it was around $20,000 per person, just outpacing the increase in the money supply. So I think that's a really tricky framing of what we have here on the horizon for Warsh as he enters the Fed. That's why we brought it up at the very beginning. What we will find out here in the next 15 days, 20 days when wash comes out, is how he views this landscape and his perspective of the decisions that they have to make here in the future. The other thing I want to point out this is, this is why we're here. The federal debt versus nominal GDP. Looking at a log scale, the nominal GDP being the green line, $31.9 trillion. And the debt has overtaken nominal GDP starting in 2012, and it is now starting to outpace the GDP in its terms of growth. So the debt being $38.5 trillion. So there's been a lot of focus on interest rates recently. So if you're thinking about refinancing 38 and a half trillion dollars at an increased interest rate, that that relative interest cost increases drastically. I think I've got that here as well. In the next one, this is federal interest payments versus defense spend. So this is the United States, the green line being defense spend, the orange line being federal interest payments. And you can see how that's change changed and ballooned since the year 2000 and even more since COVID where our interest costs are now $1.2 trillion relative to our annual defense spending, which is $1.1 trillion. And again, if a, if there's a rise in interest rates and refinancing at a higher rate, that interest cost as a total relative to the debt starts to increase very rapidly. I think for, I don't miss cite this, but for every, every 100 basis points, you're talking about hundreds of billions of dollars of increase in the debt cost. So I want to put that framing out there. That's the challenging situation from a monetary perspective that we're rolling into and kick it over to you guys. What's your thoughts?
- [64:43]
C
Well, they have to print, but I think they're going to need an excuse because I don't think Warsh wants to come in and seem like Trump's puppet. So, like there's just too much ego in these people for that to happen. And so what kind of excuse do they need? If the war that we're funding right now isn't enough, then I'm just a little nervous that they'll crash the market as an excuse to lower rates a little bit more rapidly and provide some cover for not really looking like they're just doing the bidding of the administration. I thought they were going to do it with silver, and I thought maybe silver was going to keep going and cause some banks to crack. But the bottom line is in order for the United States to outsource its inflation to the rest of the world, people will have to buy the Treasuries. And so I think expect a retreat from global policing and we're just going to start exerting more influence in north and South America. I don't know if it's going to be a gradual print or if they have to tank the market to give us a flash crash and more aggressive printing. But the rates have to come down and the Treasuries have to get sold.
- [66:01]
A
Real question is, who's buying the Treasuries if there is erosion of trust, if everybody's staring at the same numbers that we're staring at and you're looking at. Let me throw one more graph up there for a reference point. This is the US Equity market cap. So this is the summation of the entire US equity market relative to the M2 money supply. So where we're at today, 4.33x this is Q4 2025. So this is last quarter, which I think it's, it's higher because we're at all time high. So it's probably much higher relative to the dot com peak, about 3.8x pre great financial crisis 3.02 and the 2021 peak at 3.27. So thinking about the relative equity value, the equity market value relative to money supply is becoming increasingly higher. Not to say that this is a bubble peak or things can keep going from here. And we've never been in a situation like this before where there's a store of value asset where you can store store value and not have it decay. Thinking about Bitcoin and thinking about the AI trade and how that impacts humanity. So I think things could continue to extend from here. But the real question is what does that look like over time? But back to you guys.
- [67:24]
C
Venezuela, they're going to have to. What's that Venezuela? Or we'll just keep abducting politicians until morale improves.
- [67:36]
D
Well, with, with regards to the, the confidence, China's been selling off Treasuries. Right. And others have been selling off Treasuries. So to Jeff's point, we're going to
- [67:45]
A
need people to buy Last resort is the Fed.
