Speaker 1: There are no losers here except the twentieth century antiquated
Speaker 1: oligopoly that is selling inferior credit instruments. But that's technology.
Speaker 1: The human race has got to move forward. The skeptics
Speaker 1: and the cynics, they choose to be strategically ignorant.
Speaker 2: Twenty seven years ago you didn't have trading apps on
Speaker 2: your phone, and now it's even more accessible, but yet
Speaker 2: the market is still held back.
Speaker 1: The investment cycle is one thousand times faster than technology,
Speaker 1: real estate, anything else you've ever seen before in your life.
Speaker 1: We're literally selling fifty million an hour or one hundred
Speaker 1: million an hour and buying one hundred million dollars a
Speaker 1: bitcoin the same hour.
Speaker 2: Is there an appetite for over collateralized debt that pays
Speaker 2: ten percent?
Speaker 1: Just go walk down the street and ask one hundred people,
Speaker 1: would you like a stable investment that yielded ten percent
Speaker 1: tax deferred? If you think the bitcoin is okay, I
Speaker 1: can jack your retirement income from thirty thousand to one
Speaker 1: hundred and twenty thousand. So what we're really talking about
Speaker 1: is creating an annuity or a pension, And so what's
Speaker 1: the offers like? Happily ever after, it's social security. That's
Speaker 1: the product for how many people a.
Speaker 2: Billion we need to go build the world that we want.
Speaker 1: The real interesting question for all of us in the
Speaker 1: industry is.
Speaker 2: Michael. First of all, thank you for taking the time
Speaker 2: to sit down with me here in DC.
Speaker 1: Yeah, happy to be here.
Speaker 2: I've gotten to spend a little bit time with you,
Speaker 2: but I've never sat down one on one, so I've
Speaker 2: been excited for this. There's one question I've always wanted
Speaker 2: to ask you because I love history, and I know
Speaker 2: you majored in science of history of science, but you
Speaker 2: also have the MIT engineering degrees in astronautics, system dynamics,
Speaker 2: and history of science. It seems like this unique blend
Speaker 2: and I'm just curious how that the history so you
Speaker 2: sort of get the history as well as like aeronautics,
Speaker 2: helps you maybe understand bitcoin better and maybe sort of
Speaker 2: see where the future of bitcoin goes.
Speaker 1: Yeah, I think when you read I've read a lot
Speaker 1: of history of late in its original form, you see
Speaker 1: historians observing things. They're making observations that are noting its suboptimal,
Speaker 1: like observing ten thousand tragedies.
Speaker 2: Right.
Speaker 1: Then occasionally you'll see philosophers who are complaining about it.
Speaker 1: So philosophers synthesize and they complain about about what they
Speaker 1: don't like, or they lament that it isn't better the
Speaker 1: Austrian economies. The philosophers. The engineers build machines that work airplanes, ships, railroads, right,
Speaker 1: et cetera, electric motors. The scientists they divine the relationships.
Speaker 1: The math that you know explains the universe, and the
Speaker 1: physicists you know, and the mathematicians take that you know
Speaker 1: to the extreme right. I had a background on all
Speaker 1: those things. I think it was useful to have studied physics.
Speaker 1: It's useful to have studied math. It's useful to have
Speaker 1: studied all of the sciences and the engineering disciplines, which
Speaker 1: get deep in thermodynamics and mechanics. And I think it's
Speaker 1: also useful to have studied history and philosophy and the
Speaker 1: history of science. It's particularly interesting subject because it goes
Speaker 1: back and looks at the histories, but it's extrudes it
Speaker 1: through or filters through a scientific lens, like the classic
Speaker 1: non scientific historian says this happened, and this happened, and
Speaker 1: that was sulb optimal, right, and the history of science
Speaker 1: historians says that happened because of this. That happened because
Speaker 1: of this, Yeah, guns, germs and steel. Right that the
Speaker 1: Europeans didn't just show up to the New World and
Speaker 1: then they conquered it. They showed up to the New World,
Speaker 1: brought a German every but he died. They didn't have
Speaker 1: to conquer it. I think ninety ninety five percent of
Speaker 1: the natives died, you know, And that's that's actually, you know,
Speaker 1: a biological explanation for what happened. If you don't understand
Speaker 1: you know, the science of immunology, or you don't understand germs,
Speaker 1: you couldn't explain it. And then you know, if you
Speaker 1: think about the impact of steel, what's to take to
Speaker 1: create steel and explosives and gunpowder? You know. And so
Speaker 1: the history of science is all about how technology dynamics
Speaker 1: channeled the course of human history. And I think the
Speaker 1: reason it's important to bitcoin is is you can't really
Speaker 1: understand bitcoin if you're not an engineer. If you don't
Speaker 1: understand engineering systems, engineering control systems, servo mechanisms, the system stability,
Speaker 1: you've got to understand all those concepts. Intuitive if you
Speaker 1: don't understand thermodynamics. You know, the people that are pure
Speaker 1: computer scientists who are weak on physics and engineering and systems.
