Latest / Bitcoin for Financial Services Podcast / Why Wall Street Hasn’t Actually Come to Bitcoin Yet: Inside a Digital Credit Fund

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Why Wall Street Hasn’t Actually Come to Bitcoin Yet: Inside a Digital Credit Fund · Bitcoin for Financial Services Podcast

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situation. Past performance is not indicative of future performance. Any statements or opinions
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are subject to change without notice. Welcome back to Bitcoin for Financial Services Media,
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joined by Lauren Asmus, Head of Investor Relations at UTXO Management. Thanks for joining the show,
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Lauren. Thanks for having me. Really excited for this discussion and excited for the summit.
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next week. It's going to be great. Dude, it's going to be awesome. It's shaping up to be
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a great event. I run a little hot in general. I'm an intense person, pretty type A, almost by the
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book. We're in the throes of busy work right now, but I'm really excited to actually just
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get there and super appreciative of your guys' support. You're making us part of your marketing
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strategy, your fundraising strategy. I think that's awesome. You know, it's kind of what we
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set out to do from the beginning. So it's fun to see it taking shape. Yeah, a hundred percent.
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And yeah, we're really excited to help to sponsor and support the summit next week. And I mean,
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we're already seeing all the work you've put into it and, you know, we're no strangers to
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conferences and events ourselves. So yeah, thanks for all the work you've already put into this.
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And yeah, it's going to be a really exciting week next week.
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Thank you, sir. And we'll get into this like a little bit, but I don't know how involved you've been on like the conference side of things through your history with now Nakamoto.
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And I know, you know, all these separate entities like interact and help each other out a lot. But dude, I mean, Jordan and I love going to events. You know, we always learn a lot from, you know, how people are running the show.
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you know you guys rod rudy you know always always people i'm trying to emulate um just because i
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think you do top-notch things or you know even the bitcoin for corpse team alan and george over
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there it's like damn this is premium um but yeah we were like a 200 person event i think it's like
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a ton of work let alone a 30 000 person event i'm just always like in this massive conference
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all in nashville or vegas or whatever i'm like how did they pull this off you know it's impressive
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I ask the same thing. They're the pro of the pros in putting on these events. And a lot of times I get to just show up and enjoy it from the UTXO side. And so, yeah, very thankful for what they do and put on.
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Kind of similar to you, I put on our investor day every year during the main Bitcoin conference, and that's around 200-ish people.
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And I say the same thing.
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How do they do these tens of thousands type events and coordinate everything and program everything?
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It's definitely a big feat.
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But we all do it for Bitcoin, right?
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We're here to grow the adoption and get the word out on Bitcoin.
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So it's all in the vein of getting this asset out there.
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dude that's right i think that's beautifully said and let's uh let's start there i'm always curious
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in you know people's um orange peeling journey but especially to and partly selfishly and you know
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obviously our audience is pretty tailored to the the finance side of things but i always do think
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it's funny um with the the finance folks hearing their story about getting into bitcoin because
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99 of the time you know they already worked in some sort of traditional the finance field and i
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think not to gas ourselves up too much, but you kind of have to have like a little bit more
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courage to like embrace Bitcoin in there because it's, you know, less so now, but especially,
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you know, more early days, it was like way more taboo, like amongst your peers, you were kind of
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seen as like an idiot sometimes or like the crazy guy in the corner. Whereas like if you're in
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computer science, like I think it's like way more acceptable amongst, you know, the social circles
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to like get into something like Bitcoin.
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So why don't you walk us through your journey,
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how you came to be a Bitcoiner?
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I mean, you basically told my story with that question.
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So I got into Bitcoin back in 2016, 2017,
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that cycle, you know, started paying attention.
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Obviously, when you see the price action,
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the way it was, you know, that gets,
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that piques a lot of attention.
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So at the time I was sitting on the manager research desk
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for an investment consulting firm
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out in Newport Beach, California, running fixed income manager research. So that included
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looking at different core fixed income, high yield credit funds, long short credit hedge funds,
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private credit, all of that. My job was to go out there and underwrite different investment managers
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for our clients who are investors, our endowments, foundations, or family offices.
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And so some of us on the research side, the price actually piqued our interest. We started
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paying attention, I started kind of going down the rabbit hole a little bit. But to your point,
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at the time, we could never bring this up to our IC or to the executive committee at the firm,
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just because it was so new. It was outside the scope of anything we've underwrote before,
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right? Everything was either equity-oriented or credit-oriented or traditional commodities-based
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focus, not kind of this new technology, crypto. It was just very, very foreign at the time.
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And so, you know, going back 10 years to today, or even just a few years back before I left
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the firm to join UTXO, that firm ended up approving one of the Bitcoin ETFs.
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And so in a span of effectively eight years, it went from me not feeling comfortable bringing
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it up to the powers that be to eventually getting it on the approved list for our clients
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to then invest in it.
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And so I think that aspect of it, you know, in terms of the institutional adoption of
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Bitcoin.
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other allocators getting involved. We're still at the very, very, very early stages of that.
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But there are signs that you're seeing improvement and education and understanding.
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So yeah, that was really my journey. Kind of went full circle,
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looked at other crypto assets at the time, got my hamburger on the stove,
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went back to actually underwriting Bitcoin and researching Bitcoin and said, okay,
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this is really where I want to focus on. And so yeah, that's kind of my journey in
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8:09
That's awesome, man. I appreciate you sharing that. That's kind of a fun little arc with your
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old firm and them ultimately seeing the benefit of at least the ETF, which I'll be gracious here
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and because I'm in a good mood, you know, good, nice starting point for folks. But yeah, I mean,
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nobody likes to burn their hand in the moment, but it's important lesson, you know, for all of us.
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And I actually don't know the origin story of UTXO. So maybe if you could take us through that.
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And then when you ended up joining the firm. Sure. So UTXO started in 2019, really to take
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advantage of the sourcing, the network, the deal flow that the team saw and got in because of the
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media side. And so we actually started the main Bitcoin conference in 2019. If you can believe it,
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it was actually held in a parking garage in San Francisco, I think with only a few thousand people.
