Latest / The Income Show / Why Paying Off Your House Is A Mistake | The Income Show | Ep. 22

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Why Paying Off Your House Is A Mistake | The Income Show | Ep. 22 · The Income Show

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I borrowed from the HELOC at 5% and I bought STRC, which at the time I think was yielding
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9.5% or 10% or something. And the idea was, okay, I'm just going to arbitrage this spread
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in the rates. I'm going to borrow at 5%, I'm going to collect at 10%, and I'm making essentially a
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free 5%. I'm a firm believer that you should have a mortgage on it, at least at rates where we've
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got now and lower. And the reason is because when you're paying down your mortgage early,
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you're locking up capital, you're locking up liquidity. We've thrown everything that we could
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at Bitcoin and it's at 83,000. Are you kidding me? You know, like that's very bullish in my mind.
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Hey everybody, welcome back to The Income Show. This week I have on Trey Sellers. Trey leads
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Strike Private and writes Fire BTC, a newsletter and podcast about reaching financial independence
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on a Bitcoin standard. Before Bitcoin, he spent years on Wall Street in balance sheet funding
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at Goldman Sachs and in risk control for trading desk at SunTrust and Truist. Last year, he borrowed
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against his home to buy STRC and publish the full math. So we're going to dig into that and much
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more today. Trey, welcome to the show. Joe, thanks so much for having me, man. Good to see you again.
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absolutely great to see you trey maybe we can first start about like your investment philosophy
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and kind of how you think about investing very broadly and maybe we can start with before bitcoin
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like before bitcoin how did you think about investing before bitcoin uh i was an adherent
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and proponent of the fire methodology but it wasn't actually too much time before i found
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Bitcoin that I was practicing this methodology, they kind of came together. You know, as I was
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like, when I graduated college, I moved to New York City, I started working on Wall Street,
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essentially, like through a consulting lens. And then I had three years at Goldman Sachs.
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And I was kind of just going through the motions, like I had my 401k set up. And, you know, I was
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like, somewhat aware of what I was spending. And I was earning, you know, a decent, decent living.
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And, but I wasn't like really intentional about making sure that I was, you know, saving the excess money that I had, that I was investing it in a very intentional way.
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I wasn't really thinking beyond the here and now.
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And as I got further in my career through various companies and lots of experience on Wall Street, you know, in and around Wall Street, you get to a point in your career sometimes.
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well, at least this was true for me. So, you know, people have different conceptions or experience
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as they're going through their working life. But like, I started getting really
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tired of the corporate grind, let's say. And it was like the commute and the long hours.
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I was had two young babies at home that I was like missing time with. And I just kind of felt like
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there's got to be a better way to do this or there's got to be a like a way that I could
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look for a different path to free myself from this this type of a grind and
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I guess I started doing some research or whatever and I came across the FIRE methodology and FIRE
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stands for Financial Independence Retire Early and it really appealed to me I'm not really sure
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why. Maybe it's just because I have these like inherent, you know, instincts around kind of
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taking a low time preference and a long term view on things that I had grown into as I had kids and,
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you know, became more of a functioning adult as opposed to a young kid entering the workforce.
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And I just it made sense to me. It was like, OK, great. I've got like good income. My wife had good
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income. Our expenses weren't insane. And I could see a path for us to expand the area between our
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expenses and what we were making by being a little bit more intentional about where that money was
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going. And then the methodology of just plowing that into investments, namely stock market index
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funds. So the way the FIRE methodology approaches this is expand your savings as much as possible,
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put that savings into an index fund.
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We're not trying to pick stocks.
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We're not trying to time the market.
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You're just using the stock market,
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which has historically returned 8% to 10%
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on an annual basis over the last 100 plus years.
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You're just using that as a savings vehicle.
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And it grows faster than the rate
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that your expenses grow, typically speaking,
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especially if you're being intentional about this.
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And what that allows for you to do is transform your income into balance sheet and that balance sheet grows without you having to do additional work.
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It grows very, very passively.
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Like people talk about real estate as being like passive income.
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I have never talked to a real estate investor that bought a property and was managing it and that it was passive.
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but if you are plowing your money into the stock market and the stock market is returning on average
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10 per year over a long period of time i mean that's truly passive you've got the entire
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economy working for you and you get to a certain point where the compounding that's happening from
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what you've already saved starts to overtake what you're actually earning from your income
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So you've built this like compounding machine that works for you. And when you build that into something that is big enough where you can start drawing from it to cover your expenses in a way that will not, you have a very low probability of ever running out of money.
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at that point you've reached financial independence and that's kind of what the definition
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of financial independence is for this retire early community it's like hey i'm gonna i'm
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gonna reach that point but i'm not gonna i'm not gonna like follow this really slow dull way of
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saving over a 40-year time horizon i'm gonna actually like concentrate my efforts really
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really intentionally and i'm gonna do this in five years or 10 years or 15 years instead of 40
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and I'm going to reach financial independence
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and I'm going to be able to draw off this savings that I've got
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that's invested in the stock market that's growing at 10% per year.
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I'm going to cover my expenses and I'm going to do whatever I want to do
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because I don't have to work anymore.
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I'm not like tied to this employer.
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I'm not tied to this job, this commute that I can't stand
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that's spending so much time away from my kids
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and I don't get to travel and I don't get to play golf
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and I don't get to do all the things that I want to do
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or maybe I want to build a business or follow some kind of passion project
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that you just don't have time for when you're sitting, you know, behind a computer screen
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in a corporate environment boxed into a cubicle, which a lot of my experience was.
