Latest / What Bitcoin Did / The Future of Bitcoin Treasuries | Jeff Walton

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The Future of Bitcoin Treasuries | Jeff Walton · What Bitcoin Did

0:00
We're running around here in the Middle East and we're talking to, you know, oil rich countries
0:07
that have tons of wealth that are exploring and looking into this stuff.
0:12
FOMO is intensifying and I think we are getting very close to a lot of noise within this marketplace.
0:21
If Bitcoin increases, that gives us more capacity to issue our perpetual preferred equity.
0:26
And if we issue more perpetual preferred equity, we're buying more Bitcoin with it.
0:30
We're in a digital gold rush.
0:31
Over the next four to eight years,
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we think institutional adoption increases drastically.
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We think sovereign adoption increases drastically.
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We think digital credit starts to permeate
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throughout the rest of the market.
0:42
So because of those dynamics, the macro environment,
0:45
we see probably the next four to eight years
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between a 30 to 50% compound annual growth rate for Bitcoin.
0:51
Banks and pensions and insurance companies can't.
0:55
We'll not be able to not hold these things.
1:00
Jeff Walton, you're back, man.
1:02
Third time on the show.
1:03
Third time.
1:04
You're one of the only people that's been on the show
1:06
more than once who wasn't on the previous show.
1:09
That's right.
1:09
We're moving fast here.
1:11
You've been blowing up.
1:12
Coming up.
1:13
So we've only got like 45 minutes.
1:15
So we're going to have to get right into it.
1:17
Speed run.
1:18
A treasury company's doomed, man.
1:19
We're in paper Bitcoin winter.
1:21
I guess so.
1:22
Paper Bitcoin winter?
1:24
That's the first question.
1:25
What's that?
1:26
Are treasury companies doomed?
1:28
Are they doomed?
1:29
Yeah, this has been a tough time for them.
1:31
There's prices going down, lots of them trading below 1xm nav.
1:35
Is the playbook that most treasury companies have implemented, strategy aside, is that getting tired?
1:42
Yeah, I think that's a good question.
1:44
The initial playbook was put Bitcoin on your balance sheet, sell equity, buy more Bitcoin.
1:51
And that's a one-shot model.
1:52
And that model has evolved.
1:54
And if that was your only, you know, trick, not even a trick, I would say if that was your only tool, that you need other tools in your toolkit now, right?
2:05
And so whether that be operating business or, you know, running a digital credit model or earning yield on your Bitcoin in different ways in the market.
2:13
And those ways are evolving.
2:15
So I don't think the treasury model isn't dead, right?
2:19
You take a step back and you look at the companies that have adopted Bitcoin and put Bitcoin on the balance sheet.
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And historically, they were zombie companies.
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They were dead to begin with.
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This was a last-ditch effort to help the company survive into the future.
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And putting Bitcoin on your balance sheet helps you survive into the future.
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Because with Bitcoin as capital, you can do things with it.
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Just like you could with real estate.
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right if you hold real estate you can earn a yield on it and now if you hold bitcoin you can earn a
2:53
yield on it and just being here running around this conference there are several ways that people are
2:59
generating yield on bitcoin assets and those are evolving very quickly i mean just just the last
3:04
few minutes i was talking with um hunter albright at salt okay salt provides bitcoin-back lending
3:11
products okay bitcoin-backed lending products so you know you as a personal holder if you wanted to
3:17
monetize your bitcoin you can go put post some bitcoin as collateral and get fiat dollars to go
3:22
use them however you want to now but there's difficult terms you have a margin call if the
3:29
price of bitcoin drops 50 you've got to post more collateral and that's a risk that you may have to
3:33
be willing to take yep they're offering a new product called salt shield and salt shield is
3:40
is effectively insurance on the margin call.
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Where they will, if you can buy this little add-on product
3:50
that effectively gives you more capacity
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in the event that you got close to a margin call,
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you effectively borrow more Bitcoin
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so you don't get margin called.
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Borrow more Bitcoin against what Bitcoin?
4:03
Against your loan transaction.
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So even if your loan is getting to the point
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where the loan's value needs topping up
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to make sure you're not margin called.
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So how does it get extra?
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You buy it up front.
4:15
I see.
4:16
You buy it up front.
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It's like an insurance policy.
4:19
And is it the same dynamics of the second loan,
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essentially, as the first?
4:24
No.
4:26
No, different dynamics.
4:27
I've got to look more into it.
4:28
But the interesting part is the SALT lending
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is taking capacity from corporations
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that hold Bitcoin on their balance sheet.
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And that Bitcoin can be held in an escrow account
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with their existing custodian,
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and it can be held there within that transaction.
4:49
And that loan is over-collateralized.
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So you think about the risk of the Bitcoin collateral
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that's been posted,
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and it's a relatively de-risked product
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because the underlying loan is over-collateralized.
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So the real question is,
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if there is a margin call, whose dollar loss
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comes first and it's probably the person that's taking out the loan yeah takes takes the loss
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first but that's just one example of innovation that's happening in the space there are hundreds
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there are hundreds of examples that are happening in the space um so we're early days and these
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treasury companies can always wait they have the luxury of time most of the time
5:31
And if the price of Bitcoin goes higher, now they have more capital and they can start maybe that if you get more capital, that gets you into a different echelon where you can run different strategies or access different yield opportunities.