Speaker 1: Oftentimes they create Reube Goldbherd devices in code that a
Speaker 1: hardcore engineer wouldn't build, right, And so you can't just
Speaker 1: be a coder. And of course if you're a pure
Speaker 1: engineer and you reduce the world, or I built a
Speaker 1: ship or I built I built a gun, but you
Speaker 1: don't consider the implication of the ships and the guns
Speaker 1: on the course of economic and political history, right, then
Speaker 1: you don't really understand bitcoin either, because you have to
Speaker 1: understand the history of money and the history of economics
Speaker 1: and mercantel networks and yeah, yeah, the idea, the idea
Speaker 1: credit networks are local, like a German prints can have
Speaker 1: a credit network, a British prints can have a credit network.
Speaker 1: But gold or silver networks tend to be transnational. Right
Speaker 1: that the French, the Germans, the Brits, the Persians and
Speaker 1: the Chinese could all agree to trade on a silver
Speaker 1: network or a gold network, but not on a Chinese
Speaker 1: paper money network. And so when you start to understand
Speaker 1: the impact of technology has metallic money on economic networks,
Speaker 1: and then the impact of a ship with guns on it,
Speaker 1: you know, on that economic network, or the impact of
Speaker 1: not having immunity to all the germs the Europeans brought,
Speaker 1: or the impact of not having steel and being stuck
Speaker 1: in the Stone Age. All of those things have an
Speaker 1: impact on the way the world evolved, and I think
Speaker 1: bitcoin is it's crossing every one of those fields right now, right.
Speaker 2: Yeah, So being able to synthesize that information and understand
Speaker 2: the cause and effect, and then looking at the changes today,
Speaker 2: as you said, sort of a multinational asset, strong, a steel, fast, etc.
Speaker 2: Then you can start to it seems like you can
Speaker 2: start to see maybe the future that that creates better
Speaker 2: than most people.
Speaker 1: Well, I just I think if you've got a broad
Speaker 1: synthetic educational background, if you've studied a bunch of different subjects,
Speaker 1: had a lot of experience, you appreciate bitcoin more. If
Speaker 1: you have a very narrow background, if you understand economics
Speaker 1: or i you've studied economics but never studied engineering, you'd
Speaker 1: be missing half the equation. And if you're an engineer
Speaker 1: that doesn't understand economics and never been in business, or
Speaker 1: never traded internationally or never traveled yet, or didn't know
Speaker 1: anything about history, yeah, you would also understand only a
Speaker 1: part of the equation. So I just think you need
Speaker 1: to know a lot of different subjects in order to
Speaker 1: fully appreciate the impact and the significance of the invention
Speaker 1: of bitcoin.
Speaker 2: Yeah, which is then in your professional career building technology companies,
Speaker 2: and so you kind of predicted a lot of those
Speaker 2: technology companies that have grown some of your books that
Speaker 2: you wrote in the past. But then also navigating those
Speaker 2: tech companies through the capital markets then sort of gives
Speaker 2: you a new perspective to see the deficiencies in the
Speaker 2: current capital markets that we have today and then help
Speaker 2: you kind of think about fixing those with jumping into
Speaker 2: sort of like this refinery model, trying to see solve
Speaker 2: some of the deficiencies in those capital markets the way
Speaker 2: companies are crue capital.
Speaker 1: Yeah, I think what can be said of the capital
Speaker 1: markets is ninety nine point nine percent of the companies
Speaker 1: were locked out of them, right, So the first question
Speaker 1: you got to ask is how come this forty million
Speaker 1: businesses in the United States, But there's only like four
Speaker 1: thousand publicly.
Speaker 2: Traded companies, right, so don't have access to the capitol.
Speaker 1: Okay, So it doesn't sound like a like if I
Speaker 1: said only four thousand companies have telephone and internet access
Speaker 1: and the other forty million businesses don't.
