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- [00:00]
A
They can suspend the dividend for any reason whatsoever. They don't even have to have a reason. They could just be in a bad mood and they don't have to pay the dividend. Right. So that is not debt. Right. So by calling it digital credit, I mean, it's not against the law, but it is misleading. Right?
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B
Hi, everyone. Welcome to Unchained, your no hype resource for all things crypto.
- [00:24]
C
I'm your host, Laura Shin.
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B
Thanks for joining this live stream. Before we dive into today's show, let's hear a word from the sponsors that make the show possible.
- [00:33]
C
Fidelity has been investing in blockchain since 2014. They're not wondering if digital assets will shape the future. They're hiring the talent to help ensure they do. Explore opportunities today@crypto.fidelitycareers.com Fidelity is an equal opportunity employer. This episode is brought to you by Cape a beginner America's privacy first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location and your data actually stay yours. Get 33% off six months at Cape Co Unchained.
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B
Today's guest is Glenn Cameron, CFA Global Head of institutional at Onramp Bitcoin.
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C
Welcome, Glenn.
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A
Thanks so much for having me, Laura. It's nice to be with you.
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B
There's been a lot of chatter about Strategy and Stretch, its variable rate perpetual preferred stock, also known as strc. After strategy announced that the company had sold 32 bitcoin worth two and a half million dollars last week, the price of bitcoin kept dropping until it dipped below 60k. Then today, Michael Saylor announced that MSTR had bought 1550 Bitcoin at an average price of 65,000. So we gave listeners a brief overview of what's happening in an interview with Jeff Dorman last week. But I know you also have your own takes. There's a lot of people that are criticizing Sailor and strategy. There are others that are saying all of this is fud. Give us your overall take on what's happening and the situation that they're in.
- [02:14]
A
So I think it's worth starting by saying that I'm not predicting anything, really. What I'm doing is I'm pointing out the risk, right? There's an old concept in, you know, in investment professional circles where they make the distinction between risk and uncertainty, right? Where risk is, you don't know the outcome, but you do know the odds, right? So, for example, a roulette wheel, right? You don't know which number the ball's going to land. But you do know the odds. Whereas uncertainty is where the outcome is driven by crowds of people and crowds never behave the same way twice. So it's entirely unpredictable. Right. And that's the case with the bitcoin price. We can look to history as a little bit of a guide. If we do that, what we see is that every bitcoin drawdown has been greater than 77%. The last one was greater than 77%. The ones prior to that were the maximum drawdowns were in the mid-80s. Right. But those were less sort of. It was a less mature market then. So a good benchmark is the last one where it was starting to become institutional here. I would say the max drawdown could be slightly less. But on the other hand, there's all this leverage in the market now, so it could also be just as deep as that. And we're only just more than 50% off its highs in October. And I'm not predicting that it's going to go further down. This may be the bottom. I'm just using all we've got, which is history, to give us a guide. Because like I said, this is uncertain rather than a probability that we can sort of know that probability ahead of time now. So the, the situation with the 32 Bitcoin, so the, the message given by Sailor about that was the purpose of it was, and I quote, to inoculate the markets. So if you think about that word inoculate, what does it really mean? Right? It means when you inoculate something, you're preparing it for a bigger event. Right? So if you read it literally, what it means is if, because he's selling to inoculate the market, he's preparing for a larger sale later. And just the fact that he sold bitcoin, you see, he now has changed his language after many years. I've got a list of many, many quotes where he made it crystal clear that they would never sell bitcoin. You know, he used to say things, sell your kidney, you know, to prevent selling your bitcoin and those sorts of things. Right. But there's literally countless examples. Of late, he's kind of changed the language to he'll never be a net seller, so he'll be a neat buyer. Right. But the thing is, how do you define that? It's a bit Orwellian when you kind of change. He says, I mean this, I mean that, because the issue is a net buyer over what period? Over the last five years, over the next five years. Because if it's over the last five years, he can sell 800,000 Bitcoin, and he was still a net buyer. Right. So uncertainty in markets creates volatility. Right. So it was the signal that. And look, there are other things going on in the world. There's Iran and whatever, and it's impossible to know what exactly is moving the price. But on, in that respect, that is the way I think some people do view it. And obviously the crowd splits on that. Now today, I think the m. The. The. The company is kind of feeling the heat, and I think the executive team are definitely feeling the heat. You've seen number of interviews with them, quite defensive. And so I think they wanted to sort of do some damage control and kind of, you know, show strength in the midst of all of this. But the issue here is that. And again, this is a contentious point because the way, you know, you tell if issuing common stock to buy bitcoin is accretive on a bitcoin per share basis or dilutive on a bitcoin per share basis, they use a metric called enterprise value, mnav, or multiple of net asset value. But that actually is not the correct measure. And they took the basic end of which they used to have on their website, off their website at some point, I don't know when. And so now the company, the last time I looked, maybe an hour ago, the market cap. So if you take all of the shares and you multiply by the share price and you divide that by the value of the bitcoin, the nav is. Well, the company's trading at about 84% of the value of its bitcoin. Right. So if you issue common stock when it's like that, that's dilutive. And I calculated the number, and you're getting about half the number of bitcoin per share as. As shareholders already have. So the bitcoin per share falls, right? So when the market recovers, each shareholder has slightly less bitcoin backing each share. So it's kind of an illogical thing to do. The total amount of bitcoin increases, but the number of bitcoin per share decreases. And that's what matters to the investors in the common stock. So how do you explain something that is illogical? Well, it's again, a message, right? You know, we're still strong and whatever, but ultimately the issue now is that Dan and Poor's, when they did a credit rating on the company, not on any of the securities, said that one thing that would help their credit rating would be if they had a cash reserve about an 18 month cash reserve. And so they basically issued securities, took in the dollars and created $2.25 billion cash reserve. But I don't know how many days ago, but not that many days ago, they decided to use 1.325 billion or something like that of that money to redeem a convertible note, leaving them with about 900 million, part of the issuance to sort of very recently that allowed them to buy these 1550 Bitcoin. They took some of the cash and put another 100 million in there, which means they've got about a billion, which is about seven months worth of cash reserve. Right. And Murphy's law, this is the time when they may need the cash, depending on where the bitcoin price goes next. Because right now if they issue more common stock, it's dilutive. If they issue more prefs, it's trading below par. That more supply will create more selling pressure. So the effective yield will go up again. You know, the, the other prefs below stretch in the capital stack. So that would be strike and stride are both trading at effective yields like 4 or 5% above, you know, what's on their prospectus. So essentially investors are demanding a higher credit spread on the secondary markets. So I think you can objectively say that the market is pricing in more risk here or more uncertainty, if you like. So that's kind of where they find themselves today.