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So for us, for example, at our company, Strive, we issued $200 million of perpetual preferred equity.
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and in order to access the perpetual preferred equity market you you kind of need about
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5 000 bitcoin 5 000 6 000 bitcoin and need to issue about 150 to 200 million dollars
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of this product in order for it to be attractive to that marketplace so there's a as you get higher
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up in scale there are more opportunities that open up to you and so this is really all of these
6:17
treasury companies like this has always been i think pretty obvious to anyone watching that they're
6:21
to become some kind of Bitcoin bank. Do you think that is a sort of transition that will happen in
6:28
the next three or four years or is that a longer playbook? Can you repeat the question?
6:33
Like, so with strategy particularly, it was always obvious they were going to become some
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kind of Bitcoin financial service bank, whatever you want to call it. Like, do you think any treasury
6:42
company from here that's going to survive at good scale is probably going to do the same thing and
6:46
and become either a lender or...
6:50
Not necessarily.
6:51
They don't have to be.
6:52
It just gives you power to operate,
6:55
the power to continue to operate into the future.
6:57
You don't have to be a bank, right?
6:59
You look at a company like 21 that just came out,
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they're focusing primarily on the operating business
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and Bitcoin infrastructure.
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So having the Bitcoin on their balance sheet
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gives them access to dollars that they can utilize
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in their operating business.
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So the real question then becomes,
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for 21, does that use of those dollars,
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is that better off in the operating business?
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Like if Bitcoin's your hurdle rate,
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would you rather deploy those dollars
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into an operating business or buy more Bitcoin?
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Yeah, and that's the key question.
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Because like, I don't pay loads of attention
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to treasury companies.
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Apart from when I do shows on them,
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I talk to people like you.
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But from the outside looking in,
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it doesn't seem like any of the underlying businesses
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are actually very important.
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Like that's not why strategy's gone up in price a load.
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That's not why they've got to 650,000 Bitcoin or wherever they're at now.
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Like, do you think that's the wrong way to approach this in terms of looking at an operating
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business instead of just more like pure play treasury?
7:58
Yeah, like there's, I think there's just room for so many different types of companies.
8:02
I mean, our future and our world is moving significantly more digital.
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And we don't know exactly what the future of Bitcoin backed finance looks like, or even
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what these companies can potentially do in the future.
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So there's just optionality
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by having Bitcoin on your balance sheet.
8:21
It saves you.
8:22
So you have the ability to operate into the future.
8:26
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10:37
So I get what you're saying,
10:38
like there's room for people to experiment here
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because we don't know yet.
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This is still very early days.
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But there's probably not room for,
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there's not room for 100 big treasury companies.
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Like that's going to be like a finite space of winners, I think.
10:50
Yeah, probably.
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And I don't know what the kind of threshold for that is.
10:54
We've not even talked about you joining Strive
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since we last spoke.
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Let's start there.
10:59
So how big is Strive now?
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Yeah, Strive,
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We have 7,525 Bitcoin.
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And so just, I think it's about $650 million,
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something like that.
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And yeah, we're pretty sizable.
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I think we're 14th largest company
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that holds Bitcoin on the balance sheet.
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And we have the similar transaction.
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We went through the process of acquiring similar.
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So once that transaction closes,
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I think we'll be top 10 publicly traded companies
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that hold Bitcoin on the balance sheet.
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And that gives us more ability to grow
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and run the digital capital,
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digital asset treasury strategy into the future.
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So I would argue that there's going to be room
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for different types of strategies here.
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A hundred, maybe, maybe more.
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If you look at the existing structure of the world,
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there are 5,000 banks.
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There are 5,000 insurance companies.
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There are 5 credit unions and they all offer the exact same product Yep And so how do you differentiate They all operate in different places different locations
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offer different risk-return metrics, have different pricing.
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And I think that's a world in which we're moving.
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Obviously, you're going to have strategy, which is the biggest.
12:21
Yep.
12:21
And their lead is just getting even larger every day, right?
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They bought 10,000 Bitcoin last week.
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Yeah, insane.
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They bought a Strive last week worth of Bitcoin.
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We've been working really hard, right?
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Damn.
12:33
But there's room to innovate within that.
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And you look at a company like Strategy,
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they're so large,
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and the responsibility that they have
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within the marketplace,
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they have to be incredibly transparent and simple.
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If they start doing things beyond what they're doing
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and that are difficult to quantify
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and difficult to understand,
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the story starts to get muddied very quickly.
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So I wouldn't necessarily look to them to be a leader.
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They are a leader in the professional preferred equity
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that their company is absolutely killing it,
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but the smaller companies may have room to innovate
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in these little smaller niche areas of capital markets.
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So kind of take high risk that it wouldn't be worth strategy taking.
13:20
Right.
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Even for example, we went through the process to acquire similar.
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That's something that strategy has been very adamant
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that they're not going to do any M&A activity
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because there's tail risk associated with it.
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But a company like us, if we want to scale,
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if we want to issue a perpetual preferred equity,
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bringing in a company like Similar
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where we're able to double our Bitcoin stack
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and then issue perpetual preferred equity against that,
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that starts to look very attractive.
