Speaker 1: The more capital you have in your balance sheet, the
Speaker 1: larger the percentage of your valuation is based on that
Speaker 1: actual bitcoin capital asset, the more correlated directly you'll be
Speaker 1: with bitcoin. If you only yield bitcoin by having demand
Speaker 1: for your equity, it's really tough. If you can yield
Speaker 1: bitcoin using issuing fixed income products that are overcoloralized, you
Speaker 1: can still have bitcoin yielding a bear. I think strategy
Speaker 1: transition from a meaningful software business to a meaningless software
Speaker 1: business in terms of its overall evaluation. Now they're wholly
Speaker 1: dependent on Bitcoin's content and growth rate for the success.
Speaker 2: If you want to scale the company, you want to
Speaker 2: issue the preferreds. I want to make sure I have
Speaker 2: enough Bitcoin on my books to be credit worthy, but
Speaker 2: not necessarily back those because if I back those as
Speaker 2: a collateral assets and that actually damages my credit worthiness.
Speaker 1: It has to be unsecurity.
Speaker 2: Dan, I want to start with the big picture here,
Speaker 2: because we're seeing an explosion of bitcoin treasury companies and
Speaker 2: there's a lot of different differences there, but a lot
Speaker 2: of people trying to copy the micro strategy playbook. But
Speaker 2: you've said that most people fundamentally miss understand how these
Speaker 2: companies actually work. And what makes them valuable. So what
Speaker 2: is it that you think everyone's getting wrong in this space?
Speaker 1: I think the main thing that people are misunderstanding is
Speaker 1: this idea of bitcoin is collateral. And if bitcoin is
Speaker 1: a pristine capital asset, if it's something that you can
Speaker 1: borrow against, that you can leverage, or that you can
Speaker 1: issue fixed income against, then bitcoin yield is great. But
Speaker 1: yielding bitcoin from ten bitcoin to twenty bitcoin on your
Speaker 1: balance sheet does not give you that next level unlock
Speaker 1: of using the bitcoin in productive ways as a collateral asset,
Speaker 1: whether that be in ten years, acquiring different cash flowing businesses.
Speaker 1: Whatever the landscape may look like for business, may be
Speaker 1: their bitcoin yield via productive products or issuing these fixed
Speaker 1: income giant capital market arbitrages. You need that collateral to
Speaker 1: enable those activities.
Speaker 2: So when you're saying bitcoin yield, you're meaning at the
Speaker 2: rate at which they're acquiring new bitcoin under their balance
Speaker 2: you or the rate of their bitcoin balance is growing,
Speaker 2: not earning yield on the bitcoin, but at the rate
Speaker 2: that they're growing there they're bitcoin. So you're saying that
Speaker 2: it's really irrelevant how fast you're growing it. It's really
Speaker 2: the total size of it. And so it's cool if
Speaker 2: you're growing it at fifty percent, but if you're still
Speaker 2: only fifty bitcoin, it doesn't really matter. I guess that's
Speaker 2: what you're.
Speaker 1: Saying, and I think it's not as black and white
Speaker 1: as I make it made it out to sound. But
Speaker 1: for an investor, if you're in at one bitcoin and
Speaker 1: they're bitcoin yield or the number of bitcoin you own
Speaker 1: per share, So bitcoin yield is a function of both
Speaker 1: the amount of bitcoin and the balance sheet and the
Speaker 1: number of fully diluted outstanding shares. So in that equation,
Speaker 1: as a shareholder your site, you have a lot more
Speaker 1: bitcoin per share. But from a company perspective and a strength,
Speaker 1: durability and longevity perspective, the more bitcoin they own, the
Speaker 1: more optionality they have moving into the future with these
Speaker 1: different products. So I think those are the kind of
Speaker 1: the two factors you have to weigh when looking at
Speaker 1: one of these companies. And then when you think about
Speaker 1: like reaching critical mass, issuing equity becomes less and less
Speaker 1: attractive as the size of the company grows. So I
Speaker 1: think all these bitcoin treasuries need a play to move
Speaker 1: into beyond just issuing equity and yielding bitcoin because of
Speaker 1: the nav the m nav arbitrage.
Speaker 2: Yeah, I want to dig into all the mechanics of that,
Speaker 2: but let's just zoom out a little bit before we
Speaker 2: digged super deep into this. Are you a bitcoiner, were
Speaker 2: you hold were you holding bitcoin in deep cold storage
Speaker 2: before jumping into this, or are you sort of like
Speaker 2: an equities guy that have moved into this.
Speaker 1: Prior to being a So I was a bitcoiner in
Speaker 1: twenty twenty one. I was a twenty twenty one bitcoiner,
Speaker 1: and I found my conviction during the FTX collapse just
Speaker 1: out of pure luck. I was reading all the material
Speaker 1: and it happened to be very long price at the time.
Speaker 1: So I feel very lucky because of that. But prior
Speaker 1: to that, I was an index investor. So you know,
Speaker 1: all through my younger years, I was dumping all my
Speaker 1: money in the S and P and so I've always
Speaker 1: I've always really thought the idea of just long term
Speaker 1: compound growth on your money is very, very powerful, and
Speaker 1: that's why I've kind of been attracted to bitcoin. But
Speaker 1: I found bitcoin through kind of an option's lens. I
Speaker 1: studied a lot of quanticy to finance through college and
Speaker 1: graduate school, and I've always found it really interesting that
Speaker 1: for an acid like bitcoin, if you believe it's growing
Speaker 1: out a roughly a power log growth rate or just
Speaker 1: a steady high compound growth, you can make a lot
Speaker 1: of money with long term options on an asset like that.
Speaker 1: So that's why I was really attracted to it.
Speaker 2: So you kind of were attracted, I mean obviously by
Speaker 2: the growth rate number one in gu as we call it,
Speaker 2: right number go up. And then because of your background,
Speaker 2: you saw the ability to do options against it, which
Speaker 2: then increases that. And then you saw the treasuries, and
Speaker 2: then they're even increasing the options if you will, almost
Speaker 2: on that, Yeah, exactly.
Speaker 1: And the treasure is so interesting because there were no
Speaker 1: I that called you couldn't buy options on ib when
Speaker 1: I was buying options on mstr you know, So like
Speaker 1: I was forced into bitcoin treasuries because I was interested
Speaker 1: in options, and then I had to learn about bitcoin
Speaker 1: judges along the way.
Speaker 2: Yeah. So twenty twenty one, Class of twenty twenty one,
Speaker 2: I want to ask about our reference. But so far
Speaker 2: we've seen you know, in the last year, Meta Planet
Speaker 2: being the second company or really the first company I
Speaker 2: should say, that's actually been able to duplicate what micro
Speaker 2: strategy and now strategy has done their stocks up like
Speaker 2: seven thousand percent in like a year. And now we're
Speaker 2: seeing ones like Blockchain Group in France They're up like
Speaker 2: three thousand percent in six months. And then we see
Speaker 2: like the Smarter Web companies up like eight thousand percent
Speaker 2: in like two months. Those are insane numbers. I mean,
Speaker 2: you're an index investor, like, those are insane numbers. But
Speaker 2: it it it's very similar to what we saw back
Speaker 2: in like twenty seventeen in the cryptocurrency ico boom. So
Speaker 2: they weren't IPOs like kind of what we're seeing now.