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And this is predating my time by quite a bit. But going from that to Vegas last year,
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where there's tens of thousands of people to Miami and Nashville, pretty cool to see that
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growth within a five to six year time span. But we effectively started UTXO to take advantage of
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the deal flow sourcing and just our network in the space. And really the goal for us is to invest
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across the Bitcoin ecosystem and invest in companies, infrastructure, take a view, short
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and kind of medium long-term view on Bitcoin within our strategies, and to give differentiated
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exposure to the space. My opinion is that everyone should hold Spot Bitcoin and that's a core piece
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of your Bitcoin allocation. But what we're really trying to do is invest across the ecosystem and
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find areas of opportunity that will participate in the growth of Bitcoin alongside the asset itself.
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So yeah, we started in 2019. Tyler Evans, who's our CIO, was one of the original co-founders of
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BTC Inc. alongside David Bailey. And for that quick origin story, they got into Bitcoin during
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their time at university in the early 2010s, and then ended up purchasing Bitcoin Magazine
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from Vitalik when he spun off to work on Ethereum. And they kind of built the media presence today.
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And then Tyler has been focused on the investment side, both for UTXO as well as Nakamoto and the CIOC.
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And so seven years later, we're here still trying to bring forth the adoption of Bitcoin and really excited where things are headed.
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No, that's awesome, man. And we did have Brandon Green on the pod and he gave us the full rundown of the parking garage sitch and him being an intern stacking magazines on shelves. I think it's really impressive what you guys, the broader pair company, all the other divisions, if you will, what they've done for the Bitcoin space.
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And then I do want to circle back to that. But when you join UTXO, assuming your career move,
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you're talking to friends, mentors, whatever, were you looking for jobs in Bitcoin? Did this
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come across your desk? Were you worried about any of the career risk, if you will? Because I think
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a lot of times there may be financial professionals that are into Bitcoin. They just don't know how to
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get into the industry. They're worried about, you know, what it might mean for them long-term.
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Did you have any kind of those thoughts or questions when you made the switch?
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Initially I did. And I, you know, I wasn't really actively looking for a role in Bitcoin. It kind
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of just organically happened and how it happened was I actually hosted a family office event here
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in Nashville with some of my former firms, clients, and in some prospective clients and
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decided to, because I'm into Bitcoin, decided to do the fireside chat on Bitcoin. And so
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I actually met Tyler there. Somebody invited him. I didn't know who he was.
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And I remember going up to him during the networking hour and said, you know, what do
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you do? He's like, oh, I work in Bitcoin. I'm like, what does that mean? He's like,
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you know, the Bitcoin conference, you know, magazine. And then we run an asset manager.
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I'm like, oh, okay, well, that's definitely working in Bitcoin. So we actually got to
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talking and you know, he said, you know, I want to try to find somebody that can help kind of bridge
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that gap between the traditional investor allocator and us who have been, you know,
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Bitcoin native effectively our whole careers. And, you know, there is quite a bit of a chasm there,
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I'm sure you've probably seen as well of educating kind of that traditional allocator
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who thinks in that mindset and kind of the big corner and how we think from the first principles
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perspective And so that was really it was kind of one of those serendipitous moments where it was right place right time right opportunity And for me I just said look you know this is something I interested in
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And if I'm going to make a pivot or make a jump, this is the time to do it.
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And I asked, you know, several of my mentors and people, you know, kind of across both people I knew in the Bitcoin side as well as the TradFi side.
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and kind of the main distillament was,
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look, if you think you're going to regret it
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down the road for not taking it,
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you should do it.
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And, you know, that was kind of my mentality
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going into it is why not jump head first
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and see where this goes.
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And it's been a very, very fun,
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very exciting time, volatile time
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as we all are accustomed to in Bitcoin.
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But I'm very glad that I joined
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and it's been a great team to work with.
13:50
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14:20
Yeah, man, that's awesome. I love serendipitous stories like that in general. I always think it's
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like fun. And I personally, I feel like a lot of Bitcoin community is susceptible to this. It's just
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I have to constantly fight off the black pill, you know, and then you're hearing things like that.
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It's like, oh, wow, what a nice little white pill story, you know, just like this thing's
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organically happening. I always tell people too, you know, because I feel like this was your case,
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If you want to break into Bitcoin, if you're not starting your own thing, which is essentially a vein of this, but I mean, you got to do the proof of work.
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You know, it's like, I don't know anybody that's just like applied and gotten a job in Bitcoin.
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Like they started like producing content or you were already doing like a similar role.
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Then Tyler showed up to your event.
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It's like, oh, wow, this guy's actually doing the thing.
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And I think that's something kind of like awesome and part of like the core ethos of Bitcoin.
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And a couple of things there you mentioned that I want to double click on.
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So I want to take this to Nakamoto, you know, how that came to be with like kind of the different, you know, arms underneath that we touched on a little bit.
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Then we'll dig into UTXO, how you guys think about investment opportunities and raising funds.
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And then we'll kind of parlay that into what it's like, actual boots on the ground, kind of bridging the gap between Tradfine and Bitcoin.
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So why don't we start with kind of the Nakamoto, how all the different brands work together, kind of like their particular lanes.
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Sure. Yeah. And real quickly, just to close the loop on the opportunity side, I 100% agree.
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You create your own opportunities, right?
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That situation was serendipitous was because we're hosting a family office event around Bitcoin or proving a Bitcoin ETF at my former firm or writing a research paper on it.
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So just wanted to emphasize that if you want to get into this space, it really is proof of work, which is fantastic, right?
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Because in a lot of other areas of professions or finance, like it's all kind of about pedigree or like where you came from or what school you went to or your resume.
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Bitcoin is purely proof of work.
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And so I just wanted to emphasize that for people who are looking to break into the space.
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No, that's a great point.
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The more you can put out there, the better.
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But yeah, going to Nakamoto.
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So Nakamoto is a Bitcoin operating company, you know, with Bitcoin businesses underneath.
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So Nakamoto holds Bitcoin on its balance sheet for its treasury asset.
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And then the idea is to promote and grow underlying Bitcoin businesses, subsidiaries for the company.
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And so BTC Inc., which runs the Bitcoin conference, Bitcoin magazine, is now effectively the largest media brand in Bitcoin, is one side of it.