Speaker 2: What would you say, Yeah, that'd be a problem.
Speaker 1: Yeah, you know what if I said four thousand companies
Speaker 1: have bank accounts and the other forty million don't. Right,
Speaker 1: So you just start with the observation that the capital
Speaker 1: markets can't be all that effective if ninety nine point
Speaker 1: nine percent of the companies can't access them. And you know,
Speaker 1: beyond that, the other observation is if you look at
Speaker 1: the companies that are in the public market, if you
Speaker 1: look at the thousands of publicly traded companies, it's like
Speaker 1: twenty that control all the attention. And so you know,
Speaker 1: most public companies are zombie companies. They're uninteresting, no one
Speaker 1: cares about them, They carry a huge burden of regulatory compliance,
Speaker 1: and they don't get the attention they deserve. So one
Speaker 1: could characterize the capital markets as being unwieldy, ineffective, right,
Speaker 1: And it's you know, and what is that they're twentieth
Speaker 1: century instruments that never really evolved in the twenty first century.
Speaker 1: You got to ask the question, why does it take
Speaker 1: three years to raise money if you have a small business,
Speaker 1: Why can't you do it in three days?
Speaker 2: Right?
Speaker 1: Why is it? Uh? You know, why does Why is
Speaker 1: it impossible to take custody of your own stock shares?
Speaker 1: Why is it impossible to trade shares on Saturday afternoon?
Speaker 1: Why is it impossible to transfer things globally? You know?
Speaker 1: Why is it? Why is it that you can actually
Speaker 1: take a million dollars of cash and get paid interest
Speaker 1: on it, but you can't take a million dollars worth
Speaker 1: of stock shares and get paid for that? Yeah? Why?
Speaker 2: Why?
Speaker 1: You know? So there are all these things that just
Speaker 1: are very inefficient that we just take for granted, but
Speaker 1: they don't work very well.
Speaker 2: Right. A lot of that is technology being inefficient, and
Speaker 2: here we're at this in DC, at this bitcoin policy event,
Speaker 2: and a lot of that might also be regulatory, right,
Speaker 2: So a lot of that regulations maybe prevent some of that.
Speaker 1: Yeah, generally, often oftentimes whenever you have a highly regulated industry,
Speaker 1: progression stops. Right the banking If you look at the
Speaker 1: credit markets, they seem to be stuck and stuck in
Speaker 1: a mode that was probably probably modern thirty years ago,
Speaker 1: Like they're thirty forty years old and they haven't advanced.
Speaker 1: If you look at the equity markets, it's the same way.
Speaker 1: For example, now, my company came public in nineteen ninety eight,
Speaker 1: we traded on NASDAK from nine thirty in the morning
Speaker 1: till four in the afternoon. The year is twenty twenty five.
Speaker 1: We trade on NASDAK from nine to thirty in the
Speaker 1: morning till four in the afternoon. Right, what's the difference
Speaker 1: between the way my stock trades today and the way
Speaker 1: it traded twenty seven years ago?
Speaker 2: Yeah?
Speaker 1: Nothing? Nothing?
Speaker 2: Yeah?
Speaker 1: Right? Could you imagine any other industry where there was
Speaker 1: no material change for twenty seven years.
Speaker 2: Every day we see headlines about inflation and dead and
Speaker 2: diminishing control over our own money. That's why I always
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Speaker 2: isn't just for life, it's for generations. And one of
Speaker 2: the differences, I mean, twenty seven years ago you didn't
Speaker 2: have trading apps on your phone and now it's even
Speaker 2: more accessible. But yet the market is still held back,
Speaker 2: even though retail could access it easier.
Speaker 1: Yeah, because you know, the traditional finance industry is highly
Speaker 1: regulated and it has settled into a comfort zone, and
Speaker 1: you know the forces of progression are in the crypto industry.
Speaker 1: Most of the forces of the traditional finance industry are
Speaker 1: forces of regression like that that the knee jerk reaction
Speaker 1: is why shouldn't we do this? Why is this a
Speaker 1: bad idea? If you listen to all the guenslor speeches
Speaker 1: for the last four years, it's always why this is
Speaker 1: a bad idea, right right, Like why can't why can't
Speaker 1: I issue a token, you know, for my small business
Speaker 1: over the weekend? Well, we got to protect the investors, right, Okay,
Speaker 1: So that's why we're going to disenfranchise forty million companies
Speaker 1: for being able to raise money, because the people that
Speaker 1: might want to invest in them might not be qualified
Speaker 1: to make that investment. So it's kind of like, well,
Speaker 1: why don't we give cars to people below the age
Speaker 1: of sixty? Got to protect the pedestrians or protect the work.