- [11:20]
B
Yeah, it's sort of like, I think back before the preferreds when it was just really simple, then that really was limited to kind of the risk as you defined it. But now that there's so much financial engineering, it leans more into that uncertainty that you talked about, where it's more of a psychological game and about instilling investor confidence. And last week, you know, I mean, you could actually make multiple arguments about why the price of bitcoin dropped. But so, so, so I'm, I'm not even saying like that, you know, them selling the 32 ETH or ETH. Bitcoin was even that would have been a scandal. I'm not saying that them selling the 32 bitcoin was necessarily the reason that the price of bitcoin drops. But if you're just reading the timeline alone, all the chatter and the back and forth and you know, all of that, that speaks to that uncertainty piece that you talked about. And when Jeff Dorman came on the show last week, he and I talked about how essentially now it's sort of this confidence game. So I do want to hear you address though, some of the people who are kind of like dismissing what's going on. So Scott Melker tweeted, quote, Sailor sold 32 Bitcoin at 77K and then immediately bought 1550 Bitcoin at 65K. Which, you know, on the face of it, that seems pretty smart. You know, a small, small sale at a higher price and then a big purchase at a lower price. And you know, in general, like, if you look at the timeline, there are a lot of people who just point out simply the fact that, that, you know, bitcoin would need to either trade, you know, kind of in this range or even a little bit below for quite a while for the company to really get in trouble or to have a significant drop. And so then they kind of view all this chatter as fud. So what's your response to people who are, you know, saying that this is all just noise?
- [13:28]
A
Okay, so the first thing is I'll, I'll sort of repeat and I'll add something to what I said about, you know, whether it's logical to have bought these 1550 Bitcoin, right? So a lot of people get upset whenever you say anything negative about strategy, right? So even though it's mathematics and objective, they kind of don't want to accept reality. Right. But the way I like to explain it to people is we all know that if you've got dollars in your bank account and the Fed prints a whole lot of dollars, your dollars lose value, right? Because the purchasing power gets diluted. So if you issue shares below the value, if the market cap of the company is below the value of the bitcoin and you issue shares, right, you're diluting the num that you're diluting on a bitcoin per share basis. So you're actually making shareholders have less bitcoin per share, right? So just like when the Fed prints dollars, it's similar to that. You essentially taking or stealing a little bit of bitcoin from every single shareholder. So it's like a hidden tax, right? Because when the bitcoin price recovers, right, you're going to have less bitcoin backing each day. Right. So it doesn't help to add to, you know, from the, the investor's point of view, it's more of a message, more of a psychological signal that, hey, we're still here, we can still raise money, etc. Right. Then on the issue of, you know, if bitcoin trade sideways for a long time. So again, history, you know, I. Nobody knows what's going to happen next, right? Anything can happen but just for a some sort of guide, right. In all those other cycles when bitcoin kind of had that max drawdown of I think it went 86, 84 and then the last one was 77. Right. It took about between 12 and 18 months for it to get about 65% off the lows. But what's important to remember, right, so if bitcoin were to have a similar drawdown, even 70%, right. It would be in the mid 30,000 range. Now, if you have a 65% return from there, you don't even get back to the bitcoin price. We're actually there. Right. And that's so the, the average drawdown length is 12 months. We're only eight months in. Right. So you've got another four months of drawdown and then 12 to 18 months just to get back to slightly below the bitcoin price we're at now. Right. So that's what hit history should would suggest about how long this could take. And that is exactly the situation that you just described, that, you know, people are saying only if. Right. Well, I'm not predicting anything. It for all I know, we could get into another, you know, roaring bull market. It seems unlikely, but you know, anything can happen. But history sort of can provide some sort of guide. And again, I'm not making predictions, I'm just pointing out that the risk is there. Right? So what happens if we end up in world? Right. Because also there's only a number of ways that strategy can raise money. So we already talked about diluting bitcoin per share. If you issue new pres at below par, you're issuing them at a higher effective yield, right? So that's going to be costly or you can raise the dividend, but then you raise the dividend across the entire outstanding issue of whatever pref you do, which would be stretch, and that's $10.7 billion. So if you raise it by 50 basis points, you raise the yield on 50 basis points on 10.7 billion outstanding of prefs. Right. And then if you put heavy issuance in the market like this, when it's jittery, there may not be as much demand as you had previously. So the price could sag below par. So what do you do? You raise the dividend again. And what if the bitcoin price is still falling right on the way down? If you look, there's all these dead cat bounces in previous cycles. So, you know, the bitcoin price can rally 15, 20% or you think it's the Bottom. And then it falls again, right? And in that environment, you can end up in a situation where, you know, the, the, the, the, the stretch price keeps sagging below par and they keep having to raise the dividend to try and draw it back to par, right? And if bitcoin gets down