Is $MSTR a Scam? Unfiltered ft. Coffeezilla

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[00:00:01]How's that? Is that better?

[00:00:03]>> Much better.

[00:00:04]>> All right.

[00:00:06]Okay.

[00:00:06]>> You're wearing a Leman Brothers t-shirt >> for me. That's so sweet. Thank you.

[00:00:13]>> No, no, no. This is just what I wear all the time. I wear uh various Enron shirts, Leman shirts, you know, all my all the all all the all the classics. Uh are you ready to get started?

[00:00:28]>> Yeah, I'm Yeah, absolutely. I'm just curious like what how this is going to work. Are we going live? Is this being recorded? Like what's the >> I'm recording it on my end. You can record it on your end if you want to. I don't mind either way. Uh but I will live doesn't really work cuz the quality is not good. It just does not upream up well. So >> my plan is is I'm going to we're going to record this. I'm going to do like um because I want to talk about the Michael Sailor stuff in general. And so I want to talk about the Michael Sailor stuff, give my take, but then I want to say, hey, so I brought on Jeff Walton. He does something similar. I think you would agree uh to discuss the merits of this um the iPhone the iPhone product.

[00:01:13]Uh yeah. So that's the idea. Does that make sense?

[00:01:18]>> Yeah, absolutely. I I'm down to rip it.

[00:01:19]I've I've done several of these. I just spent an entire week at Risk World in Philadelphia talking about people that had no idea what was going on here. So, >> yeah.

[00:01:28]>> Okay, great. All right, I will start recording on my end and we can get started. Okay.

[00:01:43]Today we're speaking to Jeff Walton, uh, someone who's making a product similar to Stretch. I created a video about it and it got a lot of either agreement from people who are like, "Yeah, this is gonna be a disaster or disagreement from people in the Bitcoin community and they said, "Stephen, you got it all wrong.

[00:02:04]You got to talk to somebody who knows what they're talking about." And you, Jeff, you came to me and you said, "Hey, let's debate the math live." Because I was uh >> kind of making fun of you guys cuz you're the chief risk officer.

[00:02:18]>> Yeah. You were throwing crap. Yeah, I want to talk about it. Yeah, let's talk about it.

[00:02:21]>> Yeah, I was saying it's it's uh it's crazy. You guys offer a 13% um preferred stock is like that's what the rate is now. It's variable. It's perpetual stock. Uh per perpetual preferred and you guys back it with uh Bitcoin. Uh you have some cash and you have some Stretch. Now Stretch is another preferred stock paying an 11 12% yield. And I was specifically making like making lie to the fact that you're backing a 13% yielding >> Yes.

[00:02:55]>> preferred stock with an 11 12 yielding preferred stock.

[00:03:00]Let's break it down. How does this how does this make sense?

[00:03:02]>> Let's talk about capital management.

[00:03:03]Maybe I'll give a quick intro on myself uh so people have a little bit of a background. So my name is Jeff Walton, chief risk officer at Strive. I had previously worked in the reinsurance industry. So I was a reinsurance broker.

[00:03:15]And what is reinsurance? It's insurance for insurance companies. So, it helps manage the volatility of an insurance company's balance sheet. So, you're looking at what is the risk profile of an insurance company and how can I reduce the volatility from uh a wildfire or a hurricane that's coming in the door. So, insurance companies, you think about how they work. They are capital vehicles. They are managing capital and they're managing liabilities associated with that capital. And the capital that sits with those insurance companies is earning a yield over time by taking on risk. And so I left the reinsurance industry a couple years ago to join a company that was working in Bitcoin because I see Bitcoin as digital capital and it is a more flexible, more transparent form of capital than the rest of the market can use and utilize.

[00:04:02]So I was identifying opportunity here.

[00:04:05]So you brought light to the fact that we've got a perpetual preferred equity security. It pays 13% annual. It is a variable interest rate and we have multiple capital sources that are sitting behind that monthly obligation.

[00:04:19]One thing that's really unique here, I'll point out, we have $1.2 billion of Bitcoin as of today and we have $10 million of debt. So that means we have 83 basis points of leverage.

[00:04:32]Okay.

[00:04:33]>> Are you count are you wait sorry are you counting the preferred stock as leverage?

[00:04:36]>> Preferred equity is not debt.

[00:04:39]>> Right.

[00:04:39]>> Right. So, I I never >> But y'all call it digital credit, which is confusing. Yes.

[00:04:43]>> Which is kind of some of my gripes with some of my gripes with y'all is that, and I don't mean y'all, I just mean you you and Michael Sailor, y'all y'all have similar terminology for things. And I think it is, and part of this is part of the reason I made the video was I was like, I feel like this is misleading the average customer of these products. I think that if you dis if you look to be fair ultimately if all risks are disclosed that's fine. I think in the marketing things can be misleading and I'm just talking generally I think that's where a lot of people get in trouble. They mislead in the marketing.

[00:05:18]>> I completely completely understand.

[00:05:19]Yeah.

[00:05:20]>> When you call it digital credit I think it has this connotation of debt which as you just said preferred equity is not debt. you have no obligation to pay back the like the underlying $100 or whatever somebody puts into this thing, right?

[00:05:36]>> Yeah. So, coffee, let's let's think about this, right? What kind of risk are you underwriting? If I if I have 83 points of debt, 83 basis points, if I have less than 1% debt on my balance sheet and all I have is equity and I've got $1.2 billion of equity >> or $1.2 billion of Bitcoin, I've got 12 months of USD cash. What kind of risk are you underwriting >> in me being able to pay that 13% annually?

[00:06:02]>> What kind of risk am I underwriting?

[00:06:04]You're underwriting the risk of Bitcoin.

[00:06:06]You're underwriting the risk of you guys getting hacked. You're underwriting the risk of you guys issuing outstanding debt that's senior to my preferred equity. You're underwriting I mean you're underwriting a lot of risks which you guys lay out in your filings.

[00:06:19]>> Credit risk. You're underwriting credit risk. Our ability to pay that interest into perpetuity.

[00:06:26]You're underwriting the credit risk of the reserves that are sitting on our balance sheet. I mean that that's it.

[00:06:30]That's the So when we call it digital credit, you're underwriting credit risk.

[00:06:35]Yes. It's not debt. There's no principal repayment. So but you're Why do people buy >> No, but you I I think I think I think my point is that the connotation of a lot of this stuff and a lot of times people are I I listen to a lot of your podcasts. I listen a lot of Michael Sailor Michael Sailor's podcasts. A lot of times you guys use comparisons to like you'll even say like here's what bonds are performing at. Okay, but bonds are a completely different thing. They will repay if you hold on to it to term they will repay your principal, right?

[00:07:05]They're guaranteed to well guaranteed you know subject to some other things but uh especially if you have treasuries they're going to repay it, right?

[00:07:14]Whereas here you don't have that same thing. And so I think and Michael Sailor will even, you know, say like, "Hey, he'll compare it to a bank account."

[00:07:24]Okay, it's not a bank account. Even in your own disclo in y'all's own disclosures, which you put below tweets, y'all say, "Hey, this is not a bank account. It's not a money market fund, >> right?" But why is it being preferred to bonds and money markets, bank accounts?

[00:07:39]>> I think it's fair to not. I think it's fair to compare it against other credit instruments in the market. You could go look at other perpetual preferred equities that are issued by any other bank >> banks.

[00:07:49]>> But but that's an apple that's a more apples to apples comparison. But that's not a lot of what I see >> compared to credit risk of any instrument. It it's mathematical, right?

[00:07:58]Like looking at So how do you calculate the credit risk of a Boeing bond? You've got to look at the balance sheet. You've got to look at the cash flow. You got to look at you've got to take a forward estimate of what the future performance of that business looks like into the future. Like that's it. That's how you underwrite credit risk. And so there's multiple ways to do that. You can underwrite credit risk based on assets that are sitting on the balance sheet.

[00:08:21]You could underwrite it based on the performance of a company into the future. You could compare it to banks.

