BITCOIN IS DOWN 50%. WHAT IS HAPPENING? | The Income Show | Ep. 5

[00:00:00]It's the bare market year. This is what happens. I'm not too worried about it.

[00:00:03]These are the best times to stack Bitcoin if you're going to buy a Bitcoin. Something very specifically happening right now, which is a capex buildout of AI. And this is a once in a epic type of thing that I think if were not happening right now, tech stocks would probably be much lower than they are. The quotequote risk-free rate right now is entirely dependent on government printing money. Government issues treasuries, has a coupon on it. Where does that coupon come from? Printed money. Yeah, maybe some of it comes from taxes, but for the most part, printed money.

[00:00:39]Hey everybody, welcome back to the income show. This week I have on Brian Brookshshire. Brian, welcome.

[00:00:45]>> Thanks for having me on, Joe. It's uh good to talk to you and catch up again.

[00:00:49]>> Absolutely. Great to to have you on the show. Um, Brian, I kind of want to start out with like what we're seeing in markets. You know, we've seen Bitcoin sell off pretty substantially. And for for the audience, we're recording this on June 4th. This will probably get published next week, so maybe a week from today. Um, but as we're thinking about markets today on June 4th, you know, Bitcoin has sold off pretty substantially and even digital credit has has started to sell off. Obviously, not to the same degree as Bitcoin, but uh it has sold off as well. Brian, like how are you thinking about Bitcoin and digital credit uh in this moment?

[00:01:25]>> Sure. I think, you know, when the whenever Bitcoin has these days where it sells off 10%, everyone feels like the sky is falling, the world is ending, but it, you know, Bitcoin recovers. It bounces back. Um, you know, in a couple days, a lot of people feel as as bullish as they ever did. Um, so, you know, it's it's the bare market year. It's what happens. I'm not too worried about it.

[00:01:46]These are the best times to stack Bitcoin if you're going to buy Bitcoin.

[00:01:49]Um and you know as far as digital credit credit goes you know these are the times when we see also you know you know stretch and say these are the times when those tend to sell off in sympathy with Bitcoin not too surprising but we've also seen those consistently rep so not particularly concerned about those either so you know as far as I see it you know we're just we're in one of those windows of volatility that Bitcoin tends to have and um you know this is the year for for for Bitcoin ers to stack who like to stack and then you know as soon as probably the next few years once we get turned around another bull market um everyone will be very happy.

[00:02:30]>> Yeah, I mean it's it's definitely you know can feel like a lot of chaos in markets. Uh you know Bitcoin's volatility is unlike really anything else. I guess like how are you thinking about like this Bitcoin bare market that we're currently in? Like is this a is this going to like be a V-shaped bottom where we come back significantly or is this going to be like we go sideways or even possibly down for you know an extended period of time and then we kind of slowly recover? Like how are you thinking about that?

[00:03:00]>> This bare market feels more like a capitulation in time to me than anything because it's it's mostly grinding sideways. I mean, yes, it's down from the highs, but even where we're at now, it's it's not even 50% from well, I guess maybe it's about 50% from the highs, but it's not the 80% draw downs we've seen in the past. Maybe we go lower. I I kind of don't think that we really do. There's a lot of supporting price structure around that 60k range. I think makes it difficult to push much lower than that. Yeah, it's possible we sweep below, but uh yeah, I just I it's hard for me to see us going substantially lower than than you know the current range, you know, much below that say high 50k range. I would have a hard time seeing that and I think even that would would take a lot of effort to get down there.

[00:03:46]So, uh you know, as far as Bitcoin bare markets go, I mean, typically it takes about a year from the previous high uh for Bitcoin to fully reset and for the new bull market to, you know, begin properly. uh so if you you know if you look at you know the last high say that was Q4 of 2025 around October so perhaps around October this year is when when the new market bill market will really start as earnest you know if it happens earlier than that I don't think anyone would complain but you know I think you just you always have to have as your base case that uh things aren't different this time and so far in terms of the highs and the lows timing really is not different it's a little bit more muted than prior cycles but um you know that that's that's fine.

[00:04:29]Bitcoin is still on the overall up into the right trajectory. So yeah, that's that's basically how we see things right now in terms of how this bare market is going. And um I I just my base case is the four-year cycle repeats. And you know, as soon as we're we're we're done grinding out this bare market, which I think is mostly like I said, capitulation in time going sideways than it is uh more so than as big of a draw down we've seen in the past. And once that process is done, everyone's had a chance to stack as much as they want to stack, then um then I would, you know, expect next time to not be different. and for the bull market to start and repeat the cycle again.

[00:05:11]>> Yeah, it's that sounds pretty pretty accurate to me as well. I mean, it it's it yeah, it's fascinating to just think about, you know, the Bitcoin cycles.