Speaker 2: You know.
Speaker 1: It's like if you if you took that rule and
Speaker 1: you applied it to phones, or cars, or websites or
Speaker 1: flying in an airplane, we would have no automobive industry.
Speaker 1: We'd have no aircraft industry, we'd have no telephones, we
Speaker 1: have nothing, because we wouldn't do anything until we're sure
Speaker 1: that no one would be harmed by the doing of
Speaker 1: the thing. We wouldn't even have fire, you know, we
Speaker 1: w'udn't want someone to get burned. We wouldn't have electricity.
Speaker 1: People might get shocked, right, got to protect you know,
Speaker 1: got to protect the people that might get hurt by
Speaker 1: the new idea. So that's pretty much should be the existing
Speaker 1: status quo in traditional finance, and it has been for
Speaker 1: thirty years.
Speaker 2: Yeah, and with the advancements of technology, I'll get I
Speaker 2: want to get more into the politics side. And you
Speaker 2: talked earlier on your keynote about maybe the last twelve
Speaker 2: months of this big political wins that shifted, but kind
Speaker 2: of sticking with some of the ways that technology is changing.
Speaker 2: On your keynote, you said you spent I think about
Speaker 2: thirty years trying to come up with a billion dollar idea,
Speaker 2: which you did and then couldn't come up with the
Speaker 2: next one and now half a dozen billion dollar billion
Speaker 2: dollar ideas in the last year or two. And that's
Speaker 2: sort of in New York at the unconference, you talked
Speaker 2: about this refinery model and standard oil sort of taking
Speaker 2: this raw asset like bitcoin and creating products off of it.
Speaker 2: And so you're creating now products off of it. That's
Speaker 2: the model to do is what would be the kerosene
Speaker 2: of this industry.
Speaker 1: Kerosene represents most highly refined crude oil. It's like it's
Speaker 1: pure liquid energy. Right if JEF you put it in rockets, like,
Speaker 1: you can't refine oil more than kerosene. So it's an
Speaker 1: important metaphor. It's the cleanest, highest grade distilled liquid energy,
Speaker 1: like pure grain alcohol. Right, that's what you're talking about
Speaker 1: there from a bunch of potatoes, stock of potatoes and
Speaker 1: outcomes pure grain alcohol. The equivalent of kerosene in the
Speaker 1: bitcoin industry is a treasury preferred credit instrument like stretch.
Speaker 1: So on one side you have digital capital bitcoin and
Speaker 1: bitcoin is a long duration, volatile, high energy, high performance
Speaker 1: source of capital. Long duration. Think of it in terms
Speaker 1: of like two hundred and forty months, like twenty years.
Speaker 1: You should if you want to get the optimal performance,
Speaker 1: you can hold it for twenty years. It's a ten
Speaker 1: to twenty year type in man high volatility. Right now,
Speaker 1: it's about forty five ball implied ball. It's been fifty,
Speaker 1: it's been sixty, it's been seventy ball and high performance,
Speaker 1: you know, appreciating fifty percent a year. So that's the
Speaker 1: raw commodity. What happens if I if I strip away
Speaker 1: the volatility, strip away the risk, strip away or compress
Speaker 1: the duration, translate it to a given currency, and extract
Speaker 1: the yield. That's what a treasury credit instrument or treasury
Speaker 1: preferred is. So that's what stretches. The idea is you
Speaker 1: build something that's got one month, like I'm going to
Speaker 1: give you ten percent dividend yield for one month. Like
Speaker 1: the duration is one, the yield is ten percent, the
Speaker 1: currency base is US dollars. The spread. It's like, if
Speaker 1: the risk free rate is four hundred basis points and
Speaker 1: that's a six six hundred basis point credit spread, I've
Speaker 1: extracted a six hundred basis point spread for the next
Speaker 1: month in US dollars. Maybe I five x overcollateralize it.
Speaker 1: Maybe I ten x if I, you know, raw bitcoin
Speaker 1: is like one to one. It's like if I have
Speaker 1: a dollar bitcoin. I have a dollar a bitcoin and
Speaker 1: bitcoin trades down fifty percent, I've lost half my money.