[00:08:27]You could compare it to other traditional bonds. They're credit instruments >> like you're under.

[00:08:32]>> No, but again, but again, each of the each of these have different kinds of risks, different kinds of protections.

[00:08:37]So when you're like, oh, we >> it's math. It's math >> at the end of like you're comparing the math like you're comparing credit risk as an institutional underwriter.

[00:08:47]>> You were comparing credit risk like what is what is the probability that I am going to get paid that amount into the future? What does that look like?

[00:08:56]>> So you're looking at probabilistic outcomes into the future on any credit instrument. One, your ability to get your principal back out of it. That is that is traditional debt. Preferred equity, you think about the same. How long do I need to hold this preferred equity before I get my money paid back to me? So, you think about duration of the instrument. How long do I need to hold it? If you have, if you're holding a JP Morgan 5% perpetual preferred equity, you have to hold it for 20 years before you get your money back. Your initial money back that you put in, that's credit risk. That's what you're holding it for. You're not necessarily thinking about liquidity because you're thinking about a perpetual instrument, the duration of getting your money back into the future. That's the credit risk that you're underwriting. It's all math.

[00:09:40]You can compare all instruments relative to each other. It's just different with a perpetual that that you're not getting a principal repayment back on compared to a traditional debt.

[00:09:49]>> Okay. Where I think we're going to disagree on that like you're saying like credit risk. I think calling it digital credit is misleading. That's that's fine. Let's talk about the credit risk of kind of these types of things. So let me say first of all I don't hold the position that I think you or Micro Strategy are collapsing tomorrow. Uh, I think that over time this will become a snowball of liabilities that causes you guys and Micro Strategy to sort of unwind over time. Uh, and and leave and hang a lot of people out to dry because I think the more successful these products are, the larger the overhang when things go bad. Um, I think the likelihood that Bitcoin goes up, I mean, a lot of this is like a bet, right? You have to agree on Let's >> Let's talk about the math.

[00:10:41]Let's talk about the math because this is this is a mathematical equation. Like that's all this is. We're talking about risk takingaking of a corporate balance sheet and a mathematical equation, >> right? But I I I I find that this part of the conversation gets tough because like Michael Sailor will say, "Oh, you know, Bitcoin has to go up what, like 2.5% in perpetuity for us to repay our dividends, right?" He'll say stuff like that, but that is subject to current stretch issuance. The more stretch that is issued, the more that math changes, right? That that math is changing dynamically.

[00:11:14]>> Yep.

[00:11:14]>> I I think you I think you would agree to that, right?

[00:11:16]>> Yeah. Yeah.

[00:11:17]>> As they issue more stretch, the more Bitcoin needs to go up per year in order for them to continue to repay that stretch.

[00:11:25]>> Yep.

[00:11:26]>> Because they start with this like large capital of Bitcoin and they're like issuing like small small amounts of stretch.

[00:11:32]>> Not necessarily because the if the underlying value of the Bitcoin goes up, that's deamplifying the relative balance sheet. So the balance sheet's getting bigger, right? They've got 818,000 Bitcoin held on the balance sheet. So as the price of Bitcoin goes up, the balance sheet's getting bigger, which deamplifies it. Actually reduces the leverage ratio, the financial leverage of the vehicle.

[00:11:51]>> Yes. A and again this is why like we just need to differentiate like debt versus preferred equity. And this is why I find the terms kind of misleading because it's like financial leverage that kind of implies. I know what you mean though. I know what you're trying you're saying there. Uh but the same is true when it goes down. So like like this is kind of my point. Yeah, >> I think a lot of this stuff is going to have a flywheel effect cuz you know Michael Sailor, he's talking right now.

[00:12:12]There's a flywheel effect when you're issuing yield, but you're also buying some an asset with the yield you're issuing because you have this flywheel effect where you're increasing the price by buying the asset that is the yield is backed by that asset. Okay. That can unwind in the same type of way.

[00:12:29]>> Absolutely. as you sell the asset to repay dividends, right, you will have a negative sell pressure on that product, which is like why why it was a big deal when Michael Yeah. when Michael Sailor was like, "Hey, we're going to actually sell Bitcoin to pay dividends." That's where you get into sort of the uh I know you guys hate the like, you know, Ponzi adjacent characterization. Um that's just >> Yeah. The con the concept though is very simple which is that you know like one key part of a Ponzi scheme is that you you fund the payments to new investors or sorry to old investors with new investors coming in. So let me give you an example. If for example, Micro Strategy funded the payments of stretch dividends with stretch issuance, do you think that would be Ponzi adjacent? C >> cash cash is fungeible. So, however the cash comes in, I mean that that could be that could be formulated in different ways. The fund like the fundamental difference between a Ponzi scheme and a capital management vehicle like what's happening right here is a Ponzi scheme doesn't have reserves.

[00:13:41]This capital vehicle has reserves. It has reserve capital, >> but the reserves are just the are just like the reserves are the reserves are the are the cash, right? As soon as the capital comes in the door, you're adding more capital to your reserves to be able to pay out the dividend into the future.

[00:13:57]>> But but you know, you know, a Ponzi scheme also has reserves, which is wait, >> no, it doesn't. It's a Ponzi scheme does not have No, >> it doesn't have any reserves. So, so when people invest, they're not they're not putting that into >> thing. There's no reserves in a Ponzi scheme. It's like you're bringing in new capital and you're giving it to >> Wait, no. Initially there are initially there are reserves though, right? Like like let's say I pay like let's say I take in $100 from you and I say, "Look, I'll pay you 10% forever." But I don't do anything productive with that asset and I'm like and I just so so I I now have $100 in reserve. I'm paying you out with that reserve. Eventually that reserve runs out and I'm going to need new inflow of capital. The problem for a Ponzi scheme is it it creates a kind of debt snowball.

[00:14:41]>> Yeah.

[00:14:41]>> And now where I will agree with you there's some differences is that traditionally Ponzi are seen as having an element of deception in them. Where I think you guys are different is and this is what I say when risks are properly disclosed if people want to take on that risk I understand. What I'm saying though is similar to that, I think that it is gonna likely be an unsustainable vehicle unless Bitcoin just goes up and for up into the right forever, which I don't think it will.

[00:15:11]>> And I don't think it's a safe bet to do that.

[00:15:13]>> Is an insurance company a Ponzi scheme?

[00:15:18]>> Isn't an insurance company a Ponzi scheme?

[00:15:20]>> Yeah.

[00:15:20]>> Uh, no.

[00:15:21]>> Why not?

[00:15:24]>> Because they they have business activities that are providing cash flows. They're taking on risk.

[00:15:29]They're taking on risk.

[00:15:31]>> Oh, >> insurance companies have capital and they're taking on risk to pay liability into the future. Here's the reality.

[00:15:38]Coffee.

[00:15:39]>> No, but they have actual they have they have cash flow. Give me room. Give me they have real business activities.

[00:15:44]>> The cash flow is the risk that they're selling. They're selling risk, >> right? So, believe it or not, believe it or not, believe it or not, >> almost 100% of the claims that get paid out on insurance company balance sheets is from premiums that they're collecting in the door.

[00:15:59]>> Almost 100%.

[00:16:00]>> Okay.

[00:16:02]>> So, under your definition, you would call an insurance company a Ponzi scheme.

[00:16:06]>> No, no, they have they have real like profits. They have real cash flows that aren't just coming from >> are the assets that are protected on their balance sheet. The reserves >> or or payment.

[00:16:19]>> No, but people are paying for products.

[00:16:21]The the >> if an insurance if an insurance >> what's the problem?

[00:16:24]>> Look an an apples to apples comparison is let's say an insurance company was offering like a yield based on something and then they're like what's the yield based on? Well, it's based on our balance sheet. Well, where's the balance sheet coming from? Well, we're selling this yield, right? So, like that is not the same as an insurance company which is actually offering a product which is let's say I want to go insure my car.

[00:16:48]I'm paying premiums.

[00:16:50]>> Equity, not a product.

