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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.
- [01:25]
B
Welcome back, true north. Episode 66 A Historic Day for digital credit and Bitcoin. Excited to be back here talking to everybody about it. We're a day late, but we're going to get after it, we're going to chat through it. I'm just going to jump right into it. We had an enormous day today. I've been up since 5 o' clock in the morning, central time and getting ready to get all of our paperwork filed with the SEC and get everything in the market. So we could talk about our big announcement today, which is the announcement of daily dividends starting in June, so starting next month for seda, which was a really big monumental step for us. And we also announced that we now have zero debt on our balance sheet. So we are a perpetual preferred equity only capital vehicle with zero debt and we're excited about the new structure and how this can move into the future. So we've got the clean capital structure and the perpetual preferred equity instrument now pays daily, which was the first security in U.S. history to pay a daily dividend. When you think about how money markets work, they accrue daily, but they pay once a month at the end of the month. So this is a novel approach to actually have payments that are coming in daily. So I'm going to kick it over to you guys. I've had a super busy day thinking through this and I just want to hear your guys thoughts and we can kind of unpack it and go from there. I'm going to start with you, Soleil. I know you've been thinking about this. I saw you had an orange pill investor earlier today.
- [03:02]
C
Yeah. So when strategy said, hey, we're going to do twice a month, I mean I was kind of trolling but I said, hey, why don't you just do daily and get it over with, you know. And then of course a couple of months later, you guys just blazed a trail. And I thought it was kind of interesting because what I said on my show today was strategy was the pioneer. They put bitcoin on the balance sheet, they published a playbook for everyone to follow and other companies have tried to follow with more or less success for different companies. And I Said this was the first time that someone was actually innovating instead of just playing copycat. And I was actually corrected in the comments. They were like, well, actually Strive had the cash reserves first, too. And I was like, oh, my bad. Okay, that's fine. And I just think it's kind of cool that even, you know, because we talk about AI companies or software companies or just anybody can be disrupted, you know, car companies and, you know, the only thing that can't be disrupted as a bitcoin balance sheet is. But that doesn't mean that other companies won't innovate and take some advantages when they can. But of course, the more other companies buy bitcoin, it just makes everyone's balance sheets better. So it's competitive, but it's also cooperative.
- [04:26]
B
Yeah. Rising tides floats all boats, right? Yeah, absolutely. I mean, I can't tell you how difficult it was to push this forward. We had so many conversations with nasdaq, dtcc, our transfer agent, our lawyers, operational, inefficient operations, thinking internally how we make it happen, and then just back and forth, continuous for a really long time. So it was something that we've actually had on our radar for quite a while. For several months we've been looking into the frequency change. So it wasn't like we just started a couple weeks ago. This is something that's been in the process for quite a while and we've been able to finally get it out to market here and push the envelope. So I think this is an enormous impact and change for the entire capital market, the entire financial markets. And a lot of people will compare STRC to SATA, which I think is fair because they're very similar type instruments. But comparing this instrument to the rest of the world is going to be so fascinating over the next 12 to 24 months. Maybe I'll kick it over to you, Grain, some of your initial thoughts and reactions. He's frozen. Okay, over to you, Dan. We lost you, Grain. You got bad service. Over to you, Dan.
- [05:57]
A
Hey, guys. Yeah. Well, I think what's on the top of everyone's mind today is specifically considering the ex dividend day for STRC. And STRC traded at $1.5 billion of volume. You know, now SATA is being turned into. Every day is an ex dividend date. And we see the most aggressive amounts of volume traded on these ex dividend dates. Because look, I mean, you can buy in the ex dividend date and then hold and try to clip the dividend. And if the equity trades down more than the Dividend you receive, you just have to hold for another 30 days or however long it takes to recover to par. Right now it's taking on average about 20 days for stretch to recover to par. It's like a trade where if the equity doesn't trade all the way down, you clipped a risk free overnight yield and you're happy as a clam. And if it doesn't work out in your favor, you don't clip, you know, a 24 hour risk free yield, then you just have to hold it and wait for it to recover and you know, you make a very high annualized return, 11.5% with STRC and with SATA even higher. And so now people are going to be doing that every single day with seda and I just don't know where the training volumes are going to go. I think they're going to be remarkably high on a daily basis. And then the last point on that is, you know, we talked like the unlock with Stretch moving from the other perpetual preferred equities to Stretch was simply that they shortened the duration of the credit by being paid out by having a variable monthly dividend, the duration of the instrument is compressed or the McCauley duration. And with SATA now paying out daily, and correct me if I'm wrong, Jeff, but as I understand it, it's still variable rate monthly. Based on the vwap, you still, you have a massively short duration instrument. And I could see a world in which the variable rate mechanism is programmed not on a monthly basis, but maybe on a biweekly basis, then on a daily basis. Things could get super, super interesting with the way these equities are trading algorithmically. And I think this is only accelerating. The tokenization of SATA is now effectively a yield bearing stablecoin that beats any yield bearing stablecoin that's come before it. And there doesn't actually need to be a second layer token or wrapper or anything. Once that's a tokenized equity issued directly by Strive, it's a complete category killer for stablecoins. So I think it's pretty, pretty interesting.
- [08:21]
B
Yeah, super fascinating. You hit on so many things there, Dan. I think computers will be very interested in this type of instrument because it's going to be trading significantly. That arbitrage surface is actually increasing pretty drastically and it's not just within the bitcoin ecosystem. It's also looking at the other equity, the other equities or dividend paying equities or credit instruments that are out in the market. For example, none of this is financial advice, but thinking about, okay, if I were to short Hygie. Hygie is the high yield bond ETF. I think it's paying, I don't know, 6.5%. It pays one time a month. Right. If you short that instrument and you're holding the short position, when it pays the dividend, then you owe the dividend. But if it pays once a month, you can hold it for 19 days, close the short position, flip the yield. And that's an interesting structure. And this is not necessarily something that retail may do, but this is something that large institutions are going to consider. They're going to consider significant carry opportunities across different platforms. And it's all going to be algorithmic, it's all going to be computer driven. And I think that ecosystem can explode because there's a difference in the payment frequency. That's an arbitrage surface. And now you're going from 20 days to or once a month to 20 days a month. There's now 20 opportunities for different arbitrage movements. That can happen. So ultimately it should increase, you know, I would think it would increase the liquidity profile for these instruments. It should increase the liquidity profile across other credit instruments. We'll see.
- [10:11]
C
Totally tell you, I can tell you this, retail is interested. I actually tried it a couple of times. I shorted stretch a couple of times and I bought more strategy with it and it, it was actually fine. You would, you would need that movement within that, you know, 20, 25 day period because you'd want to exit before you had to pay the dividend. And of course I wasn't paying attention and I forgot so I ended up paying like a dividend. But it was fine. It worked out. It wasn't like so fabulous that I like, oh yeah, I got to do this all the time. It was kind of a pain in the butt to try to the ex dividend date. But yeah, it was viable, it was fine. But to your point, Dan, about the refractory period, you know, being 20 days, I'm excited to, to watch that. That's, that was the most interesting thing to me because, you know, if it only has to trade down a nickel because of the dividend that was paid out, I mean it can go back to par right away. So I'm, I'm excited to see, you know, how early in the day that that little, you know, that little bit of dividend that got paid out, maybe the clip as you called it, gets pushed back to par. It's going to be super fun to Watch. Yeah. My only. It's very interesting.
- [11:22]
A
Yes. Yeah. My only thing is I hope you boys have enough room on your common ATM to continue expanding your balance sheet. There may be infinite demand for this product.