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And then the other side of it is UTXO, which is the asset management arm, investment arm of Nakamoto, where we run third party strategies in the Bitcoin ecosystem.
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And so for UTXO, you know, we operate autonomously in terms of, you know, where we want to focus on strategy or where we want to manage the portfolios with support from Nakamoto and the leadership.
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And so it's been a very, very great transition, easy transition.
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I basically felt kind of no real meaningful changes from how we operate or how we go about our business at UTXO.
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So it's been a fantastic integration from the beginning of the year.
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But, yeah, I mean, our goal is to grow the asset management side of the business over time.
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And I think that leads with having great performance, good risk adjusted returns and providing value for our LPs and our investors at the end of the day.
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And, you know, how we've kind of done that is one either through, you know, aiming to outperform Bitcoin versus or through our hedge fund, which is more kind of a total return type strategy.
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or we recently launched a new preferred income strategies fund, a credit fund, structured credit
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fund built on top of digital credit, which I'm sure we'll get into a little bit later in this
18:26
discussion. And then kind of the third pillar is a early stage VC fund that invests in early stage
18:33
Bitcoin startups, infrastructure, different companies that are beginning to work in the
18:40
Bitcoin space. And so the way we see it is we want to encourage and invest into the Bitcoin
18:45
ecosystem and by doing so provide great returns and risk-based returns for our LPs at the end of
18:53
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19:24
Yeah, no, that's awesome, man. I just think it's so fun to watch from the sidelines,
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having engaged with a lot of folks over there across, you know, the different,
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you know, subsidiaries and stuff and going out on a limb here, but I have to imagine like you
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guys have to be one of the larger Bitcoin companies and just as like an entrepreneur and like,
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you know, business nerd, I'm like, oh, wow, that's interesting.
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Like observing, you know, from the outside, looking in,
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like how the different pieces, you know, fit together and, you know,
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what their ultimate aims are.
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And I think it's like awesome, you know,
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to study you guys and how they successfully put it together.
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So it's cool.
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Yeah, so UTXO, I want to, if you could kind of like let us
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into the proverbial back room when you guys are thinking of,
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you know, different funds to launch or different investment strategies.
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Like what are those, you know, conversations like,
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do you guys kind of have like some sort of investment committee or like team
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calls, like, you know, evaluating different ideas. Cause I mean,
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I have to imagine it's very fun on a day-to-day basis just with like all the
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opportunity, you know, I know you guys see, uh, in like, you know,
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the emerging asset class and like the ecosystem that's developing around it.
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So how do you guys kind of get from idea to, you know,
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launching an investment strategy?
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Yeah, I mean, it's a very collegial environment. So, you know, there's 12 of us on the team,
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so fairly small. And, you know, we all kind of have autonomy to bring forth new ideas,
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new thoughts, whether it's on a portfolio, existing portfolio or a new fund, new strategy
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incubation. And at the end of the day, it's, you know, if we're going to create a new product or
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strategy, you know, what is it, what problem does it solve for somebody?
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And, you know, like for this new credit fund that we launched, um, you know,
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we, without getting too much into the details, we, you know, we saw,
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No, let's do it.
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I want to get it.
21:19
Yeah.
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I mean, we saw the sell-off happen and we were even having this
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discussion before the sell-off happened to SDRC or some of the other digital
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credit instruments in the summer.
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But effectively what we saw was two different investor types, uh, that
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invest or allocate to SDRC.
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You have one group that just wants pure stability and high yield and, you know, a line of sight that they're going to get that high yield on a go forward basis.
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And then you have another set of investor that wants to take that high yield, lever it up, take on more volatility, juice the returns.
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But obviously that comes with more risk.
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And we saw it. We kind of saw that risk happen in the summer as, you know, SDRC sold off from par 100 down to the low 70s.
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Obviously, I think what strategy has done since has been great in terms of having a very robust credit framework, robust dividend strategy, cash reserve, all of that.
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And you've seen the rebound from that.
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But, you know, as we talk to other investors and institutions, you know, for them, it's like they don't want to have to they want to be able to choose where they want to go.
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And so for our structured credit fund, effectively what we're doing is kind of, you know, this layer three on top of digital credit where you have a senior class that gives you a fixed return, but a fixed, you know, ideally a fixed volatility profile or no volatility.
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Whereas the junior below, it takes on all of the mark to market, all the volatility, but aims to achieve a higher total return.
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And so we're basically bifurcating the two investor classes through this fund in a way that fits institutional mandates.
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And so the other aspect of it too, is these digital credit instruments at the end of the day are equities.
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And so if I were to go to an allocator or a endowment foundation pension fund, a lot of them don't want to invest in a single asset or a single equity and put it in their credit bucket.
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They want to invest in a fund.
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They want to have a fiduciary that manages that fund.
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And if something goes wrong, right at the end of the day, they can terminate that manager and move on.
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or managers doing a good job and they can continue to pay that manager for that,
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for, for running that piece of the portfolio.
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And so by putting it in a structured credit fund,
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it now is a credit fund allocation could go into that bucket.
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And so a lot of what we're trying to do at UTXO is find ways to incorporate
23:37
Bitcoin into these traditional buckets that investors allocators have already
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and make it easier for them to invest and allocate to the Bitcoin ecosystem.
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them. So that was a long-winded explanation, but happy to kind of double click on any of that if
23:52
it's of interest. No, man, that was awesome. And when you sent me that tear sheet, I was like,
23:59
oh my goodness, this is brilliant. And it's funny, man. Sometimes I've, I mean, I love Bitcoin. I
24:05
love Bitcoiners. I try to surround myself with Bitcoiners, but I have to like continuously pull
24:12
myself out of the echo chamber, like reluctantly, because I like the echo chamber, you know,
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so like it's comfort, that's why it's a safe space. But it's so obvious when I step outside of it,
24:23
where your Bitcoiners are, you know, Bitcoin's best source in the race, you know, why would you
24:28
own anything else, you know, risk on all the time. And then when you like, step out of that,
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and like back in a Tradify world, it's like, duh, people have different risk exposures,
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they have different risk tolerances, you know, they want different things. And it's like, it's
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so obvious over there that like a Bitcoin or just like goes right over their head. But when you guys
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tranch out, you have the risk bucket. So it's like, my goodness, like this is this is fantastic.