into sort of the mid-40s or 40,000 or whatever, right? You can end up having to raise the dividend to sort of high double digits, like 17, 18%. Right? Now you got to wonder about the wisdom of that because now over the long term, Bitcoin's got to. Because if you lower the dividend yield, right, the price is going to sag again. So it sort of becomes a permanent thing, right? Semi permanent. It's not entirely permanent. Some people make the argument that if the base rate lowers. So like the secured overnight financing rate, SoFA, right, that. Because that's the right benchmark here, because that's the base rate in the street prospectus, right? So if you lower that, the yield should come down. But the thing is, think about the environment where SOFA is lowing. It's usually when the economy is weak, right? That means people have less money, so they have less money to put into stretch. So that's the credit spread above. SOFA can actually widen, right? And so eventually at some point, they'll decide the yield's too high. So what is their next option? Well, they can either sell bitcoin, right? But the problem is if they start selling Bitcoin, then you say, especially if it's strategy doing it, and if they're doing it in larger quantities, the market can get spooked and the bitcoin price can fall even lower into the photos, right? The other option you have is you suspend the dividend, right? Because these are not credit instruments. They preferred equity, right? And every month the board makes a decision about whether to pay the dividend or not. In the case of stretch, the dividend is cumulative, right? So it essentially just, it's like a bar tab. It just adds up and gets added. But, you know, so. And then that increases the sort of layer of the preferreds that is owed. So that starts to eat into the bitcoin that belongs to the common stock above. I mean, below. Sorry, below. Because the, the stretch ranks ahead of the common, right? But also if you, if you suspend the dividend, you also automatically have to suspend the dividend on the preferreds below it. So strike and stride, right? And on stride, the dividends are not cumulative, right? So if you miss a dividend payment, it's gone, right? And so, you know, so my response to people that say, oh, it's fine, there is no risk, da da da da, is look at what happened to investment grade pref shares or at ones in the gfc, right? And that might sound hyperbolic, but we're talking about the most volatile major asset in the world, right? So that is a fair comparison. An investment grade bank pref shares, utility pref shares and whatever. In the GFC, when they suspended dividends traded down into the 20s and 30s, okay? So 20 cents on the dollar, 30 cents on the dollar, right? Now the issue is that at the same time all of those cumulative dividends are stacking up right? Now, what do we know about retail investors? Because it's important to realize that about 83% of the investors in Stretch are retail investors. I have electricians, plumbers, nurses, truck drivers messaging me all the time because they worried trying to figure out what is going on here and what's the truth. Because the only investment advice they had is from podcasters or from the messaging from the company who's actually selling the securities. Right? And what do we know about retail investors? They buy the top and they sell the bottom, right? And so you'll have a whole lot of vulture funds, right, buying it at 20 or 30 cents in the dollar, right? And look, in an extreme situation, if the bitcoin falls below the value of the convertible debt plus the prefs, right? You could end up in a situation where, you know, retail's not getting any income. They could not get any income for 6 months, 12 months, 18 months. That's the whole reason they bought this thing. They see the price dropping. They selling, you know, because they just like, I just want out, you know, I can't live like this anymore. That's how retail investors behave. I think it would damage the brand massively. I think they would battle to raise capital after that. And also another thing is that the thing to look at about the convertible date is not the maturity date, right? It's when they become putable. They've got put options where the holders can put the convertible back to the company and they need to get paid out in cash. And there's a couple of those in the first half of 2028, adding up to three and a half billion. Now, if you map out the time over which I said it would take if bitcoin kept falling in a max drawdown similar to past cycles, and then to recover to kind of the bitcoin price where we are today, that would take you into the first half of 2028. Right. And so those convertibles would be way below their strike price. I think one's got a strike price on MicroStrategy shares in the mid-400s, 457 or something like that. And the other one's about 628. And these are the 0% convertibles. So they don't cost anything to the company. Right. And the idea was kind of like a call option on the bitcoin price, because if the microstrategy is above the strike, you can convert them at the strike price and keep the profit above that. But the issue is if. If those, if MicroStrategy below trading below the strike price, which in the scenario I'm painting not a prediction again, there would be that they would demand their cash back. Right. And so that would add another three and a half billion. Right. And they've already got. Today they've got to come up with $1.7 billion in cash every year. It's about 145 million a month. That's a lot of cash to get in a soft market to be able to pay all the dividends. Right. So if you get another three and a half billion bill that you have to pay. Right. You know, and everybody's been through that, and then you need to start issuing more securities to be able to come up with the cash to give back to the convertibles. You can see how this could end up in something quite messy.