Speaker 2: They were icos, And so you hear a lot about
Speaker 2: some of the differences there. I mean, have you gone
Speaker 2: back and sort of studied what happened there to see
Speaker 2: if there's any kind of common parallels there.
Speaker 1: Yeah, And I'm not extremely familiar with the ico boom
Speaker 1: and bus cycle. I mean I studied alt coins for
Speaker 1: a bit in twenty twenty two, just looking at different projects,
Speaker 1: understanding the tokenomics and stuff, and I mean I wasn't
Speaker 1: all that attracted to it. And I think, what's I compare?
Speaker 1: I think this bitcoin treasury craze more to the spack
Speaker 1: craze of twenty one, so in twenty twenty. So that's
Speaker 1: kind of my mental comparison. So there's people more knowledgeable
Speaker 1: about the icos and they yeah, yeah.
Speaker 2: I would, I would say that. I mean I think
Speaker 2: both of very similar. I mean a SPAC was also
Speaker 2: sort of like, hey, we're gonna raise a bunch of money.
Speaker 2: We'll tell you what we're gonna do with it afterwards, right,
Speaker 2: and then a lot of times they didn't have any
Speaker 2: value there. ICO is sort of similar, like we raise
Speaker 2: a bunch of money and then there's really just vapor
Speaker 2: where there's nothing there, whereas these these treasury companies at
Speaker 2: least they're buying bitcoin, so as there is that, yeah.
Speaker 1: And there's fear greed, like I think icos and SPACs are.
Speaker 1: You have to understand the fear greed aspect of any
Speaker 1: of this, like trading behavior. So that's where they're helpful.
Speaker 1: But ultimately, I think raising capital and putting into bitcoin
Speaker 1: is actually a good faith, good hearted move. So we're
Speaker 1: in a different sort of environment I think long term.
Speaker 2: Okay, now, as we kind of dig into this, I
Speaker 2: mean I want to get into the details, but we're
Speaker 2: just kind of warming the audience here. But so you know.
Speaker 2: I think you've said there's like two types of companies.
Speaker 2: There's the tesla who holds a bitcoin on the balance sheet,
Speaker 2: and then there's companies doing it as a strategy. But
Speaker 2: would you also say that maybe within that, maybe there's
Speaker 2: three companies. So there's the test let's put another balance sheet.
Speaker 2: Then there's ones that are like a hybrid company that's
Speaker 2: also running a strategy, and then there's peer play strategy companies.
Speaker 1: I think absolutely yeah. I mean it can be. It's
Speaker 1: it's kind of like a slider, right, you can adjust
Speaker 1: how aggressive if you want to be with the bitcoin
Speaker 1: capital market's arbitrage, or maybe you don't want to use
Speaker 1: the capital markets at all to raise the bitcoin. You
Speaker 1: just sweep your cash flows. And I think the most
Speaker 1: important thing is in a falling bitcoin environment, which we
Speaker 1: haven't really seen for three years, how do you navigate?
Speaker 1: And that's going to be the real question. And I
Speaker 1: actually think the strongest contenders in that environment are those
Speaker 1: who sweep their cash flows into bitcoin.
Speaker 2: So that means the strongest contenders would be ones that
Speaker 2: actually have a business model that's making cash flow outside
Speaker 2: of bitcoin.
Speaker 1: I think it's a huge leg up. I think it's
Speaker 1: a huge leg up for a bitcoin treasury, just even
Speaker 1: if it's you know, five million dollars a year of
Speaker 1: free cash flow, because you have so much optionality to
Speaker 1: issue to to secure a debt and buy bitcoin in
Speaker 1: market where the bitcoin price is suppressed.
Speaker 2: Okay, but what do you think happens when a company
Speaker 2: you have, like a similar scientific who's running like a
Speaker 2: medical company, And like, as an investor, what do I
Speaker 2: know about medical companies? And I don't know they're facing
Speaker 2: a DOJ lawsuit and what could happen with that? And
Speaker 2: oh what if they have a new patent and that's good,
Speaker 2: but I don't know about that. But then they're also
Speaker 2: running the strategy over here, so like how do I
Speaker 2: value them? And so then maybe there's like this miscommunication
Speaker 2: in the market. Whereas like Sailor he talks about I mean,
Speaker 2: he made it very clear. I got to have dinner
Speaker 2: with him in Prague and he said, if bitcoin goes up,
Speaker 2: the market wants the strategy to go up twice as much,
Speaker 2: and if bitcoin goes down, they want it to go
Speaker 2: down twice as much because they the market needs to
Speaker 2: know how to price around it. He's like, they don't
Speaker 2: want me to lower the volatility, they'll just lower their position.
Speaker 2: And so you know, he said, like he made the
Speaker 2: funny case. He said, they've got game and spoke to
Speaker 2: me tonight and told me the market was going to
Speaker 2: crash tomorrow, and I hedged my position and the market crashed,
Speaker 2: but we didn't. That's not what the market wants because
Speaker 2: then they then they don't know what to expect, right,
Speaker 2: And so then I start thinking about a similar scientific
Speaker 2: and not to throw them under the bus or whatever,
Speaker 2: but just as an example, like, how do I know
Speaker 2: what to expect from that stock based off of bitcoin?
Speaker 2: In that example?
Speaker 1: And I think that's a really good question and something
Speaker 1: I can't I can't answer directly because it's going to
Speaker 1: be so diversified. There's going to be companies that exist
Speaker 1: in so many different parts of the spectrum. But the
Speaker 1: more capital you have in your balance sheet, the larger
Speaker 1: the percentage of your valuation is based on that actual
Speaker 1: bitcoin capital asset, the more correlated directly you will be
Speaker 1: with bitcoin. That's all I can say.
Speaker 2: Yeah, and then and then maybe that would only matter
Speaker 2: for the common shares of the main company, But then
Speaker 2: if you wanted to tap into Preford preferred shares or something.
Speaker 2: Then that's a whole different piece, that's.
Speaker 1: A whole different ball game. I find it extremely interesting,
Speaker 1: and I think that's where all of this is going,
Speaker 1: especially for the treasuries.
Speaker 2: Yeah, for the peer play treasuries exactly.
Speaker 1: All right, So.
Speaker 2: We have we have a spectrum, and I guess probably
Speaker 2: at some point, at what point does the bitcoin strategy
Speaker 2: start to overtake the existing bitcoin So like strategy, for example,
Speaker 2: you barely hear about the software business anymore, whereas like
Speaker 2: kind of going back to a Tesla or if Apple
Speaker 2: were to buy bitcoin on their balance sheet, it wouldn't
Speaker 2: even really move the needle. But kind of going back
Speaker 2: to like I mean, index investing, traditional equity investing, and
Speaker 2: typically you don't really value companies as a multiple off
Speaker 2: their nave, right, so it's really all about those discounted cashlows.