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And, and then, you know, like that was my experience, but there's a lot of people who
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do blue collar work. That's like back breaking, very difficult. You're working with your hands.
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It's really hard on your body. Got really, really early mornings. And so it's like,
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If you're not actually taking the time and intention to think about the future and put something away, build an asset base that will work from you, the fiat financial system will just degrade your existence until there's nothing left.
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So all of this like really resonated with me somehow.
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And this was kind of right around the time when I started understanding Bitcoin as well.
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so like I first bought some Bitcoin back in 2014 but I didn't know what the hell I was buying
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and it wasn't until 2016 2017 that I started like actually figuring it out a little bit like
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I kept coming back to it and going a little further down the rabbit hole a little further
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and then I would kind of like back off because I still just didn't get it but somehow I found the
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right people and maybe about a year into my fire journey and like really going hard on this I was like well Bitcoin like way better as a savings vehicle than the stock market why don I just do that instead so from
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that point on I started instead of transforming my income into stock the stock market I transformed
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my income into Bitcoin. And, uh, and then from there, like my path to financial independence
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just accelerated, just kind of, kind of blew up because Bitcoin did what Bitcoin does. Uh,
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it moved up very, very quickly. And, um, I was able to accelerate an already accelerated timeline
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to get to a point of financial independence, like much, much more quickly.
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oh yeah so that's been my philosophy right it's like you got to turn your income from these things
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like most people don't love their job right i i think that's pretty safe to say like in the modern
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world like most people are doing something for somebody else that they don't really care about
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but if you treat your relationship there as you own a business and you're kind of like they're
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your customer and you're turning the income or the revenue that you're getting from there
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into a balance sheet that can work for you.
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You kind of like flip your perspective.
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I think that's a very freeing way to look at things.
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Sorry to be long-winded there, but go ahead.
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No, that was well said.
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I mean, it's good to get the background
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of like how you became interested in the FIRE movement.
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I would imagine it's resonating with a lot of people
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and it obviously has resonated with a lot of people.
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Do you think that that movement is growing
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for like more over time?
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And like, why do you think if it is,
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Like, why do you think it is?
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I don't really follow it all that closely anymore, to be perfectly honest.
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I mean, there certainly are a lot of like financial influencers that you'll see on X.
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And it's different than the old guard of the fire community, like Mr. Money Mustache, if you've heard of him.
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There's this guy, Ramit Sethi, who doesn't like Bitcoin at all and blocked me on X for, I don't know,
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probably just pointing out stuff that he was saying that didn't make sense about Bitcoin.
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But these people have like really good insight from a financial independence perspective and like
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habits around saving and investing and living intentionally. And I think there's a lot that
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Bitcoiners can learn from that perspective, which is why I write the newsletter. It's why I make the
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videos on YouTube and all that. And I think there's a lot that the FIRE community and the people who
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are actually like thinking about these things and really taking ownership over their financial
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future in an intentional way can learn from Bitcoiners around low time preference and around
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like just how the world works. You know, it's like the fire community understands intuitively
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that their money is being debased and that they've got to buy assets in order to stay ahead of that,
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you know, backwards rolling treadmill or whatever. And that's going to like take them backwards if
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they don't do anything. They intuitively understand that. They've solved that problem
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for themselves, but they don't understand why that's the case really, right? Like they're just
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taking it at face value. Yes, this is the way the world works. This is a really good way to react
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to that. The results speak for themselves. That's great. But like, I think you're doing yourself a
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disservice by not actually understanding at a deeper level why that's the case.
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and then being able to kind of translate that into a strategy that could allow you to
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bring on this asset that you and I both agree is superior in a lot of different ways to the stock
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market. And by the way, like the fire community has been very U.S. focused. It's like a lot of U.S.
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people talking about this, but there's a whole world out there. You know, there's 8 billion people
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on the planet or more, like probably getting close to nine. And a lot of people don't have
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access to the U.S. stock market, which has had these historically great returns or any stock
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market at all. But they do have access to Bitcoin, which is a really important point, right? Like,
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I think we have a tendency in the U.S. to just be very U.S. centric and U.S. focused.
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But it's important to keep in mind all these other people who are also trying to reach similar
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types of goals, right? They're also trying to put themselves into a position of financial security
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but they might have just a different tool set to be to be able to work with
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how do you think bitcoin changes like the fire math like i think i've seen like on on your website
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actually like there's different fire thresholds so to speak where it can be like wealth that hits
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i don't know 10 extra income or 25 extra income where does bitcoin fit in like how does it does
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it change the math does it not change the math because you know bitcoin's future kager are you
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You know, us would argue that it's going to be higher than most other assets, but it's also extremely volatile.
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Like it can fall 50 percent, as we saw over the last 12, 13 months.
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How does that change the math?
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So the foundational math that people are working from or the calculation that people are using is something called the 4 percent rule.
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and it came out of this study that was done back in the 90s that looked at historical stock and
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bond returns and backed into an analysis for what is the appropriate withdrawal rate from a portfolio
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that would allow somebody to have a starting point draw down the portfolio and have that portfolio
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last for 30 years or more so essentially like you won't run out of money if you start selling down
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your assets over a 30-year period, which is like the traditional and typical retirement window that
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people are looking at, right? If you retire at 65 and you live to 95, that's a 30-year period.
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You need the money that you have saved to be able to last you that time horizon after you've
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retired, after you've given up that income that would otherwise be coming in. And it's assuming
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certain things, right? It's assuming a nominal return in the stock market in the like 8% to 10%
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range. It's assuming a certain inflation rate. I think the rate that they use is about 3%.