13:48
Yeah.
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And because you're essentially,
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I don't know what the MNAV is,
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but it's below one for Similar, I believe.
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So you're buying Bitcoin at a discount while doing that.
13:55
Yeah, effectively. So it was an all-stock transaction. The headline number looked horrible. It looked like we were buying Semler at $90 a share because our stock price at the time was trading at $4 and Semler's was trading at like 1MNAV or 0.9MNAV, something like that.
14:12
So we didn't have any cash that went out the door in that transaction.
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So we effectively purchased similar using the premium that existed in our stock.
14:29
I see.
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Does that make sense?
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So we effectively got Bitcoin at a discount.
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You can think of it that way.
14:34
And so that's kind of the point I was trying to get to before where like, what is the market right now?
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How many can it really sustain as those sort of pop treasury companies?
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I think you can forget about the long tail.
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There's going to be people that try unique things in different markets
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that are smaller scale.
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They might work, but they're not going to ever end up being
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like a strategy-sized thing.
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So do you think of the, say, top 20 treasury companies,
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maybe even top 50, we're going to see continued acquisitions?
15:04
Yeah, I think probably in the future.
15:06
Well, I think one thing I want to challenge here is that
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just because your stock is trading below 1MNAB
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doesn't mean your company is like a failure.
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The company still holds Bitcoins.
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Everybody that works at the company,
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like they could liquidate the company today
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and it would be worth one.
15:18
Yeah.
15:19
But the challenge though, I see,
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and I could be wrong here.
15:22
Like I say, I don't spend all my time
15:24
thinking about this is like,
15:25
once it's below 1x MNAV,
15:27
especially for a sustained period of time,
15:29
how do you ever get it back?
15:31
Because like, it seems like,
15:33
obviously you can't,
15:35
you're going to have to either buy back shares,
15:37
which you're going to have to raise debt to do
15:38
or sell Bitcoin to do.
15:39
Like, does it become like a death spiral once it goes below 1x for a long time?
15:45
Yeah, I guess it depends on the productivity of the humans that work at the company.
15:49
Yeah.
15:50
Like, the humans that work at the company, what business can you do?
15:54
You know, can you go, you know, make phone calls and leverage your Bitcoin in different ways?
16:00
Can you go park at a Coinbase and earn 5% yield on it?
16:03
Can you go, you know, be a capacity provider for Salt Shield, right?
16:07
Like there's things that you can do.
16:10
You go to the conferences and look at all of the opportunities out there, right?
16:13
You can deploy that capital in different ways.
16:15
So the equity valuations are a snapshot at a point in time.
16:24
I don't think it's death spiral because it's really, it's just capital, right?
16:28
If you're trading below one MNAB, you still have the money.
16:31
yeah right there are there are one thing that i really like to do is compare these companies to
16:39
the rest of the world and you can go compare a lot of these smaller companies that are trading
16:44
under one m nav and you look at their balance sheets and go compare it to an equivalent sized
16:48
market cap company uh in the rest of the equity market and that that equivalent size company in
16:53
the rest of the equity market probably has a balance sheet that's one sixteenth of the size
16:57
right and they're in they're in more hot water yeah and the company that actually has the money
17:05
on the balance sheet so to to the extent that they can wait or you know get out in the market
17:12
and operate i think they're going to be okay like most of them but to your point there's likely going
17:20
to be future m&a uh within the market for companies that are just kind of dead in the water maybe
17:26
they're too small, they can't get scale, they don't want to take on the risk of the opportunities.
17:30
Maybe the board of directors is just tired and they want to be out of there. Maybe the operating
17:34
business doesn't work very much anymore. Like they're getting taken over by AI. Even at that
17:39
point, your business is an attractive M&A target. Because the operators of the business aren't
17:47
attractive to bring on board. Just the Bitcoin. Like think about similar. Think about similar if
17:53
didn't have the bitcoin yeah no one's buying that company no like the just recently they've lost some
17:59
of their uh largest uh customers yeah and the revenue shrunk significantly because they had a
18:06
lawsuit or something yeah there's a lawsuit and you know that it was a company that was going
18:11
through challenges okay so if if that would have happened and they didn't have the bitcoin about
18:16
sheet now now the company the company's worthless yeah right like it's worth the ip and what's the
18:22
the ip worth well the ip is worth whatever somebody's willing to pay for it which might be
18:25
a dollar right so that construction is everywhere within these treasury companies that you the bitcoin
18:35
is worth something and if you can if you're so you've got two options if you're the if you're
18:41
the company that's being acquired you have two options you can liquidate all the bitcoin and
18:47
pay out all of the equity.
18:52
Or you can look at being an acquisition target
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for any of these other companies
18:56
and getting conversations with them and say,
18:59
hey, I'm looking to be acquired.
19:01
And then you can negotiate terms.
19:03
If you don't like the terms,
19:04
just look at the Bitcoin and pay out all the equity.
19:07
So there's optionality within those
19:10
just by having that Bitcoin.
19:12
Yeah, I'm not trying to give you a hot time here at all.
19:14
I'm just trying to figure out.