- [26:29]
B
Yeah. So I know you have a lot of thoughts on stretch and similar products, which I definitely want to get to. But one last.
- [26:38]
C
Just quick question to go back to
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B
what you were talking about, about how sailors said that that's small sale was to inoculate the market. So. So why do you think that they sold such a small amount? Like what. What do you think was the point of that?
- [26:51]
A
I think it was so that he could change the narrative. Right. Because, you know, for years he's been saying. I mean, he said it on Bloomberg, you know, actually should get up the. Oh, you know what? I don't think I have those quotes, but they're all of my X feed, if anybody wants to look. Right. How many times he said they would never sell bitcoin. Okay. And the language was crystal clear. I mean, well, any objective person would say he meant it when he did that, Right. But now something in the analysis must have thought, you know, at some point, given the way we've structured everything in the financial engineering, we may need to sell bitcoin to actually know, pay the bills. Right. And so this was you know, because remember when he did it, I think bitcoin was still trading in the mid-70s. I think it had even just touched 80 again. Right. And he probably thought, oh, yeah, I'll just sell these 32 Bitcoin, right? And then I'll be able to make this point about I'm a neat buyer. Right. So he's changed the commitment, the verbal commitments. I'm not saying he ever made a legal commitment, but that's what everybody trusted. Right? And so, you know, if you, if, if you do that, people are going to interpret why are you do, why are you selling 32 bitcoin? You know, people have said it's for tax loss harvesting, but the issue is that's, that's, that can't be the case because they got no capital gains to offset. Right? So. And you can only offset a capital loss against the capital gain. Right. You could do a wash trade, but with 32 bitcoin, I mean, it's chump change, right? So you, you wouldn't do it for that reason. So it, it was purely a way to send a signal to the market and like he said, inoculate them so that if they need to do it later, he's kind of normalized that in a bid to kind of prevent a panic if all of a sudden he sells 25,000 Bitcoin or something.
- [29:13]
B
Huh? Okay. Okay. Yeah, we'll talk more about that in a little bit, but first we're going to hear from the sponsors who make that show possible.
- [29:20]
C
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- [29:44]
B
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- [29:46]
C
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- [30:12]
B
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- [30:14]
C
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- [30:59]
B
Back to my conversation with Glenn. So now let's dive into the details on strc because it sort of feels like that's kind of at the center of all of this. So I think you've like explained a little bit, you know, about how it's structured, how it's changed the game for strategy. But I feel like you, you know, have a take on how you feel it's been marketed and then how you feel that investors think of it versus the real. So just explain all of that.
- [31:31]
A
Yeah, sure. Okay, so the first thing is the name Digital Credit. Right. So if you didn't tell me what these things were and I heard the word credit, I would assume their date. Right. So I had an argument with Matt Cole. Well, he didn't respond, but he made
- [31:55]
B
the Strive Seat, which they have a similar product.
- [31:59]
A
Yeah, that's right. He's. He's the CEO of Stripe. Right. So anyway, a podcaster had and had been doing the rounds. It was like just a screenshot of the COVID of a Moody's report and it was about the heading of the report was Hybrid Equity credits. Right. And they were holding this up because in there they were classifying preference shares. Right? They were, It's a methodology for classifying them as either equity or credits or hybrid instruments. Right. And so what they had done is underlined the word credits on this document and then held it out as proof that institutional investors categorize or define preference shares as credit. Right. So this was the justification when called out by Parker Lewis, who's a very well known name in the Bitcoin space, had said these things are not credits. Right. And so anyway, I, because it was only the front cover, I went and found that document. It's 22 pages long. And I read the whole thing. Okay. So in there, what they do is it's a methodology for deciding, like I said, is this equity is a credit or is it somewhere in between? And the main thing is, do you get your money back from the company? So is there a maturity date on the debt? Right. On these preference shares they perpetual. Okay, so that immediately classifies them as equity, but they could still be a hybrid. Right, but the issue is that this, these, all of these instruments are unrated. They don't have a credit rating. The only entity that has a credit rating, including Strive, strategy and everything is strategy and it's got A credit rating 6 notches below investment grade. Okay, so it's, it is junk rated. Right. And they say in that document, if we're making this determination, if it's not an investment grade issuer, it automatically gets categorized as 100% equity. Okay. So the document they were holding out as kind of evidence or, you know, whatever to say that these are credit instruments, Right. Actually classifies their instruments as 100% equity. And that's quite right, because the only way