- [11:30]
B
Yeah, you might want to have to file for an increase, I think. Yeah, we'll see how that goes. One of the more exciting things I'm interested in seeing how this plays out as well is right now, every 15 days, thinking about the different record dates between Stretch and SATA, you see a lot of increased energy and activity of people talking about these instruments on X for the days that are leading into the record date. And then afterwards it's kind of like a cool off period. It's like cools off and then it's every 15 days it's almost like it ramps up and then cools off. Ramps up and cools off. Now we're talking about a potential situation where it doesn't quit. This is a steady stream of a dividend payment that's happening over time. And I think that could increase the amount of energy and people that are talking about these instruments. I would assume strategy would follow suit at some point in the future as well. Just thinking about having having a daily dividend frequency. I think Saylor's mentioned he would pay hourly if he could. And I think with tokenization you could do that in the future. So I think this is, this is the horizon. You know, we are likely going to see multiple perpetual preferred equities backed by bitcoin that have daily dividends and there's not going to be a day off, there's not going to be a cool off period. As the market starts to digest, what is the risk profile of these things? Especially if the volatility is reduced drastically, the Sharpe ratios should theoretically rocket and explode, which is going to create a bunch of noise and buzz within the market and the ecosystem. So it will cause people to think about what is the true risk profile of these things. And this is something we've talked about several times, is how do you quantify the risk profile of these instruments, particularly if you don't have any debt on your balance sheet. We also announced that today we don't have any debt on our balance sheet. So thinking about the risk profile of these instruments, what is the risk profile? The risk profile is my ability to pay that dividend into perpetuity. How do you mathematically calculate that? How do you compare that to other things in the market? How do you start to see the relativities of those different instruments? And that, that, that noise Will. Will continue as well. But Dan, you brought up another thing that I think is interesting thinking about. Like, again, the horizon here. We talked about daily dividends. I think there's another horizon of, you know, bringing the interest rate down daily. So there. The interest rate could potentially adjust daily. That's another frontier. And then you could go even further with going hourly and tokenization, things like that, or expanding to trading 24, 7, 365. Like right now, this daily dividend will be on business days only. So it'll be five days a week. We did that to maintain. Every day is exactly the same. So we take what would be the monthly dividend and we divide it by the number of business days within the month. And that gets us to the monthly dividend or the daily dividend for that month. So it will change and vary slightly every single month. The primary reason for that is not all years have the same number of days in it. So we had to solve for some years have 250 business days, some years have 251, some years have 249. So we had to solve for working around this mechanism as well. So we've had to solve a lot of problems and, you know, super, super excited to bring it to the market.
- [15:14]
C
Yeah, I was wondering why you didn't just divide by 252. But then I guess leap year screws that up too. So.
- [15:20]
B
Yeah, it was a problem. It was a problem that we had to. We had to solve. We got to it and we're like, okay, well, how do we actually do it? Right? We actually split this up and this is a conversation we had, you know, multiple back and forth with the lawyers talking about different dividend days, different structures, 252, 249, 251. Do we do more? How do we. How do we structure it perfectly? And ultimately landed on number of. Number of business days within a year and divided that by per month. So each, each month has its own individual allocation.
- [15:53]
C
And I think you caught a bunch of us off guard. Like, I think a bunch of us expected, okay, strategy went to twice a month. And so obviously strive is going to go to twice a month and do opposites so that people could get four dividends a month potentially. And then you just came out of left field and was like, nah, we're just gonna, we're just gonna, you know, go go long on this one. And I thought that was pretty cool. It definitely wasn't what I think people were predicting.
- [16:23]
B
Yeah, we hyped it up too. We set ourselves up for, you know, to, to potentially disappoint people. But I'm glad it, you know, lived up to the hype. Dan, I'd like to get your perspective a little bit on this too. Like I know you mentioned if this is tokenized, it's effectively a yield varying stablecoin. Now I would think there's going to be other layers that are built on top of this as well. Right. Saturn and Apex, those have both been incredibly successful. I think today they bought another 100 million. I think Apex bought another $100 million of stretch today which is just a significant amount of volume. So these things are still working and taking off. And I think a shift to daily dividends significantly changes the risk provisioning that you'd have to do to facilitate liquidity. So historically, let's just say you've got a token like Apex and you're getting paid a dividend one time a month. You now then have to take the liquidity risk across the other, you know, 29 trading days. So you have to have like a risk buffer to be able to account for the liquidity across the other 29 different trading days. Now if that goes from one dividend to 20 to 22 dividends, that risk provisioning that you have to do changes drastically. So that should theoretically increase the liquidity across the tokenized version as well because. And the potential yield that they can offer because you'd be pushing the margin because your risk provisioning that you need to do to facilitate liquidity would drop. So yeah, would love to get your thoughts around that.
- [18:12]
A
Yeah, I think you're totally right. It definitely changes the risk calculus on the back end holding the collateral. But look, with equities becoming. I have a chart up here of the amount of public equities being traded on Hyper Liquid as a percentage of the total equities market, we can get into that a little bit. But Hyper Liquid is kind of eating into the traditional equities market. There's going to be a lot more. I mean 24, 7 trading is coming. We know that with the NASDAQ we know these things will be able to. Will kind of be securitized as a great job tokenizing the equities themselves. I think that you guys now have such a product that can be so native to crypto familiar people that I don't know exactly the end form. But I think people will be holding SATA natively in defi markets, in wallets, on regulated platforms, simply because now there isn't a huge value add with a wrapper right. Like Initially, when it was a monthly dividend, the Wrapper added daily liquidity, 24, 7 liquidity and daily dividends. There's a value add there. I think what you guys now have is kind of the ultimate product and it's going to be more and more difficult for like for example, one of the value adds with the staking. So both Apex and Saturn are a staked model. You stake your token, the price of your stakes token accrues yield daily. Then there's a cooldown period when you want to pull out your staked token back into stablecoins and go about your merry way. Now with you guys, you're accruing yield daily. You can compound it, reinvest it daily and there's daily liquidity. So in every respect, Native SATA is a superior product to any staked crypto vault. Plus it doesn't have the extra third party risk of the DEFI protocol on top. So I don't know, I'm very bullish on the actual equity.
- [20:06]
B
Yeah, yeah. You don't have to take that third party, that third party risk of you don't know what they're operating behind the scenes.
- [20:15]
A
Yeah, yeah. And the smart contract risk is real. It's very, very real. With protocols like aave, which is the largest lending platform in defi, having hacks, you know, you're not necessarily safe anywhere. Like the NASDAQ isn't going to have a hack. Like DTCC isn't going to misrepresent the number of outstanding SATA shares.
- [20:35]
B
Right, right. Yeah, yeah.
- [20:39]
C
You mentioned the Drip too, Dan, and I was, I tried to find reliable numbers on what percentage dividend holders actually, you know, sign up for Drip, you know, dividend reinvestment. But I'm going to just go out on a limb and say that holders of SEDA are going to have the highest Drip percentage of people are just like, yes, obviously I want to buy a few more shares every single day and just let it compound. I, I just think you're going to be setting records for the number of people signing up for Drip compared to other products. I don't know if there's going to be a way to, you know, find out if that's true or not, but I just suspect it's going to be true.
- [21:25]
B
Yeah.
- [21:25]
A
Jeff, is that auto can do, you know, the statistics on brokerages, whether or not it's like auto selected for holders?
- [21:35]
B
Every brokerage is different. Some brokerages have it, some brokerages don't. This is something that, you know, we're, we're in Conversation trying to align with the brokerages on all of those.
- [21:46]
C
Yeah, it could be a marketing aspect too.
- [21:48]
A
Yeah.
- [21:49]
C
Encouraging people to sign up for drip.