[00:05:21]People obviously said like the four-year cycle was was dead. Now it's like it's kind of here. Uh and and now we're we're we're in this bare market. Obviously, this is the income show. So, I do want to ask you a lot about digital credit, but I do want to ask a couple more questions, I think, on Bitcoin first. I think obviously being the the foundation of of digital credit, um like I think one thing that's interesting over the past I don't know, I guess probably year, 12, 18 months at this point is like stocks and gold and other assets have done like quite well. Yet, Bitcoin is kind of, you know, down 50% from all-time highs. Uh and this bare market kind of you know if it's if it is bottoming right now it's not really bottoming in line with other global assets where like historically you know look back to 2022 or 2018 uh or even like 2015ish like it kind of correlated very closely with like global risk assets but this time it seems to not be doing that perhaps. Do you have any thoughts on kind of like this this dislocation between Bitcoin and like stocks and and gold? Well, >> I think particularly with stocks that we're we're seeing the you know the the risk appetite we're seeing in stocks I think is not like prior cycles. There's something very specifically happening right now which is a capex buildout of AI. And this is, you know, a once in a epic type of thing that I think if were not happening right now, tech stocks would probably be much lower than they are. But as it stands, it's, you know, a liquidity suck that's just coming from everywhere. So, um, that's, I think, part of why we see Bitcoin perhaps not be as exciting as it was in 2025 also because, you know, so much capital is being drawn in from the the AI trade.

[00:07:14]And you know, even just looking at what's happened in the past few months, we didn't really see a major um you know, tech a major you know, stock market bottom even though we've had you know war on Iran and all these other things happening. I mean, yes, the market did good did go down for a little bit. Um but then it just ripped right back up to alltime highs again. And so I have to think that a lot of that is just you the AI trade, you know, genuine genuine productivity improvements coming out of the development of AI, you know, pushing markets forward.

[00:07:47]Um, but you know, it's not going to be AI trade forever. At some point, those stocks are going to get extended and when people are looking to rotate capital, they're going to look around at what's not extended and, you know, Bitcoin is going to be one of those things.

[00:08:03]>> Yeah. No, I I definitely agree with that. Um it it does seem like AI is sucking a lot of wind out of you know everyone's sales that's not even remotely near the AI sector whether that's Bitcoin or housing or you know other various assets. Um, one thing that you you've brought up recently that I I found pretty pretty funny and fascinating and I I agree with is it seems like there's a segment of the Bitcoin community that like is bullish on Bitcoin but then thinks digital credit itself is like unsustainable and won't work and you've called it I think like Schroinger's BTC. Can you kind of expand on on that idea? Yeah, I mean there's, you know, contingent of people that are they're continually posting, you know, Bitcoin's, you know, going to a million dollars this year. It's going to a million dollars next year. It's going to a million dollars by, you know, 2030. Um, you know, mega candles floating. But then you tell them about someone who's going to pay a 10% dividend to buy Bitcoin and they go, "Whoa, whoa, that's that's just going to fall apart right away." I mean, there's surely there must be a little bit of cognitive dissonance uh in inside that thought process there. I mean, if if you were to tell me, you know what, I don't really believe in Bitcoin, so this isn't going to work out. Okay, that's at least a logically coherent position. If you're going to say, okay, I just I just don't think Bitcoin will appreciate a 10% per year. You know, I like it, but I don't think it's going to appreciate 10% per year. Okay, that's that's a logically coherent position. But, you know, don't tell me you think it's going to a million dollars next year, but then this it can't, you know, keep up with this 10% dividend. That makes no sense. So, um yeah, that's that's really what I was calling out is is is stringing shorting towards Bitcoin. And it's it's simultaneously going to be the best performing asset in human history going to the moon tomorrow. Um but you know somehow this this 10% dividend thing is going to fail. I mean no come on get real. Yeah. It's kind of like an interesting It's It's fascinating to watch honestly because it's like the credit investors like they don't even necessarily need Bitcoin to appreciate at the 11.5% rate or the 13% dividend rate. Like because the balance sheet of these companies is so large in terms of Bitcoin relative to the dividend obligations that they owe, Bitcoin can actually appreciate like 8% per year.

[00:10:18]And that would that appreciation would offset like 100% of the current dividend obligation. So it's like you know if you think about like an 8% kar for Bitcoin over the next uh from 2026 to 2031 like last calculation I did it was like $99,000 per Bitcoin. So like you know you mentioned like people have the position that oh Bitcoin's going to a million dollars next year or or the year after but like you don't even necessarily need to have that position. I would imagine like most people in the Bitcoin community think Bitcoin by the end of 2031 would be above $100,000. I mean like and so it's just funny like you don't you really don't even have to have a pretty serious Bitcoin bull case to think that this might actually work.

[00:11:05]>> I mean even just Bitcoin back to a previous alltime high would be you know almost 100% from here.

[00:11:10]>> Yeah.

[00:11:10]>> Um even if we make it halfway there that it's 50% up for there from here. So all all Bitcoin bought, you know, around these price levels would be massively in profit. Um, if you know, if that's how it plays out. So yeah, I mean, it's it's a it's a thesis that, you know, plays out over time. I mean, you have to have your assumptions about what you think Bitcoin is going to do, but I mean, it just makes me ask the people who say these types of things, you know, do you really believe that the Bitcoin is going to do what you think it's going to do? Because if you do, then this type of a number shouldn't really matter that much. Um, you know, in terms of the overall stack and, you know, the rate has to appreciate to cover the dividends. Um, you know, obviously I think you wanted it to appreciate more than the dividend rate. Um yeah because you know if not that that's kind of slowly leaking value from the common stock.

[00:12:04]>> But the other thing to consider is let's say you do have you know a 20% move a 50% move 100% move.

[00:12:11]Well the next year the the move that you need to cover the dividends you know relative to prior baselines is is is lower. I mean because the uh you know the bitcoin is compounding but the dividends are not.