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And it's also looking back at historical time periods and looking at like hundreds or thousands
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of different historical time slices, like across this history of over 100 years, to the effect of
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saying, okay, well, what is the success rate of somebody who's retiring at a specific point over
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the historical timeframe? And as you can imagine, it actually does matter when you retire, looking
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back because if you save to a certain point, that 4% rule translates to 25 times your expenses
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that you need to cover. So if you've got $100,000 of expenses, you need $2.5 million worth of savings
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to draw down from at a 4% clip every single year. And that's adjusted for inflation.
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So, but if you reach that threshold and then you retire and tomorrow the stock market drops by 50%,
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all of a sudden you're like working from behind right like you've you've hit some some bumps so
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um so if you look at the data historically uh you're essentially just saying like what's the
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probability historically speaking that uh you will retire at the right time with the right amount of
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assets to last you for that 30 years well if you start to change some of these assumptions then the
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the implied amount of a portfolio that you need to be reaching for changes as well.
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So just to answer your question specifically is if we're assuming a 10% annual return on the stock
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market on average over a long period of time, and that translates to a 4% withdrawal rate,
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then if something were to return double at 20% per year on average, then that would translate
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to an 8% withdrawal rate.
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Historically speaking,
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Bitcoin has done much better than that.
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My personal opinion,
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and I think the opinion of a lot of people,
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you probably agree with me,
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is that 20% for Bitcoin,
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at least over the next,
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call it 20 to 30 years,
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is probably conservative.
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And so I go into this calculus for myself and the way I try to translate this to my readers and the people who are listening to my videos is that 8 on the Bitcoin portion
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of your portfolio, most people are not all in on Bitcoin, but on that portion of the portfolio
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is probably a conservative assumption that the compounding effect of Bitcoin and the
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price that it's going to follow will support an 8% withdrawal rate. Now, all the same risks
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apply here, right? Like there's no magic number out there that says, oh yeah, if you hit this
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number, you are 100% guaranteed to retire and last the rest of your life. You could live way longer.
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Like we're going into a period where there's legitimate questions about the longevity escape
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velocity. I've written about that in the past. Like, what does it mean if we start living to 150
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years old instead of, you know, 87 or whatever it is.
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And of course, the same like sequence of withdrawal risk, when do you retire and what do the assets
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that you hold do in that immediate time right after you start drawing from them?
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The risks around that still apply.
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and the last last like caveat that i'll say here is that um the four percent rule is actually very
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conservative if you look at the trinity study the study that was done where where the output was four
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percent it's basically saying that four percent will give you a 95 chance of success over a 30
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year period. And the assumption built into that is that you have no other income, no other like
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flexibility in your ability to work or earn over that time horizon. It's just like kind of black
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and white. 30 years, 95% assuming I have no other ability to fund my life than selling down my
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assets. And that's just not how life actually works. So one thing that I advocate for is like
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as you're thinking about your path to financial independence and how much you need to be saving,
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how much Bitcoin you need to be buying or stocks and some mix or whatever, and how much you're
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going to withdraw from that over time is like go into this with some air of flexibility, some
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perspective of flexibility that it's okay to like spend a little less during timeframes where the
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market's not working with you. And I've already got a plan for that. I've already got like,
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I've already thought about this particular situation. One of the great things about
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retiring early and being young when you're pursuing this is that you don't have to just
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stop working and only spend, only go play golf, only go on vacations, right? Like you can actually
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go do something that's productive for the world that brings in another income. And if you're doing
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that, then now all of a sudden you either need less to draw from your assets from. So you need
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to save less, or you're like putting yourself in a more conservative position relative to the
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black and white of the 4% rule without that other income assumption. So there's all kinds of
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variables. Obviously, everybody's different. Everybody has a different perspective on what
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they want their life to look like. But what I think this does is like really gives people a good
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framework or a frame of reference, some guardrails to say, okay, this is a conservative approach.
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and I know that if I'm just disciplined and intentional I can get myself very quickly into
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a position that uh that that I don't have to be so dependent so reliant on my boss waking up
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one day in a bad mood and decides to just fire me for whatever reason right yeah no I that freedom
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obviously is critically important.
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And obviously, I'm sure a lot of people desire that.
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Of course, as you mentioned,
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you have a large Bitcoin allocation.
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I obviously have a large Bitcoin-related allocation
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as a portion of our portfolios, of course.
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With that context,
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I would imagine most people
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probably think about investing as growth investing,
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whether they hold index funds
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or tech stocks or whatnot,
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or they probably would lump Bitcoin into that.
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And then there's also like income investing.
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Like you mentioned real estate,
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how it can generate rents and cash flow
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or dividend stocks seems to be like another like hot thing
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in the income investing community.
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And of course, digital credit too.
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Like how do you think about those two buckets,
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like growth investing and income investing
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and how does that interact with FIRE?
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For me personally,
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I want to maximize my total returns over the long term. And I'm okay living through the volatility
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that that comes with in order to have a bigger bucket that I can draw from. Other people view
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it differently, right? They say, okay, well, I want to like, and the traditional way of thinking
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about this is, okay, well, I'm going to be aggressive when I'm young. And then I'm going
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to start going into more conservative investments when I'm older and when I need that income
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so that I don't have to sell my assets.
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Well, like the whole point of the FIRE approach is that you are going, you're okay with selling
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your assets down at that 4% clip.