- [67:50]
D
Yeah, right. That's what, that's what it's coming to. So if the buyer of last resorts, the Fed. And so I, I've, I've said this on Twitter a few times that, you know, the Fed is if they, if they, they have to print, but if they print, inflation is going to go up and they have to pay back the debt at a higher interest rate. If they don't print, how do they keep the lights on, so to speak? I, I think that Warsh is in a very, very tenuous position. Yeah, very like he, he's, he's very much in a. Damned if you do, damned if you don't. And this is where Soleil's point comes in. Are they going to engineer some market shenanigans or, or, or is the order going to go out? Okay, guys, the run needs to stop. Pull your money and then we're going to see equity start tumbling and it's going to be a market correction. And how long does that take to play out before someone steps in? I have no idea. The one thing I will say is that I don't think this will play out like 2008. People are already losing jobs. I'm seeing layoffs with all the companies I interact with on a daily basis. It's not because of AI depending, despite what you hear in the news. It's not all because AI Some companies are just not bringing in business and they're hemorrhaging capital and they need to reduce headcount. That, that's a lot of what's going on. And it's not that people are necessarily being replaced by AI. So you have all those headwinds and then you have a reality where people are clearly on edge in the market. Even people that are making money in the market are on edge waiting for something to happen. So I think that if they zig too much when they should have zagged, things can get very, very nasty and it can be a nasty unwind. That's the one event I can see happening where too many things coalesce all at once. You've got the war, you've got the situation with the bonds and the treasuries, you've got the situation with a broader economy. You've got a impetus to create some kind of a tectonic shift that gives them the right and the righteousness to go into the market and say, okay, now we're going to print what needs to happen before that happens, though. That's the one concern point I have, and I'm not sure, which is why I'm inclined to think that we may just be in an upward cycle where you have to own equities and own assets are going to be left behind.
- [70:06]
A
Yeah.
- [70:07]
C
Would 200 a barrel oil do it?
- [70:11]
D
Well, 200 barrel oil will kind of have. Will have an effect in the sense that people will stop driving more, which will cause the price of oil to eventually go down. People will stop buying more because 200
- [70:24]
A
barrel oil put everything plastic that goes through the roof.
- [70:29]
D
Literally our entire civilization runs on petrochemicals.
- [70:32]
A
Yeah. Cost of everything.
- [70:34]
D
200 a barrel oil. That makes everything from a plastic fork to the fucking bottle of orange juice,
- [70:44]
A
toothbrushes,
- [70:46]
D
everything becomes more expensive. Detergent becomes more expensive, all of it. So that ironically enough, let's use that as an example. If we do hit $200 a barrel oil for some reason, which I don't think we will, let's say that we do, consumption drops down and by default economic activity slows down, which will give them then for this to come into the market and print. That's one hypothetical. The problem is what's going to happen along that curve while $200 a barrel oil is.
- [71:15]
A
So there's a couple things that are interesting in the way that I'm thinking about the world right now. One being either interest rates rise or interest Rates drop. And how does that impact digital credit?
- [71:25]
C
Right.
- [71:26]
A
I'm very focused on this. How does that impact the market for digital credit? How does it impact the market for credit broadly? Which I think is another fascinating thing to think about. In a situation where the Fed raises interest rates, that means that inflation is probably running hot and running higher. Okay. So theoretically the asset of Bitcoin is capturing is the vacuum for that excess value, hypothetically. So the value of a Bitcoin balance sheet hypothetically is increasing. Then thinking about the credit market, if anybody wants to go raise debt like capital in a rising interest rate regime, higher than where we're at today and higher than where we're at in 2022, the cost of debt capital goes much higher. That stifles business. So the real question is, what is the true cost of capital for anybody going to raise debt capital and how does that impact the digital credit? I don't think the digital credit products, the demand or interest in those would decline if the cost of capital in the credit markets increases because the buffer is already so large. I could be wrong here. The buffer is already so large and they already have the assets on the balance sheet. You think about that relative risk profile between a new startup that wants to go raise $100 million of debt capital and their ability to earn revenue. Does that business model get eviscerated in 12 months? I don't know. So, so I think it's just fascinating to put those both into perspective. And then like, what about a dropping interest rate regime? The credit products, the credit instruments also I think would look good because the dropping interest rates and having a high interest rate. Just thinking about the relativity of these instruments in different market regimes is a fascinating comparison thought process.