19:15
These are good questions.
19:16
And it's something that a lot of people are trying to figure out.
19:19
And there's been a lot of hatred in the market about these treasury companies.
19:22
A lot of people, you know, YOLOing and they've been volatile, right?
19:27
These companies have been the volatility absorbers in the Bitcoin market, right?
19:32
As we've been in this, you know, mini bear market here on the price of Bitcoin dropping 30%.
19:37
It's like, where does all the excess liquidity come from?
19:40
It comes out of the treasury companies.
19:41
You've seen it with strategy.
19:42
I mean, strategy's gone from a $120 billion company to $50 billion company.
19:48
Like, that's a significant amount of liquidity that's left the market, yet the company's still trading $3 billion a day.
19:55
Like, the company's still attractive to people that are trading the stock and holding the stock.
19:59
So, yeah, it's an interesting dynamic.
20:02
Yeah, and like, I have no problem with the treasury company.
20:06
Like, I think companies going out there, buying loads of Bitcoin, putting on the balance sheet, that's cool.
20:10
and like I love that there's someone out there
20:12
buying a load of Bitcoin
20:13
and I think if I was running a big corporation
20:16
I would want Bitcoin on the balance sheet
20:18
so none of that is like my issue
20:19
the only place I have a slight issue is
20:23
the people who are being
20:25
like I don't know the right word
20:28
it's definitely not tricked
20:29
but they're being like incentivized
20:31
to go and chase greater volatility
20:32
in treasury companies
20:33
because Bitcoin's been pretty flat over the last year
20:36
and like I think selling Bitcoin
20:39
to buy a treasury company
20:40
is a very risky take.
20:41
It's essentially the same as...
20:42
I think that's a bad idea.
20:43
Yeah, it's essentially the same
20:44
as being like,
20:45
I'm going to sell Bitcoin now
20:46
at $90,000
20:46
to buy back at $80,000.
20:48
It's the same idea.
20:48
And I think that generally
20:50
doesn't play out well for people.
20:53
Well, I would also challenge that.
20:56
I think you kind of...
20:57
You may step back
20:58
and look at your life.
20:59
There are bad entry points
21:01
on all these things,
21:02
becoming very obvious
21:03
and very clear.
21:04
There are bad entry points.
21:05
I mean, I personally...
21:09
went in very deep to micro just microstrategy at the time in november of 22. i thought that was a
21:15
great entry it was like this company's solvent you know and everybody thinks they're dead and i was
21:20
you know buying tail options in uh early 2023 um so i thought that was a very good entry point and
21:28
you know in november when the stock was trading at 540 dollars was probably a bad entry point and
21:35
and it was trading at four and a half XMNAP.
21:38
But you look at the fundamentals of the company,
21:39
the fundamentals of the company,
21:40
like the company has literally never been stronger today.
21:43
When the company is trading at $540,
21:46
they had 250,000 Bitcoin and zero preferred equity.
21:50
Now the company is trading at $180
21:52
and they got 660,000 Bitcoin
21:55
and five perpetual preferred equities.
21:58
Which one's better?
21:59
It's like the one that's $180,
22:02
the one's 500,
22:02
if you liked it at 540,
22:04
it looks like a screaming deal here.
22:05
Yeah, no, so I totally agree with that.
22:07
And again, this is where it gets hard
22:10
because comparing strategy to some of the other ones
22:12
is they're just two different worlds.
22:14
Yeah, totally.
22:15
Because you can, at the same time,
22:17
as I totally agree with what you're saying,
22:19
you can look at something like NACA
22:20
and it's like everyone's got completely wrecked.
22:23
And maybe where it is right now is not a bad buy.
22:25
I don't know.
22:25
But the point is it's trading.
22:28
And I always try and tell people not to trade
22:30
and it's no different with treasury companies
22:31
than it is with Bitcoin.
22:32
Yeah.
22:34
But as there's trap pools of institutional capital,
22:37
I think you serve a really good market there.
22:40
So it's not like I'm trying to give you too hard a time.
22:42
And I do think that there's...
22:44
Well, let's dive into this a little bit
22:47
because if you're...
22:49
I'm not recommending anybody sell Bitcoin
22:52
to do any of this stuff,
22:53
but you've seen large OGs do this, right?
22:58
People that have had thousands of Bitcoin.
23:01
I mean, Adam Back's funded pretty much every treasury company.
23:04
You look at Adam Back, he's like, well, this is actually a really appealing opportunity if I could do this in a tax efficient way.
23:11
If you could do this in a tax efficient way and start getting into this market.
23:14
Yeah, you start to look at, you know, if you've got so many Bitcoin you don't know what to do with.
23:18
Yeah, you might want to have some exposure here if you're underweight in some of these deals.
23:26
Yeah.
23:26
maybe that makes sense. But if you're like, if you've got, you know, two Bitcoin,
23:31
probably doesn't make sense to sell your two Bitcoin and then buy. Like, it probably makes
23:35
sense to just work more and buy additional exposure when you want it. And it's just,
23:41
it's the like high volatility, the amplified part of your portfolio. That's probably more.
23:45
Yeah. And there's nothing more risk-free than owning self-custody Bitcoin. But Adam Back is a,
23:50
like Adam Back is obviously an incredible person, but he's also like, he's always been a trader.