[00:12:26]you know, if you if you you know, right now strategy owes $1.7 billion a year in dividend payments. If they issue no further um strateg um it's still going to be the same $1.7 billion next year. It doesn't compound the the interest is is not growing. It's the same. It's it's simple interest. It's not compound interest. So if the Bitcoin is appreciating faster than that, then the Bitcoin that they bought with it needs to appreciate, you know, at a lower number next year because, you know, the the percentage increase you need to get from say $100 to $110 this year, okay, that's a 10% increase. But from $110 to $120, that's, you know, a little bit less than a 10% increase. And you know, the higher up you go, the less and less and less you need to go up to to hit your target. So, um, yeah, I think it's a very underappreciated aspect that you've got a compounding asset against a non-compounding liability.

[00:13:25]>> Mhm. Yeah, it's definitely a fact that a lot of people probably kind of seem to to miss at at this point. Another thing that's kind of been a hot topic um is sailor selling at you know 32 bitcoin or what whatever the exact number was uh to kind of inoculate the mo the market. Uh what do you make of that? Like is that a good thing for the digital credit holders? Is it good for Bitcoin? Is it bad for Bitcoin? What do you make of that? So, I think a lot of the things that strategy does um surprise people because I think it surprises people new to the stock. Uh people who haven't really been following it and don't realize that strategy has done things before and and selling Bitcoin is one of those. You know, 2002 the end of the bare market, Strategy sold some Bitcoin for tax loss harvesting. Um and now, you know, four years later, that same playbook came back on the menu selling some Bitcoin for for tax loss harvesting. you know, they might maybe they'll use some to pay dividends in the future, but um you know, the thing they they kind of signaled the most during the the earnings call was the uh the ability to take advantage of the the deferred tax liability.

[00:14:31]And um those are the types of things that, you know, they they they should do if there's a clear mathematical benefit to doing it. Um but you see this all the time. You know, when Strategy fired up the ATM in 2024, most people didn't realize that Strategy had been using ATMs for the entire life of the company.

[00:14:46]Um and Yeah, I think you know, you have kind of have to look back to the history of the company. Did did selling Bitcoin tank the company before? Did that did it blow up the company before? No, it's back now. Price is much much higher than it was then. Um did Bitcoin die when Strategy sold some Bitcoin? No. No, it didn't. Four years later, Bitcoin is at a much much higher price. Um and you know, Strategy selling 32 out of you know, over 800,000 Bitcoin. I I just don't think it's that big of a deal. Um so, Bitcoin will be fine. strategy will be fine. Not not concerned about either one of these things.

[00:15:22]>> Do you think that the sell off that we're, you know, it's interesting, I guess, like looking back at Stretch in particular, like there have been moments where Bitcoin sells off sharply and then it, you know, Bitcoin goes, you know, kind of maybe bottoms and goes sideways for a little bit, but stretch ends up returning to par, at least historically.

[00:15:41]Like, do you do you expect that to kind of happen again? And and if so, like why do you think it's it it has sold off m you know so hard multiple times if like you know a few weeks later it just goes right back to 100?

[00:15:55]I think the market just tends to overreact. Um you know you see these sellouts happen in times of Bitcoin stress and people freak out and they think that the strategy's going to implode and then it doesn't. They realize everything's going to be okay and they bid the price back up again.

[00:16:10]And one thing that is also a little bit different about scratch is that and it would also be true for SATA uh the lower the price goes the higher the effective dividend rate is. So the you know the cheaper you're able to buy it. So it's you know it's self-healing somewhat in that regard that uh there's there's an incentive to bid it back up you know closer to par assuming you're okay with the credit risk.

[00:16:35]And you also have to look at the cyclicality of it that the way these work is that you know they they sell off after the exhibit date and then they they ramp back up into the next exhibit date. Of course that's going to change a little bit once um the dividend schedule changes. Right now strategies on a monthly schedule. They're going to shift to a uh semionthly schedule starting soon. And of course, you know, SATA is switching to daily soon, which I think is going to be very interesting. Um, because it's going to break up completely, destroy this this whole like cyclicality aspect of, you know, ramp into the XD and then then sell off. And the more frequent dividends I think are also interesting because it's going to disincentivize selling. like I was seeing yesterday there was something like 100 million shorts on strateging instrument to short when first of all the you know the you know the the EV of shorting for a share just isn't that high to begin with but you've also got to pay you know the borrow rate on it you've got to pay a daily dividend on it because if you're short you you owe the person who loaned you those shares the dividend so it just you know it's just not a very appealing short you've got all these cost associated with it and for what you make a two 3% move there's lots of better ways to do that. So I I do think that the you know prices will recover to par and maybe it will take a dividend hike. Um maybe it will just take you know time with people realizing that strategy is not going to blow up like it didn't blow up any of the other times. Um yeah I think we get back there and you know the system recovers, adjustments are made and uh you know life moves on.

[00:18:14]>> Yeah. Um, thinking back I guess over the last year, you know, I believe Stretch came out in maybe July of 2025, so it hasn't even been out for 12 months. I believe it's raised over like 10 billion of capital. Are you surprised with the pace that, you know, Stretch has has grown at and like, you know, how how much faster do you think it could grow, assuming obviously it it comes back to par? I've been very impressed with how much they've been able to raise um particularly over the past few months because you know last year that was very much part of the conversation that if if Bitcoin were to go into a bare market you know that would that would spur demand for stretch and and let strategy buy Bitcoin at bare market prices which you know previously they had difficulty doing because they were using you know convertible bonds which are very difficult to issue in a bare market. Um and that that thesis very much played out. You know, they were able to issue, you know, billions billions with a B um of of stretch into the the bare market here to buy, you know, Bitcoin at what I would consider very attractive prices.