Speaker 2: So then so I guess you have to get to
Speaker 2: a point where that bitcoin overtakes the traditional business. I
Speaker 2: guess that that's the way that you see it. And
Speaker 2: then that's just it on a spectrum.
Speaker 1: Yeah, And I actually kind of have a metric I
Speaker 1: use in my head for that, and so I think
Speaker 1: strategy transition from a meaningful software business to a meaningless
Speaker 1: offware business in terms of its overall evaluation, when the
Speaker 1: free cash flow from the operating business has ceased to
Speaker 1: be able to cover the annual liabilities of their debt.
Speaker 1: So when the preferreds became started becoming issued, they no
Speaker 1: longer can cover those preferreds by their free cash flow
Speaker 1: from their operating business. Up until the end of twenty
Speaker 1: twenty four, they were able to cover all the convertible
Speaker 1: debt coupon payments through their operating cash flow. So that
Speaker 1: was a fundamental shift in their strategy. And now they're
Speaker 1: wholly dependent on bitcoin's compound annual growth rate for their success.
Speaker 2: Okay, now we talk about the underlying business model and
Speaker 2: the point of having some sort of cash flow. Five
Speaker 2: million dollars is good enough to sort of cover that.
Speaker 2: But you've also talked about quite a bit about sort
Speaker 2: of like the convertible bond problem, and it almost seems
Speaker 2: like maybe Sailors sort of headfaked the industry almost, if
Speaker 2: you will, because micro strategy came out with the convertible bonds,
Speaker 2: and now there's strategy which is maybe like the two
Speaker 2: point zero, which is like no more vertibles and now
Speaker 2: it's like atm and preferreds. So what's this convertible bond
Speaker 2: problem that you see that seemingly sort of headfake the
Speaker 2: industry to like, now everybody's copying that part, but it
Speaker 2: seems to be a big problem.
Speaker 1: Yeah. I can only speak to the risks associated with
Speaker 1: a convert relative to it preferred, and that's when duration,
Speaker 1: so converts come do and that term debt is very
Speaker 1: problematic if Bitcoin has a sustained draw down. Two, it's
Speaker 1: the pricing of his convertible notes and the delta hedging
Speaker 1: where people will tend to short the exposure to MSTR
Speaker 1: relative to the bond. So the bonds when they get
Speaker 1: issued represent about fifty percent exposure to MSTR. And most
Speaker 1: of the large players who buy these bonds these convertible notes,
Speaker 1: they short the stock and they scalp the stock on
Speaker 1: the way down. And that's very predatory for the common shareholders.
Speaker 1: And so I don't think that's super advantageous for any
Speaker 1: company who's looking to issue debt. And that's why I
Speaker 1: think that prefers become more popular.
Speaker 2: So it's sort of like at the beginning, it was like,
Speaker 2: oh my gosh, he's raising billions of dollars at like
Speaker 2: zero point eight interest, Like that's amazing, Like why wouldn't
Speaker 2: you want to be at billions of dollars at very
Speaker 2: low rates? Which is why again sort of the headfake.
Speaker 2: Now you see, you know, Swamp sequons, you know, raised
Speaker 2: two hundred million of converts, and I think Pump's company
Speaker 2: rais two hundred fty million of converts. And you see
Speaker 2: that over and over and over. But I guess what
Speaker 2: you're saying is the sort of that predatory nature or
Speaker 2: really it's the function of that convert market is going
Speaker 2: to want to short the stock and so even though
Speaker 2: they're getting the bitcoin, then they have to face the
Speaker 2: headwinds of the of the downward pressure against the equity price.
Speaker 1: Exactly. Yeah, I mean it's a good and a bad.
Speaker 1: Like with everything, there's a negative. So it's a positive
Speaker 1: they get all the bitcoin, it's a negative there's some
Speaker 1: downre equity pressure. One point I think that's really important
Speaker 1: to understand about those converts is you can have a
Speaker 1: senior on secured convert or a senior secured convert. And
Speaker 1: something to watch out for in these capital structures are
Speaker 1: the secured nature of those converts because then there is
Speaker 1: a margin call preference in the price of bitcoint whereas
Speaker 1: with Strategy and most other bitcoin try it's unsecured, so
Speaker 1: there's no margin call risk with those convertible notes.
Speaker 2: So the duration of that debt instrument, as well as
Speaker 2: whether it's secured or not secure, is going to make
Speaker 2: a big difference exactly.
Speaker 1: All those terms really really matter, and we're trying to
Speaker 1: value the credit worthiness of any of these companies.
Speaker 2: Yeah, do you think there's like a ratio where, like,
Speaker 2: you know, we could probably take twenty percent in converts
Speaker 2: and that extra bitcoin will help our stock grow, but
Speaker 2: it doesn't really hold our stock down that much. Is
Speaker 2: there like some sort of a ratio that you think
Speaker 2: might work or does it really come down to those
Speaker 2: terms that you said?
Speaker 1: Yeah, I think it depends on whether or not you
Speaker 1: can cover those converts with free cash flow. If you can,
Speaker 1: I would go heavy on the converts because you have
Speaker 1: maximum leverage with the lowest amount of risk as long
Speaker 1: as it's not secured. But in terms of the short pressure,
Speaker 1: I think bitcoin's price pushes. Bitcoin's price is really the
Speaker 1: forcing function there, Like I wouldn't The shorts are predatory,
Speaker 1: but they're not. They don't cripple stock price, so I
Speaker 1: don't think they're a massive issue.
Speaker 2: So if you could get it on good terms with
Speaker 2: potentially being unsecured where you're not basically forced to sell,
Speaker 2: and bitcoin runs, we're making you all the time as
Speaker 2: the time of recording, and I think we had one
Speaker 2: thirteen today. If it runs the two hundred thousand, that
Speaker 2: headwinds of the pressure of the short selling is probably
Speaker 2: not going to matter exactly.
Speaker 1: And when those converts are really deep in the money,
Speaker 1: so there's a strike on the convert where they can
Speaker 1: convert the short delta arbing, the delta hedging that goes
Speaker 1: on is pretty much negated at stock prices well above
Speaker 1: the conversion price, So as you get higher and higher
Speaker 1: as bitcoin runs, it matters less than us.
Speaker 2: You've said that. I think you've said that their predatory
Speaker 2: towards the stock and that strategy is frustrated with them.
Speaker 2: I mean, wouldn't there be an opportunity when the price
Speaker 2: a bitcoin runs up to maybe buy those out or
Speaker 2: close those out.