23:54
Like he loves trading Bitcoin.
23:55
That's true, he does.
23:56
That's like part of his shtick.
23:58
Do you think there's kind of a dynamic going on now
24:00
where as Bitcoin price is dropping,
24:03
the market is almost testing a lot of these treasury companies because like MicroStrategy went through this in 2021 or 22 whenever it was where it traded at a discount It like let see whose operational team are on it
24:17
who's going to survive this,
24:18
who's going to position themselves really well.
24:19
Do you think we're going through a bit of a stress test
24:21
in that market?
24:23
Yeah, a little bit.
24:24
I mean, you try to compare it to 2022,
24:27
and MicroStrategy had less assets
24:31
than they did dead on the balance sheet at that time.
24:33
Now you look at the company right now,
24:35
and they have 12% leverage.
24:38
Yeah.
24:38
Yeah, it's like completely, completely different.
24:41
Now, some of the other smaller,
24:43
some of the other smaller companies,
24:44
yeah, they're starting to get tested a little bit.
24:46
You've seen a couple of margin calls.
24:47
You saw a company like Saquon's,
24:48
they sold some Bitcoin to reduce the leverage
24:51
from the convertible bond on the balance sheet.
24:53
Yeah, that might have been a good idea.
24:56
But realistically, I think what we've seen
25:00
kind of going on with Bitcoin
25:01
probably has more to do with,
25:03
just the credit environment in the broader business macro ecosystem, right?
25:14
We've got interest rates coming down in a couple days, potentially, in the U.S.
25:19
And a lot of incentive for the economy to be roaring in 2026, right?
25:25
You've got Donald Trump.
25:28
You've got elections in November of 2026.
25:33
midterms. He's going to want the economy hot. You want everybody fired up. You just want everybody
25:39
like, yes, I want more of this, right? Give me more of this. So there's every incentive for the
25:44
economy to be rip-roaring in 2026 and potentially replacing Jerome Powell and the Fed with somebody
25:49
that wants easy money and lower interest rates and the business to be booming. So I think that
25:59
the four-year cycle is probably broken and you've got a lot of people that have been selling because
26:03
of four-year cycle, this is the top.
26:05
But we really haven't experienced a euphoric bull run.
26:10
No.
26:11
And we haven't experienced euphoria.
26:14
The market's incredibly healthy from a leverage perspective.
26:17
You've got infrastructure that exists
26:19
that's never existed before.
26:20
You now have credit markets expanding for capital.
26:24
Like we're running around here in the Middle East
26:26
and we're talking to oil-rich countries
26:30
that have tons of wealth that are exploring
26:33
and looking into this stuff,
26:35
FOMO is intensifying.
26:37
And I think we are getting very close
26:40
to a lot of noise within this marketplace,
26:44
especially if interest rates come down
26:45
and money returns to kind of risk on assets.
26:48
Let's go.
26:49
I mean, I agree with you, by the way.
26:50
I think that you can almost,
26:53
after being in Bitcoin for a while,
26:54
you almost feel when things are getting ready
26:55
to heat up again.
26:56
And I'm getting that feeling.
26:57
Bubbling.
26:58
I mean, it's not always right, full disclaimer.
27:00
But I do totally see what you're saying.
27:03
Is there a world where Bitcoin starts ripping and treasury companies don't perform better?
27:11
Maybe. Yes. Some of them may not. It's quite possible that they underperform.
27:19
It's also quite possible that a lot of them overperform because they're leveraged Bitcoin.
27:23
So like our company, for example, if Bitcoin runs up, if Bitcoin increases, that gives us more capacity to issue our perpetual preferred equity.
27:36
And if we issue more perpetual preferred equity, we're buying more Bitcoin with it.
27:41
That's an attractive model.
27:44
If Bitcoin goes up 10%, we pay out our monthly dividend,
27:50
and we are able to issue more perpetual preferred equity,
27:54
buy more Bitcoin.
27:55
It starts to become a very attractive business model.
27:57
That looks appealing.
27:59
We've got amplified Bitcoin, and we've got digital credit.
28:01
We've got two products.
28:03
And so do you already have a preferred outlet in the market?
28:05
Yes, we do.
28:06
Yeah, and SEDA.
28:07
And what are the terms on that?
28:09
Yeah, so SEDA is 12% on par.
28:11
So it pays $12 per share currently.
28:13
it pays $12 per share. It's a variable rate interest perpetual preferred, very similar to
28:19
stretch. So we have the ability to adjust the interest rate up and down depending on how it's
28:24
trading. We want it to be within a target range between $95 and $105. So it's got a little bit of
28:29
a wider band than strategy stretch product, which from a mathematical standpoint, stretches out the
28:35
duration a little bit further. But we want this to be a more stable version. Well, it will likely
28:42
be a little bit less stable than stretch. So a little bit more volatile than stretch,
28:45
but still providing a significantly high yield relative to everything else that's out in the
28:51
market. So our company, how we manage this, one of the biggest questions is how do you pay the
28:58
dividends? And we pay the dividends by managing the risk on our balance sheet.
29:03
Okay. So that's something I do want to get into.
