Latest / Elon Musk Podcast / SpaceX and Xai buy back $3 Billion

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SpaceX and Xai buy back $3 Billion · Elon Musk Podcast

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  A private aerospace company is preparing for an initial public
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  offering targeting a valuation of up to $1.75 trillion with the
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  goal of raising $50 billion, shattering the previous global
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  record for a public offering. The.
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  The sheer scale of those numbers is honestly difficult to fully
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  comprehend right away. Right?
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  You are looking at a financial event that just dwarves almost
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  everything that has come before it in the global markets.
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  Yeah. And adding to that massive
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  scale, the company just merged with a major artificial
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  intelligence startup, exactly valuing the combined entity
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  privately at one and a quarter trillion dollars.
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  It is a massive move. So you have this aerospace giant
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  actively eliminating a huge debt pile, right?
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  And utilizing a highly specific triangular corporate structure
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  to absorb the artificial intelligence startup.
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  While simultaneously planning for satellite based computing
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  infrastructure. Yes, all while navigating a
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  hidden, highly volatile cryptocurrency stash on their
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  balance sheet. How does fusing a rocket
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  manufacturer with an artificial intelligence startup justify the
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  largest public market debut in history?
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  Well, the social media platform and the artificial intelligence
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  startup, which are both owned by the exact same founder, are
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  planning to fully repay 17 1/2 billion dollars in debt.
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  That massive pile of debt is it is not just a simple bank loan.
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  No, it includes 12 1/2 billion dollars originating directly
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  from the social media platform's highly publicized leveraged
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  buyout. And an entirely separate tranche
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  of high yield bonds. Right bonds that were utilized
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  to fund the rapid construction of artificial intelligence
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  supercomputers. The company is even aggressively
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  buying back $3 billion in junk bonds.
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  That is 17% premium over their face value.
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  Right. They're willingly paying 117
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  cents on the dollar to retire those specific financial
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  obligations immediately. Which is an aggressive financial
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  move. Wait, back up.
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  Yeah. How does a company that has been
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  burning cash suddenly have 17 1/2 billion dollars to wipe out
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  all that debt? It is a completely fair
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  question. Paying a massive premium just to
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  cancel a debt seems entirely counterintuitive if you are cash
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  strapped. Well, retiring this massive debt
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  load completely changes their entire financial profile.
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  OK, The capital for this sudden maneuver comes from a recent $20
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  billion private equity round, right?
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  That massive funding round was anchored by global sovereign
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  wealth funds. This includes Saudi Arabia's
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  humane. Yes, and the Qatar Investment
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  Authority. Plus Abu Dhabi's MGX.
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  These are entities with access to seemingly limitless capital.
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  So paying off this debt eliminates restrictive financial
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  covenants. Exactly.
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  Those covenants are basically strict rules lenders place on a
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  company to ensure they get paid back.
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  Right, limiting how the company can actually operate or spend
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  money. Removing them, along with the
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  massive interest burdens, presents a perfectly clean
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  balance sheet to public investors.
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  Doing this significantly lowers their weighted average cost of
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  capital going forward. If you are looking at this from
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  the outside, the weighted average cost of capital
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  essentially dictates how expensive it is for a business
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  to fund its own operations. Exactly.
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  By using that sovereign wealth injection to wipe out the high
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  interest junk bonds, they suddenly make it dramatically
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  cheaper to borrow money in the future.
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  They are taking a financial house that was heavily mortgaged
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  with terrible terms and paying it off entirely in cash before
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  inviting the public to buy A room.
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  The mechanics of the merger itself are equally fascinating.
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  Oh. Absolutely.
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  The aerospace company formally acquired the artificial
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  intelligence startup in an all stock transaction.
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  In this exchange, the rocket company was valued at $1
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  trillion. And the artificial intelligence
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  company was valued at $250 billion.
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  They used a highly specific corporate structure for this
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  transaction. Called a triangular merger.
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  Right. Instead of two companies simply
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  mashing all their assets and liabilities together into one
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  giant bowl, the artificial intelligence company becomes a
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  wholly owned subsidiary. It is legally tucked underneath
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  the main aerospace company. Without actually mixing the
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  internal operations. This structural choice
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  intentionally limits and isolates liability.
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  Because the artificial intelligence company has legacy
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  contracts. And massive regulatory hurdles
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  regarding data usage. Plus a long history of previous
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  social media controversies. By using this triangular
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  structure, all of those issues remain entirely separated from
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  the the aerospace parent company.
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  Keeping these entities legal or distinct protects the rocket
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  manufacturers $22 billion in highly sensitive government and
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  defense contracts. Those government agencies demand
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  absolute security and zero external risks.
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  This setup completely insulates those contracts from any social
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  media and artificial intelligence related legal
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  exposure. So they essentially put the
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  unpredictable artificial intelligence and social media
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  businesses inside a soundproof vault within the rocket factory.
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  Exactly, you can have a chaotic lawsuit heavy artificial
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  intelligence division running at full speed.
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  And the legal blowback physically cannot reach the
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  division that builds multi $1,000,000 rockets for National
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  Defense. The technical motivation behind
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  this merger introduces the creation of orbital data
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  centers. The plan is to use the company's
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  massive satellite network to house artificial intelligence
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  comutation directly in space. Because if you look at
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  terrestrial artificial intelligence infrastructure, it
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  faces severe physical limits. Regarding massive power
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  consumption. And data centers on Earth also
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  require unbelievable amounts of physical cooling.
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  Usually massive amounts of fresh water to keep the processors
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  from melting down. Satellites, on the other hand,
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  can harness constant, unfiltered solar energy.
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  While utilizing the natural cooling vacuum of space.
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  Transforming a transportation and Internet business into a
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  sovereign utility for space is incredible synergistic.