[00:16:54]>> It's a stock. It's a perpetual preferred stock.

[00:16:56]>> It's a product. You're you're holding it. You're holding it for a reason.

[00:17:01]>> Well, you're I'm holding it because I I I think I'm going to get paid a dividend. That's not a product. I don't buy Nvidia. Is Nvidia stock a product?

[00:17:08]>> Yeah, absolutely.

[00:17:10]>> ABSOLUTELY.

[00:17:11]>> NO, NO. THEIR THEIR GPUS ARE THEIR PRODUCTS, BUT THEY'RE not the stock is a product. The stock is a product.

[00:17:19]>> No, it's not.

[00:17:20]>> People people can hold it to store value, right? Like there's other things you could like our perpetual preferred equity instrument is a product.

[00:17:28]>> It's it's not though. It's it's >> your insurance policy. Is your insurance policy a product?

[00:17:37]your insurance policy.

[00:17:38]>> Your home insurance policy, is it a product?

[00:17:40]>> It would be a product, yes, but it's not a stock in a company.

[00:17:43]>> You're buying a financial contract.

[00:17:48]>> An insurance policy is a financial contract. I just I just disagree. I just >> I just disagree. It's a product. You >> file your homeowner's insurance. It is a financial product. It's a financial contract to indemnify you in the event of a loss. That's all it is.

[00:18:05]Yeah, I just is I like power instrument is a financial product.

[00:18:11]>> Okay, >> we're a structured finance company. It's it's really simple like it's not it's not confusing.

[00:18:18]>> In fact, I think the simplicity people because it's so simple actually >> it's a simple it's a simple pitch but it's a complex risk.

[00:18:26]>> Let's talk about the Bitcoin market for a moment.

[00:18:28]>> Okay. Because one thing that you are kind of hanging on here is effectively thinking that strategy is the only player in the entire Bitcoin market which I is fundamentally flawed. So the last 11 days strategy was not in the market buying any Bitcoin right $350 billion of Bitcoin traded in the last 11 days. That's 4.4 4 million Bitcoin.

[00:18:59]Okay, strategy is not even in the market. So, we're talking about a globally liquid market that has nothing like strategy is just one player in the market.

[00:19:09]So, you start to think about, right, so strategy potentially selling Bitcoin to pay a monthly dividend obligation right now with the Bitcoin price at $80,000, they would have to sell, 1530 Bitcoin to pay a monthly dividend obligation. Mhm.

[00:19:26]>> 4.4 million Bitcoin traded in the last 11 days.

[00:19:31]>> Okay.

[00:19:32]>> I think the market can handle 1,530 Bitcoin being sold to pay a dividend on the instrument.

[00:19:41]There's so many other people that are buying and selling Bitcoin on the entire market. So, you think about the liquidity, like the liquidity of the underlying Bitcoin held on balance sheet has always been there. That's always been an option. They could always sell Bitcoin to pay out the dividends if they needed to. The reality is the cost of capital is much better on the equity.

[00:19:58]You could think about cost of capital on the equity. They could raise equity to pay the dividends. They could raise uh perpetual preferred equity to raise the dividends. They've got operating.

[00:20:06]>> What people find weird what people find weird is that like you're you're selling Stretch to buy Bitcoin.

[00:20:14]You're selling Bitcoin to pay out Stretch. It goes back to that like it looks like one of the key elements of and again I don't want to use the P word twice but uh but it looks like you're using uh you know new in through like an intermediary vehicle which is you're transferring it into >> you have a reserve like there like >> a non-yielding reserve asset that's paying yield.

[00:20:41]>> Yeah, we are converting it. We are transforming it. We are transforming the instrument into two products. We've get we bring the bitcoin in on our balance sheet right so by we use our uh capital structure to separate risk tranches the seniority in our capital structure provides a senior uh position a lower risk position compared to the equity right so you're comparing a senior position less risky compared to a junior position more risky this is capital structure 101 not complicated okay so when we take the bitcoin and we and uh we talk about 13 pink 13% annually on a senior uh position in our capital structure. We are carving off excess risk and excess return and that excess risk return goes to our common stock. So our common stock makes our it makes our common stock much more volatile, right?

[00:21:33]So our common stock is like a compressed view. We we call this amplified Bitcoin.

[00:21:38]So we've got digital credit, we've got amplified Bitcoin. And if you >> Oh, this is a side this is a side thing.

[00:21:43]I think your I think your common equity is going to get crushed in long term because they're because they're junior.

[00:21:48]>> Let's talk about it. Let's talk about it. It's junior. Let me talk. Let me go.

[00:21:52]>> Our common equity our common equity has a 1.6 beta to Bitcoin. That's interesting.

[00:21:59]>> Okay. So, strategy, their common equity has a 1.5 beta Bitcoin. Our common equity has a beta beta to MSTR. There's interest in the market for amplified a very pure expression of amplified Bitcoin and you could see it by trading volumes. MSTR is trading higher trading volume than IBIT every single day. It's around $2 billion maybe $2.5 billion average trading volume on the common stock every single day.

[00:22:27]>> Yeah, that's because these people don't understand it's better to just hold because the market is run by computers and it's hedging.

[00:22:35]You can hedge an underlying Bitcoin exposure in a in an amplified version because the the options market's super liquid, the spot market, >> a lot of the retail investors are not hedging, >> right?

[00:22:46]>> They're buying. They're buying because they just believe it. Michael Sailor pitched them.

[00:22:49]>> Is the $2 billion of average daily trading volume retail investors?

[00:22:55]You can't believe that.

[00:22:56]>> No, no, I don't believe No, I I I don't believe it's all No, of course I don't believe it's all retail, >> right? It's institutions running trading algorithms. It's Jane Street. It's Citadel. It's Clear Street. It's all of the market makers that are hedging position.

[00:23:10]>> I think there's a lot I think there's a lot of retail in there as well. I mean, >> retail. Yeah, absolutely. Absolutely.

[00:23:15]But >> I think it's what I'm saying is the purity of the expression, right? The common stock is a pure expression of amplified Bitcoin or leveraged Bitcoin.

[00:23:24]>> No, it's not because you have you have people senior to the position. So, it's not a pure it's not a a pure expression of amplified Bitcoin is leveraged Bitcoin. Yes, that's what this is. It's a very pure It's No, it's No, you have a you you have you have debt on top of that. You have >> the market disagrees with you.

[00:23:45]>> Well, I think long I I think long term this is going to be a disaster for the people who who believe that. But I mean, that's that's part that's partially why I'm >> I'm telling you I'm telling you what I'm hearing from the market. People are hedging using MSTR and leveraged equities. They're hedging underlying spot. They're doing it in the secondary market. They're doing it in options market. They're going both ways. They're longing it. They're shorting it. And the volumes are really high. The options market in strategy is one of the highest options market in the entire market.

[00:24:13]Why? Because it's liquid. It's backed by a liquid instrument. It's all liquid.

[00:24:19]Okay. I mean, okay. That I that doesn't that doesn't change that doesn't change.

[00:24:24]This is >> that doesn't change that doesn't change the question of is this a look I I think you agree for this to make sense. It has to be long-term sustainable. I told you I'm not worried about you guys collapsing tomorrow. I'm worried about the people who invest in this thinking that this is some kind of uh kind of amplified bond, amplified savings account who aren't understanding the risk, the tail risk here. And >> I don't think you understand the tail risk.

[00:25:02]>> Okay, >> I've calculated it mathematically. Like I have all of the math. I I've I've run this in 10,000 scenarios. like like I've run every single Monte Carlo simulation, four different probabilistic models.

[00:25:12]I've back tested our balance sheet in every single possible historical scenario I could possibly run. I'm running the advantage.

[00:25:18]>> Okay, where what's the tail risk now that you've run so you've run all the scenarios? You've run all the scenarios.

[00:25:24]What is the scenario where people get smoked?