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And in the vast majority of cases, I didn't mention this before, you end up with far more
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than what you actually started with just because there's a spread between the 4% that you are
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spending and the 10% that you're earning if it's a stock market or much higher if you're
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talking about Bitcoin. And so that compounding effect never really stops. You're kind of slowing
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it down to some degree. But that's the exact same thing that you're doing when you're income
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investing, by the way, right? Like income must come from the assets that are funding it. And so
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if you are investing for dividends, well, the dividends are coming from the cash that's being
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thrown off from that business or however they're generating their revenue. And that cash could
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otherwise be used to invest in the business to generate more revenues or it could be given to
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the shareholders well when it's given to the shareholders you're pulling value out of the
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out of that company which is why on x dividend date whenever dividends are paid out the value
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of the stock drops by the amount of that dividend if you look at you know this is like finance 101
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stuff, right? And so you are actually selling down your total returns when you're receiving
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that income. Now, some people will just reinvest it over time. They're like reinvesting their
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dividends, which is the same thing as just investing without having a dividend and letting
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it ride, so to speak, right? Because that company has more to work with. There are some tax
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advantages to investing for total return versus income as well. Part of what the Bitcoin treasury
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companies strive and micro strategy have done with the preferreds like strc and sata is to
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create an income generating instrument that rivals the returns that we were talking about with
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the stock market but in a tax deferred way which actually kind of juices the returns in the short
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term but putting those aside right like if you're thinking about the fire methodology i'm investing
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in the index of the stock market.
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And there's a little bit of a dividend
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that's thrown off from that,
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but it's not that much.
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And that's not the primary purpose.
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The primary purpose is for the capital
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that you're saving to grow
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at a very fast rate over time.
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And for then you to sell down a portion of that.
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And when you sell down a portion of that,
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you're paying long-term capital gains taxes
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as opposed to paying ordinary income taxes
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like you would with normal dividend payouts.
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So that's how I approach it.
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I would rather have more volatility and a bigger engine working for me
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than have a smaller engine working for me and stability.
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But again, other people, they don't like that.
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They don't like that volatility, you know, at least as much as I do.
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I don't know.
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Yeah, I think most people like that are either like hardcore Bitcoiners
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or deep in Bitcoin obviously feel the same way.
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I mean, I'm like virtually all growth in Bitcoin at this point.
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But yeah like it seems like normal people have a tendency for wanting lower volatility because like as we seen with Bitcoin like a lot of people just simply can or
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have a hard time tolerating the large swings.
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Everyone wants to buy it on the way up and everyone wants to sell it or call you an idiot
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on the way down.
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How do you think about that?
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Like, how's Bitcoin's volatility going to evolve?
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Like, is it a hindrance to people buying Bitcoin or not necessarily?
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No, I think it's the reason, the primary reason that people buy it right now, actually.
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I don't think it's a hindrance.
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I do think it's very difficult for people to wrap their heads around this type of volatility.
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Although, you know, the same people will say that and then also go out and buy like Tesla
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stock or Nvidia or something, which has higher volatility, at least over the last few years,
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than does Bitcoin.
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So I don't, I think it's a little bit of a cop out for a lot of these people.
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They just don't like Bitcoin because they don't understand it.
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And so they'll like throw volatility out as, as an issue with it, um, with the end and be speaking out of both sides of their mouth. Um, I think like to your point, people are really bad at managing volatility and they get themselves into trouble because they get really scared when the market goes down and they're, they're more likely to do something dumb during their like accumulation years, like selling.
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and they get really caught up in the euphoria of seeing or the FOMO of seeing something
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go up without them being invested in it and then they're much more likely to
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to buy at the top and if you if you don't already have the understanding of like okay this is how
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things go this is how markets work you might not have developed like the muscles or the discipline
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or the perspective to be able to ride out that possibility that you bought near the top and you've
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got to go through a bear market cycle. And this applies to the stock market just as it does Bitcoin,
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right? Like, you know, if you started your accumulation journey, if you started your fire
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journey around the time when I could have, if I knew what I was doing, because I started working
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in 2007. And if I had been more intentional about what I was doing, like I could have been accumulating
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all through that bear market in the stock market
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and been in a much better position,
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but I didn't really know what I was doing.
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I remember looking at the small amount of stock that I had
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and being like, I don't know what's going on.
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This is scary.
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I didn't sell it, I don't think.
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Maybe it went toward a down payment to a condo that I bought
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or something like that.
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But like, I was not at all looking at this as an opportunity. Wow, I'm 22 years old. And the stock market just dropped by 66%. And it's 2026. And the S&P was at what did drop to like 660 or something. And it's at 7800 right now.
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like totally insane returns in just the stock market when i'm when i'm talking about bitcoin
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and so if you're young and you just started working well there is this juxtaposition right
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like when you're young you just start working you don't have a whole lot of earning power
29:21
most likely um and your expenses relative to what you're earning are a little bit higher
29:25
but that does grow over time and even if you can just start putting away just a little bit
29:31
the extra years of compounding that you get from that savings earlier on is unbelievable
29:39
relative if you wait like if you wait 10 years and you don't start saving until you're 35
29:45
relative to 25 you could save like so much less at 25 and still be ahead of the 35 year old who
29:52
starts investing a whole lot more it's just due to the the nature of how compounding works it's
29:59
pretty incredible. And so like, if I'm, if I'm talking to my kids and I'm talking to like younger
30:03
generations, like this is the number one thing you should be thinking about when it comes to like
30:08
setting yourself up for the future. You, you may want to work forever and do all this stuff. That's
30:13
totally fine. But like, at least do it from a position of strength as opposed to a position of,
30:18
of weakness. Wow. I went off on a really big tangent there. I don't remember the question.