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  You are taking the most power hungry technology known to
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  humanity. And placing it directly next to
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  the sun. Where energy is abundant and
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  cooling requires 0 local water resources, you.
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  Eliminate the friction of earthly infrastructure entirely.
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  Critics view this entire merger completely differently, though.
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  They do. They see it simply as a rescue
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  mission to bail out an artificial intelligent startup
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  that was burning $1 billion a month.
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  Skeptics see this maneuver as giving those specific private
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  investors an eventual will exit strategy through the upcoming
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  aerospace public offering. Rather than a genuine
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  technological breakthrough in orbital computing.
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  They look at the massive cash burn and assume the rocket
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  company is simply acting as a financial lifeboat.
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  Regardless of the motivation, this completely opens up a
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  circular revenue loop. The Artificial Intelligence
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  division will require a constant, never ending stream of
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  satellite launches. And hardware replacements.
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  That guarantees perpetual built in revenue for the rocket
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  division. This subsidiary literally
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  becomes the parent company's most reliable and demanding
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  customer it. Creates a self-sustaining
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  ecosystem. The aerospace division builds
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  the Rockets and launches the satellites.
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  The Artificial Intelligence Division pays for those launches
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  to maintain its orbital data centers.
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  And the profits flow right back to the top of the exact same
• 7:18
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• 7:20
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• 7:24
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  The sheer gravity of the upcoming stock market listing is
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  completely unprecedented. Backed by 4 massive Wall Street
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  banks, the company is targeting A valuation between 1.5 and
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  $1.75 trillion. With some long term expected
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  value model suggesting $2.5 trillion.
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  A $50 billion raise completely eclipses the previous global
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  record. Which was held by a state owned
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  oil company. Raising that much capital and a
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  single public offering would immediately make this aerospace
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  company larger than almost every single entity currently listed
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  on the S&P 500 index. You were talking about a company
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  debuting on the public markets and instantly outweighing
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  corporations that have spent a century building their market
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  caps. Hold on a second.
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  Yeah. What does a public listing of
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  this magnitude mean for the founders control over the
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  company? That is the big question.
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  If you are taking in $50 billion from outside investors,
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  typically you have to give up a massive amount of decision
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  making power. The company will utilize a dual
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  class share structure to prevent exactly that.
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  This arrangement creates different tiers of stock with
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  mismatched voting rights. It allows the founder, who
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  currently holds 42% equity. And a massive 79% voting
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  control. To maintain total authority over
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  the company's direction despite the massive influx of public
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  capital. The new investors get the
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  financial upside. But they get virtually 0 say in
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  how the company operates. This creates a massive ripple
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  effect across the entire financial market.
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  Legacy aerospace and defense competitors may suffer heavy
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  losses. Because institutional funds are
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  forced to sell off old stock just to make room in their
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  portfolios for this new behemoth.
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  Portfolio managers have to maintain specific balances.
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  And when a trillion dollar asset suddenly appears, they have to
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  liquidate other holdings to buy in.
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  Additionally, this liquidity event could push the founders
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  personal net worth close to $1 trillion.
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  Giving him the immense capital required to fund actual
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  interplanetary colonization. There is a bizarre wrinkle
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  hidden deep in the balance sheet, however.
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  The company holds 8285 Bitcoin in custody.
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  The. Value of this specific holding
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  recently plummeted from $780 million down to $545 million.
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  Over a brief 3 month period. That is a staggering drop of
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  $235,000,000. That happened without the
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  company selling a single coin. They just held the asset while
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  the market crashed. Once the company files its
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  public prospectus, it is forced to disclose these holdings
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  directly to the the SEC. Because of standard accounting
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  rules for intangible assets, the company will have to report
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  massive quarterly paper losses whenever the cryptocurrencies
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  price drops. If the price goes up, they
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  cannot claim a profit until they actually sell the coin.
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  But if the price dips even for a day, they have to record it as
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  an impairment charge. This introduces extreme,
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  unpredictable volatility to their earnings reports.
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  Volatility that has absolutely nothing to do with their actual
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  rocket launches or Internet subscription revenues.
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  You can have a perfectly successful quarter where every
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  rocket launches on time. And Internet subscriptions hit
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  record highs. But the official earnings report
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  looks terrible simply because the digital currency market had
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  a bad. Week As a private company, you
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  cannot simply buy a share of this aerospace giant right now
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  to take advantage of those actual operational successes.
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  Retail traders are resorting to proxy trading just to get in on
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  the action. Because direct access to the
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  upcoming public offering requires being a high net worth
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  accredited investor. Everyday people are entirely
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  locked out of the primary process.
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  Instead, you see regular people buying stock in completely
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  different companies that happen to own minority stakes in the
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  rocket company. They are trying to catch the
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  financial overflow by investing in adjacent businesses.
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  This strictly limits the options for regular investors to
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  secondary methods. You have people buying shares of
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  a major search engine parent company simply because it holds
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  a 7% stake in the aerospace firm.
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  Or they're buying into an international satellite
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  communications provider that previously traded valuable
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  spectrum licenses for a chunk of equity.
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  It also opens up dangerous avenues like.
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  Unregulated equity tokens currently floating around on
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  crypto exchanges. The aerospace company does not
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  officially recognize these tokens at.
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  All and they are essentially high risk debt certificates
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  masquerading as ownership. Right now, if you want a piece
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  of the rocket, your only option is to buy the launchpad.
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  A private aerospace monopoly is cleaning its balance sheet and
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  absorbing an artificial intelligence startup to
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  transition into a public, vertically integrated space and
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  computing tower house. How will the intense scrutiny of
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  public markets and the relentless demand for quarterly
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  profits alter the culture of a company that was built entirely
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  on taking massive, explosive risks?
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