Speaker 1: Yeah, strategy has the ability to convert call those for
Speaker 1: conversion early as long as there's certain terms that are met,
Speaker 1: and all of the duration terms have been met, but
Speaker 1: it's not advantageous for Strategy or any Bitcoin treasury to
Speaker 1: call them early because of the good faith with the
Speaker 1: convertible note hedgers and purchasers, and because there's provisions that
Speaker 1: make Strategy or any of these companies issue more shares
Speaker 1: in the case the company itself calls the debt early,
Speaker 1: so they're kind of just waiting until the delta hedges
Speaker 1: are done hedging and they convert.
Speaker 2: Yeah, just kind of like write it out.
Speaker 1: I think it's their best best option.
Speaker 2: Yeah, at this point. What about something more another type
Speaker 2: of instrument, like the Blockchain Group has done where they've
Speaker 2: taken bitcoin that can convert into equity. What do you
Speaker 2: think about those types of converts?
Speaker 1: So interesting, right, And the risk for the corporation is
Speaker 1: exponentially lower when they take bitcoin downside, right because in
Speaker 1: the case of Strategy convertible notes, they have a principal
Speaker 1: payment due on a certain date in the future denominated
Speaker 1: in USD. In the case of Blockchain Group, I mean,
Speaker 1: it's denominated in bitcoin, So you're not going to face
Speaker 1: a situation where you owe more bitcoin to creditors at
Speaker 1: some point in the future, whereas if the price of
Speaker 1: bitcoin plummets over the next four years, strategy will ultimately
Speaker 1: owe those creditors more bitcoin as represented by the flat
Speaker 1: US D value, so very very much so less risky
Speaker 1: from a perspective.
Speaker 2: But you might also say that then they would have
Speaker 2: to give the bitcoin back. So to your point, you
Speaker 2: to give it back and the US dollar value would
Speaker 2: be lower. But like, if the entire kind of strategy
Speaker 2: is to kind of keep that yield growing, if they
Speaker 2: had to give back a bunch of the bitcoin that
Speaker 2: would work in reverse. Wouldn't it be catastrophic.
Speaker 1: It would be catastrophic, and I think for it would
Speaker 1: be catastrophic. But the problem I think there is that
Speaker 1: if those shares don't convert over a period of time,
Speaker 1: it means the stock underperformed Bitcoin over that duration. And
Speaker 1: so if the stock underperforms Bitcoin, that kind of it's
Speaker 1: all it's all a mess. It's all bad, right.
Speaker 2: If the stock can't overperform Bitcoin.
Speaker 1: Exactly, then bitcoin yield wasn't effective and you lost money
Speaker 1: as a convert holder.
Speaker 2: So let's talk about that for a minute. So you know,
Speaker 2: that's what we see. I see a lot in the
Speaker 2: bitcoin space. I'm sure you do as well as like
Speaker 2: will these outperform Bitcoin, otherwise why don't I just hold Bitcoin?
Speaker 2: And so you know, in the bitcoin community, we believe
Speaker 2: one bitcoin's one bitcoin, that's the hurdle rate, you know,
Speaker 2: et cetera, et cetera, And so I see that a lot.
Speaker 2: But then, like you're an index investor, you used to be,
Speaker 2: So it's like modern portfolio theory or just normal portfolio
Speaker 2: theory would be sort of a diversified portfolio, right, I mean,
Speaker 2: maybe some people might put five percent towards bitcoin or
Speaker 2: ten percent towards bitcoin, and it doesn't seem that the
Speaker 2: majority of people are on a bitcoin standard. So they're
Speaker 2: trying to beat the S and P five hundred, they're
Speaker 2: trying to beat the inflation rate, but not necessarily bitcoin's rate.
Speaker 2: So what do you think think about that? Because, like
Speaker 2: I said, in the bitcoin community to be thinking, well,
Speaker 2: why would I buy that if it can't outperform bitcoin?
Speaker 2: But I don't feel like the normal, the normy investor
Speaker 2: thinks that way.
Speaker 1: Yeah, there's a lot of benefit and there was early
Speaker 1: on for a bitcoin treasury company trading as a public equity,
Speaker 1: the ability to margin and borrow at good rates against
Speaker 1: that equity, the ability to sell calls the ability to
Speaker 1: leverage that position and store it a broken's account. So
Speaker 1: there are a lot of advantages to those public bitcoin
Speaker 1: exposure equities. But the way I look at it is
Speaker 1: like when I'm trying to value a bitcoin equity relative
Speaker 1: to the bitcoin hurdle rate, is you can leverage bitcoin directly, right,
Speaker 1: You can just take leverage on your bitcoin and tech
Speaker 1: theory outperform it. So these companies have to have some
Speaker 1: sort of debt instrument that you can't buy. They have
Speaker 1: to have bitcoin yield in future expectations that you believe
Speaker 1: will outpace bitcoin, And I think you have to look
Speaker 1: long term and think about the durability of their own
Speaker 1: bitcoin per share yield over a ten year period and
Speaker 1: then decide for yourself whether or not they're going to outperform.
Speaker 2: Right. But what I'm saying is I don't know if
Speaker 2: the majority of investors in the world are trying to
Speaker 2: outperform bitcoin.
Speaker 1: Oh, I mean, great point.
Speaker 2: Yeah, that's what I'm saying. So like you and I
Speaker 2: in the bitcoin space were like, hey, if it's not
Speaker 2: going to beat bitcoin's return, why would I buy it?
Speaker 2: But the majority of investors out there, they're just trying
Speaker 2: to beat the S and P five hundred, Yeah, or
Speaker 2: they're just trying to beat inflation. So if you know,
Speaker 2: if micro Strategy stock or XYZ stock went up thirty
Speaker 2: percent this year, they might be pretty excited about that,
Speaker 2: even though it underperformed Bitcoin.
Speaker 1: Totally, totally. I think everyone has their own benchmark, right,
Speaker 1: and if the SMP's the benchmark, a lot of anything
Speaker 1: that has to do with bitcoin has performed quite well
Speaker 1: relative to that benchmark.
Speaker 2: Do you think there's some sort of like launch launch
Speaker 2: plan and then like maybe escape velocity where like most
Speaker 2: of these companies maybe are sort of bootstrapping off the
Speaker 2: backs of bitcoiners djen bitcoiners that are looking for a
Speaker 2: more yield than what bitcoin can provide. But then eventually
Speaker 2: they get big enough to where they get into mainstream finance,
Speaker 2: and then they're being purchased by regular equity holders that
Speaker 2: are not trying to beat bitcoin as a hurdle rate.
Speaker 1: Absolutely, and a lot of them do get included in
Speaker 1: those passive equities passive indices in their you know, listing
Speaker 1: exchange in their listing country, and that's a huge kind
Speaker 1: of bitcoin trojan horse into the traditional capital markets. And
Speaker 1: I think it's really really good for bitcoin. A lot
Speaker 1: of people, a lot of hardcore bitcoiners, get upset with
Speaker 1: the Bitcoin Treasury is saying it's paper bitcoin and this
Speaker 1: is and the next thing. But I think what they
Speaker 1: miss is that it's really an introduction of bitcoin into
Speaker 1: capital markets in ways that you know, a lot of
Speaker 1: investors holding these diversified portfolios don't even know they're holding
Speaker 1: their beginning to hold these sorts of companies. I mean,
Speaker 1: strategy was in the Russell to just got added to
Speaker 1: the Russell two thousand a few months ago.