- [21:51]
B
Yeah, the, the, yeah, I mean the, the drip is super interesting. Um, I mean that's when you're thinking about going from APR to apy. That's where the, the slight unlock and increase in APY from having multiple dividends paid out over month relative to once a month. The, a couple other things I wanted to chat through here is like it, it does theoretically kind of change how somebody could think about money. Right, Dan. Which is kind of what you're getting at is that like the, the crypto defi native ecosystem, you're like the world is quite literally evolving in front of our eyes. We are watching how this ecosystem is changing. And I was just brainstorming. I think people are going to want to get their paychecks paid in SATA or STRETCH or any of these perpetual preferred equity instruments or direct deposit. You get a direct deposit and you're utilizing that as your basket. That's just collecting over time. I think that's an interesting future to think about. It's like, okay, if the people that are working in the world are getting their paychecks direct deposited into a securities portfolio and maybe that interfaces with your credit markets or your credit ecosystem. That's interesting. That's a, that's a super. That changes how society interfaces with like day to day money. And that's literally happening in front of our faces. I think a lot of people thought that was going to be going to be like any of these other crypto coins, you know, 33 through crypto coin 3 through 40. Right. But the equity market is evolving at a very rapid pace relative to the crypto market as well. So it's just super fascinating to watch this advancement. And then thinking about track record is interesting as well. Right. If we're talking about having a three year track record, let's say 36 dividend payments over the next 12, 24, 36 months. Right. Historically, if we had once a month dividend payments, once this starts, once, you know, daily dividend start, we'll have 36 dividend payments in two months. So, you know, starting to build that, you know, continuous track record of continuously paying dividends over time. I think that conversation of being in the market every single day helps the broader world, the broader ecosystem see what the possibility is here and drives continuous noise into the market.
- [24:44]
A
Yeah, I think that's a good point. In the kind of an underrated point. It's, it's like getting, it's like putting in reps, you know, just seeing those dividends paid. Dividends paid. Dividends paid. Because like there is some of the risk involved in these products is like a missed filing or a missed dividend payment, etc. Etc. And the higher the frequency, the kind of, the longer the track record over the same period of time.
- [25:08]
B
Yep. Bingo. And right after this, so we're going to chat for, I don't know, another 40 minutes. But right after this, I'm also going to the Money show here in Dallas. So I'm going to go talk to a bunch of boomers about this new perpetual preferred equity instrument that starting in June pays daily and it's paying 13% yield without an expense ratio and no lockups and it's liquid publicly traded on the market. So I'm super excited about that. The last one we did, did, went really well back in Vegas. So, you know, we're going to do that here in about an hour. Matt and myself.
- [25:42]
C
Yeah, I woke up, woke up this morning and X was just on fire. Was like, you guys had made the announcement and I'm like trying to scratch the. My eyes open and like figure out what the hell is going on. And I like within an hour I texted my mother. I was like, because she's just terrified of number go down. She, she's like got PTSD from the COVID crash. Right. She just cannot handle volatility. And I was just like, stable stock pays 13 pays every freaking day. And you know, I, if I can convince her, I think it would be a perfect tool for someone like her.
- [26:23]
B
Yeah, absolutely. The. I'm interested to see how these conversations go. We're going to, we're going to be there for a while and chat through this and then, and then immediately we're going to fly to New York and we are ringing the bell at the NASDAQ tomorrow morning. So we will, we will be in New York, ring the bell at nasdaq, get some attention there and have conversations with other people in New York and talk about this new advancement. I think it, it changes, like I said, it changes how people can think about structuring their exposure to monetary products. Right. So you bring up your mom. I'm also thinking about like structured products, wrapping these products even further in order to get an investment grade rating. Thinking about what we've talked over the last couple of weeks, like a structured product where you've got an investment grade tranche and an equity tranche that also becomes even more interesting to quantify. Easier to analyze the risk profile of. It's probably more interesting to the rating agencies as they're able to calculate a risk profile around fundamentally changes how risk can be viewed relative to these instruments. You just get so much more refined. And that's the power of having an instrument that's also 24 7, 24 7, 365 liquid that's sitting on the balance sheet as well is like you have the ability to provide this type of solution. And I loved looking at the innovation of dividends over time too. So starting with the Dutch East India Exchange in the Dutch East India Company back in 1610 and then moving over to the Realty Income Corporation that ticker o The company in 1969 announced the first monthly dividend and they trademarked the monthly dividend company and from then it was backed by real estate. It was a real estate because they were collecting rents on commercial real estate and residential real estate. And so they collected rents every single month. So they said let's just pay out dividends every single month. And so that was an innovation back in 1969. I think they followed for the trademark in 1998 but that changed the construction of that started creating mortgage backed securities. So that kicked off mortgage backed securities I think late 60s, early 70s and they really started a boom in the 80s they kicked off mortgage backed securities. All of these different structured wrappers that fit around them. All of those started to trade in the equity market and that expanded drastically for yeah, 50, 50, 60 years. So exciting to plant the flag as the daily dividend company. I think we'll carry that for quite a while and I'm pretty happy about it.
- [29:21]
C
To your point about potentially having this be someone's direct deposit, I think someone would have to probably build the rails for you to be able to spend it like that. Like lightning lets you spend some sats and let it just be instant and trade it 24 7. Like when I was trying to orange pill my brother in law he's like get back to me when I can buy a Candy Bar from 711 with Bitcoin. And when, when I went with with Tim to Pub Key for the first time and bought a cheeseburger instantly with lightning I couldn't wait to get back and was like I bought a cheeseburger. You know, he's like here you go. Yeah. How do you like them apples? How do you like the cheeseburgers? Yeah, so you know somebody will build it if you know, maybe, maybe it becomes a payment rail. I mean didn't Jack Mahlers just go completely off fiat and he uses his platform to pay his bills right from his bitcoin stack. So I'm sure somebody can figure it out.
- [30:22]
A
I agree, but I don't think the credit system and I think with fiat, if the medium exchange continues to be dollar denominated then I think the means of payment will always be primarily credit based. And whether that's actually executed with a stablecoin or executed through a credit card company. I think the big, big unlock is like lending debt, mobile finance, fintech where you get a direct line of credit. So like interactive brokers has the ability to, you have a card that you pay with a debit card and it pulls margin directly from your account. So I think the biggest unlock with SATA is kind of something like that where you're actually borrowing and spending your SATA with a debt based account, vice versa. Because most of the infrastructure, the payment infrastructure in the first world isn't set up for stable coins and I don't necessarily know that that will change. Everyone wants to use debt to pay.
- [31:16]
C
Yeah, that's awesome. That makes sense.
- [31:19]
B
That's just how societies have, have evolved. Right. It's like I've got this access to credit. Why would I not use the credit and then.
- [31:27]
A
Exactly.
- [31:28]
B
Collect the points, pay, pay when I need or pay when the capital comes in the door and then I'm not worried about getting hacked on my debit card. If there's a, if there's a problem on my credit card I could just get it reversed, you know.
- [31:40]
C
Right, right.
- [31:41]
A
You don't want to be rolling around 20 grand of say a stable coin in a hot wallet on your phone that then gets drained at the airport. You don't want that, you know. Right, right.
- [31:53]
C
Somebody hits you with a tap to pay for 20 grand.
- [31:55]
B
Yeah, it's a vector, it's a risk factor for sure.
- [31:59]
A
And I mean the Maxis are going to completely light us off for this conversation. But right now that's the reality of the situation.
- [32:07]
B
Well, yeah, it's difficult, right. If you've got bitcoin. I just don't want to spend my bitcoin. I love bitcoin. I love bitcoin and cold storage. I think it's a great asset, it's a great commodity to own. And I think we all agree, we all agree on that. But I don't necessarily want to spend it for a candy bar or Coca Cola or parking at the airport
- [32:35]
C
or
- [32:35]
B
when it's down 40%. I just don't want to do that.
- [32:39]
A
You want an instant line of credit against it. You want an instant line of credit without a liquidation provision that you could spend instantly anywhere in the world. That's the biggest unlock, in my opinion. And SATA is arguably a form of that. You're providing that to someone else. But yeah, so I think that's the big idea.
