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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. It is for informational and educational purposes only. Nothing in this discussion should be considered investment advice or the offering of any security or other investment product. Please consult your own investment and tax advisors. And now I'll hand it over to the True north team for your regularly scheduled programming.
- [01:26]
B
Whoo.
- [01:27]
A
Welcome back, True North. Episode 72, the investment grade Bitcoin Podcast. We are here. We're talking about bitcoin. We're talking about securitized bitcoin. We were talking about digital credit and companies that hold Bitcoin on the balance sheet and the volatility that's happened in the market, the changing capital structures and the framework, and how we can start to think about these companies moving forward. And our goal is to help educate and talk about everything that's in the market and provide a source of signal for things that are actually happening in the real capital markets. They're happening in New York. They're part of the conversation. And with me today, I've got Soleil Mason and Grain of Salt. And I'm your host, Jeff Walden. And we are going to kick this off. So a lot to talk about. We're going to do a quick grip here. It's going to be about 50 minutes. And let's start off with the biggest story of the week, which is strategy over the last week. So the prior week, they raised $1.1 billion of cash in a week to solidify the balance sheet and bolster the credit quality of the underlying digital credit instruments. And then on Monday morning, they announced a new credit capital framework. And my plan today is to walk through the credit capital framework and we'll just talk through it, how we think about it, how we see it as investors and. And then how this impacts the balance sheet moving forward. We'll talk a little bit about the strength of the balance sheet and then just theoretically, what's happening, like with the capital markets and how they're shifting and evolving, because many people see these preferred equity instruments and are trying to wrap their head around how they fit into the world. And we can provide a little bit of context there. So without further ado, let's just jump into this thing. I'm not even going to kick it around the field here, but the digital credit capital framework, this is a PDF, maybe I will share my screen and we can just walk through it together as a team and talk through each component. So this is the credit capital framework that was launched. This is on the investor Website investor website for strategy. So the framework includes five separate components and let's walk through them. First one, a board approved USD reserve policy. Second one, a revised STRC dividend policy, A digital credit securities repurchase program, A class A common stock repurchase program and a BTC monetization program. And the first one here really being the USD reserve policy. So what the lay of the land, what happened over the last month? Strategy used about one point, I think it was about one and a quarter to $1.5 billion of what was previously deemed the USD reserve to retire $1.5 billion of convertible debt that came due in 2027, 2028. And so that, that drew a lot of scrutiny. There were a lot of people that were confused and concerned about the liquidity profile because they thought that the cash was there for paying the dividends in the event that they didn't have access to the capital markets, et cetera. And so that caused some narrative shift in the market. We saw this, it got incredibly loud. People were complaining about the instruments and saying that there's you know, doom, doom loop scenarios that are on the horizon if the price of Bitcoin Falls, etc. And the timing was bad. I think quite frankly the timing was bad when they used the cash when they were negotiating the program, I think it was around 80. The price of Bitcoin is around $84,000. And as we know today the price of Bitcoin is trading around $60,000. So there was a significant decline in the, in the price of Bitcoin and the used cash in a time where there was a weakness in the underlying instrument that they hold on the balance sheet. So now they've got a new USD reserve policy in place and over the last week they raised $1.1 billion. It was a significant capital race. Right? The market tends to think that these companies don't have access to the capital markets. That being said, Strategy issued a significant number of shares to raise $1.1 billion and bolster the capital on the balance sheet. And now as of Today they hold $2.55 billion in, in USD cash. And the current annual expected preferred stock preferred dividend payments is about 1.76 billion. So as of today they've got about 17.4 months of coverage in USD cash on the balance sheet. So I'm going to pause there before we go into the other components of the reserve policy. What is your guys thoughts on on the reserve policy? How you think about liquidity as an investor that maybe holds SDRC or as msdr, that there's two competing forces here because you've got the credit product that demands security and stability and then you've got the common equity which wants the amplified bitcoin exposure. So there's a couple competing forces here.
- [06:13]
C
Yeah.
- [06:13]
A
I mean, I'll start with you.
- [06:15]
C
Oh, go ahead, Mike.
- [06:18]
D
Excuse me. So one of the things that we talk about in liquidity has different definitions. So one of the definitions of liquidity is can you sell something without a slippage in price? For the most part, cash has no slippage. Does it lose its value over time? Sure. But if you're sitting on 17.4 months, you don't have to sell bitcoin, you don't have to sell MSTR in order to fund those dividend payments. That's why I think it's so huge, so 18 months and then the governance that it's not going to drop below 12 months without a board approval. I think it's, I think it's massive. I think it's a great, I think it's great what they did. I really do.
- [06:57]
C
So, yeah, so I mean, as a maxi, I don't like cash, but as a common holder I have to understand that the prefs are the buying tool for bitcoin. Right. So you have to cultivate that tool or common gets no yield whatsoever. So when the experts are yelling about sailor catering to the press like. Yeah, that's, that's the whole point, that's the whole strategy because the common doesn't win without them. So it's, I think it's not to one's self interest to complain about trying to make the, the press credit worthy as a common holder because that's the whole game.
- [07:39]
A
Right? Right, Mason?
- [07:43]
B
Yeah, this, this whole kind of event the past few weeks reminded me of the M navigation forward guidance that we saw at the end of last summer and in which they put out MNAV guidance as to when they would sell common equity and, and quickly discarded that guidance as the equity started to sell down. And what happened here in, in my mind was they bought the convert with the cash. Bitcoin began to fall and they, I think it was two weeks they used the ATM on the common and they bought some bitcoin and some cash. And I think for a lot of investors the cash component was a huge source of comfort, especially for traditional investors who maybe aren't as comfortable with bitcoin and they see cash as certainty and bitcoin as uncertainty. So yes, in some sense the BTC coverage did increase by doing that transaction by buying back the convert. But the loss of the cash or the loss of the certainty in their mind was huge. And I think some big players sold and some small players as well. And that kind of led to a, to, to a margin call. I think there's a lot of, of retail leverage in, in stretch and it kind of cascaded.