Speaker 2: Yeah. I put a post on X a week or
Speaker 2: two ago that went kind of viral and I basically
Speaker 2: said that you know, these these are not for bitcoiners.
Speaker 2: These are not a replacement for cold storage, right. This
Speaker 2: is really for trapped equity that doesn't have a way
Speaker 2: to get exposure to get into it, and so it's
Speaker 2: not a replacement for that. That's why kind of the
Speaker 2: first question I asked you is if you were a
Speaker 2: bitcoin or first, But I guess back to that escape velocity.
Speaker 2: So then if the company can get big enough and
Speaker 2: it can be looked at like additional equity, then as
Speaker 2: a previous a reformed equity investor, I'm just kind of curious, right,
Speaker 2: we would typically value those based off of potential future earnings,
Speaker 2: just kind of cash flows, et cetera. Right, so they'd
Speaker 2: sort of have like, well, you know, if Apple can
Speaker 2: continue to expand its iPhone sales and its profit margins
Speaker 2: stay about the same, how much will be worth in
Speaker 2: three years or five years from now? Even maybe a
Speaker 2: Warren Buffett who would never invest into bitcoin because it
Speaker 2: doesn't produce anything, but he liked capital efficient businesses, right,
Speaker 2: so they had him out. They needed very little capital
Speaker 2: kind of keep going. So then I'm curious how you
Speaker 2: might look at these from like more maybe more in
Speaker 2: that lens, right, So, like take strategy for example, it
Speaker 2: sells a product, it has three or four products, right,
Speaker 2: it's got to strike stripe drive, right, it's got it preferreds.
Speaker 2: It has a massive profit margin on those fifty percent.
Speaker 2: It's very capital efficient. It doesn't take any really very
Speaker 2: much capital to do that. And then if it just
Speaker 2: holds the bitcoin, I mean, Sailor said, what's the worst
Speaker 2: that can happen? We can't raise any more money, and
Speaker 2: we're a sixty billion dollar company growing by sixty percent
Speaker 2: a year. So if bitcoin gets to two hundred thousand
Speaker 2: or gets to five hundred thousand, then how much is
Speaker 2: strategy worth? So I'm curious do you look at it
Speaker 2: like that trying to sort of take that traditional equity
Speaker 2: lens and try to sort of project out that diskind
Speaker 2: of cash flow model.
Speaker 1: I think you have to do those valuations on a
Speaker 1: bitcoin standard because a traditional corporation's assets you can't personally
Speaker 1: own and have them producing whatever they produce at a
Speaker 1: rate of thirty percent annually. So I think it's difficult
Speaker 1: to consider the bitcoin price appreciation as part of earnings.
Speaker 1: I really like the metric bitcoin gain, which is the
Speaker 1: new the US dollar value of the new bitcoin that's
Speaker 1: added on a per share basis for any of these corporations,
Speaker 1: because that's real new dollars in the door per share,
Speaker 1: And so I really look at that metric try to
Speaker 1: figure out how valuable that is moving forward, and that's
Speaker 1: ever increasing because the price of bitcoin is also increasable.
Speaker 2: What happens if Bigwin goes down, then.
Speaker 1: Then you'd be looking at a scenario in which the
Speaker 1: bitcoin gains still positive USD value, but it's not a
Speaker 1: compounding positive USD value in the short term.
Speaker 2: Right, got it?
Speaker 1: So?
Speaker 2: I mean a lot of people seem to use the
Speaker 2: m NAV metric as sort of like that multiple to
Speaker 2: the nave, right, and then the multiple to the bitcoin
Speaker 2: that they have. Do you think that's more of like
Speaker 2: a leading indicator of where the potential price could be?
Speaker 2: Or is that like a lagging indicator sort of telling
Speaker 2: you where they're at.
Speaker 1: I think it's so hard and so complicated, and I
Speaker 1: know we spend a lot of time thinking about this.
Speaker 1: M NAV I originally believe was a function of the
Speaker 1: leverage in the capital structure. Right, If you have one
Speaker 1: hundred dollars a bitcoin and thirty percent of that is
Speaker 1: on leverage, is borrowed ad zero percent debt, which was
Speaker 1: originally how you know strategy the of the bitcoin leverage
Speaker 1: equity capital stack existed. Then if you believe bitcoin's going
Speaker 1: up over a long term time horizon, then the debt
Speaker 1: will melt away in the value of the bitcoin will increase.
Speaker 1: So there should be a theoretical premium on that leverage
Speaker 1: if you believe bitcoin's going up. If you believe bitcoin's
Speaker 1: going down over a long period of time, there should
Speaker 1: be a discount on that leverage capital structure. So I
Speaker 1: think one MNAV is function of the leverage. Now all
Speaker 1: these companies are yielding bitcoin or increasing the bitcoin per share,
Speaker 1: so a lot of times m NAV has become kind
Speaker 1: of a function of the future expectations of on a
Speaker 1: bitcoin each shareholder will have. And I think those work
Speaker 1: in tangent and they ebb and flow, and there's just
Speaker 1: market dynamics, you know. Index inclusion pushes up the MNAV,
Speaker 1: fear push it down the m NAV. So it's not
Speaker 1: just one kind of metric.
Speaker 2: Would you say it could almost be similar in a
Speaker 2: way to like a pe ratio where it's like sort
Speaker 2: of like hey, Metaplanet's at a five or a six
Speaker 2: because the rate at their bitcoin yield, the rate at
Speaker 2: which they're growing the bitcoin stack, they can cover that
Speaker 2: in a short period of time, whereas Strategies is much
Speaker 2: lower because as a percentage, they're growing their bitcoin yield slower.
Speaker 2: So it's sort of like that is that it's like
Speaker 2: a forward looking metric based off of how fast they're
Speaker 2: growing into that I think.
Speaker 1: So I think that's a really good way to put it,
Speaker 1: and that's definitely how the market's starting to price these things. Right.
Speaker 1: We've seen really really high end navs for these smaller
Speaker 1: companies that are yielding bitcoin quickly and lower end navs
Speaker 1: for larger corporations that the base effect math kind of
Speaker 1: inhibits their BDC yield for share.
Speaker 2: Yeah, Now, because you think that size matters, would you
Speaker 2: say that right for the collateral base that you could have?
Speaker 1: Right?
Speaker 2: Do you think the bitcoin yield is maybe used too
Speaker 2: much and it's not really as important as people make
Speaker 2: it out to seem because back to Smarter Web company
Speaker 2: or even Metaplanet, they have a pretty incredible yield, but
Speaker 2: micro strategy or strategy or you know, adds more bitcoin
Speaker 2: in one purchase than Metaplant even has for example. So
Speaker 2: I mean, how is that? Is that a metric that
Speaker 2: you that you use a lot?