- [73:16]
D
Well, one of the ways I think about it is very, very simply stretches out a lot of retail interest. Right. And, and, and sad as well. Why do you think that is? I, I think it is because people are in a capital preservation, capital maximizing kind of mindset. If, if you take a look at the, what the market is doing and let's say you have a hundred thousand dollars, right? If, if you look at the market, why wouldn't you. And you see AI ripping and whatnot, why wouldn't you just put 100 grand in the market? Why would you put it in stretch or SATA? And I say it's because you put it in stretcher SATA because you're not really comfortable where the market is. You understand that your capital is being inflated away and you want a dividend payment. You Want interest on your capital and you want something that's relatively stable over time. So in the examples that you're giving Jeff, I think that digital credit can still survive and still have interests because people are always going to need a way to either preserve their capital or earn money on their capital in a way that's not going to expose them to a lot of risk. And if these, and if the balance sheet is robust and if they have a way to ensure that a dividend is going to be paid in perpetuity, I think that attracts interest. Even in an environment where interest rates come down or interest rates go up.
- [74:26]
A
Yeah, Dan, I'm going to have you hop in here. I know you got to jump here in like four minutes. Let's final thoughts, just overarching thoughts on this.
- [74:36]
B
Yeah, I think, I mean I think digital credit obviously is an innovation in that it lets you the free market price, the interest rate of a bitcoin backed equity and that's a big unlock in that you got a real free market interest rate which is something you haven't had in a fiat backed system in history since maybe the 1600s, maybe the 1600s on notes issued against gold in safe vaults. So what that results is you find a fair market value of the short term risk free rate backed by Bitcoin. If you believe Bitcoin's pristine collateral, then the result is, I think we'll always be able to look at Stretch and SATA and figure out what the cost of capital is moving forward. And I couldn't be more excited about these digital credit products powering Bitcoin into the future. One point on that is I think we're seeing the price not respond positively right now to digital credit and general macroeconomic sentiments. But people have to remember that bitcoin generally the market has to chew through the float and then the marginal seller is looking for the marginal buyer. And that's when price discovery happens. All of 2022 and 2023 were boring. So I think it's important for people to remember that's how the market works. And then Also we're only 35% off all time highs.
- [75:57]
A
35% off all time highs. Yeah. And I mean there was a, there was a billion dollar seller on IBIT yesterday. It was like 1.3 billion in a single trade. Huge volume bar. The market's got to eat that up. So that's new, new supply that's out in the market and that's going to work its way through. There are people that are buying and selling all the time. And I think you said it. Well, Dan, good stuff. Thanks for joining, Dan. Maybe we'll pass it around to Adrian. Adrian and Soleil.
- [76:25]
D
We'll.
- [76:25]
A
We'll hit some final thoughts here. Go ahead.
- [76:29]
D
Solo.
- [76:30]
C
Yeah, so I saw my son actually sent me a text and it was, you know, a response from AI. He likes perplexity. So he asked it a question, sent me this big blob of text. And it was a review of this video. And it was a product that Fidelity came out with. It's a CMA called Cash Management Account, I believe. And they have it set up to where it's backed by this thing called Spax S P A X X. And you earn some crappy yield on it or whatever. But they're calling it high interest. It's like backed by Treasuries or whatever. And it actually has, you know, ATM card. It's got the. What they're calling high interest yield. You know, ACH payments, bill pay, check writing, all of this stuff. And I just thought, why isn't Stretch and SATA in this thing instead of this crappy mutual fund?
- [77:38]
A
Yeah, I.
- [77:38]
C
So you, you guys are gonna have to figure this out. You're gonna have to work with somebody and. And get this cash Management account set up with the prefs. I can't stand to see this thing. Like, it's a cool idea. It's an amazing idea, but it's got to have a better product built into it. It's not a true checking account because checking accounts are FDIC insured. So I think they do have some FDIC for their cash part. But you can literally just swipe your credit card and it'll sweep in and out of these. These products. And so you guys are going to have to take these guys. Lunch money.
- [78:21]
A
Noted. Thanks. Thanks for the. Thanks for the idea, Soleil. That's duly noted. Let me write it down. Cash Management Account. You're talking about creating a digital dollar, right? Like a bitcoin dollar?
- [78:35]
C
Yeah. And it's. I. I'm still nervous about the defi thing. Right. So wrapping the products in tokens still scares the bejesus out of me. And this to me is a way to integrate it in a way that doesn't really have to touch the defi space. So I was super psyched when, when I saw this.