[00:19:22]So, um yeah, that's been great. You know, in terms of where things go from here, I think right now what you have to look at is you there's a couple different things. There's there's there's a cliff I think probably three years out that you know right now people look at the the holder base they say oh it's 80% retail you know why isn't institutions here um you know are institutions not just interested or what's going on and I think part of what's happening there is that there's a three-year cliff before a lot of institutions can even even entertain the idea um that you know it's just you know on their compliance they have to check out a box says you know threeear track record threeear history if it doesn't have that doesn't matter what it is they they can't even touch it can't even think about it so you know right now I think we're in this seasoning period where you know it is mostly retail but then you also have the capital groups of the world um and the other institutions who are um you know okay with being early to it perhaps not as much size as they will be later on but still here now and I think that just that just continues to grow and we've also got stable coin projects building on it you know I'm an adviser to Saturn credit which um is building a a stretch powered you know offering on on DeFi and uh I think the you know probably just those projects alone will create you know billions I think you know easily billions in in demand um you know and there and there's there are other projects in than Saturn 2 but I think there probably room for you know two or three you know billion dollar projects that will each hold you know say collectively somewhere between five and 10 billion dollars worth of stretch >> I think That's that's very much possible. Um, you know, and that's I would say a few months ago that would have that would have doubled it. It's not quite as much now, but yeah, I mean potentially double the stretch issuance just in DeFi. That's a possibility. Uh, when you start unlocking bigger pools of capital um in, you know, tradi in some of the more conservative places, then I think that's that's really when um, you know, the floodgates are open.

[00:21:23]you know that that's where you're looking at, you know, trillion dollar TAMs. Of course, there's not going to be 100% captured of that trillion dollar TAM, but that's where I think this scales, you know, 10x, maybe 100x.

[00:21:35]And, you know, I see all that coming over the next few years. And, you know, assuming, you know, Bitcoin continues on the trajectory that it's going on, um, which, um, you know, despite the bare market is still overall up to the right.

[00:21:48]I think as long as that marsh is on um and you know institutions have time to get comfortable with the product and see it season then I I easily see another couple orders of magnitude of growth you know not just for strategy category of digital credit.

[00:22:04]>> When you think about I I definitely want to ask you about Saturn and this whole concept of like building quote unquote digital money on top of digital credit which is built on top of Bitcoin. So like these these layers of of different assets that are stripping the volatility away from from Bitcoin of course. Um but I guess first I want to ask you about like the volatility of digital credit itself like what how important is it that digital credit like remains very close to 100 or do you think it's okay for it to like move around a good bit you know like you said stretched going down to to 95 for example or or or is it like critical that like it stays pegged and pays the dividend or is like is it more important to just make sure the dividends are paid. Like how do you think of of uh of all that?

[00:22:54]>> I think it depends probably what investor segment you're looking at. Um for a you know for for a project like Saturn, they actually have their risk fairly well segregated.

[00:23:09]they have um just the plain stable coin which is backed by treasuries and then if you stake it then you get higher yields um from you know powered by digital credit. So with that that type of risk segregation structure you know obviously they don't want it to dep you know fairly close to $100. Um, nobody nobody wants it to go down, but there's there's a little bit more of of a buffer in there, you know, in case you get some wobble.

[00:23:36]Um, and for for other parties, I think for for retail, probably it's more important that it stays close to the peg. Also, it pro I'd say retail is probably more sensitive because if you're holding this, if you're thinking about it like a money market account and this is money you want in there, say for 3 to 6 months, you're going to pull it out for whatever you're going to pull it out for. Um, you don't want to stick it in and then it, you know, it drops 3% and then it's like three months worth of dividends you got to you got to wait to get back. You want it to be a little bit more stable than that. Um, if you're uh, you know, an institution, then what is your time horizon?

[00:24:13]If you know if you're an institution who would you know otherwise be buying let's say you know six to sevenyear bonds bonds six to seven year maturity you're more concerned just about you know the dividends coming in timely.

[00:24:25]Um the you know the time when you're really going to care about whether it's at par or not is um at at the end of that period that you plan to hold it unless you just roll it over. Um so that's you know that's definitely something you're going to think about but you know in that interim period it's more about is the dividend coming in on time and you know at that that time when you know the liability whatever that that six to seven year period whatever is due at the end of that that they have to match um liability match against um you know there's ways that that can be hedged against. So there there are other ways around a potential you know deep scenario that can be handled. Um, of course, you know, it's better for everyone if it just stays flush 100 bucks, but you know, how how important that is to you versus the dividends, I think just depends who you are, what your what your time horizon is for holding it, and um, you know, what your how how soon your liquidity needs potentially are? Mhm. Do you think digital credit like brings new people into like learning about Bitcoin and understanding Bitcoin or do you think that it's like this new product that confuses people? And you know there too I think I would split it up by investor cohort for for retail. I you know I question whether Stretch does much to bring retail into the Bitcoin ecosystem.

[00:25:48]um or at least in terms of does it does it get them interested in buying Bitcoin directly? I I you know I would say it's probably mostly the other way around.