Speaker 1: I think about it in a couple different ways, And
Speaker 1: the main way I think about is durability of bitcoin
Speaker 1: yield because the real question is how for looking are
Speaker 1: the is in equity? Right? All equities are forward looking,
Speaker 1: whether that be the price, the PD ratio, et cetera.
Speaker 1: But with a bitcoin treasury company, then the question you're
Speaker 1: asking is how far looking is the future expectation of
Speaker 1: bitcoin per share? And so if the company has a
Speaker 1: really fast bitcoin yield, but it can won't be able
Speaker 1: to sustain bitcoin yield in five years or during a drawdown.
Speaker 1: You can't look out that far. If you have a
Speaker 1: company that can issue you know, eight percent fixed debt
Speaker 1: against their massive capital stack and continue to yield bitcoin
Speaker 1: into perpetuity, maybe that is a more durable, you know,
Speaker 1: business structure. But where yet to see that, you know,
Speaker 1: practice in the market.
Speaker 2: Yeah, well at Prague there was video Sailor did with
Speaker 2: Adam Back and Alexander from the Blockchain Group, and I
Speaker 2: think he actually called it a durable business model, which
Speaker 2: was issuing the preferred to add the bitcoin, and that
Speaker 2: was the durable model. So going back to the size matters,
Speaker 2: and you talked about like the credit worthiness and so
Speaker 2: I'm guessing what do you mean by credit worthiness and
Speaker 2: why is that important?
Speaker 1: Credit worthiness? And for a bitcoin treasury company is really
Speaker 1: comes down to the different tranches of debt in the
Speaker 1: capital stack and how over collateralized they are by the
Speaker 1: bitcoin and the track record of the company in bitcoin
Speaker 1: acquisition and not messing up the strategy quite frankly, so
Speaker 1: do they take do they borrow against their bitcoin for
Speaker 1: other purposes that harm the bitcoin itself, that jeopardize the bitcoin,
Speaker 1: Do they do things with the bitcoin, do they lend
Speaker 1: it out that could jeopardize the bitcoin on the balance sheet.
Speaker 1: All those things will hurt the credit rating of a corporation.
Speaker 2: Then and issuing issuing converts that were recourse or had
Speaker 2: term on them, right.
Speaker 1: Exactly secure debt, I mean, that would really hurt the
Speaker 1: credit worthiness of any security issued below it in the
Speaker 1: capital stack, got it. And so these are the things
Speaker 1: you're looking at, and people say the credit worthiness of
Speaker 1: the company, I think the real question here is the
Speaker 1: credit worthiness of the instrument, and the company kind of
Speaker 1: defines that credit worthiness because in Strategies capital stack, or
Speaker 1: in Semilar's capital stack, I mean, the similar converts are
Speaker 1: credit worthy because of what Semilar has done in the past,
Speaker 1: and their bitcoin stack is overclateralized by you know, x
Speaker 1: amount percent. With Strategy, they have four different products, so
Speaker 1: each of those it's a different credit rating rating relative
Speaker 1: to each other. And there'll be more and more of that,
Speaker 1: in my opinion.
Speaker 2: But those preferreds, the four that you mentioned for Strategy,
Speaker 2: they're not actually collateralized though, right, so they're sort of
Speaker 2: backed by the credit rating of Strategy, but not actually
Speaker 2: collateralize themselves.
Speaker 1: They're not secured, but they do have a liquidation preference.
Speaker 1: So in the case of strategies dissolution or if they're
Speaker 1: also cumulative dividends other than stride, So the dividends if
Speaker 1: they're ever missed for Striper Strife, they compound against Strategy,
Speaker 1: and the shareholders have different provisions where they can put
Speaker 1: a board member onto Strategy and make sure those difidence
Speaker 1: get paid. In the case of the dividends aren't paid
Speaker 1: over a long enough period of time, they're owe the
Speaker 1: liquidation preference, which moves to meet the value of both
Speaker 1: crecord strife. So there's protections in place that that protect
Speaker 1: those shareholders.
Speaker 2: So the same so they're backed by the credit worthiness
Speaker 2: of micro Strategy, but not necessarily the bitcoin is the.
Speaker 1: Collateral exactly, Yeah, exactly, And so then argue that worthiness
Speaker 1: is a function of the bitcoin is collateral. But you're
Speaker 1: totally right, it's not secured. It's not directly bitcoin collateralized.
Speaker 2: Right, So then if you want to issue, if you
Speaker 2: want to scale the company, you want to issue the preferreds.
Speaker 2: I want to make sure I have enough bitcoin on
Speaker 2: my books to be credit worthy, but not necessarily back
Speaker 2: those because if I back those as a collateral asset,
Speaker 2: then that actually damages my credit worthiness.
Speaker 1: It has to be unsecured debt. That's yeah, that's the
Speaker 1: only way I would put it. Yea. If it's if
Speaker 1: you have secure debt anywhere in your sheet on your
Speaker 1: balance sheet that's secured by the bitcoin, it really jeopardizes
Speaker 1: the credit worthiness of the institution.
Speaker 2: Got it. Okay, So you've got a new fund going.
Speaker 2: Congratulations on that. Just for everybody that wants to know,
Speaker 2: smart guy running a fund to obviously see the opportunity
Speaker 2: in space, what is Can you give us your framework
Speaker 2: that you're looking for to try to identify which are
Speaker 2: going to be the outliers and where a good valuation
Speaker 2: is today in the future, et cetera.
Speaker 1: Absolutely, We only invest a small portion of the fund
Speaker 1: in bitcoin treasuries. Specifically, our main focus is on preferred
Speaker 1: coming to the market, So I guess that's a form
Speaker 1: of bitcoin treasuries and the options chain. So I got
Speaker 1: my start trading options on both IBIT, MSTR MSTR during
Speaker 1: the bear and that's where I see a lot of
Speaker 1: value is pricing bitcoin in decaying fiat options. I think
Speaker 1: you can't price you can't price a bitcoin option in
Speaker 1: decaying FIAT is what I've always believed, and I think
Speaker 1: that will continue to be the case, especially as more
Speaker 1: of these treasury companies have an options market, you can
Speaker 1: express different bath in ways you can't with just a
Speaker 1: traditional equity. So we're a leverage bitcoin alpha fund, and
Speaker 1: we combine options on large stable bitcoin jrudgery companies and
Speaker 1: small allocations to investments like you may.
Speaker 2: Work, okay, so you're not like long any of these companies. Necessarily,
Speaker 2: you're taking sort of your experience, your background with the
Speaker 2: options market, and sort of leveraging up maybe more like
Speaker 2: trading positions around these yep.
Speaker 1: We take multi month, multi year directional positions on mostly
Speaker 1: strategy and IBIT, but then we also go long for
Speaker 1: long periods of time in these bitcoin truatury companies as well.