- [09:23]
D
And,
- [09:27]
B
and so I, I think there's two things here. There's the, the, the credit view and then there's the common equity view. And, and as bitcoiners like Sole just said, we don't like cash. Cash is uncertainty and bitcoin is certainty. Right. So it's a very delicate balance that management has to deal with here. And I like formalizing the cash aspect of this. I was talking to a traditional fund manager, someone who's worked at golden at the BFC Bitcoin Corporations event last Friday. And their main selling point to the institutions was, hey, they have the cash. Look, they have the cash. And when you took away the cash, that selling point wasn't there anymore. And the uncertainty of bitcoin becomes too overwhelming for most people. So I really like the formalization of this cash reserve and I think it's bolstering the credit quality and then hence the common equity.
- [10:34]
D
I just want to make one quick point because I don't want people to confuse this. If there was a margin call on stretch, it was not strategy or stretch, it's the investors, hedge funds, whatever else took a leverage position on strc. And so in essence they took it on margin, then they could be liquidated. If you have bought stretch strategy and you just hold it just straight, there is no margin call. So I just want to make sure people don't, don't confuse us together. Because some people, a big account said, oh, strategy is going to get margin called. I'm like, he doesn't buy on margin. How does he get margin called?
- [11:14]
A
Doesn't exist.
- [11:15]
D
Right, right.
- [11:16]
A
Yeah. So, and all of you guys hit on quite a few things here. I liked the summary from each perspective. So a few reminders. When strategy IPO these products, they actually held zero cash. They had zero cash on their balance sheet when they IPO the products. And yet they scaled them pretty quickly. I think that was a function of the fact that they built a USD reserve. I don't know if you guys remember about a year ago when they didn't have any cash, there was a ton of noise about how are they going to pay the dividends. It's like, well, They've only got $2 billion of this outstanding and the annual dividend obligation is $250 million at the time. And the common stock trades $2 billion a day and the Bitcoin trades 20 to 60 billion dollars a day. If like I need to sell Bitcoin or common stock, I'm able to do it. But it was very clear that investors, it was difficult for investors to wrap their head around that. And there's a couple things that happen, right? Even in the last week, the fact is they raised $1.1 billion. When we're in incredibly deep bear market closing below the 200 week moving average, yet they still had access to the capital markets. They raised $1.1 billion. So it kind of proved again, we once again that the model would theoretically work without the cash on the balance sheet because they have the access to the capital markets. But there is that uncertainty component which Mason, I think you hit on quite well. There's the uncertainty of the value of the Bitcoin, there's uncertainty of the access to the capital markets and that cash provides that liquidity cushion. Understanding that the credit is interested in their ability to be able to get paid the dividend. So when people are underwriting the credit and having conversations with people, the, the, they're underwriting the duration, it's like how long do I want to hold this instrument? And they're underwriting, am I going to get paid every, you know, for the duration of the instrument that I want to hold it? And will the instrument still have, you know, near par value at the period of time that I want to sell it? And, and it's evolving, right? This is, we, we're all learning by all of this data and information that's flowing incredibly quickly. And it, it's helpful to think about the, the mind of the high yield investor and the development of this ecosystem because it's changed quite a bit in the last decade. I don't know if many of you are familiar, but there's a couple high yield bond funds out in the market. They're called HYG and JNK. HYG has about $16 billion in AUM and JNK has about 9 or $10 billion in AUM. These are high yield credit ETFs. Okay? So when you buy the ETF, you get the yield of the ETF, but there's no principal maturity. You have no collateralization, you have no maturity of the high yield exposure. You're literally holding an equity that is paying you a yield and your ability to get out of it is the liquidity. Of the underlying instrument. So that is an evolution of, like the high yield credit market, people that are interested in the yield and, and they're not necessarily underwriting the bankruptcy of the etf. They're underwriting like, what, what is, what is the ability to get paid the yield and how long do I want to hold it while I'm getting that yield and where does it fit into my portfolio? So I think we are, we are truly experiencing a technological evolution in credit and how people think about income in a portfolio. At the same time, where you've got traditional bonds are incredibly illiquid, and underwriting traditional instruments is becoming increasingly difficult with the advancements of AI, especially with legacy instruments that are out in the market, and increasing gaps in pension fund liabilities and dwindling balance sheets on the insurance company side, some of the biggest buyers of credit in the world. So what do these do these help potentially fill those gaps of those pension funds and those insurance companies that are having significant shortfalls is as the evolution starts to impact some of these different marketplaces. And then the other thing here, Mason, you hit on MNAV forward guidance, and it was being prescriptive. So in the past, when they had provided the MNET forward guidance, there was a bit of a hiccup in the market. The credit market hated it and the equity market hated it. And actually the equity market was excited, but the credit market hated it. And you've got this kind of balance where you've got to keep both pools happy. The credit market was frustrated because they needed to know that you had access to the common equity to be able to pay the dividends and move forward. So there's this equal balance of making the bitcoin market happy, making MSTR common shareholders happy, and then making the credit happy. And it's the equilibrium of all of them. And I think it's quite frankly possible because the, the common equity holder is like, do you want to own this capital vehicle that's sitting on more of the most high performance capital in the market? The credit is. Do you, do you believe in the credit? And you're going to get paid this instrument? And then the bitcoin market should be happy because you've got a large continuous buyer of these instruments. And Jeff, Cool.