[00:25:56]People who like Bitcoin already um are you know potentially want to have a separate part of your holdings that are less volatile um they want some of that volatility stripped. They want a little bit more you know reliability. They they don't want to have their entire holdings in something that could be down 50% next year. um even if it is up 300% the next year, they they don't want it to be down 50% the next year for for you know like their entire holdings. Um I I think it's different at the institutional level though, you know, particularly depending on what type of institution it is that a lot of these institutions, you know, if you're a fixed income fund, you're never going to buy Bitcoin.

[00:26:35]You're never going to do it because by mandate you can't.

[00:26:38]But you might be interested in, you know, some of the yield that, you know, if if if Bitcoin has the price action that we we uh all think it will, you you might be interested in, you know, a slice of that yield if it pays better than what your your comps are. If you if everything else in your fund is, say, a bond that pays 5% or 6% and, you know, leveraging the power of Bitcoin returns, you can buy another instrument that pays, you know, 10% Well, that that that's that's double.

[00:27:10]You know, it's twice as much as you were getting before. So, there's, you know, there's a there's a real appeal there.

[00:27:17]And um and I think that that is really the lens I tend to think about this from. It's not so much stretch as a vehicle for uh bringing, you know, retail, you know, bringing retail. It's it's not a top of the funnel bring retail into the pipeline.

[00:27:32]Eventually, they'll end up buying Bitcoin. I just don't think that's how it works. I think this is more of a funnel for money from Tradfi or people who otherwise wouldn't be holding that Bitcoin to take those dollars and redirect them into Bitcoin on corporate balance sheets. Like to me that that's how all the pieces fit together. Yeah, it's it's an interesting, you know, debate. Like I I definitely agree that it's like all right if you look at the like stretch itself or digital credit itself and you see like the high yield the relative relatively stable price even if it falls to 95 or whatever it might fall to it's like that's obviously going to be like enticing to retail and institutional investors. Um but but it's also like my only push back with what what you said was like it's only been around for 11 months at this point. I like I think from my perspective maybe so far you're exactly right and like we're seeing okay like people just buy digital credit and like they they may not even touch Bitcoin but like over the long run if if it continues functioning and Bitcoin is you know above $99,000 in 2031 I could see a scenario where they're like wait a second like how does this actually like is powered by Bitcoin I don't fully I never really fully understood how but it keeps working maybe I should start learning about Bitcoin. Like, do you foresee maybe like that happening in the future or is it like people are just going to hold this and never, you know, think about it in in too much detail?

[00:29:01]>> Um, yeah, I feel like I keep defaulting back to the same position, but I think it depends al you on the investor cohort. Um, if it's a younger person, they're probably going to be more interested in in getting some raw Bitcoin. If it's a retiree who's, you know, 70 years old and just wants, you know, fixed income into retirement, you may maybe it draws that type of person into holding some Bitcoin also, but I think it's, you know, it's just a different ask. So, yeah, I mean, I I could see this being, you know, a pipeline for people going, okay, yeah, I would like to know more about this.

[00:29:35]Where does this yield come from? You know, why why are they able to to pay so much more for it? Um yeah, I mean it's possible that that type of a you know pathway exists. I think you know especially for you know younger people who are going to be more likely to be buying high volatility assets. So, um, yeah, sure.

[00:29:56]>> Yeah, it's your Schrodinger's Bitcoin kind of reminded me. It's like this is almost like Schroinger's yield like in a way. It's like, okay, anyone in Tradfi, like a media is like, okay, like this this can't work. Like, this is not this is not possible because if it works, like they need to rethink everything that they've ever learned about money.

[00:30:17]And like that's a that's a pretty pretty big deal to like wrap your head around.

[00:30:21]And so like I don't know that's just kind of another interesting thought.

[00:30:25]>> Yeah. Well, you know it's a completely different system. I mean basically you know the the quotequote risk-free rate right now is entirely dependent on government printing money.

[00:30:35]The government issues treasuries has a coupon on it. Where does that coupon come from?

[00:30:41]Printed money. I yeah maybe some of it comes from taxes but for the most part printed money.

[00:30:47]And you know this bitcoin is you know digital credit is a completely different setup. Um companies issuing it have the asset on their balance sheet. Um it's it's it's based on actual collateral held.

[00:31:00]It's not based on you know future earnings. Of course the collateral needs to go up. Um the entire system you know the you know one thing that that couldn't happen is you couldn't have you know you could not replace treasuries fully replace the treasury system with a digital credit system. I I don't think that would work because you have to have more buyers of Bitcoin than you have of digital credit buyers because it can't just be digital credit buyers in the system because that that you know the price appreciation has to come from somewhere that price appreciation has to come from you know more people buying using holding Bitcoin. So I think that ecosystem ultimately has to be you know larger than the digital credit ecosystem.

[00:31:42]Yeah, it lots of different ways to think about it.

[00:31:46]>> Yeah. Um, since you brought up Saturn earlier and you kind of mentioned briefly like how how it like functions, can you kind of go into detail because it seems like that's been like obviously a new frontier. I mean digital credit itself is a new frontier as we mentioned like it's only been around for for less, you know, stretch at least has only been around for less than 12 months. But digital money, you know, this like lower volatility, I guess digital credit is kind of being built on top of digital credit. How does like Saturn for example work in practice and kind of maybe explain it to someone that like has no idea what you're talking about?