Speaker 1: So it's kind of a hodgepodge of all.
Speaker 2: Of that, got it. So then you're not really trying
Speaker 2: to determine if it's cheap or expensive, or what the
Speaker 2: valuation is today or potential future valuation. You're just more
Speaker 2: looking for a dislocation in the market that you could
Speaker 2: take advantage of exactly. Yeah, Yeah, which I guess would
Speaker 2: still require you to somewhat understand where that fair market
Speaker 2: value is.
Speaker 1: So yep, it does, and so we are really focused
Speaker 1: on trying to value the bitcoin treasury companies, and I
Speaker 1: think valuing a bitcoin treasury company changes during every phase
Speaker 1: of a market cycle.
Speaker 2: So can you walk us through that? And can you
Speaker 2: walk us through that?
Speaker 1: Absolutely, as we enter kind of a euphoric phase, one
Speaker 1: saying one old trading saying is two times crazy is
Speaker 1: still just crazy. So as the cycle heats up, there
Speaker 1: will be a lot of crazy things happening in the
Speaker 1: market in dislocations. But I think the real money's made
Speaker 1: on the backside, and who doesn't lose their shirt when
Speaker 1: this is all over. So we're just very conscious of
Speaker 1: not forward. We don't like to project out past historical
Speaker 1: bitcoin yield for bitcoin treasuries, and that's something I'm really
Speaker 1: really feel very strongly about. A lot of people see
Speaker 1: the exponential growth in bitcoin treasuries and then assume that
Speaker 1: will continue forward, that they'll own all the bitcoin in
Speaker 1: like three months, And I think that's no way to
Speaker 1: value one of these companies because a lot of it
Speaker 1: has to do with liquidity, and so we try to
Speaker 1: be pretty honest about that.
Speaker 2: So Metaplan has been able to maintain this one percent
Speaker 2: for quite a while. They've been pretty consistent about that.
Speaker 2: But then you have a small company, like a smarter
Speaker 2: web company who has like some crazy yeld that I
Speaker 2: don't know if I saw it right the other day
Speaker 2: it was like twenty four thousand percent or something like that.
Speaker 2: I don't know. Gosh, obviously that's not sustainable, right, they'd
Speaker 2: have the whole bitcoin supply in a year or whatever.
Speaker 2: So what do you think happens to a company that
Speaker 2: comes out of the gate hot with a really high
Speaker 2: bitcoin yield that's obviously non sustainable, is going to have
Speaker 2: to slow that down at some point.
Speaker 1: It's going to be a function of the demand for
Speaker 1: the equity. Right, if you're yielding bitcoin by issuing equity,
Speaker 1: which a lot of these are doing via different mechanisms,
Speaker 1: whether moving strike warrants or atm then there has to
Speaker 1: be a sustained demand for the equity, which in a
Speaker 1: lot of markets there are. Obviously Japan has been extremely
Speaker 1: receptive and that's why it's performed so well. In other
Speaker 1: markets that liquidity may drive up. Look at Strategy for example,
Speaker 1: they had they had like three hundred percent annualized bitcoin
Speaker 1: yield yield for three weeks last November. So it's all
Speaker 1: liquidity in the market and kind of euphoria demand for
Speaker 1: the equity, and I think that comes and goes.
Speaker 2: Yeah, But I mean if that if that yield dramatically
Speaker 2: slows down, I mean that could dramatically break the price,
Speaker 2: the price of the equity down with it, right, because
Speaker 2: if they're looking at sort of that growth and trying
Speaker 2: to project out like the days to cover that whatever
Speaker 2: potential projected high MNAB is, it seems like that could
Speaker 2: be a catastrophic event as well.
Speaker 1: Yeah, And that's one metric I don't use, is day's
Speaker 1: color MNAB. I know a lot. It's been popular for
Speaker 1: a lot of folks, but I think you have to
Speaker 1: look at it from a risk reward framework. And if
Speaker 1: you're treading at a twenty m NAV, your downsides your
Speaker 1: downsides ninety five percent, and so that's something to really
Speaker 1: really consider when you take these bets.
Speaker 2: So what would be your key metrics that you're looking at.
Speaker 1: Then it's the risk reward profile of potential bitcoin acquisition
Speaker 1: realistically based on kind of liquidity and that specific market.
Speaker 1: The downside of the enav compressing to the fair value
Speaker 1: value of the leverage rate show, So that's not necessarily one.
Speaker 1: That maybe be one point three, one point four, depending
Speaker 1: how much leverage there is in the capital stack, and
Speaker 1: then also kind of the market conditions for that specific equity.
Speaker 1: So in the case amount of planet, obviously there's a
Speaker 1: premium for the nuances of the Japanese market.
Speaker 2: Because of the fixed income markets that they're sort of
Speaker 2: trapped in that market, got it? So I like how
Speaker 2: you said this. So the m NAB based off of
Speaker 2: the leverage they have in the stack, because for a
Speaker 2: well run bitcoin treasury strategy company, they're using leverage and
Speaker 2: they're tapping into cheap, cheap debt cheap leverage in the
Speaker 2: debt equity markets, So they should always be higher than
Speaker 2: one if it's a good company, if it's a well
Speaker 2: run company. And so you're looking at bitcoin' what's that
Speaker 2: and Bitcoin's going up over a long period of time, right, Yeah,
Speaker 2: but yeah, I mean if they can apply some leverage
Speaker 2: and yeah, assuming right if bitcoin drop that leverage works
Speaker 2: against them obviously to your point.
Speaker 1: Exactly, I believe bitgoin's going yourself.
Speaker 2: Yeah, well, over a long period of time, I mean,
Speaker 2: you know, I still think the four year cycles in play.
Speaker 2: Until proven otherwise, maybe that happens next year. We don't
Speaker 2: know how high it'll go and how far to pull back.
Speaker 2: I don't advise people waiting for a dip could go
Speaker 2: to two fifty and pull back to one fifty if
Speaker 2: we don't know. But until proven otherwise, there's there's there's
Speaker 2: probably a bear market. Maybe it's only a thirty percent
Speaker 2: drove down, we don't know, but it is going to
Speaker 2: put these companies into that position. So you think, really
Speaker 2: the ones that are going to sink or swim are
Speaker 2: really the ones that use this leverage properly. I think
Speaker 2: that's what you're saying right now.
Speaker 1: And to have a way to use bitcoin in a
Speaker 1: bear market, right, like we talked about earlier, if you
Speaker 1: only yield bitcoin by having demand for your equity, it's
Speaker 1: really tough. If you can yield bitcoin using issuing fixed
Speaker 1: income products that are overcollateralized, you could still have bitcoin
Speaker 1: yielding a bear and I think that's really that's a
Speaker 1: big differentiator.
Speaker 2: Yeah, because you're able to add when when it's when
Speaker 2: it's cheap, which is good you're buying, you're buying the dip.
Speaker 2: Theoretically you could just sort of hunker down and down
Speaker 2: the hatches, you don't lose any bitcoin, and you wait
Speaker 2: six or nine months and it comes back up again
Speaker 2: and you're back off to the races again.