- [16:29]
B
Yeah, I, I will say, like, I think it is potentially a fair criticism to say the, the cash reserve is unnecessary maybe from like an equity standpoint, right. Like they're, they're able to raise capital. Like, like an analogy I'm thinking of is like wearing a helmet in a car. With a seat belt on. Like, is, is that, is that really necessary? But I think if, if it, if it makes the traditional credit investor or the broad credit investor more comfortable and otherwise they won't touch it, then yes, absolutely. It's a necessary component to creating equilibrium in the system.
- [17:09]
C
Yeah, the, the M Nav guidance, I'm, I'm glad Mason brought that up because the haters hated it, but they loved it compared to how much I hated it because as an, as a covered call seller, I'm like, you're giving away the game. Like, I know when I can come in place my calls, I know exactly when I can take them off. Because if I know you're going to do something or not do something based on M Nav, it was just too easy to track. And so I, you know, using some adversarial thinking, I thought that was. They were being a little bit too transparent from, for my, for my liking. And I'm glad that they pivoted from that. And you know, of course they got criticized for fixing the glitch also. Right. And then moving off of that guidance. But this seems like the right mix of transparency without giving away the game. So they retained their optionality. And I, yeah, I much preferred this to the M Nav guidance. And it's just kind of good to see it's bullish that they're learning from the mistakes too and that this was a much better rollout, I think, than the M Nav guidance was.
- [18:09]
B
Yeah. Fong had a tweet about iteration and, and I think that's really what's happening here. It's still a process of these are brand new or a year old and mistakes will be made and, and there will be hiccups, but being able to, to get back on your feet and learn from your mistakes and, and kind of have. Hopefully they have more like foundational principles here, like the cash reserve, like, let's put it in stone to some extent, is, is going to make this whole platform way, way more robust.
- [18:49]
A
Right. Yeah. And there's, there's a couple other, couple other things here. We'll hit on it. And preserving optionality is incredibly important. And I think this investor presentation that they send out to the market, it provided some clarity, but it also preserved significant optionality. And the next one hits on that perfectly. So STRC dividend policy, they raised the interest rate from 11 and a half to 12. I think that was a really good move. The market was kind of forecasting this was coming. But the next biggest thing is the corporate objective Right to have STRC trade over time approximately between 99 and 100, 100 being the stated amount and the rate they emphasized here and I may highlight it, the dividend rate adjustments are one tool available to strategy. The company may also respond to market conditions through USCD reserve management, monetization of Bitcoin and credit securities repurchases, etc. So the, the interesting takeaway here is effectively it seems like they have dropped this guidance of we are going to increase the interest rate if the VWAP of the last month Is is below 99 or below 95. Which I I think is a again very, very good move in thinking about the prescriptability here of capital being able to manipulate your security in a specific direction. In order to adversarially make you make a decision that may be against what you want to do as a company, you need to take into consideration all of the data, everything that you know about the market. And having some flexibility to evaluate where the market is at I think is incredibly important. That's how we've viewed our security SATA as well in the marketplace is understanding that the market is just super dynamic and there are many forces that may go into play with how we make a decision on interest rate or how the instrument or security is trading. And you know what may happen in a week may be an anomaly in some of the data that you're looking at on a long term basis. So I think it's super valuable to retain that flexibility there. And then the next couple pieces are maximum flexibility too. Digital Credit securities repurchase PROGRAM I know a lot of people were forecasting, they thought that maybe strategy repurchased STRD or sdrk will you actually have to have a program in place in order to do that? So I kind of figured they weren't going to make any of those repurchases over the last week. But now they've got a formal program in place, they have the ability to do it. I would suspect they are not going to go through that process for quite a while unless these get incredibly depressed. And I think the last one that would get any attention is probably STRD given that it is a non cumulative security. Just tossing that out there. But they have this flexibility. It is a tool, right? If any of these get dislocated and they identify opportunities, boom, they can shoot that bullet. They've already got it filed. Now that is a future event that anybody trying to manipulate these securities has to take into consideration that this is an option the company has. And same with MSTR as well, establishing a repurchase program of up to a billion dollars in aggregate. Now, this is formally filed and now it is a tool in the toolkit for the company, depending on any dislocation within the market, whether that be MNAV or short interest or. Or anything that is a tool that they've got at their disposal. Pause there. Any. Anything to add?
- [22:11]
C
Well, yeah, I mean, I think it's just, it's a good tool to have. And it's like the saying the anticipation of death is worse than death itself. So just having these tools available I think is good to be able to threaten with if they ever have to use them. Or, you know, kind of like they did where they said, okay, yeah, we can sell bitcoin. And then they dip their toe in and sold a little bit. You know, maybe if they wanted to use these just to prove to the market that they can and will use them. But yeah, I think you're right. This is just kind of being put in place and it's probably some time before they'll use any or all of these tools.
- [22:49]
D
And I think that the surprise factor, because they could repurchase these when they see fit. And look, if you're a short seller and you know that strategy is going to keep on issuing shares, that increases the denominator. And what we've seen over the past years, very specifically since July of last year, the stock is way down. I mean, let's call it for what it is. And did they. But did they buy a lot of bitcoin, including all through 2025? Absolutely. But that metric is bitcoin per share. And economically, so mathematically the bitcoin per share has gone up huge. It went up whatever, 25% last year, but economically the stock is down 75%. So by having that and saying, hey, you know what, we could buy back MSTR whenever we want to. And the shorts are like, oh, when are they going to do it? But we're not going to tell you. And that optionality is what caused them to rethink those short positions. And so that's the way I see with this. And so do they sell bitcoin? I don't think they do it. Do I think they re buy back stride or strike? Because strike can convert into shares. I think the answer to that is they'll be very surgical about it. And what I would recommend, if anybody from strategy is watching this, I would prefer if you would take out, focus on one of the preps and bring it to zero, then take out two prefs, 50% each. I think having a cleaner balance sheet with less, with less things on it is probably better in my view. And so that's what I would recommend for the same whatever dollar amount you wanted to buy it. I would work on one pref and get rid of it. If you choose to do that.