[00:32:23]>> Yeah. So it, you know, if you're familiar with stable coins, um maybe I won't I'll start from the beginning and not assume people are familiar with stable coins. So stable coin is a tokenized representation of a dollar essentially.

[00:32:35]And the way stable coins have traditionally worked in the past with companies like Tether Circle, you know, USDT and USDC is they're backed one to one in their treasuries with, you know, government treasuries just just paying fixed coupon. That's how they back it.

[00:32:52]Um, and the way Saturn works is okay, what if instead of holding treasuries which are paying you know 3 to 4%.

[00:33:04]We have digital credit which is paying you know 10 to 13%.

[00:33:08]And you know there's there's a big delta to capture there. Of course in practice you know it's not 100% backed by digital credit. You know like I said there's there's two different products that Saturn has. One is the the USDAT which is just the regular stable coin that's backed by treasuries like an ordinary stable coin. And if you stake it, you have SUSDAT.

[00:33:29]Um, which then that's when capital rotates into digital credit. And I like the way they've got it set up because, um, by staking it, you've got a little bit more of a commitment to holding the product. And, um, that, you know, incentivizes, you know, saving versus just, um, you know, holding versus.

[00:33:50]And um you know on top of that um you know DeFi is is a a big ecosystem where you know pieces pieces latch on to other pieces and there's different systems and so um one of the things that you know on another platform they've done is tanch exposure to SUSDT and so you can get not just plain SUSDT but you can get that tunched out into a senior trunch and a junior trunch and the so you know if you wanted even more stability. Let's say you're okay, I don't want that 5% draw down. I want the guaranteed payout. Um I I don't want to suffer any of those things. Um you know, there's there's a senior version which strips out um more volatility for, you know, a slight lower dividend and then there's a junior trunch an equity layer which which takes the brunt of the excess volatility. And there's there's different ways that um you know you know of course if you go out into further out into DeFi, you've got people looping these things and leveraging them up over and over and over again. Um but that's you know that's a different story.

[00:34:55]So basically you've just got these different pieces. You've got you know the plain stable coin which is just backed by treasury like any other stable coin. You've got the stake variety which is paying yields juiced by digital credit. And then um within that you've got the subdivisions of of a junior and a senior trunch that you can participate in that um that basically is just yield splitting just yield just a different allocation of the yields from digital credit um to to smooth out volatility for the senior holders and uh give you know higher riskreward for the junior holders. And I should should point out these products are not currently available to um United States citizens unfortunately. Um it's it's international offerings only at this point.

[00:35:42]>> Yeah, it it's uh it's a fascinating development. So like there's I guess different variations of stable coin of the international only stable coin and then it can be tranched further into like higher risk, higher reward, lower risk, even even lower volatility. I guess like one thing like when you mentioned stable coins broadly like I've always been kind of fascinated and interested in like how rapid like Tether and USDC2 grew. Like I I believe they're you know combined it's like a $200 billion plus market at this point and neither of those stable coins pay any yield. So it's just like a a dollar that earns no no yield. Do you foresee like this digital money whether it's Saturn or like a trunch of Saturn or or or any sort of digital money like product like being a superior version of Tether and USDC which is like a 200 plus billion dollar market today. um a I a want to be careful about so so not financial advice at all but you know I would already consider the products that are out there you know I would consider the stake version of you know Saturn superior to that that's my opinion um because it's it's basically what you've got you've got a stablecoin like product with digital credit like yield um so you know not not not financial advice or a solicitation to buy curious or any of that stuff. Um, just just my opinion.

[00:37:17]It's it's a it's a spear product already. Um, and that was one of the things that, you know, I was excited to uh come on as an adviser for for the project. As soon as they told me about it, thought, "Yeah, sounds like a great idea. Um, you guys should absolutely build that." So, what do you think makes the best uh version of the stable coin?

[00:37:37]Is it like the pure like the staked just simply the staked version of Saturn or is it like the the senior trunched version like you know I'm thinking like tether and USDC I mean people are very and in like a dollar in a bank account like people want literally no volatility with with those products and so like is like the senior trunch of like the Saturn token like the best or or you know can or are people just going to get eventually maybe get comfortable with less volatility or with like some volatility.

[00:38:09]>> Yeah, I think it probably something comes down to your your threshold for riskreward. Um the senior tunch I you know last time I checked the rates I think it was around 7%. I not sure if I'm quoting that right but it's a little bit lower. You know there's a trade-off there's a trade-off for the reduction in volatility and I think that that I think that's really an unsettled question is you know how much volatility is the average person willing to trade off for yield? um because you know you know okay you are you willing to trade off you know four percentage points of volatility for four percentage points of yield um you know I don't know maybe maybe not I think that that's that's an that's an unsettled question in terms of you know market participants um and you know I think looking more broadly what I also find interesting about these projects is that I think the the you know the tranching of these projects is something we will see brought to um also So trady markets like there's going to be an appetite for you know tishing these for trady markets and making products that have you know no very no volatility in the principle in exchange for a lower yield you know having an equity layer you know like a traditional as you know any traditional aspect security having an equity later who will absorb the uh the volatility in exchange for you know levered returns um on the underlying And I I think that probably within Trady markets that that zero volatility product will be very popular.