- [32:56]
B
Yeah, it's a layer on top of it where you can build that infrastructure, that infrastructure can be built on top of that. And that's the thinking about the layer two. We've got a slide in the presentation showing layer twos. Right. You've got lightning liquid and that entire ecosystem layer. But I think that's all super important and it needs to happen, that needs to be built out. But the digital credit ecosystem is also a layer two and you can build on top of it. And that type of it's transforming this super volatile instrument into a lower volatility instrument where you can build that infrastructure around it. There's a really, really, really, really big total addressable market on the end of that. And it's 8 billion people, right? Maybe it's 7 billion people, maybe there's a billion people on the planet that will cold storage custody bitcoin, but the other seven, maybe not.
- [33:53]
A
Yeah, completely agree.
- [33:56]
B
We'll see. Okay, well, we thoroughly discussed that one. I'm sure we'll be talking about it for several more weeks as it continues to evolve and people think about it and we'll see how these instruments trade over time. But enormous day from strategy, right? The enormous week a lot of people have been talking about STRC. I think as of today, $1.5 billion of volume. Today on STRC, this is the most liquid perpetual preferred equity in history. And this week about $2.5 billion of volume over the last four days. So this is leading up to the record date last month. In the four days leading up to the record date, there were $3.5 billion of volume. Some people had said this is a point of weakness, which I couldn't disagree with more because we're still talking about a perpetual preferred equity instrument that's doing $2.5 billion of volume in four days. There's a high likelihood that they've pulled down 75% of that $2.5 billion of volume in the last four days. I think strategy could possibly have purchased this week around 20 to 25,000 bitcoin. And we'll find out, you know, Monday. But an absolute enormous week where I think they've issued tremendous amount of new STRC shares into the market. Dan, you guys, you guys been tracking?
- [35:23]
A
Yeah, I've been tracking it a bit. And what's so interesting are these x div dates specifically. And I don't mean to keep harping on the SATA thing, but this is why I think it's like so, so, so important. Like, clearly there's participants stepping in on the ex dividend date in a way that they're not any time prior to it. Like there should be a linear increase. Like if, let's say like this is, you could calculate it all. Like there should be a linear increase, you know, five days out in trading volume. So let's say, let's say stretches at 100 bucks for the five days leading up to the ex dividend date, you theoretically should get like a linear increase in the amount of volume or net new buys of STRC over that period of time because the time value of the money is decreasing. The value of your dollars to clip the dividend is going up as you get closer to the ex dividend date. But what we're seeing is not that obviously, right. We had so stretch traded, I think it was only it was like 300 million in yesterday and then I think it was somewhere in the 200 millions the day before. And today we saw 1.5 billion of traded volume. So the volumes goes exponential into each one of these ex dividend dates. And again, that's why I think it's going to be so interesting to watch the behavior of SATA specifically on the ex dividend dates. Traders want the overnight div clip, it looks like, and I know 80 of the ownership is technically retail, but like you mentioned to us, Jeff, recently, the, you know, the traders that come in and hold for less than, you know, a month for inter quarter, they don't have to file their 13 fold reporting that they actually held the security. So I expect there's pretty big players, big quant shops that are participating in these dividend clipping trades. And I think that's what we're seeing. They've determined the time value of the money is worth the overnight hold and not necessarily three days out or four days out at par.
- [37:15]
B
I, I think you hit the absolute nail on the head yet a lot of retail holds this and a lot of retail holds it. You know, it's sticky. A lot of retail holds it and they hold it for the long term. But if you're talking about $2.5 billion in volume in four days, that's just not retail. A decent amount of it might be retail, but you're talking Institutions that are in there that are making big relative plays and moves in different directions. So a couple things that are the way, the mental framework that I've been thinking about this as well is every time new shares are issued to the market, you kind of have to think about this as an ipo, right? So every new share is an IPO at a hundred dollars. Well, if they're in there for to, to get 20 cents on the IPO, they might be out the door the next day if they could go get 20 cents. To your point, Dan, if you're holding your time value of money, if you hold it for a day and you go get 20 cents, that's a worthy trade. Now, they might be doing this on leverage, they might be doing this on leverage against other credit instruments in the market. And so if you can go do that on leverage and take $0.20 on a 2x leverage position against another credit like your other credit portfolio, that's a unique trade. And you can start to see that happening over time. As the pool of liquidity gets deeper and deeper, that incentive to go run that trade gets larger and larger.
- [38:56]
A
Yeah, exactly. And it's this idea that in a fractional reserve banking system, there actually is no limit to the money supply. And that's pretty much what we're seeing, right? Like the use. And yeah, the use of margin and financing from banks and large prime brokers is effectively the creation of money out of absolutely nothing, a line of credit money that doesn't exist. And that's what's ultimately going to be used to finance this trade. So that's why I really believe the total addressable market for these things is borderline infinite because there's no limit to the fiat capital that can be deployed for a yield into these products. It's like, why wouldn't every dollar of margin get sucked into a product like this?
- [39:40]
C
Right.
- [39:41]
A
I mean, that's, that's dramatic, but that's the kind of the point I'm trying to make.
- [39:47]
B
Again, it's the, it's the arbitrage surface, right? It's like, what is the relative risk profile that you're taking on in order to run this trade? And I think that's something that a lot of people misconstrue is the risk profile. And, you know, I think somebody made a video, it was even calling me out about like the defi looping that's happening, right? These, these defi companies that are taking out leverage positions on STRC and what happens if they blow up?
- [40:15]
A
It's like, okay, it's literally irrelevant.
- [40:19]
B
One, it's small, there's several companies that are doing this. So you thought, okay, if all of them blew up at the same time, you're talking maybe like 5, 5 basis points of the total exposure, right? Like 5, 5%. Not 5 basis points, 500 basis points, like 5% of the, of the entire market. If, I know, liquidated on STRC like the market, the price of STRC would potentially drop. But then there would be arbitrageurs who would instantly see that as an opportunity. Anybody else not operating in that DEFI ecosystem would be looking at the entire surface of every opportunity in the world at the same time. Theoretically, that's, that's what, you know, efficient markets hypothesis. Theoretically, everybody's looking at the entire world of risk at the same time. And if there's an opportunity, then capital moves and jumps to that opportunity. They go leave other things to jump on that opportunity. So I think that's kind of what we're seeing right now. That's kind of what the theory would back up behind something to happen in the DEFI ecosystem. And the price of STRC were to depeg for a moment in time. Why would that happen? If the price of any of these instruments de pegs and falls below 100, the effective yield increases, the effective yield is rising. So the relative risk profile looks more appealing to somebody that maybe wasn't exposed to that DEFI ecosystem. And another thing. Go ahead.
- [41:51]
A
And this is why the centralization of liquidity in these products matters so much, right? Like people in the DEFI ecosystem could go out and potentially create these products backed by Bitcoin on their own and in a DEFI native way. But then there's all kinds of Oracle related risk, liquidity risk, et cetera, et cetera. So the DEFI markets, clearly they're leaning on the liquidity of the public markets for these instruments that have been created, both SATA and strc. And this is why I also believe there won't be a lot of STRC and SATA products especially there won't be ones really in other currencies that matter that much or all of the liquidity is going to centralize in the US markets. This is exactly what Saylor said on the most recent CoinDesk interview. And that liquidity will be exported around the world and exported into different layer two products via ETFs, and you know, like FX swaps, ETFs, structured products like you've been talking about, Jeff, et cetera, et cetera. But you need localized liquidity to make them safe, secure, resistant to deeps, to have the arbitragers there. You don't want these things to be distributed. Distributed between many different markets and products.
- [42:56]
B
That's an interesting concept, right? Yeah, the liquidity overflows. The liquidity is in one location, and you build the liquidity in that one location and it's. It like spills over to other locations, to different jurisdictions in different countries. And yeah, that's a. That's a fascinating.
- [43:13]
A
It de risks those investments. Like, yeah, yeah, you don't want to have to start from scratch. If you want a JPY USD yielding product, you don't have to start over and build the liquidity. You have $1.5 million of liquidity in STRC already. FX swap. It. The FX swaps have plenty of liquidity. The SDRC has plenty of liquidity. Now you have a product that has ample liquidity and you're already off the, you know, you're already rolling.