Speaker 1: But if I ten x overcollateralize something I have ten
Speaker 1: dollars a bitcoin, I have one dollar of stretch. A
Speaker 1: bitcoin trades down fifty percent, I still get a dollar
Speaker 1: stretch a bitcoin trades down ninety percent, I still have
Speaker 1: a dollar of stretch. The statistical odds of bitcoin trading
Speaker 1: down ninety percent or like points something. Right, It's a
Speaker 1: small percentage. So by over collateralizing, you strip away the
Speaker 1: risk by structuring it to adjust. If you put a
Speaker 1: set of adjustments or representations below below one hundred, you
Speaker 1: start to strip away the ball Telly on the downside.
Speaker 1: If like with Stretch, what we did is we put
Speaker 1: in a call option at one oh one, and then
Speaker 1: we told the market we're going to sell it actively
Speaker 1: at one hundred or better. And then we also told
Speaker 1: the market we're not going to sell it below ninety nine,
Speaker 1: and if it's below ninety nine, we're going to raise
Speaker 1: the dividend. Okay, So you're kind of collaring this instrument.
Speaker 1: And then the last point is we created a preferred
Speaker 1: instrument where we pay it monthly in cash and then
Speaker 1: we adjust the dividend every month. So it turns out
Speaker 1: if you scan in the history of preferred stock or
Speaker 1: the history of the credit markets, no company has ever
Speaker 1: issued a perred preferred stock where the management has discretion
Speaker 1: to adjust the dividend every single month. Like there are
Speaker 1: some preferred. That are floaters where they set the credit
Speaker 1: spread at three hundred and fifty bases points over SOFA,
Speaker 1: and they will float with SOFA with the risk free rate.
Speaker 1: And there are a lot that are fixed where you
Speaker 1: sit it at seven percent, and the principle will trade
Speaker 1: up and down if sofur falls or arises. But the
Speaker 1: idea that the credit spread is completely variable is a
Speaker 1: new idea. But by the way, not a new idea
Speaker 1: in a world of credit, because who does this, well,
Speaker 1: Nation States do it.
Speaker 2: The Fed.
Speaker 1: Literally, that's what a central bank does, right, That's what
Speaker 1: every central bank does. They set the interest rate on
Speaker 1: their currency. Ye what we did was just copied you know,
Speaker 1: traditional bankers, and we set the interest rate on our currency,
Speaker 1: which is stretch. So that is the kerosene of of
Speaker 1: the bitcoin you know, Treasury company, or of the digital
Speaker 1: assets industry. Because it's the it represents the greatest degree
Speaker 1: of financial engineering, just like kerosene represents the greatest degree
Speaker 1: of petroleum engineering. Right, I've done the most refining. I've
Speaker 1: distilled the highest quality product. You could imagine, for example,
Speaker 1: you could you could extract the same product and yen.
Speaker 1: So I want to create a yen instrument that's ten
Speaker 1: thousand yen that pays you know, a monthly yen cash
Speaker 1: yield or a cash dividend. I changed that every month,
Speaker 1: and now I've created the equivalent of kerosene for the
Speaker 1: Japanese market. And of course, what does everybody want? Everybody
Speaker 1: kind of just wants. I've got some money I need
Speaker 1: to park for the next ninety days. If I put
Speaker 1: it in the bank, If I put it in the
Speaker 1: bank in Japan, I got fifty basis points or less.
Speaker 1: I put it in the bank in Switzerland, I get
Speaker 1: minus fifty basis points. If I put in the bank
Speaker 1: in Europe, I get two hundred basis points or less.
Speaker 1: If I put it in the bank in the US,
Speaker 1: I got four hundred basis points or less. And so
Speaker 1: what I'd like to do is put it in some
Speaker 1: kind of structure where I'm going to get my money
Speaker 1: back in nine months or six months or whatever. The
Speaker 1: principal is not going to move around, but I'm going
Speaker 1: to get ten percent. Everybody wants a bank account of
Speaker 1: base ten percent out of four percent, two percent or
Speaker 1: zero percent. And and so I think I think the
Speaker 1: most interesting product that you can create, the most interesting
Speaker 1: digital credit product is a treasury preferred credit instrument for
Speaker 1: corporate treasurers or for retirees. Right, just you know, and
Speaker 1: how big is that, Marcus, Like thirty trillion dollars in
Speaker 1: the US. Yeah, of just short term treasury money. So
Speaker 1: thirty trillion in the US that's getting paid, so fur.