- [24:33]
A
If you were to get rid of one, which one would you get rid of?
- [24:36]
D
I would take out Stream. I mean, I don't, I don't think stream does anything. It's under a billion. I would just get rich. I, I don't. It was a good experiment. I don't even.
- [24:46]
A
Trading like, is it even trading on the. That.
- [24:48]
D
That's my, that's my point. That, that's my point. I would just get rid of that. That's the easiest. But if there's no reason to do that now, I, I would just say, look, if I think Stretch will get back to a hundred dollars, we need some help from bitcoin. But I think Stretch gets back to a hundred dollars in two weeks. Less than a month. If not, you know, two weeks to a month. And, and everybody's like, oh, stretches back at 100. One advice I would give strategy is to say don't sell it at a hundred dollars and one cent. When I did a post, I said my recommendation was a hundred dollars and ten cents or $101. Let it go up a little bit higher and then don't hit it every day and do 50, 50, 50% in cash or. And 50% in Bitcoin and let that, Let that cash balance build up. Look, if you, if you get too much cash, you could always use it for something. You could strategically buy bitcoin. You could use it for a stock buyback. So that's the way I would look at it. I think too much cash. What would be too much cash? Three, four years of it. If you have too much cash, that's not a problem. It really isn't
- [26:00]
B
one thing, the buyback idea isn't new. Right. This was pretty well discussed in the last earnings call. I think what is interesting is the discussion of inoculating the market. Was the sale of 32 bitcoin inoculating the market? And I would argue no. Right. I don't think it was a large. I don't think it was a large enough amount to really matter. What would be interesting to me, and counterintuitively, potentially really bullish would be if strategy sold a billion dollars of bitcoin. Right. Did something super net accretive for shareholders, like buying Back to preferreds or there's a plethora of trades that you could do and then the market might be able to get over itself and realize that a billion dollars isn't that much. Strategy only holds 4% of the network. That isn't that much. Right. Like what I was thinking about is, Jeff, if I said to you, you have a 4% chance to live, you would be like, oh my God, I need to go hug my loved ones. Like, I'm going to die. That is such a tiny amount. And that's, that's strategy has 4% of the network. It's really in the grand scheme of things, not that large yet. The, the narrative, at least online and within, I guess the, the broader financial media scape, Bloomberg, etc, it's all focused on strategy and, and what they're doing. And I have people texting me, oh my God, is bitcoin done? No. If they sold a billion dollars, bitcoin would be fine. And I think, I think that is maybe an important message or idea that the market needs to digest. Should it be right now? I don't know. It's, you know, it's up to management. But that's just something I've been thinking about and I had a few discussions last week about, about that. Yeah, I mean, yeah, go ahead.
- [28:14]
C
If, if all the bitcoin that they bought couldn't make the price of bitcoin go up, why do people think that them selling some bitcoin would make it go down? Like, make that make sense?
- [28:26]
D
You know what? It's like that, that, that's a key part because it doesn't ever seem, people don't seem to be symmetrical about this or proportional. It's like, well, he's the biggest buyer. Well, he didn't cause the price to go up. Okay. When he sells, oh, he, he dumps, then obviously bitcoin is, is just going to drop like a rock. And I'm like, I don't see why that's the case. Because as, as Mason just said, he's 4% of the outstanding bitcoin. He's not really big enough to do that yet. I think what he did last year, this is my speculation was, and, and we've talked about this before. January 1st of 2024, Strategy had less than 200, 000 bitcoins. Now they have 850,000. Right right about there. We didn't think that they would quadruple the number in two years, but he wasn't big enough at 200,000. That was the thing. Now he's on a path to hit a million bitcoins before the end of the year. True north has got a countdown timer on it. It's like the middle of October. And what's going to happen is now we're in Q3, we'll get the earnings report, maybe we'll get some benefit from bitcoin and then watch it come back. Mark my words. You know, when we're closing in on a million bitcoin before the end of 2026, and people be like, oh my God, he owns too much now, it's going to play like a broken record and I'm ready for it.
- [29:47]
C
Put it on repeat.
- [29:48]
A
Yeah. To your point, Mason, you've got, you've got. If you sold a billion dollars of bitcoin, you're talking about a 1.2 trillion dollar asset. 0.08% of the market cap is if you sold a billion dollars of bitcoin. So they've got this BTC monetization program. This is the last component of the capital framework that they've got here is to generate up to 1.25 billion to fund the USD reserve and then additionally to fund preferred stock dividend and interest expense as they become payable. As we pointed out over the last few episodes, I think OG bitcoiners, people that have held bitcoin for five years or greater, there's been a net outflow of like 125,000 coin over the last eight months, which is just a massive outflow. And the market has just gobbled it up. We're still at 60,000 and there's been a net outflow of 125,000 coins and people are sitting there buying it. So is right now the right time? Maybe not. I wouldn't be surprised if bitcoin found a little bit of strength and stabilized a little bit. To see them start to dip their toe in the water and utilize some of that policy to potentially add. Add capital or, or buy. Buy MSTR back. I think that would be interesting. That would be an interesting decision.