[00:25:27]>> Bitcoin Bitcoin goes down 80% and stays there for a decade, 20 years, 15 years >> doesn't. So the only scenario in your mind where people are getting smoked is people >> people No, no, no, no, no. Hold on, hold on. Like the the scenario where the business model doesn't work is Bitcoin goes down for uh you know goes down 80 90% and stays there for a decade.

[00:25:51]>> Hold on one second. The audio is my audio coming through clear? Your audio is like not >> audio is very clear. My audio is >> okay. Sorry. Sorry. It is now. It is now. I don't know what just happened cuz you were like it was stuttering. I'm sorry. I'm sorry. I'm not trying to mess you up. I was just having trouble hearing you. Yeah.

[00:26:06]>> Uh can can you get can you give me like your last line cuz I was I was I was just trying to understand what you're saying. Yeah.

[00:26:11]>> The business model is challenged if Bitcoin goes down 90% and stays there for a decade >> and that right >> and doesn't and there's no volatility the other direction. It doesn't come back. No recovery. It just goes down 90% stays there for a decade. that that would be that would be a very challenging scenario for the business model. The prob the probability of that is incredibly low and that's what we're calculating, right? We're underwriting the long-term view of Bitcoin. We are underwriting, hold on, we are underwriting a $1.6 trillion asset.

[00:26:45]Okay, that banks are adopting Black Rockck has come out with the fastest growing ETF in history, right? First ETF to hundred billion dollars. Uh Black Rockck's number one revenue item. You've got Morgan Stanley coming in the door.

[00:26:58]Charles Schwabs coming in the door. All of these large institutional banks are coming in the door and offering Bitcoin products. Bitcoin ecosystem is growing.

[00:27:05]It's not just strategy, right? We are underwriting the long-term the long-term direction of Bitcoin as a mon as a productive monetary asset and capital digital capital. That's what we are underwriting.

[00:27:17]>> Okay. Can I tell you what I think the uh Well, it's weird. You're underwriting the risk of a thing, but you're backing it with the thing.

[00:27:26]Usually usually you usually you underwite >> usually you underwrite the risk with an uncorrelated asset. Um but anyway that's just everything. Hold on. I just want to I just want to talk about what I think the tail risk of these products are. I think the tail risk of these products are >> Bitcoin stays flat. I think the tail risk of this product is Bitcoin goes down and stays down. I think the the tail risk of these products are um you guys getting hacked. Uh, I think the tell risk is you guys mismanaging. I think the tell risk is you guys uh issuing senior debt that screws over the preferred equity because y'all aren't actually backing the preferred equity with Bitcoin.

[00:28:04]>> Issue senior debt when >> Let let me just finish the tail the tail risks. I mean, you can get to that, but I think these are I think these are risks. Um, I think in fact, you disclose them in the SEC disclosure. So, I think >> you got all of them, right? The thousands of risks that can happen.

[00:28:18]>> So, you can't disagree with things you say are risks. So, that that has to be true. Um, I think one of the risks is you continue to issue and create more and more uh not debt obligations but preferred equity obligations.

[00:28:34]>> That raises the amount Bitcoin needs to go up every year, right? In order for you to be able to pay them sustainably, >> correct?

[00:28:41]>> And Bitcoin just doesn't go up into the right forever like that. In fact, there's no reason to think it would. Uh so I think all of those are tail risks and as your balance sheet gets worse people start paying less right no I I don't mean I don't mean worse in like terms of like catastrophic I just mean as it weakens right because you have more and more obligations the amount people are willing to pay for this preferred equity will you they will demand an increased increased uh interest rate which will mean which will hurt your financial position position or the stock itself will go down in value which will obviously hurt the preferred equity holders, right? Because now what they got 2 years of returns at 13% but now their preferred equity is worth 78 bucks, right? It's wiped out most of their actual return on this instrument.

[00:29:35]I think you would agree that would be a bad outcome. And you can either fix that by raising you in like five months you guys have gone up from 10% to 13%. I mean that's a huge increase in We IPOed at 12.

[00:29:48]>> Y'all are paying 13%, right?

[00:29:49]>> We IPOed at 12.

[00:29:51]>> Oh, okay. Okay. Okay. So, you're going to from 12 to 13. I'm thinking maybe of stretch. They went from 10 to 11.

[00:29:57]>> 9 to 11 12.

[00:29:59]>> Okay. So, y'all y'all can go up, but that increases your cost of capital, which is actually bad for the sustainability of this business. I think you would agree like like it's worse for sustainability to pay more in interest.

[00:30:11]That's just basic like you shouldn't pay more for cap. You should pay as little for capital as you can. Right now you guys are having very expensive capital.

[00:30:20]>> 13%.

[00:30:21]>> You would agree?

[00:30:22]>> Yeah.

[00:30:23]>> 13%. That's that's extremely expensive.

[00:30:25]>> I mean in your eyes. Yeah. Sure.

[00:30:29]>> I mean in general in general in the market it's >> compared to everything else. Yeah. I mean if you had a traditional balance sheet and you were you were looking at uh a traditional cash flow that was at threat to AI then yeah that would be very expensive cost of capital.

[00:30:44]So, so let so let's so let's go through that. So I've explained to you the tail risk. You say I don't understand the tail risk.

[00:30:50]>> No, I think we disagree. What am I missing? I think we disagree on the ordering of probabilities of those risks and their relativity to all other risks in the market. And I think that's the large disagreement of people that are looking at this. Right? So it's all like the whole world is probabilities like the entire world like every taking driving your car down the street is risky. there's a probability associated with getting an accident and dying and and like all of those probabilities are ordered somewhere and that comes into creating like the technical mathematical distribution. But you bring up a few things and I kind of want to hit on them, right? If the if the price of the of our senior perpetual preferred equity goes down, we can also buy it back.

[00:31:34]We can we can buy back and effectively retire that liability that sits on our balance sheet. So if the market misprices it and let's just say something happens and a lot of people sell the sell the instrument and the price of the instrument goes down, we could buy back that that instrument on the market in return.

[00:31:48]>> Don't you have to buy it back for 110 or 105?

[00:31:51]>> I could buy it back in the open market.

[00:31:54]>> Oh, you mean just literally buy your own?

[00:31:56]>> It's just like a stock buyback.

[00:31:58]>> Yeah. Strategy could do it too.

[00:32:00]>> Okay.

[00:32:01]>> If any of the instruments if any of them instruments trade down, they could buy them back. They could buy the instruments on the open market.

[00:32:07]>> Yeah. So they can control that. I'm just saying it's one data point. Like there's so many there's many different ways you could think about this.

[00:32:13]>> But but but but the problem with thinking about it that way is like that will happen at exactly the moment where your financials are more stretched, right? Like well not to not to use the term uh but but like like by definition you're going to be uh your preferred equity is going to be trading down when your balance sheet is challenged. That's exactly the last moment you want to be using cash for buying back >> equity. Depends. I'm just saying it's a tool, right? It's a tool in the tool like the whole like again we're we're managing this like an institution would manage like an insurance company balance sheetry. We've got liability profile into the future which you've outlined right. Yeah. It's a 13% cost of capital and that can vary depending on the market's view of that risk profile and and just just like an insurance company is managing a liability profile of slip and falls and dog bites with a balance sheet of capital. We're doing the exact same thing. We have duration liabilities and we are looking to match our capital structure in line with those duration liabilities. We've got 12 months of cash. We've got six six months of STRC and then we've got a a 20 or 18 and a half years of liquidity of Bitcoin that sits behind that. So we are thinking about this capital vehicle as a liability management vehicle. It's just we have one asset. We have one capital asset and we're managing the volatility using our balance sheet.

[00:33:28]>> Right. Right. But if that if that ass Yeah. But if that capital asset just doesn't appreciate at the level >> we're taking the risk on our balance sheet.

[00:33:38]>> Well, no, you guys aren't taking the risk. The the people who buy the preferred equity are taking the risk.

[00:33:44]>> We are we are taking the risk of the volatility on our balance sheet. The people that are buying the instrument are taking the risk that our ability to pay that uh yield.