30:25
Yeah, no, you got to embrace the volatility.
30:27
I agree.
30:28
I do want to ask you specifically about like the carry trade that you put on.
30:32
So I believe it was like borrowing again with your HELOC and buying some stretch.
30:37
Maybe kind of like explain your initial thought process around that.
30:41
And like, why did you decide to do that?
30:44
Okay, yeah.
30:45
There's a lot wrapped into this.
30:47
So I'll step through it.
30:48
First of all, this type of a carry trade, let me explain exactly what I did.
30:53
So I own my home. I've got a mortgage on it, but the value of my home has actually risen quite drastically. And there's a good amount of equity locked in there, which I kind of hate, actually. I've thought about the idea of borrowing against it and buying more Bitcoin or making other investments, and I just haven't pulled the trigger on it.
31:15
Um, but put, put that aside, right?
31:18
Like I've got this home equity line of credit on it, which is a variable rate instrument,
31:22
but allows me to tap into the equity of my home for various purposes.
31:27
Um, and I'm only paying interest on the amount that is outstanding.
31:31
So, you know, if I've got nothing outstanding, I'm not paying any interest.
31:35
Uh, but if I draw from that and then I'm paying some interest on it.
31:38
and a couple of things happened right at the same time that just prompted me to make this trade
31:46
the trade went like this i borrowed from the heloc at five percent which was a promotional rate that
31:54
bank of america reached out to me about uh and i bought strc which at the time i think was
32:01
yielding nine and a half or 10% or something.
32:05
And the idea was, okay, I'm just going to like arbitrage this spread in the rate.
32:10
So I'm going to borrow at five, I'm going to collect at 10,
32:13
and I'm making essentially a free 5%.
32:16
And I'm just going to do this over the promotional rate period,
32:19
which was like six months.
32:21
So I put that on and it's working great.
32:25
And then a few things happened, right?
32:28
Like, STRC underwent some volatility in recent months that, like, really caused a lot of people to question its viability.
32:39
It traded all the way down to 74.
32:43
And, you know, meanwhile, like, I wasn't worried about my particular trade because I knew these, the liability versus the asset matching there that I had.
32:53
and I was not concerned about strategy's ability to pay that dividend
33:01
and what that would do.
33:02
I was very confident that it would come back to par about where it is now.
33:08
I thought about doubling down down there.
33:10
I probably should have.
33:11
Well, in hindsight, I definitely should have, but I didn't.
33:14
But anyway, in that time period also, the promotional rate went away,
33:20
but strategy also increased the dividend.
33:23
And so the spread kind of remained.
33:25
So that's where we are today.
33:28
I have started paying the HELOC down just with some other cash.
33:32
And I don't know what I'm going to do with that SCRC position, to be perfectly honest.
33:36
It's really great, but I also think of it as like, okay, well, it's trading at par.
33:40
And we just saw this volatility.
33:42
That can happen seemingly out of nowhere.
33:46
strategy is definitely taking a different approach to protecting that par. But the same dynamics
33:54
are at play here where like anybody who sees a spread that's out there in the market
34:01
is very tempted to lever up exactly how I did to take advantage of it. The problem came from
34:09
people levering up on margin against their STRC or against their other stocks that they had,
34:14
It's really a problem if you're buying a CRC,
34:18
levering it and buying more CRC,
34:20
because now all of a sudden, if the price drops,
34:23
you're gonna potentially get liquidated
34:25
and that's gonna bring a cascade,
34:26
which is exactly what happened.
34:28
But in my mind, I look at my HELOC
34:32
or any other mortgage debt as really, really good debt
34:36
to have because it's fixed,
34:39
it's not connected to the asset
34:40
that I'm buying using that debt,
34:42
And I can manage it in a much easier way.
34:47
So I'll wrap this up by just saying, and I've written a lot about this,
34:51
I think that for people who want to buy their home and there's a whole,
34:57
if you go down the financial conversation rabbit hole,
35:03
across time there's this like, do I rent or do I buy conversation?
35:08
I'm going to assume there's a lot of advantages to buying.
35:10
There's a lot of advantages to renting.
35:11
But if you own your home, I'm a firm believer that you should have a mortgage on it, at least like at rates where we've got now and lower.
35:19
And the reason is because when you don't have a mortgage or when you're paying down your mortgage early, you're locking up capital.
35:28
You're locking up liquidity into the bricks and mortar of your house.
35:32
And you can't access it without doing another transaction.
35:35
You've either got to sell your home or you've got to borrow against it.
35:38
and if there's a rate differential,
35:42
very similar to what I was just talking through with STRC,
35:45
of paying a, let's call it 5% mortgage,
35:49
or a 6% mortgage, or a 7% mortgage,
35:51
versus the 10% that you could be earning in the stock market,
35:54
and have the liquidity that you get from owning stocks,
35:58
or owning Bitcoin,
36:00
then you should be doing that.
36:02
Over the long time horizon,
36:05
the value of your assets are going to grow faster
36:07
than the interest that you're paying.
36:10
And by the way, those interest payments are locked in time.
36:14
If we're talking about a 30-year mortgage,
36:17
you're locking your interest payments over a 30-year period.
36:22
So let's just say I've got a $2,000 a month mortgage payment.
36:26
Well, that's $2,000 a month now, and it lasts for 30 years.
36:30
What is the value of $2,000 30 years from now or 20 years from now?