- [43:40]
B
Yeah, yeah, fascinating.
- [43:44]
C
This is also going to be interesting because so usually strategy innovates and everybody else gets to watch and see if it works and then they can implement it. Right. Well, now strategy gets to see if this works, and if it does, then they can, they can use it. And if it doesn't, they can be like, oh, never mind. We do. We do better in the first place. But what you were talking about, Dan, with the liquidity kind of reminded me of this, because the first thing I thought of is like, oh, great, this gets rid of the tourists. Like, this gets rid of the people who are just gonna sell after they clip it. And at first I thought that was automatically a good thing. And. But then is. Jeff, what do you think about unintended consequences of those tourists that are piling in right before xdiv? I mean, you're selling to them, right? You're aatming to those people when they push it to par. So in a certain sense, are you gaining more dedicated people who aren't going to sell? But is there any worry that some of the, you know, some of the tourists are gone and you're going to lose a little bit of liquidity from those people who would be piling in right before monthlies?
- [44:47]
B
Yeah, I don't think that's likely. And I'll tell you why. One, I think having a daily dividend makes the product incredibly sticky to retail. The decision of leaving the product is like, okay, well, I'm going to get paid a dividend tomorrow and the next day and the next day. So the decision to leave the product is different from, and going back to what we had mentioned or what I mentioned a little bit earlier, I think the arbitrage surface, the interest of being in these instruments as an institution increases drastically. Running a carry trade against anything else in the entire market becomes really interesting. The mathematical profile of it, the relative risk profile of running, again as an example, a short hygiene long SEDA for 19 days out of the month, with the exception of the day where HYG pays its interest and then you exit that trade. It's like, boom, you clipped 19 days of seda dividend and you effectively did it for free because you financed it. You paid the financing cost on hyg, which is effectively nothing.
- [46:01]
C
Right.
- [46:02]
B
The financing costs of shorting HYG is nothing. It's super liquid. So then you can collect that Delta so near 1/12 of 13%. You can do that every single month. You can do that every single day of the week. And that's just one example of a timing arbitrage in the credit market. A timing liquidity arbitrage. So that surface exists thousands of places. I don't even know where to start, but the market will figure it out. The market will identify different opportunities to go in and out of these instruments in different locations. So I think that surface, that profile makes the, makes the instrument more attractive to do more things with it. So I think that ultimately will drive liquidity to the instrument.
- [47:05]
C
Yeah, you know, the, the definition of a day trader is someone who starts the day with cash and ends the day with cash. They find an opportunity, they trade it, and it's like, well, wait a minute, why wouldn't a day trader just end the day with SATA and then, you know, maybe they find an opportunity at 10am noon, whatever, the next day, and then they trade out of it.
- [47:30]
B
Right? I. You nailed it. You nailed it. Instead of starting the day with cash, ending the day with cash, starting the day of a set of ending the day of Seder, something like that. Yeah, I think that's the, the mechanics of what an institution, how an institutional trader may be thinking, yeah, go find an opportunity in the market. Go, go make a couple pennies. Make sure you end your day in digital credit.
- [47:56]
A
Exactly. And the way the brokerages are set up, they make it super easy because you would just have 100 SETA equity and then you'd borrow against an intraday. And I mean, you can borrow against an intraday. The way the reg team margin requirements work, intraday as opposed to overnight, is that, you know, you could lever up your so let's say you had a million dollars account value in SATA and you wanted to use your margin to buy. To go long an equity intraday, they give you like 4, 5 to 1 as long as you don't hold it overnight. So it's pretty conducive to exactly what you're talking about.
- [48:34]
C
Yeah, I'm a day trader now.
- [48:37]
B
Yeah, well this will. What's that?
- [48:42]
A
I said I'm so bad at day trading.
- [48:44]
C
No. Yeah, I'm not a day trader either. I can't do it.
- [48:47]
B
Well, I mean think about it. You're up against some of the most advanced computers on the planet and you've got a flesh brain. It's like you're competing against Jane street and Citadel and all of those guys and you got to go find alpha in the market. That's pretty difficult against the most advanced computers.
- [49:08]
A
So you can get 10%. So SATA is 30% right now. Margin at Interactive Brokers is 3.8, 3.7 depending on the size. So you're getting about nine and a half cash on cash return with any money in SEDA. Margin requirements on SEDA are about 50% at Interactive Brokers. So if you had a million dollars in ibit, you could buy a million dollars of SEDA and be making. That would be 9%. That would be 9% roughly annualized on that, so 90 grand. So if you have a million dollars in IBIT, you can essentially use this to pull a 90 grand a year tax free on a daily basis.
- [49:54]
B
Wow.
- [49:56]
A
I mean that's not totally true. Like bitcoin trades down, you have to sell some. But.
- [50:00]
B
Right, yeah, that's interesting.
- [50:01]
C
That's the point. And that's what if bitcoin trades down? Then you sell the position that didn't. You were back.
- [50:08]
A
Exactly. You just auto liquidate. Exactly. You lever up and lever down your SATA accordingly because theoretically it's zero correlated to Bitcoin. So what's that? That's $2,000, that's $1,800 a week. Pretty good.
- [50:22]
B
I think this is such a Trojan horse for bitcoin entering the world. We just talked about a handful of different things that could be done. Everybody listening to this today or any day in the future is going to be thinking about the 10,000 other opportunities that may come on the horizon to do this. And this is separate from crypto land. This is operating in a preferred equity in a corporation that's an operating business publicly traded in the US markets. All of these things exist elsewhere and this should drive demand to Bitcoin, it should drive demand to Bitcoin. And I think it would be incredibly difficult. I'm not saying it's impossible, but it would be incredibly difficult for an Ethereum treasury company to do anything like this. Or Solana. If you wanted to go issue credit against Ethereum or go issue credit against Solana, you'd have to underwrite the future risk profile of any of those instruments. And you would think that the relative return that any of those companies would have to offer would have to be higher than what we're offering. Right. You've got the $1.6 trillion asset in Bitcoin and you've got, I don't know, $10 billion of credit issued against it relative to a $300 billion Ethereum. And how much credit would the market stand to issue on the Ethereum network? How would the market understand it or assess the risk profile of it? I think it'd be very difficult. So I really believe this is a bit of a Trojan horse of getting Bitcoin tied into the entire ecosystem. I'm imagining that image of Jesse Myers, he's got the $900 trillion Mar, like capital market, right? And it's like the siphons between the instruments and the different buckets. But I really think it's like, it's more of a, a funnel and it's like a gravity fed funnel where eventually that the size of the funnel at the bottom is going to open larger and larger and you're going to see like this capital just kind of landslide fall into, into the Bitcoin bucket. This is a, a true zero to one innovation. Digital credit is a true zero to one innovation. I think moving to daily dividends is another zero to one innovation.
- [52:52]
A
Absolutely agree, absolutely agree. And when you look at these sorts of instruments, the only thing you really care about, obviously like you've been saying Jeff, is the risk profile of the underlying collateral, obviously the equity issuer as well. And so for something like Ethereum, right. Not only as a credit investor, I'm actually a lot less concerned with the future compound annual growth rate of the underlying asset simply because the credit is over collateralized. This is that whole idea that Bitcoin only needs to go up 2.35% for strategy to be able to finance and pay their dividends forever into the future. So if that's in fact true, which it is, based on the capital structure of these companies, I am looking for an asset not the highest performing. As a credit investor, I'm not looking for the highest performing underlying collateral Asset I'm looking for the strongest, most robust, largest network effect, most reliable, most certain into the future asset that I can find. So there's no credit positive, there's really no credit positive event for a capital asset that's higher performing than Bitcoin for the credit investor. Do you see what I'm saying? As a credit investor, I don't care that the underlying asset has better performance. Let's say you thought Ethereum was Bitcoin beta and so therefore it's like higher performance, et cetera, et cetera. You don't care as a credit investor?