[00:33:55]>> Yeah. But it's just but it's just but it's just a masked kind of it's it they're taking the same if if you're taking the volatility risk they are also taking the volatility risk in just a more in a different way right >> yeah I mean they're taking the tail >> like that the they're getting paid >> yeah or just trades down think about it this way they're getting paid 13% to take on the black swan tail risk that you try to uh you know make a big deal >> I I think it is. I mean, >> they're risks. They're risks. I like there are definitely risks. I I mean, you could go look at all of our SEC documents. You go look at all the risks.

[00:34:33]Your job is to order the probability of those risks. Uh like naturally compared to any other >> But it's not but it's but anyway, you say a black swan, which invokes like this like rare once in a-lifetime thing.

[00:34:46]It's like no, no, no. It's just it's just if Bitcoin doesn't go up at your cost of capital, you're losing money.

[00:34:54]>> Well, Let's let's think about that. Uh our balance sheet just like Strategy's balance sheet needs to go up 2.3% annually in order to pay the dividends forever. Our our number because we have a little bit more perpetual preferred outstanding relative to the Bitcoin that's held on our balance sheet. Our number is about 5.5. The money supply is growing at 6.7% annually has been >> what I'm trying what I'm trying to say like I I I just want to simplify it because that that way of thinking about it gets complicated. I like I don't >> No, I'm not I'm not I'm not I'm not I just think I think it's I think it's kind of uh it makes people misunderstand actually what's going on when you frame it that way because that number changes a lot according to like what Bitcoin's price is, how much SATA is issued, right? Or how much stretch is issued. I think it's much simpler to think of your cost of capital for the Bitcoin is 13% every year, right? You're you're paying someone perpetually >> vary could vary over time.

[00:35:49]>> Sure. Sure.

[00:35:51]But I think this is just I think it's just a cleaner way to think about it.

[00:35:55]>> If if if you're if if you buy if I give you money, right? You buy a Bitcoin and you're paying me 13% every year, right?

[00:36:02]>> Uh if you're losing money on that Bitcoin if that Bitcoin is not going up over 13%. Over 13% you're making money on that. Just take a simple example, >> right? I I think I think you're right.

[00:36:13]Right. Like we look, we are underwriting the future. Like this is a digital gold rush. But we are underwriting the next 8 to 10 years, Bitcoin to go up 30 30 to 35% over the next eight years. 8 to 10 years compound annual growth rate.

[00:36:27]>> It's not going to do that.

[00:36:29]>> Okay. Well, that's just a disagreement.

[00:36:30]We're underwriting that on our balance sheet.

[00:36:32]>> Why do you think it's going to go up 30 to 35% a year?

[00:36:35]>> Uh- because the world's never seen a fixed supply asset. The the supply of the underlying Bitcoin is asmmptoically approaching zero. You've got all of the big players that are seeing the institutions coming into the space.

[00:36:47]You've got ETFs that are growing incredibly rapidly. You've got credit that's being issued against it. You've the the market for the these risk return instruments that are different are growing incredibly rapidly. The entire credit market coffee is $300 trillion.

[00:37:03]This is the biggest total addressable market on the planet. And you go look at go look at all of the bad bonds out there. Go look at uh the >> why are we comparing to bonds? We're we should compare to preferred equity.

[00:37:15]talk. Ford issued a 2069 bond.

[00:37:18]>> Okay.

[00:37:19]>> Okay. Do you think Ford's going to be around in 2069?

[00:37:24]>> Uh, I don't know.

[00:37:26]>> Right. So, like somebody somebody bought that bond for 6%.

[00:37:31]>> Sure.

[00:37:32]>> Right. Like, do you think they're going to get their principal back?

[00:37:35]>> Well, they're higher up in the capital stack than the stockholders, so pro I mean, probably they will.

[00:37:40]>> So, that's what I'm saying is like you're underwriting all of these risks.

[00:37:43]credit market I I think is massively uh ripe for disruption in AI. So you think about again we we talked a little bit earlier about how do you underwrite credit risk? You underwrite credit risk by underwriting probability of future cash flows into the future for like 95% of companies all bonds. Okay. So you were underwriting cash flows.

[00:38:02]>> Now we've got AI has come to the forefront.

[00:38:06]>> Okay.

[00:38:06]>> AI completely threatens all cash flows.

[00:38:11]All of them. And it so so when you think about underwriting a probability of future cash flows, you underwrite like an umbrella of probability. You're like, "Okay, I think the window is this."

[00:38:20]>> Now, the introduction of AI takes that probability umbrella and it explodes.

[00:38:25]>> There are companies that are going to do very well and there's companies that are going to get absolutely destroyed.

[00:38:30]And those credit instruments are very illquid. They have no liquidity.

[00:38:36]>> So, so you've got all of these illquid credit instruments in the entire market.

[00:38:39]So, I'm not even talking about the private credit market. The private credit market, you could go Google anything on private credit. Private credit incredibly opaque. You have no idea what you're underwriting. They're promising 12% returns and you've got the the financial backing of these companies is completely uncertain. Yet, you're you're not getting financial results frequently. compared to underwriting a credit instrument where you can look at our balance sheet every single 15 seconds on a website and you can have an algorithm that's running the the credit calculus and have the transparency and liquidity. That's interesting like that the market is moving more liquid not less liquid. So you've got literally trillions of dollars. You've got trillions of dollars in the private credit market. You've got hundreds of trillions of >> Are you just asking me to say private credit is bad? Like what do you want? I I I don't know why we're Why are we bringing up private credit?

[00:39:32]>> No, I'm bringing up I'm just talking about y'all's sustainability.

[00:39:35]>> I'm bringing up all credit. You ask me.

[00:39:38]No, you're not asking about my sustainability. You ask why am I underwriting Bitcoin to a 30% kagger.

[00:39:43]>> I'm underwriting Bitcoin to a 30% kagger because the credit market is stressed and it's going to get more stressed from inflation, AI, uncertainty, and cash flows. and the private credit market is incredibly incredibly stressed and we're seeing it right now.

[00:40:03]So, another thing that's happening.

[00:40:04]>> So, how does that go to like how does Bitcoin go up 30%.

[00:40:07]>> Let Let me give you some more because this is good. I I love this. It's a good conversation. Uh let's let's think about strategy. Strategy got a B minus issuer credit rating. And I'm sure you'd probably take that and you'd go B minus credit rating. I see I told you smack you in the face. But here's the deal.

[00:40:24]S&P gave strategy a B minus credit rating. Guess how much credit they gave for the Bitcoin that hel they held on the balance sheet.

[00:40:32]>> Take a guess.

[00:40:32]>> I don't know. Pro Zero.

[00:40:34]>> Zero. You're right. Zero. They >> I only know that because I've heard you on this on podcast before. Yeah. I've I've heard I've heard this before. WAIT, BUT HOW DOES THIS MAKE MEAN BITCOIN GOES UP 30%. That's what I don't understand.

[00:40:48]>> Because we can agree that the Bitcoin held on the balance sheet should be valued at more than zero.

[00:40:55]We can agree like when you're thinking about like um so this is because the Basel 3 banking standards set up uh set up standards after the great financial crisis such that banks didn't take on too much leverage. So right now the Basel 3 banking standards they give zero credit for Bitcoin held on the balance sheet. So, a bank has zero incentive to go put Bitcoin on the balance sheet because they have zero ability to leverage against it. Their cost of capital goes up just by putting it on their balance sheet. So, they're not even doing that. We think that rule will change at some time in the future.

[00:41:33]Insurance companies, same thing.

[00:41:35]Insurance companies cannot put Bitcoin on their balance sheet. That's fascinating. Like, they they literally can't do it. They get zero capital credit for it. Insurance companies are required to report to regulator regulators and rating agencies and they get >> So you think that change rule rule will increase adoption to that? No, I thought that's where you're going with it.