[00:39:46]Um perhaps you know even more so than just just the plain vanilla. You know we'll see. I think that that's that is the type of product structure that could really take off. And the other thing that I would say about it is that there are there are different ways to repackage it. You know, one of the things you always hear, you know, Jeff Walton talking about is that is the insurance industry and that just just because of quirks in the way the the the NIC ratings work, the uh private credit and equity are treated differently. So, you could have the same instrument, you know, same risk, same yield.

[00:40:25]Maybe it's not exactly the same, but but just just by virtue of the fact of one being equity and one being credit, there's there's, you know, 20 30x difference in the uh you know, the riskbased capital charge on those. That that seems exorbitantly high. Um but you know that's that's that's another reason why I think you know different trunched versions of these products with volatility stripped credit protections added um could potentially be you know big within Treadf since we're talking about digital credit and digital money like I definitely think we should ask or I want to hear your perspective on like what are like the real risk like how does this because you know people hear about the you know you mentioned like 7% like senior trunch uh return on on sat the Saturn USD like people be like what how is this possible right like you know I'm earning like 3% or 0% in in my in my bank account so like maybe it's helpful how does this how does this break from your perspective maybe like you can answer it two ways like one how does like digital credit break and then two like how does digital money break >> well digital credit I at the end of the day it comes down to Bitcoin you know either we're right about Bitcoin or we're Um, and if we're right about Bitcoin, then digital credit is fine and and if we're not, then it isn't. I think it really it's really as simple as that.

[00:41:49]Um, you know, in terms of digital money, um, it it really is the same route. You know, does Bitcoin continue on to be an integral part of the future global financial system? Um, if it does, price has to go up. It can't become an integral part of the future global financial system and price just stays where it is now. But that's not that's not how it's going to work. Um, so I think at the end of the day it really it just it just comes down to Bitcoin. Does Bitcoin continue its, you know, it's on slow march up to the right. Um, if it does and we're right about all all that, then um, digital credit is going to be, you know, a booming growing product category and digital money built on top of it is going to be a booming growing product category. I guess like can you maybe dive in like what does Bitcoin need to do? Because someone might hear that like, oh, Bitcoin needs to go up into the right. Well, it's like does it, you know, do you think Bitcoin needs to go to, you know, a million dollars next year or is it like does the dollar just simply need to continue being debased and like, you know, all kind of major assets as long as Bitcoin like slowly goes up into the right? Is that sufficient? Like how do you you know, how do you weigh the that that risk or how do you think about it?

[00:42:57]>> Well, I think you know, Strive CEO Matt Cole pretty well the other day. He made the comment something like we get the question of um what happens when the party stops? Well, what what is the party stopping? I think for Bitcoin, the party in, you know, for Bitcoin, the party stopping is the Fed stopped printing money.

[00:43:16]Any any takers? Anybody want to bet that the Fed's going to stop printing money?

[00:43:19]I'm not taking that bet. So, you know, as long as monetary supply keeps expanding, which it always has throughout the entire history of the dollar, um, you know, you get you get minor periods of reversal, but for the most part, it's monetary supply is up and to the right.

[00:43:36]um you know you got your average money printing of something like 9% per year.

[00:43:40]So you know if you figure even a bitcoin so let's say even just bitcoin kit pace with average money printing in theory that's a 9% per year. Um but if you grow adoption on top of that figure the you know penetration what right now is I don't know what 5%. Um I don't have a hard figure for that but if if you know if you go out and you walk around to your local cafe and you say anybody here got bitcoin probably not that many hands going to go up. So uh you know as as numbers like that increase as the numbers of holders increase as the sizes of their allocations increase uh I think that those are the types of things that you know drive higher numbers for bitcoin. Um and certainly a uh you know if if all those things come to a pass then a a rate of growth they should you know exceed the dividend quite comfortably.

[00:44:30]What do you make of people that are like have have suggested that this looks like Teral Luna? I guess like for those that don't know or weren't around or don't remember like Teral Luna was like a or US I believe was like a stable coin that was you know supposedly backed by this other token called Luna and at some point it was backed by like a little bit of Bitcoin. Like is this like Terra Luna from your perspective or is it like very different? I think it's entirely the wrong comparison and the reason why is like the underlying mechanisms are completely different and for you know the way Ter Luna worked is you had Luna peretrated against US and the idea was that if if it started to depa against US to bring it back to peg and that works within very small tolerances but once you get say past you know a 1% send DPEG, the incentives flip and the incentive is to abandon ship. And that the further away from the you get from the peg, the more the incentive is to abandon ship until the whole thing just blew apart.

[00:45:38]And um and it's not the first time we've seen, you know, an algorithmically stabilized peg, you know, blow up like that. You know, there was I think it was I for I think it was a precious metals pegs coin something there. There was a couple other coins before that blew up.

[00:45:53]They were using algorithmic pegs. It's just it's just a terrible mechanism.

[00:45:58]But um you know digital credit is is completely different. Um it's not two circularly referenced assets trading against each other. Um it's you know Bitcoin on the back end you know it's pegged to growth rate of Bitcoin. You know and and the Bitcoin price is not dependent on the stretch price. It's not it's not a circular pair trade.

[00:46:22]the uh and so for digital credit, you know, if you get a DPEG event, um Bitcoin is is really not, you know, stretch pegging does not cause DPEG Bitcoin to do anything. This is not, you know, it's largely relevant to the Bitcoin price.