24:53
I thought you structured the fund itself really well. And so how's the how's that been going?
25:00
Have you guys seen interest in that that structure? We have, it's been across the board,
25:06
both senior and junior and i think um you know in one there's just still needs to be a lot of
25:11
education on digital credit and what that is and what it isn't there's still needs to be a lot of
25:16
discussion on bitcoin treasury companies and there still needs to be a lot of discussion on just
25:19
bitcoin itself um so like i don't envy you man yeah yeah and so you know i think about like if
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i were sitting in this seat like a similar irc for like a traditional credit fund or whatever
25:32
private credit let's say right it's like i don't have to go to that allocator and explain what
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private credit is. Like they already know it and they probably already have an allocation or private
25:40
equity, right? Like they already have an allocation. They know what private equity is. When you bring
25:44
up Bitcoin and then you bring up kind of the different layers of things that are being built
25:48
on Bitcoin, it's like you got to start back at first principles in a lot of cases to explain
25:51
what Bitcoin is and what it isn't and kind of dispel maybe some of the stuff they've heard in
25:56
the mainstream media about it And so I really think that you know what we seen and kind of what I think the industry sees is that we do live in a echo chamber to your point us Bitcoiners
26:08
And we need to be doing more outside of X on educating the broader investor base on it.
26:17
And so, yeah, I mean, you know, going back to the strategy, a lot of interest, but I think, you know, really what we're seeing is just more of a need to continue to educate and explain the underlying thesis of Bitcoin, you know, MSGR strategy and, you know, digital credit itself.
26:36
Well, then, as someone who sits down and talks to people that are responsible for allocating very large pools of capital, just logistically, it's like, these people are important. They're busy.
26:52
like i know if you could sit down with them for 10 hours you could explain bitcoin and then you
26:57
could explain treasury companies and then you could explain like digital credit and make it all
27:01
make sense but you when you get 30 60 minutes with these folks you guys kind of have like a
27:07
systematic approach to try to bring them up to speed like as soon as possible like how do you
27:12
actually get the the message across yeah i mean i think it's kind of what you did at the start of
27:17
this call so you try to get understanding their bitcoin journey you know what they've what how
27:21
they've experienced with it in the past, if they've had any experience with it in the past,
27:25
try to hear how they think about it, what their thoughts on it are, and then kind of backtrack
27:29
from there and fill in. And there's some that are very well educated on Bitcoin and understand it,
27:35
and you can just kind of go right into the deep end. But there's a vast majority where it's just
27:39
like, okay, we're going to start from first principles, Bitcoin 101, and talk through it.
27:45
And that might seem to us like, Bitcoin's been around for 17 years, why are we still talking
27:50
about this, but to your point, you know, these, these folks are really busy with everything else,
27:56
right? It's not a matter of intelligence, it's a matter of just time, and taking the time to sit
28:01
down and, and research it properly. And then if you think about that relative to sizing across
28:08
the portfolio, right, if someone's going to allocate to Bitcoin, if they start out, maybe
28:12
they put a one to 5% position in, you know, are they really going to spend to your point 10 to 100
28:18
hours studying something for a one or two percent position in the portfolio.
28:22
And so it's on us to try to expedite that education and help them provide that value
28:27
for them to make that decision easier at the end of the day to make that allocation.
28:33
But that's really what it is, is people are busy.
28:35
People have a bunch of other things going on.
28:38
And, you know, from us, like, how do we expedite that education process, expedite in fact to
28:43
make it easy for them to ultimately allocate to Bitcoin in some in some way?
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29:18
Yeah, it's fascinating, man, because, I don't know, sometimes I just get fatigued.
29:25
It's like everybody says it across Bitcoin, and it's totally true.
29:30
I don't want to make it sound like it's not, but don't you get tired of trying to educate people?
29:36
Yes and no.
29:37
I mean, I think, unfortunately, there's just a lot of bad information out there in general about
29:47
Bitcoin and crypto and Bitcoin getting looped into crypto and other things. And in a way,
29:55
you're always trying to kind of backtrack and like pull Bitcoin out and show the differences
29:59
of Bitcoin versus other crypto assets. Because how investors, allocators, advisors think,
30:04
they think about diversification. If I'm going to invest in credit or fixed income,
30:08
I want core bonds. I want investment grade bonds. I want high yield bonds. I want private credit.
30:13
And I want long short hedge funds. They want to be invested across different types of credit
30:17
instruments. They kind of view Bitcoin and crypto as the same thing. If I'm going to invest in
30:22
digital assets, I need to be in Bitcoin. I need to be in B crypto asset, C crypto asset, so on and
30:28
so forth. Have blockchain technology, like all these other themes, right? And so I think that's
30:33
the hardest part is pulling Bitcoin out of that and showing the use case in and of itself that
30:38
you don't need diversification across digital assets. Bitcoin is the diversification across
30:45
everything else in your portfolio already.
30:48
Totally.
30:48
No, I think that's beautifully well said.
30:51
And like we kind of mentioned earlier in the show
30:55
with our personal journeys about touching the stove
30:57
and it's just like trying to use our experiences.
31:00
It's like I bought ETH and Salon or whatever.
31:04
It's like, okay, well, when we were talking
31:05
like these big institutional pools,
31:07
don't bother, they're scams.