you can get your money back is on the secondary market. So you're relying on the next buyer to pay you the full hundred dollars. Right. So if somebody had, you know, we went to close to $90 over the last few days. So if somebody wants their money back, they're going to get $90. They can't go to the company and say, give me my $100 back. It's not date. The other thing is with a bond, if you miss a payment, right. The, the, the debt holders can accelerate and basically take measures and if you, if you don't correct them, they can push you into bankruptcy. Here the dividend is entirely discretionary in the prospectus. It tells you that. And they decide this every month. Right. They can suspend the dividend for any reason whatsoever. They don't even have to have a reason. Right. They could just be in a bad mood and they don't have to pay the dividend. Right. So that is not debt. Right. So by calling it digital credit, I mean, it's not against the law, but it is misleading. Right, but then also what's interesting is if you actually, and I'm going to get the actual quotes here, let me see where I've got them. Oh, here we go. Okay, so Michael Saylor in a Bloomberg interview on 29 September 2025, and I quote, Everybody in the world would love to have a high yield bank account that yielded 10% or more. They'd love to have a money market that gave them double or triple their normal money market. Okay, so you're saying these things are equivalent then in February 2026, when designing stretch, our goal was to create a high yield bank account style product. Okay. Again, in February 2026, our goal is to provide you with a bank account that pays 10% instead of your bank that pays you 4 or 3 or 2 or 0. That's what stretches, right? He okay, this is a crazy one. In an AI generated Spinal Tap ad also in February 2026, he said, we created a bank account that pays 17 to 20% by combining digital capital with a digital credit instrument with a digital treasury company that issues securities to pay the dividend. And he's adding on the tax free nature to get to the 17 or 20%. Right. But what people don't realize is this. The reason why it's tax free is because it's classified by the IRS as return of capital. So your basis is dropping every time you get a different until it hits zero. So that when you sell the security, all of that is capital gains. Right. So it's, it's tax deferred, not tax free. Right. I can give you examples of Strive so CEO Matt Cole on March 11, 2026 in a press release said instead of holding idle cash earning low yields in money market funds, allocate a portion of those reserves to instruments like SDRC that provide strong yield dynamics while maintaining stable price behavior. And then he said SDRC and SATA are extremely credit worthy instruments. That was on the Bitcoin Treasury's account. Then Strive CRO Jeff Walton said SDRC is a high quality credit instrument, clear advantages over traditional fixed income. So these things are actually unrated. Okay. They're issued by an unrated company in the case of SATA or and a company with a credit rating six notches below investment grade. They junior, they perpetual preferreds. They have no maturity, you have no right to redeem. You cannot demand your $100 back. You can only sell on the market. Both have traded below 100 multiple times. The dividends are discretionary. Holders had no claim on the Bitcoin. It is not ring finched or pledged to them. The coverage and over collateralized figures are marketing ratios, not leans on the Bitcoin. Okay. And both are issued by companies with negative operating income. So if you compare that to a money market fund, okay. That'll have only investment grade paper, much of it treasuries.
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B
Okay.
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A
Okay. And the government can print dollars to pay you back. Right. It'll have like double A or AAA rated. It's the systemically large banks that are issuing that paper. Right. And it's diversified across hund hundreds of instruments. Right. So if in the unlikely event something was to happen to one of them, it would be like 0.0002% of the fundamental right. And a bank account is FDIC insured up to a limit. And so therefore. And also yes, FDIC can run out of money, but again we know they would bail out the FDIC because they're not going to let contagion run through the banking system. These are daily fluctuating unsecured junior equity on the most volatile major asset in the world. And that is how they are talking about it. Right? And then you got plumbers, electricians, nurses, truck drivers thinking this is awesome. Finally what I've been looking for, an 11 and a half percent interest rate bank account or money market fund. Yeah, that is the problem that I have.
- [41:17]
B
Yeah. I think what's interesting is you showed how basically the company kind of has all the power, even though they've marketed in this way that gives people confidence that they'll always be paid this dividend. But I think like, you know, so, so I did see some other tweets, like for instance, Ryan Watkins of Syncrasy Capital tweeted, it amazes me how many people actually think Saylor is at risk of getting liquidated. The point of the preferreds is so MSTR can get the benefits of debt without the obligations to pay it back. So it like shows that the structure is beneficial to them. But I think the other piece of it, which is maybe what you're pointing out, is that if they were to exercise that power, then it reduces the confidence in those instruments and creates a little bit of a spiral on its own as well, is that.