- [31:07]
D
I want to make a quick point. Strategy has 100,000 bitcoins that they purchased over 100 at $100,000 price. They've already, you know, did the distribution slide in the last quarterly announcement. We get to November, right? If I was there, what I would say is, hey, you know what? We've already told the market that it's about the net purchases of bitcoin. I would have no problem. You know, if I, if I was sailor, I would sell a billion dollars worth of bitcoin in November if the prices are right. And then I'd book a buy it, right? So we, they sell a billion dollars worth of the high cost bitcoin and then one week later I'd buy back one and a quarter billion billion. And the average person on Twitter or X would be like, I don't get why I did it. I go, he booked a forward tax loss on this. They already showed us the slide. And people are like, it's tax loss harvesting, right? And if you don't take advantage of it, you know, that's something you could do now. You could say, well don't do it. But that's a benefit that they could take and they could put that on their books. And you know, tax loss harvesting isn't a new idea. It's been around for, I don't know, 40 years. So some people, they're just so single, rigid, right? And then a week later they'll buy it back. I don't get what he's doing. I'm like, I know you don't get what he's doing because you're not particularly sophisticated.
- [32:31]
A
The so. So just to put this into consideration or into perspective, you've got $10.44 billion of stretch outstanding and it pays 12%. So the annual interest obligation is 1.25 billion. Divide that by 12 months, that's 104 million. Divide that by 2. So because it's semi monthly, that's $52 million every, every two weeks. I wouldn't be surprised if one of these weeks they come out and they say, we sold $52 million of Bitcoin. Did you notice we just paid the dividend with it? I don't think it's going to be a billion. I don't think that's likely. I think they're going to come out at some point in the future, probably within the next couple of months. We sold $52 million. There it is. We just paid the dividend. Bob's your uncle. Let's ride.
- [33:24]
D
Jeff, you said this before, cash is fungible. So if they raise cash by selling MSDR stock or they raise cash by selling bitcoin, doesn't matter where the cash. You know, obviously if you sell bitcoin, they'll sell the high cost bitcoin. So from that perspective, they do that, they pay the, they pay the dividend and then people say, oh well, I thought it was a Ponzi scheme. Well, they're selling the bitcoin in, in order to pay the dividends and Somebody be like, well, how long is that going to last? And I'm like, oh my God. You know, I wish there was a dashboard that would, that would tell that. Because if they, it would only last 29 years. If Bitcoin never went up again, it would 29 years. But if Bitcoin goes up by whatever 3%, then it would last forever. And people like, I don't get why it's 3%. I go, because the amount that you needed to go up on is based upon the total amount that they hold. And people like, you already lost me. I'm like, forget it, I can't explain it to you. And wait, I will explain real fast.
- [34:23]
A
Go ahead.
- [34:24]
D
If, if you buy a million dollar house, right? Everybody's like, who can afford that? Okay, let's assume in the neighborhood there's a half million dollar house and a million dollar house and they both go up by 2% a year, right? Somebody would say, I want to own the million dollar house because that 2% on that is more is twice as much as the house at 500 grand. And somebody's like, well, I don't know why you're saying that. I go, that's because they own 850,000 Bitcoin, right? So that's where that comes in. Assuming the same rate of return because they own so much bitcoin, that's what gives them the additional levers, right? You're growing when your house is twice the value for the same percentage. You're growing, you're growing your equity at twice the rate. Everybody in nominal terms anyway.
- [35:09]
A
Yeah, I just want to hit, hit this real quick and before we switch gears here is, this is just week over week and this is just showing the balance sheet week over week here. Let's just hide the others. And we do this pretty consistently in order to show that health and strength of the balance sheet. So a couple things that I want to point out here. So BTC price, we're getting a little bull run here while we're on this call. I think Bitcoin hit 61,000. So I'm just going to put it at 61,000 MSDR price. Last week it was 95. Today it's 93. Bitcoin assets about the same. But USD reserve has grown by $1.1 billion. Pretty much everything else stays the same below. But I'll point out here the leverage ratio has effectively gone down because they've got more assets on the balance sheet. They've got $1.1 billion more of liquidity. Liquidity of cash on the balance sheet and additionally for the bitcoin price to. So what does the bitcoin price need to be for the assets, the bitcoin plus the cash to be less than the debt on the balance sheet. And that price has reduced from 6,000, $6,200 to now $4,900. Basically, the price of bitcoin has to go down to $4,900 in order for the value of the assets on the balance sheet to be worth less than the debt. The balance sheet, again, the price of bitcoin is trading at $61,000, I think even at the COVID lows. At the COVID lows, what did bitcoin hit? Like $3,500 or something like that. And then since then, it's exploded significantly higher.
- [36:34]
D
So, Jeff, I want to make a quick point about this, and this is a great chart when people talk. So net worth is an interesting concept because your debt went down, went down by 2%. It went from 10% down to 8%. That's because they increased the cash holding. And somebody be like. And this is what people do not get. It drives me crazy. On X, it's like, oh, he's leveraged to the hilt or he borrows tons of money. I'm like, where is he borrowing? He goes, he sells stock. That's not borrowed money. That's an equity. And they're like, oh, well, you know what I mean? Or you're just. You're just being using fancy words. There are just a lot of people that don't believe in equity markets. They just don't. So when he sold that equity, it reduced his debt. People like, well, he bought. No, that's factually incorrect. Either you agree with accounting or you don't. And that's why it gets tiring to, you know, explain this to people. He doesn't buy a margin and the debt was reduced by selling. Now does it shareholders?
- [37:35]
A
Yeah, totally. Can you put that? So, so what's that?
- [37:41]
C
I said, can you put that chart back up the health of the balance sheet? Because, I mean, I know we look at it all the time and we say, look at this balance sheet. It's so healthy. But can you just put something in here that would make it unhealthy? I don't know, put the 10x the preferred stock in row 11 or something, and then drop the bitcoin price in half. Like, would that do it? Like, at what point would we start the show and be like, ruho Raggy, you know, the balance sheet is now unhealthy. Like what, what does that drive the amplification up to? Does that, Is it, is it going to recalculate that for us or anything?