31:09
And I give you a ton of credit as a quick side note here
31:12
for and appreciate you and thank you for using
31:14
the A and B moniker as opposed to Ethereum and Solana because we were going to have to bleep
31:19
that out. So that will save our producer a little work on the back end. But I really like you guys
31:27
in the fixed income fund. I think there's a ton of need for fixed income exposure with Bitcoin
31:35
ultimately being the underlying asset, the underlying collateral. So I'm appreciative of
31:41
you guys pioneering that and carrying that flag. I'm curious, though, how you guys think about
31:49
concentration risk amongst digital credit, because there's only really a couple issuers
31:55
right now. So do you kind of foresee more issuers and then allocating to them? Have you kind of had
32:01
any questions or hesitations from your potential investors about that? Yeah, I mean, it's a good
32:06
question uh you're right it is heavily concentrated you know predominantly with strategy and then now
32:11
strive um you know coming up uh rather quickly um i think there will be others i mean smarter
32:18
web announced uh a preferred offering uh earlier or last week um there will be several more um
32:26
you know at the end of the day though maybe to your point the online collateral is bitcoin
32:30
and so when you're assessing these digital credit issuers you got to assess
32:34
how responsible they are with that Bitcoin on the balance sheet, how they're thinking about
32:40
amplification of the preferreds relative to the Bitcoin holdings. And yeah, and I think there
32:51
will be different wrinkles of this in the future from other issuers. It won't just be the pure
32:56
STRC playbook. I think people will have kind of different wrinkles to how they create their
33:02
their products. But I think the key overview is that there is a need for income from a lot of
33:10
investors out there who don't want the volatility. I mean, me and you can withstand Bitcoin's
33:15
volatility. And we have hopefully a multi-decade long investment horizon where we don't have to
33:23
really worry too much about the volatility. But if you're a retiree or someone who wants some
33:28
income and needs that income on a month to month basis, something like this could add to your income
33:34
portfolio in a meaningful way. And like I put it very simply, I know there's a lot of talk about
33:40
digital credit of this not being able to, of how you need more and more buyers to withstand it and
33:46
you know, doom loop stuff. And at the end of the day, if you have Bitcoin that's over collateralizing
33:52
the amount of preferred shares out there, that's better than almost anything, any other
33:58
current credit instrument today, right?
33:59
That actually are over levered or have no assets.
34:02
They're just basing their debt on cash flows and the going concern of the cash flows of
34:08
that company.
34:09
So it's like if you could sell all the Bitcoin today and pay off all the prefs, there is
34:15
no doom loop scenario because you have the, it's very simple.
34:19
You have the pref covered, right?
34:22
So, but yeah, I mean, it'll be interesting to see where this space goes.
34:28
Fixed income is a $300 trillion global market.
34:32
You know, digital credit today is what, $15 billion.
34:34
And so even if you 3, 4, 5x over the next several years, right, there's still a lot
34:39
of room to grow.
34:40
And I think you are, as the track record builds, as there's signs of success, signs of navigating
34:47
stress scenarios like what we saw in the summer and coming out on the other end, I think
34:52
you'll get more and more institutional adoption and more and more capital coming into the space.
34:56
Totally. Totally. Actually, on that note, one of my, I think legitimately my cooler
35:04
Bitcoin experiences, we obviously run a lot of in-person events, but I always try and encourage
35:10
people to get offline and go to events. And it was so awesome during the BFC symposium
35:19
in New York kind of when STRC was, you know, tanking and literally in a room, not all finance
35:30
folks, but like a lot of really sharp Bitcoin finance folks talking about this real time and
35:37
just, you know, being a fly on the wall and having conversations with folks to like see a lot of what
35:43
was discussed in that room.
35:45
Like, I kid you not,
35:47
Saylor then and the strategy team
35:48
implemented a lot of those things,
35:50
talked about the following week.
35:54
Our fairly new experiments,
35:56
I think STRC has been around
35:58
for like a year and a half now,
36:00
maybe, so in finance realm,
36:01
that's nothing actually.
36:04
But it's like, okay,
36:06
what does the market actually want?
36:08
It's like, okay, well, the market's showing us
36:09
we value cash reserves.
36:10
So they sold some Bitcoin
36:11
and bolstered their cash reserves.
36:12
And it's like, I heard that conversation a week ago and then you just like did it.
36:16
I thought that was awesome.
36:18
I don't know if you had any opinions on that, but it just like sticks out to me as like,
36:22
well, I think that's actually something cool about Bitcoin too.
36:25
It's like, it's big, but still like small.
36:28
And you can actually have like these meaningful conversations with folks.
36:31
And it's like very easy to like network your way through Bitcoin, I think.
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37:04
Yeah, I always joke. It's like half a degree of separation amongst everybody in the space.
37:10
Like everybody knows everybody. It is very small. And yeah, and I give credit to strategy on that
37:18
because they listened to the market. They heard what we're saying. They saw the price action.
37:23
They weren't set in their ways. They adapted and I think made the right decisions. And it's a
37:28
reflection in the price of SDRC at the end of the day, whether that's successful or not. It was
37:33
because now they're trading at 99.
37:35
And I think quelmed a lot of the concerns
37:39
from the market.
37:43
But yeah, I mean, people talk about Bitcoin
37:45
being a $1.7 trillion market cap asset.
37:49
It's tiny compared as a commodity,
37:53
as a global macro asset, as money, right?
37:55
It's tiny.
37:56
And the goal should be,
37:58
I actually mentioned this during BFC.
38:00
I know there's a lot of people who love to,
38:03
uh, either try to be the main character or, you know, try to say my way, my way or the highway
38:07
in Bitcoin. And it's like, look, this is such a tiny spot, tiny asset. The goal should be to
38:13
increase the pie and get more and more people involved and in the community, not to tear each
38:18
other down. And there, there are times where it's like, maybe you need to call, call people out or
38:22
whatever it is. But at the end of the day, it's, it's, I think there could be more constructive
38:27
things happening if we try to be more inclusive or bring people into this ecosystem.
38:31
them. So just my, not to go off on a tangent or a rant, but I would just say that it's a small asset
38:40
class. And, you know, we think that we're doing a lot, changing a lot, but most people out there
38:47
don't realize that or know it yet. No, totally. And I think it's very important that that message
38:54
continues getting out Circling back to your guys newest fund here I curious you know Because it feels like they still which is good I mean this in like a bad way but there a lot of different opinions on how to value you know digital credit Do you guys kind of have like in the bullpen you know with your
39:11
analysts, have you guys developed like some frameworks that you're using to underwrite,
39:15
you know, the existing new products you're allocating to in the fund and new potential
39:21
products? Yeah. So, I mean, we, you know, a lot of the main metrics we look at are volumes,
39:28
liquidity and you know obviously strc is by far the most volume and liquidity and so you know we're
39:33
going to be you know heavily looking at that um you know a lot of it too is you know right now to
39:39
your point there's really there's two issuers and so you know understanding how uh trying to
39:44
understand forward guidance and how they're gonna think about amplification um with digital credit
39:48
how they're going to think about um uh you know keeping it close to par with with these variable
39:54
rate ones. All that goes into our analysis. And at the end of the day, we take an active approach.