[00:41:56]>> The change rule. No, I just wanted to finish what I'm talking about. The the change rule could potentially lead to more adoption. The transformer like what we're doing, we're taking this underlying capital asset and we're transforming it into two different components. Boom. that new that new rapper. Now an insurance company can hold that perpetual preferred equity.

[00:42:16]They can get 45% credit for the perpetual preferred equity that they're that's held on the balance sheet. That's interesting. There's demand there.

[00:42:24]There's different risk return metrics.

[00:42:25]Like yeah, you you can agree like you may think that our instrument is very risky. That's fine. That's fine to think it's very risky. But what you can't ignore is that the risk return is different than other assets.

[00:42:41]I I studied finance in college, right? I I'm a I'm a finance nerd. I've been working in the capital markets for a decade. There's this concept of Marowit's modern portfolio theory. Won the Nobel Prize. Okay. The concept is the concept of a diversification. If you add a new If you add a new >> I know what PORTFOLIO THEORY IS. WHY?

[00:43:00]HOW DOES THIS RELATE TO 30%. I I I >> this relates to 30% because these new instruments are getting created with different risk return metrics and people are adding them to their portfolios.

[00:43:10]>> That's it.

[00:43:11]>> So that will make Bitcoin go up 30%.

[00:43:13]>> Yes. Because the demand is absolutely freaking enormous and the banks are there.

[00:43:19]Look, it's a $1.6 trillion asset. Okay.

[00:43:24]Strategy.

[00:43:24]>> Yeah. That's why I don't that that's exactly why I don't because it's already such a big asset. So I so I kind of think of these things as as like adoption curves, right? You you're familiar with all adop there's like an S-shaped adoption curve. There's a there's like early adopters, then it kind of hits mainstream and then there's a a a you know tails off not because the product isn't popular, but it's because it's >> it's maturing >> actually is popular. It's matured and there's not as many people or there's like there's starts to be an equalization of people who are selling getting in the asset out of the there's not a lot of discovery, right? There's not a lot of what we call like price discovery of you know the asset finding the market etc. I look at Bitcoin I look at I look at the strategic reserve Bitcoin reserve I look at uh you know Black Rockck holding Bitcoin I look at Michael Sailor holding 4% of Bitcoin or something like that. I look at all these different players, the institutional players, and I go all the not all, most of the big events that are going to have massive, you know, kind of like Bitcoin will have addressed the markets it's going to address.

[00:44:33]A lot of those have already occurred.

[00:44:35]And so I see Bitcoin more like hey it it's got the people who have wanted it who are gonna it's going to address largely it has addressed eventually it will come to a point of you I think you'll start to see like an equilibrium and I think if you if you take the case of Bitcoin being an inflation hedge if you agree with that you would agree that when it once it's a mature asset it's going to go up at the price of inflation not every year whatever not as a regular thing but eventually you would you would say that which is not 13%.

[00:45:09]Which is not 11.5%.

[00:45:12]Which is definitely not 30%.

[00:45:15]Yes. Look the money the money supply is going up at 6.7% compounded annually.

[00:45:22]>> 6.7% the money supply is going up at 6.7% compounded annually. the US debt to GDP the like the the health of the US government and the business of the US government is compounding at 3.4% annually it's at 120%.

[00:45:38]>> Right now >> okay is that less than 13% is that less than 13%.

[00:45:43]>> Look look the is >> like why do you hold dollars >> if are dollars risky? Let me ask you that coffee are dollars risky >> in what sense?

[00:45:54]>> I don't know. Are they risky?

[00:45:58]>> I mean, you need to give me like a Are you asking if there's inflation?

[00:46:01]>> Yeah. Is holding dollars risky?

[00:46:04]>> Uh, I think it's a liquid asset. It's a very liquid, very >> return-free risk.

[00:46:14]>> What do you mean? You mean like treasury bonds, >> risk-free return, right? Like what is risk-free?

[00:46:19]>> Oh, return free risk. Uh, no, no, no.

[00:46:23]Oh, I mean, I think you can put them in like I think dollars are the most uh liquid usable form of currency currently out there. Uh I'll just say it that way.

[00:46:34]If you if you're going to say like, oh, there's like inflation risk. I mean I I mean, sure. Yes. I I don't disagree with you. And by the way, like if you were offering a product that was like, hey, we're going to, you know, offer some rate of return. we're gonna we're gonna that's that makes makes sense and is not projecting some ridiculous 30% which I think is insane. Even 13% I think is unrealistic. I think it just exposes your pre preferred equity to a lot of risk. Um and I think it's all being pitched with kind of a frankly like this is savings plus this is and that's what I don't like. That's what I don't like if if you're talking about it in the sense of preferred stock. Anyway, >> it's preferred equity. It's incredibly liquid. You look at Strategy's product, they've issued $10 billion of this digital credit in the last nine months.

[00:47:22]That's going to accelerate. It's not It's not slowing down. The liquidity of these instruments, >> I AGREE WITH YOU. IT'S GOING TO ACCELERATE. THAT'S THE PROBLEM.

[00:47:28]>> HOLD ON. HOLD ON. Just don't don't get all hot and bothered like that. The Bitcoin that they're buying is going to the common stock. The common stock is getting more valuable. We're talking about a fixed asset that's never been around. Like, this has never existed.

[00:47:39]No, I get that it's difficult to understand and wrap your head around because nothing like it has ever existed before, but the the math is actually very simple.

[00:47:46]uh underwriting to a a high compound annual growth rate on a on an asset that's maturing with a fixed supply. I I think I think gold parody is a fair target. Gold parody is a fair target. So you're talking about like a $ 1.5 million Bitcoin, that's a $35 trillion asset. You think about gold and the characteristics of gold relative to Bitcoin. Bitcoin beats gold on every single characteristic out there. Every single one. Portability, transility, uh transportability. I'm not going to get into a gold verse Bitcoin >> kind of discussion to go there. But you're asking me why I'm underwriting it to uh to a high compound annual growth rate at least for the next eight years.

[00:48:26]Like I'm this is not a perpetuity. I don't think it's going 30% into perpetuity. I'm I'm saying the next 8 to 10 years I think is a 30%.

[00:48:33]>> But your but your preferred but your preferred stock is in per perpetual, right? So how do you pay interest rate?

[00:48:41]>> I could change.

[00:48:42]>> Wait, but that but that's a big problem.

[00:48:44]Like if if you lower the interest rate, what do you think happens to your preferred equity value?

[00:48:48]>> Significant demand over time. Let's just say like three years three years from now. I'm not not forecasting that we're doing this. It is a variable interest rate product. If there's significant increase in demand or drop in sofur rate, we can reduce the interest rate.

[00:49:02]That's that's well within the covenants uh within the instrument.

[00:49:08]>> If you do that, the preferred equity is going to drop >> and people are going to lose money. I mean, I think that's just a reality >> that the the price could the question is like what does the risk profile of that instrument look like relative to everything else like I it's it's not it's not even like it's like comparing other like you have to compare these assets to everything else out in the market.

[00:49:32]>> Sure.

[00:49:33]>> Like how does the rest of the bond market uh trade when uh when interest rates go down?

[00:49:40]>> No, no, no, no, no, no, no. I I I'm just saying I'm just saying you you unilaterally changing the interest rate because you project slower Bitcoin uh slower Bitcoin growth has nothing to do with interest rates. I I I agree in the larger market of interest rates going down there might be you might be able to keep demand the same by lowering interest rates by the same amount. But what I'm saying is that you ultimately you are not pegged to bit like you're not pegged to interest rates. You're pegged to how much will Bitcoin go up.

[00:50:07]That's what matters because you're pe you're paying a cost of capital. you're underwriting the liability into the future. Yes, >> that is right.

[00:50:15]>> And that has nothing to do with interest. I mean, it doesn't directly relate to interest rates.

[00:50:19]>> I mean, you could you could kind of think about it like um I mean, our cost of capital is high right now. These instruments are brand new, right? Like, what does this look like three years from now when the instruments have a three-year track record and we've paid we've paid our interest for three years in a row.