- [38:23]
D
I'll give you a good one. Make the cash zero. Just. Well, if you make the cash zero. If you just make the cash zero that one row, right? Now assume that that was zero like the way they used to do it.
- [38:33]
A
If it's 0, it doesn't change. It doesn't change anything. If you 10x.
- [38:37]
D
It does, it does. It changed the debt to asset ratio from 8%. It did change. It changed it to 13%. When you change the 25:50.
- [38:47]
A
Yeah. When it goes from 8. Yeah, right.
- [38:49]
D
It goes to 13%. Even if the cash was zero, their debt is only 13% of what they hold. Right. So I zeroed that column out.
- [38:58]
A
So if you, if you 10x equals this, then.
- [39:01]
C
Yeah, because now the debt plus like 300 or something. Right. I mean, if it looked something like.
- [39:08]
A
Well, but, but theoretically, theoretically, if you 10x the preferred stock, you've got to take that. You got to take that difference and you got to add it to the top line. Right. So you gotta. So that would change the top line to equals that plus that.
- [39:30]
C
Oh, my bad. I might have taken down some rabbit hole because everything's connected.
- [39:34]
D
Yeah. You see, this is what people don't get, is that this is why I called it a Rubik's cube. Everybody likes to look at one. Let me look at MNAP, M NAP. Two companies could have be off by a factor of 20x and they have the same M NAV based on the Bitcoin that they hold. Let's compare two different Bitcoin treasury companies. One can have four times the amount of shares. So your bitcoin per share number is completely different. And then you talk about how much debt they have. And so strategy has the lowest debt. Except for Strike, there's a couple other companies that have zero debt. But then you look at trading volume and the trading volume, some of these companies is dismal. Right. And then you look at the stock price. Is the stock price at a dollar or $3. So as soon as you start talking, if you talk about one metric, it's like, oh, I looked at this one metric and I don't like the clock company. You have to see they're all interrelated and a lot of people can't handle, oh, I've have to analyze something based upon three or four different inputs. It breaks their brain.
- [40:31]
C
Yeah. So I guess my question is what kind of scenario would it take for us to come in here and be like, hey, guys, I'm a little nervous about the balance sheet? It's not healthy anymore.
- [40:41]
B
If, If. If bitcoin was at 10, 000, I would be pretty nervous.
- [40:44]
C
Yeah. And everything else stayed the same, like, all the obligations and the.
- [40:49]
A
Yeah, basically they would need. They would need to. Basically 10x. Yeah. They would need to increase the preferred stock exposure, and then bitcoin would need to crater, like, by 80% from here. From 80%.
- [41:05]
D
Right, right. And so, Jeff, if you make one more column, and I'll give you a good example of this. Just duplicate the column per scenario.
- [41:14]
A
Yep, yep.
- [41:17]
D
And. And. And I'll show you again. This is what people don't get. So we'll have the new column, and we'll make this really simple. Okay. Make the. So make the bitcoin held. Reduce it by a hundred thousand. So make it 747. Right. So when you do that, now if you were to sell that, then you have to increase the amount of cash you have by $6 billion. So now the cash goes to 8.8. You see, this is where the Rubik's cubes come. Oh, you're playing with game. I'm like, so now you're. Now your cash goes up by $6 billion. Now you have 8.5, $5 billion. People are like, well, what. So now if you look. Oh, the debt to asset leverage ratio went fricking negative. Right?
- [42:05]
A
Yeah. So, right, right, right, right.
- [42:07]
D
Just broke them. Now it breaks their brains. Like, well, how does that work? It's like, well, because they're sitting on a ton of cash. So if somebody said to me, if Strategy only had 700,000 Bitcoin and they're sitting on $8.6 billion in cash, like, oh, I don't. Like. I go, what part don't you like? And they're like, well, what happens if he doesn't. If it's your chart. We didn't talk about this. I never. I don't touch your chart.
- [42:33]
A
Yeah, no, yeah, it's. It's a great point. That's a great point.
- [42:37]
C
Yeah. The reason I thought this was a worthwhile exercise, because we can't. We can't promise to tell you when to enter into a trade or when to exit that trade. We can pull up these numbers and say, this looks like a healthy balance sheet, or it doesn't. And I'm just trying to, like, imagine a scenario where we would just have to honestly come out and say, yeah, this looks like it's crumbling or, you know, the death spiral maybe is real or something. But until that happens, we're just looking at the balance sheet and telling you if it's healthy or not.
- [43:09]
D
Right. And I want to chime in on something. If somebody says to me, well, Jeff's chart is wrong because it can't be a negative debt. I want to tell you something. I looked at SpaceX, their EPS is negative $0.72. I'm like, so wait, what you're saying is, oh, if I own a share of SpaceX and every, every quarter. Well, it's, it's for, let's say it was a dollar, they're going to take 25 cents out of my share every, every quarter. The answer to that is no. So, you know, if they were sitting, they wouldn't sit on $8.6 billion. But think about the optionality that gives them. So now they're sitting at $8.6 billion. Like, cool. We're going to do a $2 billion buyback of the shares now we're going to retire strike because I believe strike is like one and a half billion dollars. Right. So they could wipe out Strike, or they could wipe out Stride. They could definitely take out stream. Now would I, would I feel better if they only had 750, you know, 747, 000 bitcoins? I'm like, nah, I'd rather they continue with, on the path to what they're doing. But this shows the optionality.
- [44:14]
A
They're so de. Levered. Yeah, they're so de.
- [44:16]
D
Levered. Right.