40:02
And so with our structured credit fund, we're investing in perpetual press, digital credit.
40:08
We're not investing in Bitcoin or Bitcoin charging company equities, common equities per se.
40:14
And so the goal is to manage this appropriately. And over time, as the fund grows, the idea is to
40:20
to do relative value analysis across different issues, hedging if that's appropriate at certain
40:26
times. The idea is to generate really good risk adjusted returns for the junior and then stability
40:32
returns for the senior. Yeah, that's awesome. That makes a lot of sense. And one of the reasons I was
40:41
most excited to talk to you today is one of the things I love nerding out on, and there's like
40:47
eight people I can talk to about this, you being one, but like Bitcoin investment product design,
40:52
I just think it's like so much fun because there's so much opportunity taking this massive
40:58
TradFi playbook and, you know, applying it to Bitcoin. So do you guys kind of have some
41:03
core philosophies? Like if we design a new fund, a new product, like these things will be
41:11
included in it? Or do you kind of take like a more flexible approach? Like,
41:15
hey, we're getting a lot of interest from investors that would like to see X, Y, Z.
41:20
Because what I've been kind of workshopping here is if you're able to, in some sort of
41:26
structure pair, like a hard asset, spot Bitcoin, those two kind of neutralize each other and then
41:32
like a fixed income component. I think that's probably like the holy trinity of Bitcoin
41:36
investment product design. Do you kind of have like a similar framework or idea you guys work
41:41
off of? We do. We do. And kind of, you know, I think Saylor came out with this maybe a year,
41:47
two years ago, talking about how 97% of institutional capital is mandated to invest
41:52
in equity or credit. And then, you know, the other 3% is commodities or other, right? And
42:01
kind of Bitcoin is sort of as fit in that 3% commodities or other. And so part of why we
42:08
developed our hedge fund which is predominantly equity based and our credit fund which is credit
42:13
like um is to fit that 97 so now you're bringing something where an alligator can only give you
42:20
three percent potentially or it's going to be less because they're going to diversify that three
42:23
percent across other commodities and other things to the 97 um which has a much more higher investable
42:31
base. And so that's kind of how we back into the product design. And at the end of the day,
42:39
it's reducing the frictions of these groups to be able to invest in Bitcoin or create different
42:43
risk return parameters. I mean, that's kind of what strategy's done with the company, right?
42:51
It's like they have MSTR, which is ideally more return, more vol than Bitcoin. And then they have
42:57
SDRC, which is a less return and less fall than Bitcoin, if things are done the right way.
43:05
And it just goes back to people have different objectives of what they're trying to do.
43:11
And if you can make it easy for them to invest in Bitcoin in a different risk return way,
43:18
then there's a big opportunity for that. But yeah, I agree with you. I think there's a huge
43:22
white space in the area. And yeah, I think it's really going to be the theme over the next five
43:29
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44:03
I'm not asking you to give away any of the secret sauce here, but as somebody who sees
44:19
a lot of different things in the market, you guys are workshopping a lot of different things.
44:23
Do you think there are like, what would you kind of consider like a massive hole that
44:28
you know, finance hasn't enabled your Bitcoin in some way, or, you know, a structure hasn't been,
44:35
you applied to Bitcoin, you across the, you know, investable asset price could be real estate.
44:40
You know, we talked some on fixed income, but where do you think are some of the biggest
44:44
opportunities still there? I mean, I do think it's the credit side with everything that's been
44:51
coming out with digital credit. I think it's, I think reducing the friction between Bitcoin
44:57
on-chain and Bitcoin and TradFi rails is another thing.
45:03
And, you know, something that we're working on
45:06
that we might have more information on later.
45:10
All right. I like that. A little tease.
45:12
Yeah, a little tease.
45:13
Yeah, but yeah, I think just at the end of the day,
45:16
it's reducing the friction of using Bitcoin
45:18
and however you want to use it.
45:20
And that's the ethos of Bitcoin, right?
45:22
It's like Bitcoin, the base layer protocol
45:24
should be unchanged, right?
45:25
Or it should be very hard to change.
45:26
And that's by design.
45:27
right because it's money like we've bitcoin's money it's capital it's freedom tech it's all
45:32
of the above and people like to pigeon pigeonhole bitcoin is one thing or the other but like if you
45:37
take a step back right it's it's however you want to use it and that's the ethos of bitcoin
45:43
right people say it's for your friends it's for your enemies and that's the point um and so if
45:49
you don't want to use it as a capital asset that's fine right use it as freedom tech use it as you
45:53
you know, you know, run your own node, do all that. And that's all very, very important.
45:58
But if you do want to use that a capital asset, I think there's a lot of things that can be done
46:02
to make that more efficient and less frictionless for people to leverage Bitcoin in that way.
46:07
Totally, totally. Well, in that vein, you know, one of the presentations I've referenced a lot
46:15
and go back to is like, man, this might have been two years ago. But, you know,
46:23
Andrew Hans at, uh, yeah, I think it was a BPI event.
46:26
You know, he kind of introduced like, you know, the, the BitBond, you know,
46:30
so kind of like, you know, and that, that was in context of like U S treasury
46:33
issuing, you know, like a BitBond.
46:35
So, you know, kind of a standard bond, some Bitcoin in there that either, you
46:39
know, pays people like a dividend on the appreciation or, you know, sell, sold,
46:44
you know, kind of pay off some debt or debt or anything.
46:47
Are there any particular structures like that you're interested in or, or any
46:52
kind of stories that you thought were fascinating is like, Hey, I think this really has some,
46:57
some legs or traction. It just maybe hasn't gotten the attention it deserves.
47:02
I think bid bonds is super interesting. I think it'll be a while before we get any
47:06
meaningful traction there. But I think that could be really the real kind of Trojan horse,
47:13
orange pill of getting sovereigns and governments more involved in Bitcoin at the end of the day.