36:35
it's massively devalued why because there's constant devaluation of our money debt is a tool
36:44
it's a sharp tool and you got to make sure that you use it in the right way
36:48
but it's a tool that you should learn how to use and i think that the availability
36:55
perhaps the subsidization that the u.s government kind of puts behind it
37:01
and the long tenor that we get to enjoy at low interest rates for 30-year mortgages even as
37:09
they've risen now higher is really like something that you need to be astute at and understand how
37:18
to use to your advantage it can help you accelerate that compounding engine that you're
37:22
trying to to build and do so in a way where you maintain liquidity like the liquidity that you've
37:29
got, even though you've borrowed against your house, let's say you lose your job.
37:32
Well, now you've got all these other assets that you can start selling down as a safety
37:36
net or as an emergency fund to help you fund your mortgage payment and your lifestyle in
37:44
case something were to happen.
37:45
This like tail event where you lose your job or, you know, something, something bad happens.
37:50
But if you don't already have that mortgage, now you've got all this value that you've
37:55
saved and it's just locked up in your home.
37:57
You can't access it.
37:59
You know, what if what if like the credit markets freeze and you don't have this liquidity already available to you and you can't access a mortgage or it's extremely expensive?
38:07
Like the the the the opportunity that people had in 2021 and 2022 when interest rates hit the floor to refinance their homes for 30 years at 2.5 percent or 3 percent was just unbelievable.
38:23
I don't know that we'll ever see it again.
38:24
and we're starting to see the effects of that now
38:29
as the housing market continues to stay really tight
38:33
and people don't want to give up this mortgage that they've got.
38:37
It's an asset.
38:39
The reason they don't want to give it up is because it's an asset.
38:41
It's a really, really good asset.
38:43
Like people think of it as a liability.
38:45
I mean, it is technically, right, on the financial statements,
38:47
but it's a liability that works like an asset for you.
38:53
so it's important to to be thinking about these things yeah i completely agree i mean you look at
38:59
like who actually wants to hold a 30-year mortgage as like the asset it's like it's a federal reserve
39:05
it's banks that have to it's insurance companies that kind of have to and it's like it's not a good
39:10
trade but as like an individual you have like you said you can lock it in and then if rates do fall
39:18
then you have the opportunity to refinance.
39:21
But if rates rise, you don't have,
39:23
like you get your locked in rate.
39:24
You don't have to.
39:25
Yeah.
39:26
So it's kind of funny.
39:28
You brought up something interesting earlier too
39:30
about your carry trade that you put on
39:33
that I thought was kind of interesting
39:34
because obviously like over the summer,
39:35
the volatility was intense
39:37
and it certainly concerned a number of people.
39:41
But I guess it was interesting
39:42
that you weren't nearly as concerned
39:44
as many other people were,
39:45
I guess partially because you were confident
39:47
that the dividend would continue to get paid
39:50
and that would offset your interest expense.
39:53
And therefore, it doesn't necessarily matter
39:56
what the short-term price of that asset is.
39:58
You just kept running that carry trade.
40:00
Is that framed right?
40:03
Yeah, that's right.
40:05
The risk to this type of thing
40:07
is that you need to cover the principal on that loan You need to pay it down but the asset that you bought with the that money originally is not worth as much as the debt that you still owe right like that the risk and and people fell into this
40:25
with um you know some mortgages that they uh were overextended on back in 08 too right like
40:32
people were buying no down payment mortgages or uh properties and putting mortgages on them
40:38
at, you know, not exactly favorable rates.
40:42
And then they couldn't actually service it
40:44
because they didn't have good enough income to service it.
40:47
And then they got foreclosed on
40:50
as the value of those homes dropped too low, right?
40:53
And they couldn't actually come up with the amount of money
40:58
after selling the property to cover the debt.
41:00
So, you know, maybe important caveat to just say,
41:04
like, again, there are some risks to taking on debt,
41:06
even mortgage debt.
41:07
So I don't want you to think that I think like there's no there's no downside there. Just need to be understanding and intentional about it. But when we think about that particular carry trade and how I approach it and why I wasn't worried.
41:20
um i basically just looked at i i looked and noticed two things first is that
41:28
strategy has a lot of bitcoin like way more bitcoin than would ever be needed to come up with
41:41
even paying off the entirety of this like if they wanted to buy back the entirety of the uh this
41:47
debt or, uh, you know, uh, equity preferred equity.
41:52
They could have done that by selling Bitcoin.
41:54
It wouldn't have been great, but like they could continue to pay that dividend.
41:59
And to that, um, I listened to Saylor and to Fong and a few others talking about their
42:09
position relative to SCRC and, and how they were thinking about all the other prefers that
42:14
they had out there and MSCR Common and all that. And it was pretty clear to me that they were very
42:21
focused on making sure that STRC dividend got paid at basically all costs. So it was kind of
42:29
a combination of those things that made me comfortable with the fact that it would be
42:35
able to kind of return to par. And then what we were all speculating would probably happen,
42:41
did happen, which is they started buying it back.
42:45
Which, by the way, is very similar strategy
42:48
or approach that they took with the Silvergate loan.
42:51
A lot of people may not remember this,
42:53
but when was this, Joe, in like 2022 or 2021,
42:59
they issued this Bitcoin-backed,
43:03
they borrowed from Silvergate,
43:06
and it was basically a Bitcoin-backed loan
43:08
with like marginable loan.
43:12
And at one point that loan,
43:17
they were able to buy it back for like 80 cents on the dollar
43:20
or 78 cents on the dollar or something like that,
43:22
which is a great trade for them, right?