[00:50:34]>> Okay, that means that means nothing.

[00:50:36]Paying interest three years in a row.

[00:50:38]>> Like what? Like no, because a lot of great a lot of great >> interfacing with the capital markets changes. That's just >> a lot of great disastrous companies pay their pay their stuff for a while, right?

[00:50:51]>> Okay. Well, we've got we've got a strong balance sheet and we are going to continue to manage those liabilities into the future.

[00:50:58]>> Let me say this. Let me say this, Jeff.

[00:51:00]Uh I I I will agree that I I look at this product and I think about, you know, how people think about yield. I think that it's going to catch on enormously. I think that worries me deeply. I don't think I don't think it and I actually think that the success of this product is going to be its own downfall. I think the the increase in future liabilities for you guys will become a massive problem. Um, and the bigger it grows, like the bigger problem it is because the more you're going to rely on Bitcoin going up by some amount in order to pay the obligations. So actually I think your biggest risk is will be the success of this product. Um and I also think like yeah anyway so so I I IT IS WHAT IT IS WHAT IT IS.

[00:51:48]>> IT'S interesting right? I mean the your the downside risk of your position is is an interesting perspective but yeah.

[00:51:56]Okay.

[00:51:56]>> No for you guys for for you guys specifically I think that's like one of your core risks is like is this thing continues to grow and is super successful. Uh, how you going to be position? You're like, man, you're you're you're going to have a hard time because your product's going to be so successful. Like, you >> Well, it's not a product. It's a It's a obligation. It's an It's an obligation.

[00:52:15]>> Yeah.

[00:52:15]>> Yeah. It's a liability. You're selling too many liabilities. That's not a weird position to have.

[00:52:19]>> I mean, do you like when you buy your home insurance from your home insurance carrier, do you look at the financial strength of the company and their ability to pay your claims?

[00:52:28]>> Uh, do I personally do that? Uh, no.

[00:52:31]>> Why not?

[00:52:33]Uh, I I didn't buy the My wife handled that, so I >> Well, you probably should though, but like you probably should like if you if you care about like a liability profile and their ability to like pay your claim if you have a loss, like what happens?

[00:52:49]>> Well, I I'm just saying I literally didn't. I I You asked me did I do it, and I just can't say that I did because I didn't. Uh, if had I been the one to shop it around, >> it's literally true. It's not a cough out. It's literally true.

[00:53:03]Wait, that's literally true. Tell me your point though. I'll take your point.

[00:53:06]What's your point about that?

[00:53:07]>> I mean, the point is like looking at the balance sheet strength of the company.

[00:53:12]The question is like can they pay the liability into the future? Like that's the question like is the company going to be there to pay the claim?

[00:53:21]>> Yeah, I I agree. I I I agree that's a core question. I also think you have to examine what the actual obligation of the company is. Um because ultimately y'all y'all's perpetual preferred stock what's the exact I want to get the exact quote here. Uh the exact quote of y'all's disclosure is SATA is not collateralized by Striv's Bitcoin's holdings. Right.

[00:53:48]>> So do you think it's fair to say it's Bitcoin backed if it's not collateralized?

[00:53:52]>> Uh I think is like Bitcoin powered.

[00:53:55]Yeah. We've we've got a Bitcoin balance sheet. I think I've heard you use the word Bitcoin backed though is but it's not collateralized by Bitcoin.

[00:54:05]>> No, it's not collateralized by No, the Bitcoin is held on our balance sheet.

[00:54:09]>> But it but but is it backed by Bitcoin?

[00:54:11]Like do you understand like my confusion here? This goes back to kind of the double speak about this stuff. If it's not collateralized, how is it backed by Bitcoin?

[00:54:19]>> Because we have a Bitcoin balance sheet.

[00:54:21]It's like not it's not complicated.

[00:54:26]Okay. So, it's Bitcoin powered, Bitcoin backed, not Bitcoin collateralized.

[00:54:30]>> It's not Bitcoin collateralized. Yeah.

[00:54:32]Like I don't think technically the I don't think you could technically say Bitcoin backed because it's not collateralized. It's Bitcoin powered.

[00:54:39]Well, we've got a a Bitcoin powered balance sheet.

[00:54:44]>> Okay. Okay. Okay.

[00:54:46]>> Like, got it. Like again again your in go to the insurance like the insurance example like uh >> what's the backing of the of like your insurance policy is a contract like it's not collateralized by any of the assets the insurance company holds. It's a balance sheet.

[00:55:06]It's a balance sheet relationship.

[00:55:07]>> I don't know enough about I don't know enough about insurance to know whether that's true or not. I think that's my frustration with this whole thing is like this this concept of this capital vehicle is not novel like it's not this is it's not complicated and it's not new.

[00:55:22]>> Well, five seconds ago you said it's brand new and that no one's seen it before.

[00:55:26]>> The perpetual preferred equity instrument that is powered by Bitcoin is brand new. It is nine months old.

[00:55:35]>> Equity a perpetual preferred equity has been around forever.

[00:55:38]that like a perpetual equity has been around for a very long time like a capital structure, >> right? But the way it's being pitched is pretty new. This whole thing of like we're transforming digital credit. It's money market like that marketing is new.

[00:55:53]And that is if you notice that's what I have a problem with. My primary problem is the marketing and the pushing of this stuff. Had y'all come out and said, "Hey, we have a >> a preferred perpetual stock," we'd I mean, we'd probably be having I don't even know if we'd be having a conversation.

[00:56:08]>> You know, if I didn't see an AI generated slop like I'm an engineer >> and I retired, >> I think we'd be having a different conversation, right?

[00:56:17]>> I I I think it's hard to ignore that these products are fascinating to watch trade. Very stable, high liquidity. Look look at them relative to like the JP Morgan Perpetual Preferred Equity. Like why is that happening? JP Morgan Perpetual Preferred Equities like uh I don't know it's got six billion outstanding. It trades $2 million a day.

[00:56:35]Strategies perpetual preferred trades $250 million of liquidity a day.

[00:56:40]You can't you can't deny that's interesting. Why does that happen?

[00:56:43]because you guys are offering 11 and or well they're offering 11 app% JP Morgan's offering to >> trade $250 million in liquidity between two cents under $100 >> because you guys are artificially compressing volatility by issuing at the money at 100 and raising the rate when people are above >> between 99.95 and 99.97 there's $250 million traded strategy hasn't issued any shares why does it trade like that >> because people are arbing thinking that it will they are going to compress it with the rate.

[00:57:13]>> Okay, arbs. You're talking about a computer ARB surface like this. An ARB surface has never existed like this before. We're talking about moving into a more complicated uh like computer algorithmic trading environment. The these instruments provide a really unique arbitrage opportunity for computers computer trading because the risk can be calculated 247 365 unlike any other credit instrument out in the market where you're waiting for the quarterly financial results and you have no idea what the company's like finances and how they change every quarter and when you do get the financials they're already a month old. So like that's interesting. That's one of the biggest innovations here is you can calculate the risk of these instruments with math 247 365 and the rest of the credit in the market you can't. It's difficult.

[00:57:59]>> Okay. I I've heard you say that a lot.

[00:58:02]Oh, it's interesting. It's interesting.

[00:58:04]It's interesting. I Is it interesting?

[00:58:07]>> It's interesting. Is it a good investment?

[00:58:09]>> I I I don't think so. I don't think I I I personally I personally think it's riskier than a lot of people are understanding. Um, >> but you showing but you show no math.

[00:58:20]>> But but but what I'm trying to say is that what I'm trying to say is that uh if you wait I don't think I don't think that's true. Like do you want me to bring up like a like a spreadsheet here showing you that if you compound >> every single week? I I no I I do spreadsheets every single week. I show probabilistic outcomes. I show here's what a back test looked like. Here's what the balance sheet has done historically. Here's what it would look like into the future. Here's what it would look like if you increase the liability.

[00:58:48]>> Okay. Okay. Yeah. I have I have some math for you. I have some math for you.

[00:58:53]Okay. I have some math for you.