Speaker 1: Exactly.
Speaker 2: Yep, that's not the worst case.
Speaker 1: That's a pretty good case.
Speaker 2: The worst case is becoming a force seller.
Speaker 1: Exactly. Ye do you see poor compression? Right, Like, if
Speaker 1: there's a future expectation of bitcoin yield that doesn't manifest
Speaker 1: and it's trading out of twenty m NAV, you may
Speaker 1: never recover that.
Speaker 2: You may never recover the twenty m NAV exactly right,
Speaker 2: So you might get back down to a two or three.
Speaker 2: But yeah, and obviously there's there's plenty of parallels in
Speaker 2: history that shows that with certain tech stocks and stuff
Speaker 2: that are still trading today is still really good companies
Speaker 2: like Oracle for example, but never reclaimed it's like twenty
Speaker 2: two thousand high. So we've seen that happen before. So
Speaker 2: when you talk about defending the m NAV regardless of
Speaker 2: market condition, what would that look like?
Speaker 1: Defending the m NAV is really really important, especially with
Speaker 1: senior claim over the bitcoin, so something like that. It's
Speaker 1: been brought to my attention about the predatory shorting is
Speaker 1: in a bear market, all these convertible note arbitragers press
Speaker 1: the stock, They lay on the stock and push it lower,
Speaker 1: push it lower, And when an en NAV goes lower
Speaker 1: and lower and lower, the company can't issue equity and
Speaker 1: yield bitcoin, so their m NAV drops, the bitcoin yield drops.
Speaker 1: It gives the short sellers more reason to short the
Speaker 1: stock because there's no bitcoin yield. So it's kind of
Speaker 1: a self perpetuating downward cycle. Right. There needs to be
Speaker 1: some sort of instrument that they can issue in such
Speaker 1: a market condition such that they can get bitcoin yield
Speaker 1: back up and running, they can add leverage to the
Speaker 1: capital stack and force the shorts to lay off the
Speaker 1: stock and take it potentially below one MNAV. That instrument
Speaker 1: for strategy is strived.
Speaker 2: So that's why you're so bullish on it.
Speaker 1: Our ferds, Yeah, I think they're a really necessary component
Speaker 1: of an LBE.
Speaker 2: Yeah. So it's a necessary component. It's a race to
Speaker 2: get there, but the company has to be credit worthy
Speaker 2: enough to get there, So then you need size, and
Speaker 2: you need some sort of longevity or some sort of
Speaker 2: reputation to prove that you can do what you said,
Speaker 2: you did, I.
Speaker 1: Think all those things are extremely necessary.
Speaker 2: Yeah, yeah, okay, Well, I mean that's kind of what
Speaker 2: I see as well. That's kind of how I'm thinking
Speaker 2: about it. What about I mean, how do you think
Speaker 2: about it? I mean, I guess you're more of a
Speaker 2: sort of I hate to use the word trader, but
Speaker 2: you know you're doing a different strategy with your option
Speaker 2: strategy and the fund. But how do you think the
Speaker 2: average investor would think about allocating across these.
Speaker 1: Well, I think you start with Bitcoin first. You understand
Speaker 1: that you believe in that, and you look at it
Speaker 1: what you expect to be it's terminal or long term
Speaker 1: growth rate, and that's very high, and you can't really
Speaker 1: expect to beat that unless you're a professional or are
Speaker 1: very good working off that. You have to find something
Speaker 1: that has a good risk adjusted return relative to bitcoin,
Speaker 1: and most of these ledees they may have massive turns,
Speaker 1: but risk adjusted it's difficult because it's so unknown and
Speaker 1: so new. So I think you have to think really,
Speaker 1: really hard, really really in depth about what happens in
Speaker 1: a worst case scenario. In a bad scenario, how much
Speaker 1: do you lose without allocation? How much do you make
Speaker 1: in a really positive scenario and then decide how you
Speaker 1: allocate two different whether it be an options contract, an
Speaker 1: lbe a you know something else. So that's the way
Speaker 1: the kind of mental framework I use.
Speaker 2: Yeah, good, good, Okay. So basically what you're saying is
Speaker 2: allocate based on risk.
Speaker 1: Alocate based on risk. Yeah, and don't listen to any
Speaker 1: mode about risk. Whoever is running the company, whoever, don't
Speaker 1: listen to them. Everyone's talking their book. Think hard about yourself.
Speaker 1: You have to protect yourself first and foremost. What is
Speaker 1: the risk I am taking on based on my knowledge
Speaker 1: of the prospectus, the capital structure, and everything I know
Speaker 1: to be true about the company. You have to rely
Speaker 1: on yourself because if anything goes south on any sort
Speaker 1: of investment, no one will hold your hand. It's just
Speaker 1: you in an empty brokerage account.
Speaker 2: Nice. Give me a final thought. So we've obviously we're
Speaker 2: talking about the treasury thing. It's the hottest subject going
Speaker 2: right now, as we've seen it all the big conferences.
Speaker 2: If someone walked away from this conversation with one key
Speaker 2: insight about the future of these bitcoin treasury companies, what
Speaker 2: is that? What does the future hold?
Speaker 1: It's very easy to compare the bitcoin treasury companies to
Speaker 1: a spack craze or ico craze. But if you believe
Speaker 1: in bitcoin long term, there will be relevance for a
Speaker 1: bitcoin treasury strategy. The part of the bitcoin treasure strategy
Speaker 1: I don't know will exist in five years is issuing equity.
Speaker 1: The demand for equity in the market to yield bitcoin.
Speaker 1: That's been a massive capital market's arbitrage that has existed.
Speaker 1: I don't think it will exist into perpetuity. So people
Speaker 1: have to understand that all these bitcoin treasuries will have
Speaker 1: to evolve over time, and I don't know what that
Speaker 1: looks like right now. It seems to be preferred and
Speaker 1: fixed income debt issuance, So that's kind of where I
Speaker 1: think people should be looking.
Speaker 2: So the opportunities now don't it's going to look like
Speaker 2: in a couple of years is they don't let it
Speaker 2: pass you by exactly? All right, Dan, you guys do
Speaker 2: a great job on the True North podcast. I want
Speaker 2: to shout that out. We'll link to that down below. Dan,
Speaker 2: you do amazing contribution there. Anything else people should be
Speaker 2: paying attention to for you?
Speaker 1: No, all my works on my Twitter, my Twitter feed
Speaker 1: at Hillary Underscore, Dan h I L l e r Y.
Speaker 1: I'm running a small private place and fund that will
Speaker 1: be a combination of auctions and bitcoin treasury strategies. It
Speaker 1: won't be a complete swing, you know, home run, it
Speaker 1: will be steady outperformance of bitcoin ideally. Other than that,
Speaker 1: thanks for everything to do Mark, This has been awesome.
Speaker 2: Yeah, thanks all, ich Stan