- [44:17]
A
So the decision, the decision at that point is if they were in this scenario would be to pay off the convertible debt. You just drop both of these by, by 6.7 and then they have cash and no debt like that would be, that would be the ideal scenario. Now. So, like, to your point, what, what would a, a tricky balance sheet look like? Let's go back to 2022, which we've shown the last couple weeks. Like, good thing we weren't doing this show in 2022, because this would be a trickier balance sheet to, you know, be comfortable with. I personally was comfortable with it because I knew, I knew what this looked like. Like, I knew what that debt looked like. Now on numbers on a screen, you don't know what the debt looks like. But when, when you, like, do the analysis and understand what, like the covenants were, what the horizon was thinking about bull market and ETFs and everything that was on the horizon. Like, I thought this balance sheet looked really good at that point in time. Now, again, referencing to where we are today in this column, this is this, like, I've literally looked at balance sheets for a living for, like, my entire professional career. This looks like an incredibly healthy balance sheet compared to, you know, most of the other balance sheets that I've ever looked at in my entire life. And then not, like, notwithstanding the fact that they have the most high performance capital on the balance sheet compared to any other, any other capital instrument in the market. Like, if you're going to go buy stock in an insurance company, like, what. What's the purpose? Right. If I, like, do I think they're going to have explosive growth? Not really. No, I don't.
- [45:52]
C
So.
- [45:54]
B
Okay, Jeff, one thing I want to point out, and I don't know, something I'm. I noticed so on their tweet, they said with 2.55 billion of USD reserves and 1.25 billion of BTC monetization capacity for reserve building strategy has 3.8 billion of dividend coverage representing 25.9 months. And that, that, that phrase, BTC monetization capacity for reserve building isn't all the bitcoin, effectively, that, like, at any point, yeah, they could. So, so it's like, it's just like a little. They said, okay, we have this 1.5 billion that we could sell. We didn't sell it, but we could sell it. And then they also have this, you know, another portion of bitcoin. Like, what's, what's happening here?
- [46:59]
C
Well, don't they have to go back to the board or something for more?
- [47:01]
A
Yeah, so. So I, I think that's two. I think there's two components here. The, the first one being they could sell up to 1.25 to just fund the reserve, not necessarily pay the dividends. And the next line is to additionally fund the preferred stock and dividend. So I think it's like they can sell bitcoin for cash up to $1.25 billion under this. Additionally, they could just sell the bitcoin too.
- [47:27]
B
Could they not do that before?
- [47:30]
A
I think they could. Yeah, they could. Yeah.
- [47:35]
B
It's just. It's just. It's just funny. Like, maybe I retract my inoculation. Like, they, they effectively said they, they're like, we might sell this, but at any point they could have sold that 1.25 billion for cash. It's just. It's just a funny, like, almost psychological.
- [47:57]
A
It's the only one that I really have a hesitation with because it's like you could use, you could use the bitcoin at any fund the reserve or fund, any of the payments. So, like, why would you put a box around it, you know?
- [48:12]
D
Yeah, chiming in real fast. Look, I'm not gonna even name the guys. There have been a bunch of small time actors that were claiming they looked at and they said, strategy only has six months of Runway to pay. Once they run out, they're screwed. And I was like, I just.
- [48:29]
A
People, they're just stupid.
- [48:30]
D
No, no, Right. And so what happened was, so they do this analysis and a spreadsheet just like yours, Jeff. And I go, you guys keep on forgetting that they have 850,000, and these are Bitcoiners. You're forgetting that they have 850,000 Bitcoin. And then the people, you know, they like my tweet. Like, you just forget. You leave off the 850,000 bitcoin and you're a bitcoiner.
- [48:51]
A
So you want me to use bitcoin as money? Like I.
- [48:54]
D
Then they have the bitcoin, it's like. And you know, and they could sell off off. Because they have 850,000, they could sell off.02%. And people are like, oh, well, they sold some, I guess. And then they're always like, we should use bitcoin for transactions, but not strategy. No, not those guys. They should never use that.
- [49:12]
A
They can't. They can't. They must hold for eternity. It is funny. Okay, I've got a few minutes before I've got to run here, so just a couple, couple more things that I want to hit on and you guys can keep chatting afterwards if you'd like. But I'm going to share my screen and just, I just want to show one piece of this structured market. This is something I've been thinking about. And so I guess these are my final thoughts here. So what, what you can see on your screen, this is US Securitized products and the growth curve of securitized products from 1970 to 2026. And this is, this is showing the big blue here. This is agency mortgage backed securities. The red, non agency residential mortgage backed securities. CMBS Asset backed securities. Collateralized debt obligations. Collateralized loan obligations. What I wanted to point out is that these securities are growing at a very significant pace. So, for example, CLOs are growing at a 25% compound annual growth rate since inception. And since the year 2000, they're growing at a 13.3% compound annual growth rate. If I were to venture to guess one of the future Opportunities here for perpetual preferred equity and the growth of these instruments is through a CLO type structure. This is something I've talked about several weeks ago. I'm starting to wrap my head around this possibility that we start to see perpetual preferred equity clos and maybe that would get funneled into the CLOS bucket here that's growing relatively quickly and that's providing an income sleeve that is effectively bitcoin exposure within a collateralized loan obligation. And I think that marketplace can grow drastically over time by accessing new pools of capital that historically weren't able to get this type exposure. And just look at mortgage backed securities, right? Like these are a great example. Like look how this has gone from $0 to $12 trillion in effectively 25 years and it's continuing to grow. And why? Because people wanted access to that type of income exposure. And now we can get a different type of income exposure through a bitcoin powered security. And I can, I can absolutely see that fitting into these buckets. So that's number one. Number two in walking around New York and having conversations with people is very clear that people wanted leverage on the underlying digital credit instruments and there was access to leverage in the traditional, in the traditional financial markets. And they had viewed, there were several companies that view the leverage opportunities on the digital credit instruments to be too good not to take. And so that we literally over the last couple weeks saw some liquidations within the market. And I think that was primarily coming from the traditional financial markets that got institutional size, scale and leverage access to some of these instruments. So we saw some weakness in the underlying probably as a result of the changing dynamics with the cash portfolio and the cost of bitcoin going down. And that resulted in weakness and leverage liquidations. And then there was probably short interest that was happening on top of these instruments. And we saw it in our security as well as we saw the, in SATA. The short interest went from I think it was something around like a hundred thousand shares short to now it's over 1.2 million shares short. And that's, that's data as of June 15th. And we saw the borrow rates on the underlying security go from about 4% about a week ago to roughly around 60% today. So that's, that's something that the, the market there is, there are people that are trading these instruments and they're doing it very, in a very sophisticated way. So some of these steps on being a little bit less prescriptive with how you're going to utilize these things and providing maximum optionality and the tools in your toolkit provide, provide that element of uncertainty that changes the risk calculus for how a somebody that wants to manipulate the security, it changes that risk calculation. So I, I would suspect that to continue, we are learning and evolving and this data is becoming more available and quicker and we're able to respond and try to create really resilient securities here. So that is our ultimate goal. I think these will be, I think the volatility will reduce over time and this, this drawdown has been a great piece of information for us to like, learn from and, and work with. So I'm super excited about this space. I'm very happy to see these instruments recover over the last couple of days. It's been very good to see and I wouldn't be surprised to see that continue and hopefully we can get some strength back in underlying bitcoin here to help us out. Give us some tailwinds would be nice for once. Okay, that's all I've got. Maybe I'll kick it over to you guys. Soleil. Final thoughts.