47:17
so I think it is a very big idea
47:20
very important idea
47:21
I just think it's going to take some time
47:24
yeah I mean
47:27
kind of going back to the other point
47:29
I think reduce the friction
47:30
of how you use Bitcoin
47:32
in capital markets
47:33
is a very big idea
47:34
you know I think having options
47:39
different custody options
47:41
you know
47:42
is important too
47:44
I know that's a whole other can of worms
47:47
that we can get into.
47:48
But yeah, I think, you know,
47:52
just in general speaking,
47:53
more education on custody and the trade-offs
47:57
and making sure people are doing their own homework
47:59
on what makes the most sense for them
48:01
and their setup,
48:02
I think is very, very important.
48:05
And I think there will be other solutions
48:08
that will continue to be built out there
48:09
over time for Bitcoin custody.
48:14
Yeah, I'm trying to think if there's anything else.
48:15
For us, our focus is on this financialization side and capital market side of Bitcoin.
48:20
That's the main area.
48:23
I think there's a lot of cool stuff happening.
48:26
I talked with the company that's building these Bitcoin communities in Latin America,
48:30
like Plan B communities, and having a Bitcoin circular economy or being able to pay for the home and some Bitcoin
48:39
and kind of build out a hard asset through Bitcoin effectively,
48:44
both culturally, community, and through the asset itself.
48:48
I think that's really, really cool.
48:49
And I think you're going to say preparation of that.
48:53
So yeah, I'm excited where things are headed.
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49:29
Man, it's so exciting.
49:31
And one of the things I want to get your take on that maybe, fingers crossed,
49:37
we may be kind of off the bottoms and doldrums of the bear.
49:43
And I think the last cycle, very common narratives like,
49:47
okay, Wall Street's finally come to Bitcoin.
49:51
And that was kind of credited with a lot of the price appreciation of the last cycle.
49:56
And it was James Lavish that wrote, kind of doing the post-mortem,
50:02
and we were at 60K, 58K,
50:05
and you're kind of analyzing what was going on.
50:09
He kind of made the assumption slash analysis
50:14
that Wall Street really hadn't actually come to Bitcoin last cycle.
50:20
It was kind of like more of just pure finance play,
50:23
playing the basis trade.
50:26
They're buying spots, selling futures,
50:28
and when they unraveled that spot position,
50:30
that that's kind of what started the the cascade down what's your take have you seen your bitcoin
50:37
come or wall street come to bitcoin in a in a meaningful way and then kind of a two-parter here
50:42
if they have or have not like why is it just like a lack of the appropriate products or or what's
50:50
what's your take on this situation i think it's a little bit of both i largely agree with james
50:56
were I think a lot of that initial interest was kind of the basis trade ARB that a lot of these
51:00
institutions were taking and they weren't taking really a directional view on Bitcoin. But at the
51:06
same time, like having a Bitcoin ETF approved is kind of like the first checkmark of getting
51:10
institutional adoption for Bitcoin, right? And so I think last cycle, the foundations were created
51:18
for institutions and Wall Street to get more involved, but you haven't seen this rush of
51:23
adoption or capital into it yet. I mean, we were in New York a few months ago for BFC,
51:29
and we had a few other meetings. I was actually just out there a few weeks ago too,
51:33
a few other meetings with different banks and service providers and investors. And I can tell
51:39
you a lot of people haven't even been thinking about Bitcoin, especially since last October when
51:44
we had all-time highs. It's been all about AI, all about other things. And so I think we are still
51:51
still in this first inning of institutional adoption,
51:54
even though the groundwork has been laid out,
51:56
the foundation has been laid out for that acceptance.
52:01
And so, yeah, I mean, you know, I think it's just going to be,
52:04
a function of continuing Bitcoin's track record.
52:08
Whether we like it or not, price dictates a lot of the interest.
52:12
So if price is going up, people get more involved, people are more interested.
52:15
They think they can make more money off of it, right?
52:18
It's the incentives of how the market works.
52:22
But yeah, I kind of, I largely agree.
52:25
I think the institutions really haven't arrived yet, but the foundations for those institutions
52:30
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54:01
been manipulated for decades now. Do you think they kind of have a case to stand on there? I
54:06
think because you have this paper layer on top of a finite asset, things get goofy and there's a lot
54:12
of in the weeds on who actually custody the gold and who's actually issuing the majority of the
54:16
paper. But do you think like this paper Bitcoin narrative, and you don't hear too much about it
54:22
about it now because I'm too busy arguing about different things, but do you think that's an
54:26
actual concern or do you think this is just the mechanics of finance at large?
54:33
I don't think it's much of a concern that people are making out to be sure.
54:37
Is there pay-per-view Bitcoin?
54:38
Yes.
54:39
But at the end of the day, and that's why I also think like self custody aspect is
54:43
important, right?
54:43
Cause you could always take the Bitcoin out.
54:46
Um, but yeah, at the end of the day, having more volume and more people trading
54:52
around Bitcoin is going to long be supportive of the price And it kind of like a beach ball right It like you can only like keep the beach ball down for so long underwater before
55:04
like it's going to pop up, right? Like that, it's just, that's just market inertia. And so
55:09
and then if you take gold, it's like, well, okay, sure. Gold market's been manipulated,
55:14
but then we just added $10 trillion in market cap last year in gold, right? Which is crazy,
55:19
right it's 5x the the market cap of bitcoin in one year for a you know from a 20 trillion dollar
55:25
asset 30 trillion dollar asset so are you telling me like that's manipulated right it's like
55:30
you know uh like when people want the asset they're gonna get the asset and the price is
55:35
gonna go up that's just how it works at the end of the day so people are gonna want the asset
55:39
and people are gonna want to hold on to the asset um so yeah i think it's overblown um but uh
55:47
At the end of the day, I think it's net positive because it can bring more interest, more volume, and more capital into Bitcoin itself.
55:55
Yeah, totally.
55:56
Is there something, if we kind of think of the ETF as a basic building block to get more institutional dollars into Bitcoin,
56:05
is there another low-hanging fruit out there from the regulatory side or the issuer side that you feel like we're really missing?