43:23
It's like a very good opportunistic way
43:27
to relieve themselves of that debt
43:30
and walk away with like more Bitcoin
43:34
than they started with as a function of that trade.
43:36
would they have liked to continue to carry it on probably because the the rates were pretty good
43:40
but like it was a it was a good opportunistic move to remove that like marginable debt that
43:46
they had and they haven't taken on any of that type of debt anymore i i think they kind of have
43:51
gone away from thinking that they're going to borrow against their their bitcoin to to buy more
43:55
bitcoin or fund anything else um so anyway that that's how i was thinking about strc at the time
44:04
and we've seen it play out to that effect.
44:09
That does not mean that we can't see another scenario
44:12
where the value of it drops drastically
44:16
down toward 90 or below.
44:18
So it's something to be aware of.
44:20
Like I've almost thought,
44:21
oh, maybe I should sell all this SCRC
44:23
and buy Bitcoin with that money instead.
44:29
And then if something like this happens again,
44:33
well, I'll just do this trade again for a short period of time and take advantage of the incentive
44:41
for them to get back up to par. But of course, the rest of the market looks at these things and is
44:46
constantly weighing all of these risks and opportunities and rewards as well. So I'm
44:52
definitely not a good trader, by the way, which I know this is something I know about myself.
44:56
Another reason that the FIRE approach really resonates with me is that I'm not really thinking
45:02
about these things on a daily basis.
45:03
I'm not staring at a screen
45:04
and trying to like time the market
45:06
in any way, shape or form.
45:08
Most of the time,
45:08
this was kind of like a side gig project
45:11
that, you know,
45:12
I just thought it would be a fun experiment.
45:14
For sure.
45:15
Yeah, that makes a lot of sense.
45:17
Maybe one last topic
45:18
that I want to get your thoughts on.
45:20
And I would imagine you know about this,
45:22
but we can kind of catch you up if not.
45:25
But Luke Roman,
45:26
who does great macro analysis
45:28
and I admire a lot,
45:31
he made a post about
45:32
how digital credit like could possibly be suppressing the price of bitcoin or like and
45:38
derivatives around bitcoin could be suppressing the price where do you line on that like do you
45:44
think digital credit is suppressing the price of bitcoin do you think it like accelerating capital inflows into Bitcoin Where do you sit there I have a hard time aligning with this thesis that I think a lot of people have
46:03
that derivatives around Bitcoin, derivatives around gold are some like infinite money printer
46:12
way to suppress the price. It just doesn't make sense to me in my understanding of derivatives
46:19
and my experience in capital markets is that, you know, the derivatives complexes could help to
46:28
like move the price or keep it constrained on short time horizons, but over long periods of time,
46:34
any types of like imbalances that start to accumulate within these markets always shake out
46:47
so like there could be a time when derivatives perhaps you could say digital credit is in some
46:55
way like suppressing the price that doesn't last forever and never does it never will
47:03
you can think of it as like a rubber band that you pull it only so far and then it's got to snap back
47:09
and the reason for that and this is especially true with bitcoin is that
47:14
well maybe the classic way to understand this is um you know if somebody is selling
47:23
short bitcoin because they're trying to manipulate the price there's only so
47:30
far they can take that before the demand for Bitcoin starts to liquidate them.
47:38
Because nobody really has like infinite capital out there. I mean, I guess you could say that the
47:44
government does. So perhaps if they were trying to attack Bitcoin by selling it short over the
47:51
long time horizon, they would have a better shot at keeping it suppressed. But you got to understand
47:57
that like the market is always looking for ways to punish people who are getting a little bit too
48:04
too overzealous in their positioning and because there's profits to be made right it's like
48:14
if there are profits to be made by catching somebody with their with their shorts around
48:21
their ankles because they're you know getting a little too overzealous on a short trade and trying
48:25
and manipulate the price, people will come out of the woodwork to make sure that those people
48:29
pay. And Bitcoin is perfectly fixed in supply. So like you can't, you can't just conjure up new
48:34
Bitcoin to fill in some gap, some hole in a balance sheet that's created by somebody blowing up from
48:43
there. So like, I think of this as if, if there is some manipulation, it's short term in nature,
48:50
that equilibrium over the long term is always found
48:54
and that the suppression of the Bitcoin price
48:57
is not because of the derivatives complex
49:00
or anything like that.
49:02
The fact that we're not at a million dollars right now
49:06
is primarily because people just don't understand
49:09
Bitcoin well enough yet.
49:11
You know, like there just hasn't been enough capital
49:13
that has come into it to put enough of a bid
49:17
to overwhelm the people who are selling above 100,000
49:21
because they held for 15 years
49:23
and are walking away with billions of dollars
49:25
and probably still have a stack behind them.
49:27
You know what I mean?
49:30
And we see this every day
49:31
in the way that people talk about Bitcoin
49:34
relative to the other assets that are out there
49:37
that there's just,
49:38
we're still coming up the educational curve
49:40
for the vast majority of people.
49:42
We're making a lot of progress, by the way.
49:45
It's, where are we at?
49:47
83,000 today, you know, um, after what so far has been the shallowest bear market in history.
49:55
Um, man, I, I'm definitely more bullish than I've been in a long time at this point in time.