29:04
Yeah, let's talk about it. But just quickly before we do that,
29:08
You went for 12% presumably just to be higher than strategy
29:11
because otherwise you're not going to be able to compete with them.
29:13
Well, we're much smaller.
29:15
So we've got a different risk profile.
29:16
The other thing that's unique about our product
29:19
and our structure of the design,
29:20
we do not have any convertible debt on our balance sheet.
29:23
So this product is senior on our balance sheet.
29:27
So we've got the perpetual preferred equity,
29:29
and that's it.
29:30
So that's a unique capital structure compared to strategy.
29:34
now we can also take uh we can we can be a little bit more flexible uh with with the design of that
29:42
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dot world and use the code WBD. Yeah, because preferred to like, they're the most interesting
32:20
that's happened in the treasury space this year, I think. And I had Fong on the show recently. I
32:25
I don't know if you listened to that one.
32:26
I did, yeah.
32:27
It was great.
32:27
Yeah, great show.
32:28
And that was the question I had for him is like,
32:30
if you have this interest payment that you have to pay out every year,
32:33
I don't know how high yours is.
32:35
I think strategy is around 750 million.
32:37
Yeah.
32:38
In a scenario where your shares price is trading at less than 1XM now,
32:43
how do you pay that back?
32:44
Because you can't really dilute shareholders at that point.
32:47
So you either issue more preferreds or you sell Bitcoin.
32:52
Yeah.
32:52
And what if the demand for the preferred isn't there?
32:56
Yeah, there's a few different things.
32:58
You can also enter the derivatives market for Bitcoin.
33:00
You've got Bitcoin on your balance sheet.
33:01
You can enter the derivatives market.
33:02
What does that mean?
33:03
What do you do?
33:03
So there's multiple things that you can do.
33:06
So you can sell covered calls.
33:10
That's the clear one that most people can wrap their heads around.
33:15
But there's also the futures trade.
33:19
you can earn yield through that environment.
33:22
There's also other yield producing ways
33:27
that you can use your Bitcoin as collateral
33:28
for just little tiny pieces of yield
33:30
to help pay those dividends.
33:32
And then you also have operating business.
33:33
So operating business, any cash flow that comes in the door,
33:36
you can use that to pay dividends as well.
33:38
But also another thing that is unique to us
33:40
and it's cool seeing strategy follow behind us here
33:43
is we came out to market with 12 months of cash
33:46
to pay our dividends.
33:48
So we had a 12-month cash reserve.
33:50
Oh, that's quite cool.
33:51
So we actually led strategy in that.
33:53
And then just this last week,
33:54
they come out with a $1.44 billion cash reserve
33:58
to pay 18 months worth of dividends into the future
34:01
to kind of mute this concern of how do you pay the dividends.
34:05
So it's like, and you can also sell a common stock ATM.
34:09
But again, if your common stock ATM is below one,
34:11
you would tap these other pools of capital.
34:15
You can kind of think of it as a line of defense.
34:18
It's like first line of defense.
34:19
So like I've got the cash.
34:21
Okay, I've got the cash reserve.
34:23
And then I've got, meanwhile, if I have to dip into this cash reserve, because my stock's trading under 1MNAV, I'm also going to go explore these other options.
34:31
To rebuild and fill back up that cash reserve.
34:34
And if the stock recovers at that point in time, then I can, you know, start, you know, dipping back into that.
34:40
Is there like, sorry, it would almost be a great problem to have.
34:43
But is there a potential problem, especially as like a younger treasury company, that the preferred is so popular and the common share price doesn't raise enough that you can like tap the ATM that your interest payments get so large that you kind of get forced to sell Bitcoin?
34:58
Well, we can control that.
34:59
We control how much preferred we have outstanding.
35:02
So we're constantly monitoring our leverage, right?
35:05
Right now, we're about 30% amplified.
35:08
so our notional outstanding is about 30 of our bitcoin balance sheet so our annual interest
35:18
payment is 24 million dollars we have got 200 million outstanding at 12 interest rate so that's
35:25
24 million dollars if you look at uh the interest if you were to break down the interest payable
35:33
by day in the trading days throughout the year,
35:38
our daily interest payable is about $100,000
35:41
if you were to break it down daily.
35:45
Lately, our stock has been trading
35:47
between $50 and $100 million a day.
35:51
So if I just need to raise $100,000
35:53
on our stock's trading, it's not much, right?
35:56
Like, yeah, I could go issue $100,000 of stock a day.
36:00
And that's, you know, that's an interesting way to look at it.
36:05
So that uh this is so we we constantly yeah you brought up the champagne problem right You you got so much uh interest in the perpetual preferred equity that that you know you can sell enough of it or the price gaps up right Right now
36:21
it's trading at $91. And, you know, if it goes above our estimated trading range,
36:25
we can issue more of it to bring it back down to 100, which we would absolutely do.
36:31
But to the extent that we got too amplified, we would look at, you know, can we issue more equity
36:39
to bolster our balance sheet to reduce the amplification?
36:43
Or can we look at taking on a tail hedge?
36:45
Can we purchase a tail hedge
36:47
where we can pull off downside risk on the balance sheet?