[00:46:37]And you know if the price goes down the incentive is actually to step in and buy the stretch because the cheaper it goes you know you I always say stretch whatever say stretch you digital credit more broadly the lower the price goes the higher the effective dividend dividend rate goes and so these products are you know to some degree self-healing um because you know there'll be the incentive is to step in to bid the price back up and um you know strategy SATA uh any potential future issuers, they can increase the dividend rate and we've seen that be effective in in closing them back to par.

[00:47:16]So I think the mechanisms here are just just completely different. On the one hand with that Terral Luna setup, you've got you know the DPG incentivizes further DPG whereas um with with digital credit in a DPEG scenario the incentive is is to close is to rep. There are a lot of hedge funds that love this trade, too. Whenever they see, you know, stretch off 5%, you know, they sees that as candy because they they think it's going to go right back to peg and they'll they'll buy that all day long.

[00:47:45]>> Mhm. Yeah. It's funny like, you know, Teral Luna, an extremely fragile system as you pointed out, and I I completely agree. It still took Bitcoin going down like 60 70% for that I think I believe to like blow up kind of near the the bottom of the 2022 bare market which is kind of kind of funny like it's like okay this very fragile thing you know actually like lasted maybe longer than it probably should have. It was obviously good that it completely blew up because it was very fragile. But in a way, it's like digital credit is almost like the opposite of that in the sense that like Teraluna had like a huge outstanding like quote unquote stable coin supply that was not uh you know was fixed actually at a dollar like it couldn't bend at all and then it was like under collateralized by Bitcoin by like a pretty massive degree. So like as you pointed out it just kind of blew up.

[00:48:37]Whereas like digital credit it's kind of like the complete opposite. It's like massively like there's a lot more Bitcoin on the balance sheet relative to the dollar credit that's outstanding.

[00:48:47]And like for digital credit itself, you know, there's no hard peg at a dollar as everyone some people are complaining about. You know, it's it's kind of like an airplane wing where it's it's allowed to like bend a little bit and move and that actually makes it more like anti-fragile over the long run. Would you agree that I guess? Yeah, those are some good points. Um, you know, yeah, two I want to pick out that, you know, the the yield they were paying on US was 20%. That that's substantially higher.

[00:49:16]Um, so yeah, if if digital credit were paying 20%, I would be a lot more skeptical.

[00:49:22]>> Um, but that's, you know, so one and that you, uh, oh, there's another point that you raised that I forgot what I was going to come out of. Maybe.

[00:49:39]>> Yeah. Oh, right. So, the other it was about the collateralization. That's what I was thinking of. Um, if you go back and you read the white paper for Teral Luna, that was explicitly a project and how can we extract max senior edge with a minimal collateral.

[00:49:52]>> Yeah.

[00:49:52]>> So, you know, even before you get to any of the stuff like the the design from the outset was how can we build this thing on the razor's edge. So it's not really surprising that it failed the first stress test >> whereas you know digital digital credit completely different you know the collateral is like you know five six to one it's just completely different because no it's always five six to1 sometimes less but anyway over collateralized not not severely under collateralized not you know 30 to 40% collateral yeah and there's you know there's also like no redemption like I believe like US you you like part of the problem is like you could redeem it for a dollar worth of Luna and like you know that that appears good you know because you have like a right to redeem like whenever you want but it's also like it makes the it made the system blow up. So in a weird way like not having that right kind of can make it more anti-fragile and kind of more like stable over the long run.

[00:50:53]>> Yeah, that's true. Um, yeah, there's there's it's it's a common misconception about Strats that you see every day, about digital credit you see every day.

[00:51:01]They're preferred equities. They're not um they're not, you know, redeemable liabilities. Um, there's positives and negatives to that. Um, you know, obviously from the issuer standpoint, that's great because you don't have um you you can't be bankrun. You can't have a bank run on it because it can't be redeemed. Um if you are uh you know if you want it redeemed at par today may maybe you're not not as happy but you know if you if you hedge and you do some things around that or um you buy you know a future if you buy a charged version of the product you know there's there's different ways around that.

[00:51:40]>> Yeah. Um, this has been a pretty pretty fascinating conversation. Uh, as always, Brian, like any final closing thoughts for the audience on on Bitcoin, digital credit, or or anything that we left out?

[00:51:52]>> Um, I think that, you know, right now there's there's a lot of fear in the market, but I would say, you know, we've been here before. It happens. Um, I I see a few a lot of people saying, you know, said it was never worse. You know, I don't agree. We haven't had, you know, 2022 at this point in time, you know, we had Celsius blowing up. We had Voyer blowing up. We had people learning what it meant to be a an unsecured creditor and locked up in in bankruptcy proceedings for years. None of that has happened right now. None of that. So, um I think you know, Bitcoin is is in a stronger place than it's ever been.

[00:52:28]Digital credit balance sheets are very strong. um they are built to withstand you know if we have another six months to a not that I think we're going to have don't want to put fear to people if I talk about six months to a year another bare market but if it were to happen the balance sheets are very strong they will survive um I you know my my own view is much more optimistic than that but um yeah I just I just think we're in a a a much better place here than sentiment is reflecting um I think sentiment is actually better than prior bare markets that I've seen So, I just I I think we're ready to go here. The Bitcoin bull market comes back. I think uh everything's in a very good place. I like it. I think that's a great spot to end it at. Uh Brian, thanks again. This was a great conversation.

[00:53:14]Thanks again for having me,