50:03
Uh, it just feels like there's too many tailwinds behind and we've, we've kind of wiped out,
50:09
um enough of whatever leverage was built up and then the negative overhang of sentiment
50:18
is is gone it's like you've thrown we've thrown everything that we could at bitcoin
50:23
and it's at 83 000 are you kidding me you know like that's very bullish in my mind
50:31
agreed we've had a lot of like negative events this year and you know especially like this summer
50:37
a cold card exploit so many other different things the digital credit you know crash that
50:44
happened as well it's like if Bitcoin didn't go down during these periods you know what's what's
50:49
going to take it down at this point it's hard it's hard to see I think I think the tail event
50:54
is some other macro driven liquidity event that's going to just pull all assets down at the same
51:02
time because people are just clamoring for dollars because they got to cover whatever
51:06
marginal assets they've got out there, the debts that they've got.
51:09
Similar to the way that we saw it in COVID was that everything was pulled down.
51:15
People were clamoring for dollars and they buying treasuries and yields are like being just like crashing to the floor because people are clamoring for for what they perceive to be safety but that reversed pretty quickly because you know given
51:30
where things are from a macroeconomic standpoint i think um that those types of events have proven
51:39
to be met with only one response from the powers that be the the fed and the treasury and that is
51:47
like immediate and swift action to paper it over to to plug the holes with with their infinite
51:56
money printer yeah exactly it's like if if if we do get some kind of like macro wipe out which you
52:03
know may or may not happen it's like it's hard to see how that would not be the bottom yeah at the
52:09
very least um this is probably a good spot to to start to close it out trey this has been great
52:15
maybe like do you have any closing thoughts like what's going on at Swant or Strike Private
52:20
how is that any final closing thoughts yeah I recently joined Strike which is an incredible
52:30
team it's been like six weeks now and I've got my feet underneath me I'm starting to accelerate
52:34
you know the the conversations that I'm having with clients and I've been traveling a little bit
52:39
you could probably hear my voice I just came from the Imagine If conference up in Nashville
52:43
I was hosting a panel up there and seeing friends and clients and all this.
52:48
And, you know, Strike is building the Bitcoin company, the company that helps you pull together all of your financial services needs for Bitcoin and for some of the cash needs that you have as well.
53:04
We just launched interest on cash, 3.6% you can earn.
53:07
we have an incredible menu of options when it comes to borrowing against your bitcoin
53:13
gaining some liquidity for whatever whatever purposes you need there such an easy way to
53:21
buy bitcoin dca to pay your bills from your bitcoin stack it really it really has grown into
53:31
a full-fledged financial services operation for Bitcoin.
53:35
And my goal is to bring more relationship-led interactions
53:41
to that experience.
53:43
You know, like you can download the Strike app
53:45
and you could borrow $5 million worth of Bitcoin
53:47
or $5 million against your Bitcoin
53:50
in just like a few taps if you wanted to do that.
53:53
But most people don't want to do that
53:54
without talking to somebody,
53:56
without understanding the process,
53:57
without getting their questions answered,
53:58
without like understanding the pricing,
54:00
all of that kind of thing.
54:01
So I'm having those conversations, you know, all day, every day, helping people to, you know, really understand the relationship that they have with strike in a way that they haven't had previously.
54:13
And then, you know, there's certainly a lot of demand for larger, more complex transactions out there.
54:20
People want to buy or sell a large amount of Bitcoin.
54:23
People want to borrow $20 million, $50 million, $100 million against their very large Bitcoin allocation.
54:29
And so that's something that I have a lot of experience and expertise in is helping people through that process and making sure that, you know, we can structure these transactions in a way that works for our clients, that works for Strike, and that really delivers like best in class experience when you're dealing with Bitcoin.
54:49
So that's what I've been working on.
54:52
Of course, I'm still writing the newsletter.
54:55
You can check that out at firebtc.io.
54:59
I've been working on a YouTube channel, a few videos every month, just explaining kind of the core concepts around FHIR and how I approach it and how Bitcoin fits in.
55:09
So people can go check that out.
55:10
Just search for my name and you'll come across that.
55:13
And the other thing is there's a lot of like math and assumptions and that kind of thing that people look at.
55:20
I built what I call the FHIR BTC compass.
55:22
If you go to calc.firebtc.io, you can see this compass tool and it allows you to put in all of the different assets that you've got, all of the sources of income, all of your expenses at a line item level.
55:35
and it does the calculations and the tracking over a historical period of what are your expenses,
55:43
how does this relate to the fire plan that you're building,
55:46
and what are the levels that you need to reach in order to get to that conception of financial independence
55:51
that we're all looking for.
55:53
So go check that out. It's free.
55:55
There's some paid features if you're a paid member of my newsletter,
55:59
but you can get a lot of value out of it by just looking at those calculations
56:03
and using it to track your expenses and your assets over time.
56:08
And it's very private as well.
56:10
It's something I always like to say is that, you know,
56:12
people don't like to just give up their financial information.
56:14
So all that stuff is stored in the browser.
56:16
It's local.
56:17
You don't have to share.
56:18
I certainly can't see.
56:19
It's not going to any server outside of your computer.
56:23
Yeah, that's kind of the world of things that I'm working on
56:27
other than playing a little bit of golf when I can,
56:29
doing a little bit of travel when I can,
56:31
and hanging out with my girls.
56:35
So, yeah, that's it.
56:36
I love it.
56:37
Yeah, I'm a FireBTC compass calculator user myself.
56:41
It's a cool experience.
56:43
Appreciate that.
56:44
But Trey, this has been an awesome conversation.
56:47
Really appreciate it.
56:49
Joe, loved it.
56:50
Anytime you want to have me back on,
56:51
I'd love to continue the conversation.
56:54
And thanks a lot.
56:55
We'll talk to you soon.
56:56
Absolutely.