- [54:17]
C
I was saying, I don't know, six months ago that the four year cycle is dead. And then Tony from the Proof of Pain podcast was showing me the freaking four year charts and I was like, oh, it's kind of doing that thing again, which is annoying as hell. But if that is the case, then we've endured, you know, a good portion at least of whatever the bear should be. And all of the power loss stuff is saying that we're in deep value territory. And so, you know, however much more pain we have on the horizon, it just seems like it's short term and, you know, better days are here to come.
- [54:53]
A
We're nearly there. It feels like we're nearly there. Go ahead. Over to you, Grain.
- [54:59]
D
Yeah, so I'm just going to wrap it up with the high points. Look, strategy. And I posted this. Highest amount of Bitcoin ever. 847,363. They're still on target for a million bitcoins in 2026. Whether it's October, November, it doesn't matter. Third best quarter out of 24 for acquiring Bitcoin. 85. 2 64. So Q1 2026 was the second best quarter ever. Right. And the only quarter that beat it was Q4, 2024. So even in a down market, they had the third best quarter ever for acquiring bitcoin in nominal terms that, that, you know, awesome. This is where capital markets are open. The BTC yield year to date is 8.3%. Why can they have this? Because as the base got bigger, the percentage gets smaller in order for the nominal amount of coins to continue to grow. That was a whole analogy about a $500,000 house versus a million dollar house. Even if they both grow at 2%, you want to own the million dollar house. Because at 2% is growing in nominal terms twice as fast. It's the highest cash reserve ever, 2.55 billion. Right. And the net leverage is down to 8%. So, so look, all the metrics are looking good. Do I like the stock price? No. Do I think they're going to improve it because they gave guidance on the M Nav? Yes. So where do I see it is strategy needs a little help from Bitcoin.
- [56:22]
C
Right.
- [56:22]
D
Bitcoin is the underlying asset. But as an operating company, I think strategy is fine. I think that STRC will get back within two to four weeks sooner, more likely sooner rather than later. It'll get back to $100 and this will blow over and everybody and I, I will not let these people forget. I will call them out.
- [56:42]
A
I have more bookmarks and screenshots than ever here.
- [56:45]
D
Yeah. And these clowns will come on in, in the fall and, and anyway, thank you, gentlemen.
- [56:52]
A
Yeah. Over to you, Mason. Final thoughts.
- [56:55]
B
Yeah, I mean strategy equity is, is working. Leverage cuts both ways. And, and then another thought is money is made in the bear. So if you're, if you're a common holder, it might be painful right now, but the, there's going to be bumps in the strategy. There's going to be bumps in the management. And I applaud strategy management for how they handled this and I think they will learn from this and, and implement new protocols clearly. And yeah, I'm, I'm just really bullish on, on the long term of this whole space of Bitcoin and I think in a few years people will be wishing that they could teleport.
- [57:43]
A
They paid attention. Yeah.
- [57:46]
B
To, to, to right now. In the same way I wish I, I was more invested in, in 2022 and in 2020 and. But you know, when the going gets tough, people like, people puke. People look away. People, you know, people, people run away. This is, this is where, this is where, you know, real opportunity is and, and where money is made. So that's where I'm absolutely.
- [58:14]
A
Yeah. And we're quite literally pioneering an absolutely new category of asset. This is a new asset asset class that's never existed before and it's under a year old and people are excited to call it dead and it's like, well we don't even know what this can be. Give it five years and this thing is going to rip your face off.
- [58:31]
C
We're still beta testing.
- [58:33]
A
Yeah, we are early days here and I'll tell you, I'm working incredibly hard and there's a lot of exciting things.
- [58:41]
D
I got to chime in here for a second look and this is a classic example. I don't know if the guy's a troll, but you know, he just said you guys never talk about the taxes that strategy has to pay each time they sell bitcoin. No, no, he sells the high cost bitcoin and books a loss.
- [58:59]
A
It's easy. You don't even need to talk about it. Just sell the high basis bitcoin.
- [59:03]
B
That must be rage bait. That must be rage bait. And it worked.
- [59:07]
D
Okay, it worked on me.
- [59:10]
A
That's it. Episode 72. Thank you for joining True north and we will see you probably next week.