- [54:14]
B
Yeah, yeah, you don't care. You want stability, you want liquidity, you want size, predictability.
- [54:22]
A
And this is why, and this is why Saylor's so big on not having major changes to the protocol, because he understands all of this. This is a collateral asset. It's like a real estate. It's like real estate, you know, if you want a bond backed by real estate, you want the highest quality, most stable real estate you can find. You're not a speculator, you're not an equity investor. Maybe there's a case to be made for an equity investor who wants Ethereum linked performance. But when we're talking about credit investors, there really isn't a case for Solana backed credit necessary in the world we're talking about even if it's yielding 15, 16% because those returns are getting high enough that you're now, no longer, you're no longer a credit investor, you're more of a speculative investor.
- [55:11]
B
It gets to the fundamentals of the capital markets and decisions that big capital needs to make. Big capital, if you've got $100 million, $250 million, a billion dollars, where do you store that billion dollars? You're not going to take a speculative risk on some Ethereum credit. To your point, and this is large scale decision making, how does large scale capital move? It has a different risk return preference. It's got a longer, different risk return preference to your comparison to real estate. This is why New York real estate always has value. It's New York, right? It's the financial hub of the United States, the crown jewel of the capital markets on the planet. There's always going to be value of being in New York. All of the financial companies are based
- [56:09]
A
there and it has a gravitational pull. Yeah, exactly. You're not going to go around like if you're a real estate investor and you had spent the last 20 years going around finding random towns in the United States looking for superior returns to that of New York. Or if you're a debt investor loaning out mortgages and a mortgage backed securities investor, for lack of a better term, loaning out mortgages to different real estate markets around the world, you would have underperformed the gravitational centers of capital. That being the New Yorks, the, I mean the Nantuckets, the Aspens, the Palm beaches, et cetera, et cetera. Like these are, they have capital gravity effects. That's just the nature of capital. And that's what we're seeing with the bitcoin network with these credit products.
- [56:55]
B
It's a bit like typically the capital markets have been an old boys club, right? It's like there's probably 5,000 people in the world that run the capital, the capital world. You never see them. Right. Most people think of capital and they're buying a million dollar home or a 5 million doll. You're like, oh man, that's the capital market. Yes, but the scale of big capital is the people that are buying a block in Manhattan or the people that are buying a $200 million property in Nantucket, something like that. It's a different scale of gravity and how that capital wants to move. So having that solid underlying is just the most important, critical, most critical piece.
- [57:46]
A
Same with sports teams, same with classic cars or the classic cars that have performed the best over the past 10 years or the classic cars that had already appreciated the most in the prior 10 years. Right. So the, you know, 993 turbos, the. All these different cars that had already taken off. It's just capital. You know, performance attracts performance is the crazy thing about a lot of these markets.
- [58:08]
B
The, the LA Dodgers, the.
- [58:11]
A
Exactly right.
- [58:12]
B
The New York Yankees. Like what's that saying?
- [58:15]
A
It's like anyone, there's some like rich guy that said it's like, you know, I sold a sports team and I made a bunch of money and never thought like why would someone buy it for me. But then the next guy made a bunch of money on and the next guy made a bunch of money on it. People just continually make money on strong, reliable, scarce capital.
- [58:33]
B
Yep, yep. Bingo. It's such a great topic. The, a couple other things I want to hit on. Anti fragility. These, these instruments are very anti fragile. Thinking about like again, if there's anything that happens on the instrument that provides an opportunity for somebody else in the market, but it has no impact on the underlying bitcoin on the balance sheet. So that these are, these are anti, these are antifragile. And another thing that I think Largely. So I had this conversation with Coffeezilla and I've seen a couple people respond to it. There's. And Dan, you did a great job. Thanks for being the armchair referee. One thing that I think a lot of people really struggle and this is a difficult concept to communicate, it's a specific way and how I think, because I used to work in the reinsurance market and I used to think about probabilistic events, but the entire world has a probabilistic event ordering. Every single risk on the planet has a probability associated with it. And they're ordered like 1, 2, 3, 4, 5, 6, 7. Which is the highest probability, which is the lowest probability. Every event on the planet, you getting in a car and getting in a car accident and dying has a different probability than 9.0 magnitude earthquake happening in Seattle. Those are different and they're ordered and they all exist. And so you can think of like the world of risk is really just a. It's a spectrum of probabilities. And what I think a lot of people are misconstruing is they're taking these tail probabilities and assigning a much higher probability to them and they're misappropriately allocating them in the world of probabilistic outcomes. And that's a hard thing to get across to somebody that doesn't necessarily think like that. But that's how I would explain it is the only way in order to appropriately allocate those probabilities is you have to be freaking obsessed with risk and you have to go look at everything. That's the only way to do it. And I have personally been incredibly obsessed with risk and I have been looking at it for 20,000 hours and consistently looking at the entire landscape of probabilistic outcomes and just trying to create that probabilistic ordering myself. I think that's where a lot of alpha sits in the entire world. And like market opportunities is identifying where the market is misappropriately allocated the probabilistic outcome of something happening. Right. I think, Dan, you think this way naturally when thinking about the options market. And you could do it mathematically. He could think about everything. You know, in the options market, you could look at the data of it and you could take a directional bet depending on your understanding of the probabilistic order of outcomes. And I think that's what everybody's trying to do. Like when everybody makes a decision on allocation of capital, you're naturally doing that, whether you think you're doing it or not.
- [61:49]
C
Yeah. I think one of his main problems that any bitcoiner saw if they watched it, was he thought we were at the end of the S curve. Oh, yeah, right. Like, bitcoiners are like, oh, we're so early. And he's like, no, it's over. Like the. The like. What, Are you serious? So, yeah, so obviously he's going to, well, in my opinion, misunderstand the risk of bitcoin not going up to whatever it was. 36 million or 70 million in 30 years. I can't remember those numbers. Yeah, yeah, something like that. Like, yeah, easy peasy, you know, and he's like, no, that's an insane number. And we're like, no, that's like, fair case, you know. Of course he's going to come to a different conclusion on ordering the risks.
- [62:32]
A
Yeah.
- [62:34]
B
Yeah. That was such a fascinating conversation. We'll see. We'll see if he ever. If he ever posts it here. But.
- [62:40]
C
Well, uncovered it.
- [62:41]
A
And you said, I think he. Oh, I thought I saw something. I think he's gonna post it. I saw a post from him that said that, talked about it.
- [62:49]
C
Yeah, I. If he's. If he's smart, he'll run it through AI and, you know, actually have it explained to him everything that you tried to explain to him. And then if he does a. A monologue at the beginning or wraps it up at the end, he'll at least not, you know, he won't look. I don't want to say dumb, but he won't look like he's trying to edit it in a. In an unfair way. He'll at least, you know, present it in a way that makes him look somewhat knowledgeable. But he definitely didn't come to the debate or the interview having done that already, because I disagree. Okay, yeah, go ahead.
- [63:29]
A
I disagree. I think he was actually quite educated on the products coming in. He has a fundamentally different perspective on bitcoin as collateral. And that was the biggest gap in the conversation, in my opinion. But he clearly read the filings. He read the risks associated with the filings, and he has listened to our stuff. The risks, he said, I think. And again, it's like all these things are very nuanced. And the nuance is he's overweighting certain risks that were. Were amounting to be very insignificant risks. And also, he doesn't. Okay, that's the first thing. But I do like that. Like when he said, when you ask, what are the risks associated with products? He nailed them. He did nail them. My opinion. So I appre. That's why I appreciated the debate.