- [42:12]
A
Well, I mean, so think about it, right? So when, when everything, when we were in a raging bull market after the ETFs got issued and everything, right? People were paying two and a half times the value of the bitcoin or shares, right? So 150% premium is what they were paying for the shares, right? Now that's kind of illogical. Why would you pay 150% above the value of something? Well, it's because you believe the next guy is also going to be willing to do that, right? So it's essentially a belief that, oh, then you know, we're always going to have this premium. So and if you issue shares above the value of the bitcoin, you increase the bitcoin per share. So as long as everybody behind you keeps doing that, then you'll make up the premium that you fed, right? But as soon as that belief goes away, which it has done now, now you're trading at 84% of the value of the bitcoin, right? So you can imagine people who bought and say at the peak, like in November 2024, they had this kind of blow off top, right? I mean, those shares and please, if I get this wrong, forgive me, I'm going from memory, but it was sort of 550 or something like that, okay? The, the stocks trading at 120 and those people were paying like three and a half times or three times the value of the bitcoin. So they lost all the premium, right? And then the bitcoin price dropped. So they're like off 80%, right. You know, people always cherry pick from like literally the moment they started the bitcoin treasury, say, and say, look, but what about all the people who bought, you know, since then, right? They're all underwater and confidence has been knocked. And these securities require confidence in the whole thing to be sold at a premium. And that's what this whole flywheel is about, right? When that confidence gets lost, the flywheel goes in the other direction, right? Now, I agree, they're very unlikely to get liquidated, right? I mean, the bitcoin price would have to trade to about $9,000 a coin, right? So I mean, that's, that's extreme. That would be like the, probably the biggest drawdown or, except maybe in the very early years when it was like, you know, $100 or $10 a Bitcoin or whatever. And it was, you know, a play thing. So I don't think that that's the issue. My problem is that if you get into a situation where you have to suspend the dividend and you're selling a whole lot of bitcoin, first of all, you're going to drive the bitcoin price lower. But not only that, so you could get into the mid-20s, you know, in an extreme situation. But the other thing is what's going to happen to the price of all the preferred. Right. And our retail holders can understand what's going on when they're not getting the income that they were expecting to get and the price has fallen from 100, you know, if it's analogous to the GFC, which I don't say it is, but it kind of makes it some kind of guide and benchmark. If the thing that you bought at a hundred dollars and you thought it was a bank account or a money market fund, which trades apar. Right, and it falls to 20 or $30, how are all of the people who have been kind of sold on the stuff by the types of statements I mentioned and the Hyperbolic podcasters. You know, you're saying, you know, it's just basically the most excellent thing. You know, why would you have a bank account? Why would you have a money market fund? And then all of these people who don't really understand the risk go and put their money in, in the situation where they're getting no income and the thing they've lost 60 or 70% on the par value, what are they going to do? Right? So those are the people I care about. I'm not talking about strategy going actually bankrupt. Right. You know, but also, if, if the type of scenario that I'm pointing out, strategy is never going to be the same because remember, they need confidence to sell these shares at a premium. So then after that, there's going to be a lot less confidence in that. I mean, the crowd will be split for sure. But, you know, if it's split 5050, well then they got 50% less demand for the securities. Right. And every time they issue more preferreds, they increase the, the, the, the cash obligation they've got.
- [47:05]
B
Yeah, yeah. I did also want to ask about SATA, which you, you know, mentioned, because obviously it's very similar to strc. There are, you know, some different kind of particularities, like one being that it pays a daily dividend as opposed to monthly. But how do you view SATA, which, you know, is by strive. Like, how do you view that in comparison to strc? Does it have all the same problems or are the problems different or, or do you think it's superior or what's your take on that one?
- [47:38]
A
Okay, so overall, I think it's the same instrument with a different coat of paint. Right. It, you know, they actually openly say they modeled it after strc. Right. But there are some differences that are worth talking about. Right. So first of all, it pays 13%, although the effective yield is higher than that. And they're moving to daily dividends from 16 June. Also, we didn't mention with Stretch, they're moving to bimonthly dividends. A vote just passed about that. Now why are they doing that? Right. It's because what was happening is every month divid dividend arbitrage funds would buy the stock for a few days, the new iss, right. Collect the whole dividend for the month and then sell. And that selling pressure was creating kind of a saw tooth in the price of bitcoin. And then they were backing to get it back up to par. Right. So if they issue the dividends more regularly, it's kind of smooth. That saw Tooth out. Right. Although in the case of bimonthly, I don't know if it's actually going to fix the problem. It might improve it a little. But ultimately if they just, if the hedge funds just use a little bit more leverage, right, they can get the same juice out of it even on the bi monthly basis. And then that selling pressure afterwards, especially in a soft market like now, can drive the price down. Because when they issue stretch, they thinking, oh, these are long term holders buying these. So they just, and they issue kind of, you know. But the problem is these guys are only buying it for a few days and then they're selling it on the secondary market after it goes X dove, right? So they're trying to smooth that out. They're also perpetual. So there's no way to get your money back from the company. You got to take the market price again. The dividend is discretionary at its cords. The same as Stretch, same thing as well is every time it drops below sags, below par, if it does it kind of for long enough. I mean, the case of Stretch, they use a volume weighted average price over the month. And if it's below 95, the volume weighted average price they recommend raising by 50 basis points. If it's between 95 and 99, they recommend raising about 25. Okay? And stretch started at 9% and they've raised it to protect the pot, to defend par all the way to 11 and a half already. Now it's trading at an effective yield of 12. Right? So if the vwap this month comes out below 95, they're gonna have to raise it to 12. Right. And then with SATA or SATA, they've launched the 12 and then they've raised it again to defend power. So the stability is kind of manufactured, right? And it's costly because when they raise the dividend, it applies to all of the preface outstanding, right? And once you've lifted it, it's difficult to drop it down, especially if the market perceives more risk because they want that credit spread. So the bill really only goes up one way. Strive. I haven't checked the latest filing. I think it's, I think they've got, so they've got to be. What's interesting about this is a big flaw in SATA, okay, is they've got this cash reserve, but about a third of it sort of bizarrely is in stretch, right? So the, the reserve is made up of an instrument that is sort of exactly correlated. Like when you're going to need the cash reserve, you don't want to be holding something in the reserve. Also going to be doing quite.