36:53
So you've got a few things.
36:54
You've got tools that you can use to manage that circumstance.
37:00
Yeah, because when I asked Fong that question,
37:02
he said he wasn't shy about saying
37:05
there is a scenario where they may have to sell Bitcoin.
37:07
They don't want to. It might be there.
37:08
It's possible.
37:09
And I get he's got a fiduciary duty. He has to say that. But do you think there's,
37:15
obviously selling Bitcoin as a treasury company is a strange signal to the market, I think.
37:21
But do you think that changes over time and it becomes a more commonplace thing?
37:24
Yeah. It's capital. It's the most liquid capital on the planet. Imagine if you're
37:30
over leveraged and you've got a real estate portfolio, you're screwed.
37:34
Yeah.
37:34
Right? Like, oh, let me go liquidate the stadium real quick. It's not going to happen.
37:38
Three years later, you might get rid of it.
37:40
Yeah, but you could go sell.
37:42
Like I said, our annual interest obligation is $24 million.
37:47
Yeah.
37:48
Bitcoin trades $60 billion a day.
37:51
Like if I needed to sell, you know, $2 million of Bitcoin,
37:58
the Bitcoin price isn't going to move a penny.
38:01
Yeah.
38:02
And it would clear.
38:04
Like that would clear the market.
38:05
So it's a tool.
38:09
And when you start to run the mathematics on the perpetual preferred equity, if you take a very conservative view of the math, and let's just assume that you sold Bitcoin to pay the interest obligations, the model still works.
38:28
So let me pose a question to you.
38:30
I think this is fun.
38:31
if I gave you
38:33
a Bitcoin today
38:35
would you be willing
38:36
to pay me
38:37
$10,000
38:38
in fiat
38:39
for the rest of your life
38:40
$10,000 a year
38:42
in fiat
38:42
for the rest of your life
38:43
yes
38:45
that's effectively
38:47
what we're doing
38:47
with Perpetual Preferred
38:48
because
38:51
I was trying to figure out
38:53
what the interest rate on that is
38:54
and if it's the best decision
38:55
but
38:55
let's just say
38:56
just make it
38:57
just make it $12,000 a year
38:59
yeah
38:59
Okay, so if I gave you $100,000 and you bought Bitcoin with it today and you had to pay me $12,000 a year for the rest of your life, would you take that risk?
39:12
It's an interesting way to think about it, right?
39:19
You've got a fiat liability that you've got to pay into perpetuity.
39:23
And if we entered that transaction, you'd figure it out.
39:27
We are entering this transaction.
39:28
you'd figure it out yeah uh even if the price of bitcoin went down you would you know do more
39:34
podcasts and make more money and you you know you figured out you'd pay me cash maybe next year
39:41
and instead maybe you sell a little of the bitcoin but because you're like i didn't make
39:44
enough cash right you you would you'd go through the process and you'd figure it out so that's
39:49
effectively what we're doing on a larger scale anytime we issue perpetual for equity somebody's
39:53
giving us cash and we're plowing it into Bitcoin and we are our company is taking on the risk of
39:59
how we pay on the dividends so one big criticism that comes out a lot that mainly in like traditional
40:05
financial media is Bitcoin's not a yield bearing asset and which is not it's not but neither is
40:14
real estate yeah and that's that's a that's a big that's a big statement that a lot of people
40:18
disagree with. And you look at real estate by itself.
40:23
A house isn't yield bearing.
40:24
The house isn't yield bearing.
40:25
A house doesn't create more little mini houses next to it.
40:28
You have to take risk. You have to put work into it. Okay. Bitcoin is not yield bearing.
40:35
You have to take risk. You got to put work into it. And that's the big distinction is that
40:41
our company is risk-taking, right? Like we are risk-taking to buy more Bitcoin. We are taking
40:47
on that risk of paying that dividend into perpetuity.
40:50
So apart from the preferreds,
40:51
which you're offering a similar product to Stretch,
40:53
which I actually think is the most interesting
40:54
of Strategies products anyway.
40:56
It's really appealing, yeah.
40:57
And you're issuing a slightly higher interest rate,
40:59
understandably, like,
41:01
otherwise you just won't compete with strategy.
41:03
Yeah.
41:04
How else are you trying to differentiate yourself?
41:07
Yeah.
41:08
Well, I think one thing that's a big differentiator for us
41:13
is that, you know, we are a bit smaller
41:16
and we offer a different risk return metric,
41:18
there's going to be hundreds.
41:20
Let me put this into perspective.
41:22
So when we went out to market with Seda,
41:28
we had just came off of a 30%.
41:30
This is right after October 10th, the big liquidation event.
41:33
And we went out to market right after that.
41:35
Bad timing.
41:36
Bad timing.
41:38
Probably is some of the worst timing you probably could have had.
41:41
And we came out with this product,
41:43
and we're going to pay 12% interest.
41:44
and still at this point strategy hasn't raised any cash and we went to the market and we're saying
41:48
hey we're going to have a cash reserve we are our business is an asset management company everybody
41:54
that works at the company are finance people we're going to operate in the financial markets we're
41:58
going to explore yield opportunities we're going to find ways to um generate bitcoin yield that are
42:05
are maybe a little bit more niche than what strategy may do for example like the m a yeah
42:09
which was part of our original value proposition.