- [64:20]
C
Yeah, yeah, I agree that he actually did the research. Like, he can literally list off the SEC filings. But I think there's. There's something where his incentives don't really align with understanding because his brand is about finding grifts. So if he doesn't find one, then it's, you know, like, let's. Let's just say he did his life's work of, you know, eliminating all grift from the world. Well, then he has nothing to do. Right. So to a certain extent, he's incentivized to find it everywhere and to refuse to acknowledge that it's not. So in that sense, it's going to be hard for him to really seek understanding. I think he did cursory research like, like you said, Dan. He definitely did his research. And he even said like, oh, yeah, I remember you said this in an interview. So he checked.
- [65:13]
B
He's making fun of me.
- [65:14]
C
Yeah, yeah, exactly. He did some background, but not. Not in a way that was like, you know, that was really trying to find the truth. It was kind of like, let me just find some information where I can score a point here and there. But one thing that I think was that you guys kind of missed an opportunity to explain, which was the first thing that he actually was poking fun at you at, which was like, okay, you guys offer 13. Why do you own this position that pays less? And you can, you can tell me if I'm way off base, but I. I did some research. Well, Grok did the research, and it basically said that by you carrying stretch as part of your reserve, and strategy doesn't, you know, they're carrying, like, money markets or, you know, US treasuries or whatever, you would actually gain a 0.33% Bitcoin yield by carrying stretch versus utilizing, you know, copying strategies, cash reserve strategy. So, I mean, strategy is kind of missing out an opportunity to carry some of your product, but I don't know if the optics don't allow them to do that. And it's like, oh, you know, I'm carrying yours and you're carrying mine. And it just looks like a. Like a.
- [66:36]
B
You plug the electrical cord into the electrical cord.
- [66:39]
C
Exactly. So, you know, he just didn't totally understand. You know, capital management is like, you have to hold something. Are you going to hold something that's better or worse than the other thing? And I think that's the answer. But, you know, you can. You can clarify that anyway.
- [66:58]
B
It's. It's just that you've got duration capital and this. A lot of people miss this too. Like people thought I was comparing insurance as a product to STRC and it's like it couldn't be more wrong. I, I was comparing the balance sheet capital management, like the vehicle, like the corporate vehicle of taking on, taking on risk. And like having a product where you take on risk with your balance sheet. That's all I was comparing. And so like an insurance company vehicle, like you have a liability profile, like if a house burns down, that's called a short tail risk. You know what the loss is and you can pay it immediately. Like it's, it's a property loss. Now if you know somebody has a slip and fall and they hurt their back and they've got to go to the hospital and then they've got medical treatment over the Next, you know, 12 years, that's called a tail. Right? You've got a tail on the liability. So you don't know exactly what the liability is, but you know it's going to happen over time. And so you match assets to the duration of the liabilities that you've got on your balance sheet. So you think about duration matching. Now that's effectively what we're doing by having cash as reserves, STRC as reserves, and then Bitcoin as the main primary balance sheet reserve asset is that we're trying to match that curve of the liability duration profile. Now it's hard to get across to somebody that doesn't operate in the capital markets, but like we are, we are taking on risk with every, every product that we sell. Just like a, an insurance company is taking on risk with every product that they sell. They're, they're different products, but they are absolutely products. Every stock in the market when, when any company goes through like an IPO and they are selling shares, you're selling a product, you are selling your company like you are getting money via that IPO to sell the product, the share of your company. Like that is it. Like that is it. That is a financial contract, that is a transaction, that is a product. You're bringing capital in the door.
- [69:12]
A
I think the thing that coffee missed in the whole discussion as well, and I think people would benefit from, and it's kind of difficult for people that are new to understand is that the common equity in both these companies for strive and strategy is really, really important because the common equity is where the risk is being transferred. Arguably the excess risk, the excess excess risk is being transferred. And so the fact that there's Both volume and positive premiums in the actual common equities means there's market participants willing to take the other side. The excess return or the risk of Bitcoin's performance above the cost of capital in both scenarios. So the market's already demonstrated an appetite for the other side of the risk structure. And that's why I think. Coffee. You know, I just think it's a fundamental misunderstanding. Like the market's already proven there's a demand. Yes.
- [70:18]
B
It's such a nuanced data point. Like, you would only know this if you, like how many people not, not close to this ecosystem are looking at the trading volumes of these instruments? Like how, like how obsessed with trading volume were you before you started looking at mstr like a year ago, two years ago?
- [70:35]
A
It just generally wasn't relevant.
- [70:37]
B
I just like you didn't care. It just, it was less of a thing now. I mean, I've been looking at the trading volumes of all these things for the last 24 months in a row and I've been just incredibly obsessed with the trading volumes and the trading volume relativity and how that's changing. And so to your point, Dan, there's somebody taking the other side of the trade. You look at mstr, MSTR is trading significantly more volume than ibit Every single day. They've got roughly the same amount of bitcoin coin. Why does that happen?
- [71:11]
A
It would be a real problem if, let's say all the common stocks were trading at a persistent discount to nav and volume was drying up on those. There would be a problem with regards to demand in the market for levered amplified bitcoin exposure. And I think that could threaten the liquidity profile and the company's ability to raise capital into the future. So in that like, I could see that as being an argument, but right now they're trading so. So well that. Yeah, I don't see that. I mean, it's just an important part of the conversation.
- [71:48]
B
It's. It's the purity of the expression. Right. And Saylor's talked about this too, is the people like if somebody wants to short a billion dollars of your stock, they want to know that you're not going to screw them. They want to know that you're not going to do anything that is out of the ordinary. They want to know exactly what you're doing. If somebody wants to long, they want to do the exact same thing. Why? Because bitcoin moves and the underlying asset moving and being marked to market makes the rest of the market adjust with it. So these things move together and you could see it, the relationship isn't exact every day. And that's alpha opportunity for anybody that's trading in this ecosystem. They're watching, they're watching how these things are trading over time. They're hedging in the markets based on spot flow that's coming into the bitcoin spot flow that's coming into the common stock. You've got retail traders and institutions that are also hedging, going long, going short in both directions, selling covered calls, buying cash secured puts, doing all of these different things. And that chaos, the chaos around that you can't, you can't know exactly what the entire world is going to do, but you know the entire world is interested in it. Think about this, Dan. This is crazy. Jane street has to know that you're going to make trades like Jane street has to rebalance based on you making trades. Soleil, it's got to rebalance based on you making trades. And all of that can chaos in the market causes more movement and more alpha opportunity across the entire ecosystem. So it's so fascinating. That's what makes these instruments so attractive. That's why the volumes are super high, is because there's people that are finding opportunities. There are hundreds of thousands of people that hold these instruments for different reasons. And now bringing the credit in almost creates a new purity, expression and different opportunity profiles. I mean just like I think we brought this up last week, but Josh Mandel going from selling STRC and longing MSTR like we forecasted that trade for quite a while when people thought that the equity wanted to go a certain direction. People are going to shift and move like that. That is going, that is going to happen. And the market has to rebalance and think about that all the time. And that that chaos is what causes this to work. That's why it works. That's why the whole thing works.
- [74:24]
C
Now the best part of the of the episode had to be when he said he doesn't think investors understand the tail risk. And you said, I don't think you understand the tail risk. That got clipped and memed immediately. And I was thinking to myself, I'm like, okay, clearly Coffee did not understand the tail risk of debating moon math with a insurance salesman. That was a big mistake on his part.
- [74:50]
B
Oh man, it was so fun. It was so fun. I think hopefully we get some more opportunities to have good conversations like that in the future. Yeah. Okay. What other topics do we have? S and P500 is hitting all time highs. Bitcoin gold we got Warsh is going to be confirmed. I think he's in auction office starting tomorrow, May 15, which is a big day. New Fed chair Clarity act is in the market. It looks like it is going to be passed. I think that is broadly good for crypto. I have no idea what's in the clarity act. It's 600 pages, it's getting pushed through incredibly quickly. Jumping in and seeing what's happening there, I think it's broadly good. Aside from stable coins, which I think is bullish digital credit, stablecoins not being allowed to, to pay yield, native yield and I think the banks had fought that pretty aggressively which is just a fascinating development.