- [52:05]
B
Yeah, it's not diversified at all.
- [52:08]
A
But then the rest is cash. Right. And so they've got a longer cash. I think they've got about. I think it's about 17 months or something like that worth of dividends. Right. But again, where did they get that cash from? They get it from issuing prefs and then, you know, instead of buying bitcoin with the money, they just take the cash and put it in their reserve. Right. So that's, you know, that's expensive. And then the other important thing about startup but room, it's a much smaller instrument we were talking about. I don't know how much they've got outstanding, but it's like, you know, 1%, 2% of the value of stretch. They debt free. Okay, but remember on the briefs, these aren't dates. Right. So they don't. They can't really go into bankruptcy because they don't own, owe anybody any money. But it doesn't mean that, you know, it can't get very expensive to do new issuance to pay the dividends on the old interest or you got to start dipping into that cash reserve. Right. And then it's kind of like a ticking clock. Like does everything look rosy again or does it take 24 months? Right.
- [53:35]
B
Yeah. There's about $2 billion in strive.
- [53:38]
A
Okay. Yeah. So versus is it 2 billion? Okay, no bib. Is that strive or SATA? Because there's as. Okay, so it's about 20% the size of stretch.
- [53:54]
B
Oh, no, no, no, sorry. Stripes overall aom. Oh, okay.
- [53:58]
A
Oh, yeah. So I think the. Look, let me. I actually created a fact sheet for myself. I want to be accurate. Let me get it up here.
- [54:09]
B
Sorry. Yeah, I'm trying to look at this quickly. That's okay.
- [54:14]
A
I don't want to say anything false. Actually, I think I've got on my phone here. Let me just have a look, see.
- [54:24]
B
Well, while you're looking at that, I did want to ask you also about bitmind's plans to create. Did you see the AUM or if not. Well, let's just. Yeah. Because of time. Why don't we just talk quickly about the bitmine thing because. So Tom Lee's Bitmine Immersion, which is an ETH debt filed to create its own vehicle that will resemble stretch. It's going to be called BMNP and it will offer a fixed cumulative dividend rate of 9.5% annually on a per share amount of $100. And obviously it's, it's so similar. You know, I have heard people talk about how Ether is different from Bitcoin because it's already yield bearing. So I don't know if you feel that changes the calculus or if you're looking at this feeling like this is such a similar product, they're going to have the same issues.
- [55:21]
A
So here's what's interesting about the 9.5. Let me get it up in front of me, okay, Is they're actually issuing at $80. So the, the par value on paper is 100, but they're issuing at 80, which is a 20% discount. Okay. So the effective yield is a lot higher than nine and a half percent. Okay. It's kind of 12%. Right. Same same wrapper, perpetual, unsecured, unrated, can't get your money back and divine discretionary, the whole bit. Okay, but here's where the, the, okay, so first of all, the Ethereum yield, okay, so the, the, the staking yield at the moment's about 3%. Okay. So if you take 12, you. Minus three, you, you, you're still paying nine. The, the, you know, the, the staking yield's not covering the cost of the prefs, right? Not nearly. And then also, so you got the same wrapper, right, But Ethereum doesn't have the same monetary properties as Bitcoin. Right. It's like you've bolted this perpetual instrument to this one asset and that asset, I mean, okay, so David Hoffman, I think his name, no, not David Hoffman is the David Hoffman mean from Bankless
- [57:04]
B
who sold all his Bitcoin. I mean, Ether.
- [57:06]
A
Yeah, yeah. I mean this guy has basically studied Eth and Ethereum inside out, right? And he came to the conclusion that value is not going to accrue there. My analogy to sort of simplify what he was saying there is it's like thinking, oh, you know, all the shares on The S&P 500 are worth a lot, right? I should buy, I should invest in order matching book. Right. Like Ethereum is just kind of the infrastructure that allows for the trading and stable coins and all that kind of stuff, but the value doesn't accrue to the. To, to eth. Right, It's.
- [57:51]
B
Yeah, I mean I think I, I personally think they could redo the tokenomics so that it would. But you're right, I, now, I don't at this moment, I don't think it does accrue there.
- [58:01]
A
But anyway, yeah, well and the other thing is, right, that, that's the difference between Bitcoin and Ethereum, Right. Bitcoin's protocol. Right. You know, there's only ever been soft books, Right. So it's backwards compatible. So the core rules of Bitcoin have never changed. Right. Whereas Ethereum, they change the rules all the time. I mean, they move from proof of stake, I mean, proof of work to. They've changed the tokenomics a million times and whatever. So that creates uncertainty because you don't know what the future holds. So I mean, that's just like the dollar, right? So it doesn't have the same monetary property. So you an asset that's a weaker monetary asset in the same sort of fraud wrapper. Right. So I think it's sort of doubly kind of risky and a weird kind of thing. I'm kind of surprised that. What's the surname? Lee.
- [59:14]
B
Tom Lee.
- [59:16]
A
Yeah, Tom Lee. You know, because he's a very smart investor. Right. It's a very odd kind of thing. I think he got bought into the whole thing of, you know, the Ethereum virtual machine and becoming like the next NASDAQ and whatever. And I just don't really see that happening. I mean, but you know, and, and also they, they've lost an absolute fortune, you know. Yeah, yeah.