- [78:59]
A
Check this out.
- [79:00]
D
Look.
- [79:00]
A
Look at Fidelity. Do you really need a bank? The answer is not as clear cut as it once was. Consider the alternatives.
- [79:06]
C
Shot fired.
- [79:08]
A
No way. Good. Look at you. Fidelity. All right? They've been at the forefront of this.
- [79:14]
D
Yeah. Fidelity has been getting pretty aggressive. I have a good chunk of capital and Fidelity and I used to. My money used to get swept into SPACs as well, until I just started putting it into stretch and recently SATA.
- [79:30]
A
Wow, look at you. Fidelity. All right. Bravo. Okay, well that's. That's fun. There we go. There's a. There's a $100 billion idea.
- [79:43]
C
Exactly. You're just handing out ideas, right? This is all about sentiment and we live in an attention economy. So I think that's probably explains why podcaster is. Isn't really the pejorative some people want it to be.
- [80:02]
D
That's another paradigm shift that's. That's changed. I mean, 10 years ago that would have been the case, but now, I mean it's fundamentally different. But closing thoughts for me, Bitcoin's gonna be fine. Strategy is gonna be fine. I think we're just in a lull.
- [80:21]
A
It's.
- [80:23]
D
You know, I'm not. I'm not a cycle bro or anything like that, but I think and I talked about this on a pod recently, October 10th definitely took some of the steam out of the market and we've been kind of chopping ever since. I think will we find long term? I think 27 will probably be an up year and 28 will be up here and 29 will be up here. You just have to endure 26 along the way. AI trade, if you haven't been in it, don't go chasing it. If you have been in it, secure some profits. That's what I. I've done and that's what I'm gonna do.
- [80:56]
A
So 100.
- [80:58]
D
However, that said, and again, this is because of an AI bull. I think that the people waiting for a massive crash because of some flaw in the system, I don't see that coming to. So Lail's example of is the market going to our economic conditions going to force some kind of shenanigans to cause a crash. That. That is the outlier tail risk event. But the growth we're seeing right now is not.com bubble. Like this is real demand. This is inelastic demand. And we're seeing the market trying to forward model that. So secure your profits, keep your head down if you can, and try to just weather the storm. Because I know there are a lot of people out there that are very, very anxious right now, which is why products like Stretch and SATA are also good. So. Yeah.
- [81:50]
A
Yeah. Thanks, Adrian. Thanks, Soleil. My final thoughts. Balance sheets are incredibly healthy. This is a Decade long trade. This is something we've been talking about for a long time. We're talking about changing the fabric of how people interact with money. We're talking about a total addressable market being the entire monetary system itself. Like that doesn't, that doesn't change overnight. That takes decades to change. And that's what we're in the process of doing. We're in a world where now the spigot is open of new capital being able to enter the bitcoin world, that is the credit market capital, US dollar capital that is sitting in savings accounts or in any other credit funds. And I think that interest will continue to expand over time as the market starts to recognize these things and we've got boots on the ground and they start to develop a multi year track record. I think if we were to look out five to 10 years from now, I think there's going to be hundreds of billions of dollars of digital credit that are issued and sitting out in the market. And that should significantly bolster the underlying value proposition of Bitcoin and how society is interacting with the money supply. At the end of the day, there's only 21 million Bitcoin. And as of today, Bitcoin's a $1.49 trillion asset. It's only valued at $400 million more than Micron technology as of today. So just something to continue to be aware of. This is a huge asset that is in a new era, right? You've got the ETFs, you've got the digital credit instruments. These things are not going anywhere. And you've got the President of the United States tweeting about crypto. You've got bipartisan support of, or what looks like bipartisan support of, I guess the Clarity act moving forward into the future. And you've got other younger people that are starting to embrace the concepts of interacting with these things and internationally. The defi world is exploding with these instruments, the digital credit instruments. And that is not going to stop is that capital is looking for places to park. So that's all I've got for episode 68, the new regime, the investment grade Bitcoin podcast. Thank you for joining. We will catch you next week. Cheers everyone.
- [84:07]
C
See you.