42:13
And we went to the market,
42:15
and initially we were going to market to raise $125 million.
42:19
We upsized the deal up to $200 million
42:21
because there was significant demand.
42:23
And at the $200 million at a price of $80,
42:27
we actually had nearly $500 million of demand.
42:31
So we could have issued even more than that.
42:34
So there was significant demand from that perspective.
42:36
And we think this marketplace is going to expand drastically, especially as we start making inroads within the rating agencies.
42:46
As the rating agencies start to wrap their heads around Bitcoin and digital credit, then we can start having real conversations with some of my old colleagues in the insurance and reinsurance world about adding these instruments to their balance sheet to protect against debasement and long-tail liabilities that they're not doing a great job managing right now.
43:05
Yeah. We've not had enough time here, Jeff. We've only got a few more months.
43:10
We'll do a fourth one down the road.
43:12
But I do have a question for you before you go. So, strategy obviously have their Bitcoin projections, where they think Bitcoin will go. They have a bull bear case. How do you think about Bitcoin right now? Because I know you are a Bitcoiner, but you've been very heavily in the treasury world for the last year and a bit. What do you kind of project out for Bitcoin?
43:32
Short term or short term, long term?
43:34
whatever you're thinking about yeah we we view that over the next we're in a digital gold rush
43:41
over the next four to eight years we think institutional adoption increases drastically
43:46
we think sovereign adoption increases drastically we think digital credit starts to permeate
43:50
throughout the rest of the market uh and because of that those dynamics you've got even the bitcoin
43:58
etf being the most successful etf in history those dynamics are that success is going to breed more
44:04
success and it already has so because of those dynamics the macro environment uh we see probably
44:10
next four to eight years between uh a 30 to 50 compound annual growth rate for bitcoin and we
44:16
think that will start to taper off as uh economies of scale and large economies of scale start to
44:24
come into play once bitcoin's at a 10 trillion dollar asset it's probably going to be significantly
44:28
less volatile. And the compound annual growth rate will be reducing over time into the future.
44:35
But you think we get 30% to 50% over the next decade? I'll take it. I'll take that.
44:40
Right. I mean, you look at the last seven years and it's been like 70%, 70% compound annual growth
44:48
rate. Even what in 2022 is at 16,000 and we're in 90,000 right now. What is that? That's a lot.
44:55
A lot of times, annualize that.
44:58
That's 70%, 80% probably.
45:01
And I don't think it takes a lot of capital
45:05
to move it much higher.
45:10
So one of the interesting things in the treasury world
45:12
is that when strategy came out,
45:14
started this whole genre,
45:17
it took quite a long time for the companies
45:19
to do the same thing, which always surprised me.
45:21
When Saylor first came out and started doing his thing,
45:23
I thought there was going to be essentially
45:24
like a gold rush of corporations trying to own Bitcoin.
45:27
And it wasn't really until 12 months ago,
45:30
maybe 18 months ago, that really kicked off.
45:32
If you were to look out another four years,
45:35
how do you think these business models will have evolved?
45:38
And what kind of market will they be fulfilling there?
45:40
Yeah.
45:44
Yeah, the market will evolve significantly.
45:47
I think there will be another doubling
45:49
of the number of companies that hold Bitcoin on the balance sheet
45:51
and then it'll double again, right?
45:53
I think that will happen.
45:54
There are millions of companies out in the world. I think small, medium enterprises will start to adopt Bitcoin as well out of necessity. And I think digital credit is a multi-trillion dollar idea and that will probably take off like a wildfire and it will likely get to a point where some of these larger capital institutions will have no other option but to own it.
46:22
you compare it to some of the other debt in the market and they're it just these products are
46:28
so much better on a risk return basis that like banks and pensions and insurance companies can't
46:36
will not be able to not hold these things especially if they get rated appropriately
46:40
and so yeah i think we've got a lot of excitement on the horizon and the the yield generating
46:47
opportunities are going to expand as well. If you think about if the price of Bitcoin goes from,
46:52
you know, 100,000 to 500,000, the number of people that are interested in taking out a Bitcoin back
46:58
alone is going to 5x. Yeah, that's not just going to double. That's not going to double,
47:03
it's going to 5x, right? And if that happens, that provides more opportunity for these other type of,
47:13
you know, yield environments or credit environments where the infrastructure can support itself
47:19
as long as the risk is managed appropriately, which I think is incredibly important.
47:23
And we now have institutional actors that are operating in traditional financial markets
47:28
with risk backgrounds that view the responsibility as very large, right?
47:35
So, Saylor and the strategy team and our team at Strive, we have a really big responsibility here.
47:40
And we are laser-like focused on making sure that we manage our liabilities into perpetuity.
47:46
Every part of the company is aligned for that.
47:49
And we want to be the second largest issuer of digital credit on the planet.
47:54
Awesome.
47:55
I'm sorry we had to speed run this one so quickly.
47:57
We've been really tight on time.
47:58
But I love talking to you, Jeff.
48:00
We definitely should do it again.
48:01
Appreciate it.
48:02
Thanks for the time.
48:10
Thank you.