- [59:49]
B
I mean, the other thing is like the timing of their filing coming the same week that. I thought that was funny. I was just like, okay, clearly this was in the works before all these troubles happened. Okay, so last question. You know, we. So when Jeff Dortmund came on the show last week, he basically said that he felt that it was a mistake for strategy to have only sold two and a half million dollars worth of. And that if he had been them, he would have just sold 2 billion right away, give the company enough cash Runway to, you know, be able to pay down the dividends for a, you know, a good long period and just kind of create more confidence in the market, kind of get it done and over with, rip the band aid off kind of strategy. But anyway, but I was wondering, like, you know, if you were either advising strategy or if you yourself were Michael Saylor, like, what would you do? And, you know, why don't we just put some context around this? Like, first of all, as you mentioned, typically bear markets last longer. Like, you know, the likelihood that bitcoin just moons from here is probably on the lower side, especially when you add in just all these IPOs like SpaceX, Anthropic, OpenAI that are coming. So. So it kind of just feels like at this moment, crypto is either going to trade a little bit more sideways or even further down. So if you were advising or in charge, what would you do?
- [61:19]
A
Well, if I was advising them, I would have told them not to redeem that prep because the commitment to the investors in stretch was that the 2.25 billion was there as a reserve. Right. But actually it's not ring fence or there's no legal commitment to keep that reserve. And they went and spent it on redeeming this thing. And you know what they redeemed, it had a 0% interest rate on it. Right. And the first time it was portable, I think, was in late 2027. Right. So I think they just kind of, it was almost like a, you know, like a hedge fund would behave like where they had a view on where bitcoin was going to go. And we were kind of like in a mid cycle dip. Right. And then we were in a rip and they thought, okay, let's get rid of this. There was also chatter that, you know, they did it to improve their credit rating because they'd be getting rid of some debt. But I think it will actually have the opposite impact with standard POS and Moody's, because now they don't have the cash reserve. Right. And so. But finding themselves. So that's all, you know, with the benefit of hindsight, but I would genuinely have given their advice. So in the situation they're in now. Right. What did they do? Right. Well, if they hadn't seen anything, you know, they hadn't done the 32 bitcoin dip. Right. It's kind of speculative to know what, what had happened. But if it had come out of the blue that they had sold $2 billion worth of Bitcoin. Right. I mean, it's anybody's guess what would have happened to the bitcoin price. Yes, then. But one benefit is then they could replenish the cash reserve. But they kind of created the problem in the first place themselves. So it would have been a bit of a weird thing to do. It's like, like, why do you use the cash you've got to redeem a convertible note that you only got to worry about in 2027 that you're paying 0% on and use all your cash and then dump all of the bitcoin in the market that cause a panic just to replenish it? It's kind of illogical to me. I don't understand it.
- [63:39]
B
Yeah, yeah. Given what we talked about with the confidence game, that would be seen at least by some as another misstep, which, you know, would not be helpful. But but going forward, assuming that it trades, you know, just kind of more in this, either in the same range or lower, like, do you have a view on what they should do or what you would do if. If you were them?
- [64:05]
A
It's very difficult. You know, I mean, ultimately, it depends if I look at it from the company's perspective or the investor's perspective, because, you know, sure, there are a lot of people that don't understand that if they're issuing common stock at below the value of the bitcoin, that it's diluting the bitcoin per share. So they probably would get some buyers, you know. So if I'm looking from the company's perspective, that's a great way. You know, just issue common equity and take in the money and, you know, pay dividends with it or add it to the cash reserve or whatever. But I'm doing that at the cost of the investors. Right. The prefs kind of add to the problem. It's like, you know, you're not entering the bucket, you're drilling a hole in the bucket. Right. So you kind of like making the problem worse every time you issue prefs. If you sell bitcoin, well, look at the reaction you just got, right? So it's kind of like, you know, you can't unbake an already baked cake. You're in this situation now, you've got no good options, really. Well, at least if somebody know, knows what they're looking at, you've got no good options. But there are a lot of people out there that don't really understand this stuff or even when you point it out, they kind of want to deny it. You know, it's. They call it confirmation bias, where essentially what you do is the only information you'll look at are things that confirm what you already believe. And it's a very known investor behavior trait in retail that investor behavior, this is. They don't want to hear anybody saying what the risks are or, you know, what the problems are, why something doesn't make sense. They'll just, you know, tell you, look, I don't want to hear it. I mean, they use pretty colorful language when they do, but yeah. So it's a difficult situation. I don't think there is an easy fix here. What Jeff Dorman said. Yeah, in a way it kind of makes sense. But on the other hand, who knows where the bitcoin price would have gone? You know, there's just so many unknowns that we can't say definitely that would have been the right thing to do.
- [66:24]
B
Yeah. Yeah. Okay. Well, Glenn, it has been such a pleasure talking to you. Thank you so much for coming on Unchained.
- [66:31]
A
Thank you so much for having me, Laura. I really enjoyed it.
- [66:35]
B
Nothing you hear on Unchained is investment advice. This show is for informational and entertainment purposes only, and my guest and I may hold assets discussed on the show. For more disclosures, visit Unchained Crypto.com.
- [67:06]
A
Sam.