- [75:48]
A
It's so bullish digital credit. If stablecoins can't pay yield, you're completely neutering the value proposition of a short term money market fund of the fed funds rate of just the basic inflation resistance of interest rate on US dollar denominated currency. It's really, really as a store of value. It just speaks to bitcoin and scarce assets. There's going to be a whole, there already is an entire like the way these, for example, so PayPal, stablecoin, PIUSD, they pay rewards instead of yielding through a third party distributor and then you collect them monthly. It's a complete nightmare. That's there's risk, there's guys taking fees left and right from the Caymans. It's a complete disaster. So I think they could really, really fuck the stablecoin market if they don't allow, don't allow the yield to be passed through. And it's going to be so bullish for what you guys have created with seda.
- [76:56]
B
It's almost like, I mean they haven't gotten a ton of attention yet either because it's like I said, a Trojan horse in that all of these things already exist. Like an ATM exists. I don't know 25% of the equities in the global equity or in the US equity market, I think that's too high. Maybe it's 15% of the US equities have an ATM. Preferred equity has been around for a very long time. Banks issue preferred equity and this concept of having a capital asset that's now a commodity. I think the Clarity act provides a little bit more clarity around Bitcoin being a commodity, which is also incredibly bullish. Absolutely. Because a corporation can hold a commodity on their balance sheet as a capital asset and be within the framework of 1940 act standards and rules, which is pretty critical. And yeah, all of this is just within the equity ecosystem. Let's create the same concept but within the equity ecosystem backed by a crypto asset being bitcoin.
- [78:06]
A
Do you mind if I share this briefly?
- [78:09]
B
Jump in there.
- [78:10]
A
This is kind of rehashing the conversation we just had, but I think it's super, super relevant. Can you all see this chart?
- [78:15]
B
Yeah. Yep.
- [78:17]
A
So this chart I think is going to be one of the most important charts over the next 10 years. And it's simply stretch traded volume as a percentage of bitcoin's daily traded volume. And obviously I'm going to add SATA to this and it'll be just short term digital credit relative to bitcoin. But over the last week we've ticked up to about 1% of Bitcoin's total traded. Daily traded volume is running through strc, which is an insane number. It's actually crazy considering it's a single equity ticker.
- [78:48]
B
Right.
- [78:49]
A
If you looked at all bitcoin derivatives, if you included MSTR in there, if you included ASST in there, this number, if you include the ETFs, this number would be even bigger. So it just goes to show you the securitization of bitcoin is the trend like the securitization. Bitcoin entering the public markets is one of the most important themes currently and seems to continue to be a massively important theme. So look, I think a lot of bitcoin. Yeah, yeah, this is bullish.
- [79:24]
B
This is super bullish. Throw a 30 day average on the bottom and it's going to be like direct, it's going to be up and to the right. That is such a bullish chart. STRC as a percent of BTC volume. Oh man.
- [79:38]
A
Yeah, I think that's really going to be.
- [79:40]
B
This is going to get so loud. Digital credit is going to get so loud. Like 2026 is going to get so loud. People are going to be losing their minds. Bewilderment will be back and it will be bigger and louder than ever. Nobody's going to understand how these things are working or why it works. And the interest in these products is to going, going to be absolutely, I mean just.
- [80:05]
A
It's going to be insane. Jeff. And like think about it as the derivatives market. There's a lot of equities where the outstanding derivatives actually trade more as a percentage of volume than the underlying equity itself. The options markets and then with perpetual futures, that's another huge theme is perpetual futures. So you know, typically retail investors have defaulted towards options as their leverage of choice in equities markets. But now there's all sorts of projects and different exchanges. Coinbase, Kraken, they're allowing perpetual leverage on traditional equities. So I think that's a huge theme of 26, 27. And that combined with the equitization of bitcoin and these products, there's no reason why the volume of all digital credit can't get to a very. A scarily high percentage of bitcoin traded
- [80:55]
B
volume, Bitcoin trade volume.
- [80:56]
A
And in a hyper bitcoin, it should push it higher. It could be higher. In a hyper bitcoinized world, if SATA is the high powered money or stretches the high powered money that's issued against bitcoin as the pristine collateral that's settled between institutions, then all of the percentage of daily traded volume of bitcoin derived equities, digital credit, et cetera, could exceed the daily traded volume of bitcoin. And that would be what I would. That's like the ultimate state of hyperbaric.
- [81:23]
B
Wow. It's probably likely. It's probably actually really likely. Right? Because you think about arbitrage opportunity.
- [81:31]
A
Yeah.
- [81:32]
B
Wow. Wow. That's a big idea. That's a really big idea. Okay, well, let's end on that. I've got to go talk to some boomers about digital credit and 13% APY pay daily. Maybe we'll kick it over to Soleil do final thoughts. And Dan, that. That idea is going to stick with me for a bit there. I like that.
- [81:54]
C
Yeah, cool. I didn't really get to weigh in on the earnings call, but did you. Did you see the part where Sailor retweets are on sale at the merch store? Because apparently all you got to do is wrap a token, buy a hundred million dollars worth of stretch and you get the. Sailor reads me. You know what I'm saying? I gotta say I'm bit a little, little bit missing the base, Sailor. Like it's going up forever, Sailor. But you know, the. I'm paying the dividend forever, Laura. Sailor, you know, just doesn't have the same ring to it. But I was super stoked when he said he wants to rip the wings off the shorts. I know he says, you know, the shorts can come in and do their thing or whatever. But when he said he wanted to rip the wings off the shorts, I was like, so stoked. I'm like, okay, now we're so back. And I think Sailor wants desperately to be back. Right? Like we all remember how November 2024 felt. And there's no way he's immune to that euphoria. So I think he wants that feeling and he wants to do whatever he can to get back to it. And that's just going to be good for the common shareholder.
- [82:51]
B
I mean they've got 818,000 bitcoin and probably after this week it's going to be 835,000 Bitcoin. This thing is a freaking freight train and they're buying Bitcoin at $80,000. He probably never thought he'd have the opportunity to do it again. We're talking about strategy holding maybe a million bitcoin in September. Right? Like, oh my God, that's crazy. Yeah, you can't stop this train. It's moving whether you like it or not. And the risk profile is becoming more fascinating every single day. Totally rip the wings off. Let's go to Valhalla. Over to you Dan.
- [83:32]
A
Yeah, I think I've been reviewing the bitcoin yield over the past few years for strategy and there's just no reason why the equities markets won't continue to reprice strategy asst. With a more forward looking view with regards to bitcoin per share yield and the terminal MNAs could be elevated from where they have been over the past few months. So I'm super excited to see how the market continues to price these equities and I think, you know, the digital credit volume story is going to be one of the most important stories of the next few years and it's very easy to be short sighted like you know what's going to happen tomorrow, what's going to happen next month during the strategy or the STRCX dividend date? What's going to happen when SATA switches to daily dividend payments? All that's noise when considering these products will be trading, they'll be effective, they'll be outperforming the S and P for the next five, 10, 15, 20 years. And that's really the big story here is these are durable instruments. These are not AI companies that are blowing up in terms of valuations on a hope, a prayer on future cash flows, on a return on investment. This is durable, long duration capital and markets that are going to continually grow with the increased volume of across the board.
- [84:55]
B
Monumental, I mean monumental day for digital credit, monumental day for bitcoin. And yeah, you bring up the idea of valuations in the AI world and some insane valuations that are floating around there. I think a lot of people are potentially swimming naked and meanwhile these instruments are taking off. They're growing very quickly, they're evolving and they're finding product market fit very quick. So it's fascinating to see it evolve, Excited I get to be a part of it and appreciate everybody for watching and following along. Thanks for the support those who support and look forward to continue talking through digital credit and the advancement of the Bitcoin ecosystem in the capital world with you all. And thanks for joining episode 66. We will catch you next week.
- [85:44]
A
Thanks guys.
- [85:45]
C
See you.