[00:58:55]>> So, I've got uh a compound. I'll I'll have to throw it up because I don't have the the capabilities right now, but I I have in front of me a >> calculator and and us disagree on the kagger.

[00:59:08]>> 13% compound interest calculator. Are you okay with that?

[00:59:13]>> Yeah. It's from investor.gov and I'm saying, okay, if Bitcoin >> 13% a year for 50 years, how much will Bitcoin cost? Assuming it goes up at 13% a year, right, which is y'all's cost of capital. Uh, in 50 years, >> that Bitcoin will cost $36 million. Do I think Bitcoin, every Bitcoin will cost $36 million in the year of our Lord 2076?

[00:59:43]No, I do not. I think that is crazy. I think that's unrealistic.

[00:59:48]>> In 50 years.

[00:59:51]>> Yeah.

[00:59:53]>> What like what was the p what was what else is 50 years old that we could try to compare here? Um the largest the largest company in the equity market 50 years ago had to have been like damn not even a hundred billion dollars.

[01:00:09]Probably 50 billion dollars.

[01:00:12]I don't even know. 50 years ago.

[01:00:15]>> But you asked me to show you the math.

[01:00:16]Do you think it's realistic for Bitcoin to cost $36 million in uh 2076?

[01:00:22]>> Yes. Yes. Like yes. Undeniably yes.

[01:00:26]Absolutely.

[01:00:27]>> Okay.

[01:00:28]>> Yeah. Because the US debt to GDP is growing at a 3.5% compound annual growth rate. So right now it's at 120%. It's growing every single year.

[01:00:37]>> Like at what point is >> So the US >> Yeah. Debt growing at three and a half percent makes it logical that Bitcoin would grow grow at 13%.

[01:00:46]>> The probability of fiat demise is high.

[01:00:52]Fiat US dollar demise is high.

[01:00:56]Fiat currencies historically last 200 years. Right now we're looking at one that's 250 years old. I think that probability is pretty high.

[01:01:04]>> And you don't think Bitcoin having a demise? I think the world I think the world shifts more to a global monetary standard that can't be manipulated.

[01:01:15]>> No, that's not what I asked. You said you said like that like like the fiat currency having a demise. I'm saying do you think Bitcoin because you just said it's reasonable for Bitcoin to have $36 million uh you know per coin thing in 2076. Don't you think >> years I mean like that's that's a long time like >> you guys are issuing perpetual preferred.

[01:01:37]>> Yeah. Yeah. Yeah.

[01:01:40]>> Once you issue it, somebody's hanging on to it.

[01:01:42]>> Yeah. Hold on to it. Yeah.

[01:01:44]>> So, if you're not underwriting liability for a long time, >> variable rate perpetual preferred like what are you not getting is a variable rate perpetual preferred?

[01:01:56]>> So, you're just going to lower it when >> it's something we we could potentially lower it over time. Like that. That is not our goal right now, but it is something we can do over time.

[01:02:07]I've heard a lot of people offering high yields say like, "Hey, we could lower it later." And they don't lower it because their investors won't let them lower it.

[01:02:17]>> Yeah. Okay.

[01:02:20]I mean, you know, anyways, food for thought. Food for thought. Jeff, listen, it's been fun. I think uh we reached kind of our uh stopping point here. I think there's a lot we disagree about.

[01:02:31]Uh but hopefully people can take some stuff from this conversation. And hopefully they learn some of your perspective and mine. Uh, appreciate you coming on.

[01:02:39]>> Yeah. Thanks for the time. Thanks for the airspace. Appreciate it.

[01:02:42]>> Okay, don't go anywhere. We got to upload this stuff because >> the way Riverside works, it like takes a while to upload.

[01:02:49]>> Oh, yeah. It takes a minute. Uh, >> I've used it before.

[01:02:51]>> Yeah. So, just chill here.

[01:02:52]>> Cool.

[01:02:53]>> Um, okay. Thanks for doing this. Um, >> do you have a whole crew do you have a whole crew that uh that you got that works with you?

[01:03:01]>> No, it's just in in my studio. It's just me.

[01:03:04]>> Really?

[01:03:05]Yeah.

[01:03:05]>> Do you like do do you do your own edits and everything too or do do you send that out?

[01:03:10]>> Uh I have an editor and I have a CGI artist for my main channel. This will go on my secondary channel which I edit myself. Um this the only thing I'm slightly worried about I think it might have been my headphones that was screwing up but multiple times during the conversation I was trying to ignore it because usually Riverside like >> is there like a little lag?

[01:03:29]>> It's better. The audio is better in post. like the audio from that you will upload will be better than the one I got. But that's the only thing I'm slightly worried about. Otherwise, I think it was a good conversation. I think we hit each other as far as like, you know, our core disagreements.

[01:03:44]>> Yeah.

[01:03:44]>> Which we do have.

[01:03:45]>> Good exchange of blows. I like it. Good exchange of blows. It's good.

[01:03:50]>> Uh but uh no, I appreciate you coming on. When I saw your offer, I saw it a little bit late. I was like, "Yeah, I definitely want to talk to somebody who is so into the space." Um, uh, I think you guys are going to be incredibly successful. I I don't think that's a person and I I know if you believed what I believe, you would not think that's a good thing either, but I do believe you're going to be very successful. I think I think anything double- digit returns is going to be successful in the retail market. Uh, you know, maybe a little bit beyond the retail market, too. I mean, I think, uh, people want yield. That's what you guys have said. That's what Sailor has said.

[01:04:24]I think it's true. Obviously true. Um, and I but anyway, I just I'm concerned about the risks. Uh, but you know, that is that is what I tend to be concerned about, isn't it?

[01:04:36]>> Yeah, that that's that's your that's your whole thing. I love it. Look, I I appreciate the time. I appreciate you uh like re reaching out and uh the banter's good. I mean, ultimately, if people don't challenge this stuff, nobody wraps their head around it. So, like if if we want to have a conversation in the future, happy to do it. I I'm going to be here. like what are uh what do people want?

[01:04:58]>> Hopefully in 50 years hopefully in 50 years you'll be >> 85. So yeah, I mean we could live forever these days, but >> well let's say let's say let's say uh let's say yeah the company is here. I guess that's the you might have been you might have long retired by then. Yeah.

[01:05:14]>> Uh but let's see here. Why is this my stuff is going to record upload? So I think once you're uploaded you're good.

[01:05:21]I think I'll just upload says 90 >> on my Yeah. Yeah. Yeah. just hang out until it says you're good to leave. Um, >> how'd you get into streaming?

[01:05:31]>> Your YouTube videos? Uh, >> well, I had a I had I mean for for a lot of reasons I but but one of the core things also that happened to me was I was a lot of my friends got into like multi-level marketing and a bunch of different my mom got cancer scammed and not cancer scam. She had cancer and she had some health grifters go after her >> and uh I've just seen a lot I you know I've seen a fair bit of uh nonsense tom foolery. Uh so you know kind of leads to a certain >> skep sk skepticism.

[01:06:05]>> Uh yeah yeah sure sure >> challenging uh challenging the >> Yeah. It's kind of interesting that you came from the reinsurance space. Uh, I I think about these like these are you are you familiar with like the 2008 crisis and all that kind of stuff? I guess I I I should have gotten more into it when we got into it, but I think about how they tried to get a risky asset which was these subprimes and they collateralized it into non-risisky >> Yeah. I should have gotten they crunched it out into >> studios. Yeah.

[01:06:38]>> And then it went bad.

[01:06:40]>> Yeah. Well, they were incredibly levered. they were, you know, 30 40x levered. That's a lot different than being, you know, 1% levered, >> right? That Well, that's that's that's the preferred equity little, you know, is that credit? Is it not? You know, it's interesting.

[01:06:55]>> It's an interesting question >> for sure.

[01:06:58]>> All right, you're good. You're good to go. You're good to go, Jeff. Appreciate it. I'll finish uploading on this side.

[01:07:03]Okay. See you. Back.