56:12
I mean, I think making it easier for other asset managers and investors to buy and sell Bitcoin.
56:21
You know, a lot of people still don't want to have their brokerage account and then, you know, separate crypto wallet or Bitcoin wallet and have to manage that.
56:31
So I think reducing the friction there will help.
56:34
I think ultimately it was a good thing that we got clarity on clarity last month, even though it's not what we wanted to necessarily see.
56:46
But at the same time, it wasn't really that impactful for Bitcoin itself.
56:51
It was more impactful for kind of the other stuff and the stable coins.
56:55
And so I think for institutions, they just want to see that green checkmark of saying, okay, this is an investable asset.
57:04
class like it's blessed by regulatory authorities which it is right now right with the sec and cfdc
57:09
like they're very supportive of digital assets very supportive of bitcoin um obviously i think
57:14
we want to see some of the stuff into law and so it's hard to kind of roll back a lot of this stuff
57:18
maybe if if things shift uh in another direction in a few years but um i think ultimately um
57:28
from a regular perspective like we're we're pretty much already there almost there from having kind
57:32
kind of the blessing from everybody in a bipartisan way, which I think is important to continue
57:36
to maintain that this is a bipartisan theme, bipartisan asset.
57:43
So I think as that gets more memorialized that will help institutions be more comfortable in allocating to Bitcoin But yeah it mostly that It goes back to reducing the frictions of how you can own it and then reducing the regulatory attacks or concerns
58:02
Totally. So when you, and man, I don't feel like we've seen a headline like this for a while,
58:08
but when you see like Fidelity come out, like, okay, we're allowing up to 10% of our client's
58:14
portfolio to be allocated to Bitcoin. Do you think that's actually a needle mover? Do you give those
58:20
firms or headlines much credence? I doubt that there's 10% of Bitcoin allocated to a lot of
58:29
their client portfolios from those reports. I don't disagree with it, but to see it actually
58:37
happen, I think it's pretty small. I think there's still a lot of groups that are taking in reverse
58:43
solicitation for Bitcoin interest, not actively going out there and saying, Hey, you should add
58:46
a one, two, 5% position. Like that is still very, very novel and not really happening out there
58:51
with advisors or some of the banks. I think when that shifts and eventually it will,
58:56
you're going to see broad-based adoption really happen from these institutions and larger
59:02
investors. I kind of think of it akin to AI right now, like right now, the mindset for investors
59:09
with the AI is like, I can't miss this train, right? The opportunity cost is too great to not
59:14
allocate to AI, even if things seem very frothy or valuations seem high, like I got to just have
59:19
a position. Eventually that will be the case for Bitcoin where they say, I just got to have a
59:23
position, but we're not there yet. So once that mindset takes hold of like, you just got to have
59:29
1%, you just got to have at least 2%, then I think you're going to see a real potential repricing
59:34
from that. When that happens, I don't know, maybe it's next year, maybe it's in five years,
59:38
maybe it's in 10 years. But I think eventually it will happen.
59:43
Yeah, no, totally. I think that's correct. And in our closing minutes here too, that's a great
59:50
transition to Summit. You guys are your partner in bars and we're super appreciative of that. I
59:54
think it makes a ton of sense. And one of the things we try to really do is be a helping hand
1:00:00
for that advisor that is, to your point, getting inbound about Bitcoin and they don't want to just
1:00:06
outright dismiss their clients about it, want to be a resource and do good on their clients,
1:00:12
which we like to see because there's plenty that don't. It's probably a little bit more retail,
1:00:18
but do you guys have conversations with RIAs very often? Do you feel like they're really missing
1:00:23
something when it comes to their clients allocating to whether it's about Bitcoin directly or
1:00:29
different Bitcoin investment products like digital credit, like your guys' fund?
1:00:33
Yeah I think with a lot of RAs it still continued education on what Bitcoin is and what it isn I mean we excited to be out there next week and be at the event and you know part of you know I trying to schedule other meetings with different RIAs and it been a very mixed bag on the responses I get back You know response from hey like
1:00:52
let's definitely connect, but it's great to learn more to we're never going to invest in Bitcoin,
1:00:56
don't contact me ever again. Right? So I get the full gamut, the full spectrum of thoughts and
1:01:04
opinions and and emotions um so i still think it goes back to just taking a step back like we
1:01:13
like you and i are both full-bore into this you know trying new things talking about you know
1:01:17
different products different strategies way ways to kind of move the ball forward but i think a lot
1:01:21
of times it's also just kind of stepping back and even though it is tiring to your point and it feels
1:01:26
a little draining at times like we we still need to just get out there and educate on bitcoin like
1:01:31
across the whole community. Like there's just not enough education happening still.
1:01:37
Yeah. Yeah, definitely. Well, hopefully we can do our, our part to, to change the tide there and,
1:01:42
you know, we can do without you guys either. So I think that's a, that's a fantastic point,
1:01:49
Lauren, anything else that you wanted to talk about that we didn't get to,
1:01:55
you think is interesting? No, I mean, I, I'm very excited about next week at the summit and,
1:02:00
Thank you again for putting this on.
1:02:02
I think it's going to be a great group of people.
1:02:04
I don't know if you have any more spots left, but if anyone's listened to this before, if this goes live before the event, I highly recommend taking a look at it.
1:02:13
I think it's going to be high signal, Bitcoin focused.
1:02:19
It's just great to see events like this happen more and more.
1:02:23
Looking forward to seeing you next week.
1:02:26
Dude, likewise, everything you said was very true.
1:02:29
We're appreciative of that.
1:02:30
Lauren, thank you so much for your time. I know you're busy, man. You guys got a lot of things going on, which is awesome. And I'm happy to be a UTXO cheerleader. If people want to get a hold of you, they're interested in some of your products, how do they do that?
1:02:46
So our website is the best way to contact us. We have a tight form on there, just utxo.management.
1:02:52
It's our website. We also have our research pieces, newsletters, insights from the team
1:02:58
that we post on there. We keep it updated. And so, yeah, feel free to reach out on our website.
1:03:06
Also, I'm on LinkedIn, find me on LinkedIn. But yeah, that's our website.
1:03:16
Thank you.