Speaker 2: Yeah.
Speaker 1: And the opportunity with digital credit is you create a company,
Speaker 1: you hold bitcoin, that's digital capital. You start to issue
Speaker 1: credit instruments on top of the capital, and you can
Speaker 1: decide how much risk do you want to strip away?
Speaker 1: Is it a BTC rating of two, which is two
Speaker 1: times over collateralized, or is it ten? Right, Two is
Speaker 1: less risk stripped away. Ten is more risk strip strip away.
Speaker 1: The amount of risk you want strip away, the amount
Speaker 1: of volatility. The smaller the instrument compared to the overall
Speaker 1: collateral pool, the less the volatility. And then there are
Speaker 1: a lot of terms and conditions that you can put
Speaker 1: in the instrument that would constrain the volatility. So you
Speaker 1: decide how much volatility and risks you want to strip away,
Speaker 1: decide how much yield do you want to give it.
Speaker 1: You decide whether you want it to be in pounds
Speaker 1: or Canadian or euros or yen or whatever you know,
Speaker 1: and then you distill out, you extrude the yield and
Speaker 1: the pure you know, boost over the risk free rate,
Speaker 1: and you offer that to the marketplace.
Speaker 2: Yeah, I saw you ask it both in New York
Speaker 2: conference then today at the keynotes. Just let me see
Speaker 2: a raise of hands, like how many people have a
Speaker 2: bankcount that like ten percent? And of course everybody wants that,
Speaker 2: so we can see the demand for that is.
Speaker 1: Nobody in the world's getting paid five.
Speaker 2: Right.
Speaker 1: We created a product STRD stride. It's the junior long
Speaker 1: duration credit instrument right now. It pays about twelve point
Speaker 1: six percent twelve point six percent and so the average
Speaker 1: part by twelve point six percent as a return of capital.
Speaker 1: So it's tax deferred and if you put your money
Speaker 1: in the bank, you're going to get four percent pre tax,
Speaker 1: three percent after tax. Right, So it pays anywhere from
Speaker 1: three to four times as much cash flow. Yeah, so
Speaker 1: that those are really interesting products that we're creating in
Speaker 1: the market.
Speaker 2: I mean, just in the US, we have seven trillion
Speaker 2: in money market accounts just trying to earn a third
Speaker 2: of that yield that you're paying out there. And so
Speaker 2: then you have four different products, and so not everybody
Speaker 2: wants cares. Some people might want other products. Yeah, you've
Speaker 2: got strike, stripe, stride, and now stretch, and so each
Speaker 2: one of those sits in a different location that gives
Speaker 2: them a little bit of a different variation of the kerosene.
Speaker 1: Yeah, pure kerosene like the I would think, I would say,
Speaker 1: the other ones are kind of like gasoline or diesel,
Speaker 1: or plastic or you know there naphthos. There's a lot
Speaker 1: of other petrochemicals. You know, the entire petroleum ministry is
Speaker 1: fascinating because out of a barrel of oil doesn't just
Speaker 1: come gasoline, diesel and jet fuel. Also, you get acrylics,
Speaker 1: you get fibers, you get polyester, you get lycra, you know,
Speaker 1: you get PBC. You get the stuff that we make
Speaker 1: doors with it, we make walls with it, we make
Speaker 1: pipes with it, We wear it, we look through it,
Speaker 1: we burn it. Think about how profound it is. Like
Speaker 1: just around this room, if you glanced at the room,
Speaker 1: you probably find there's probably one hundred or hundreds of
Speaker 1: petrochemical products in this room.
Speaker 2: Yeah, that have been created.
Speaker 1: So the possibilities are endless. But if you come back
Speaker 1: to just what we've done. Right, we're just one company
Speaker 1: and we're just we're showing what's possible. Strike was the
Speaker 1: first and it is a convertible preferred. So Strike shows
Speaker 1: how you can you can extract any amount of yield, delta, duration, risk,
Speaker 1: or volatility. So we Strike. We basically gave it about
Speaker 1: thirty five delta, that is like thirty five percent of
Speaker 1: the upside of the equity. So you get you know,
Speaker 1: you get an equity component, then you get like a
Speaker 1: right now, it's like eight and a half percent yielding,
Speaker 1: like it pays eight percent at part. So we gave
Speaker 1: it a divid end at eight percent. We gave it
Speaker 1: an equity component for some upside, and then we made
Speaker 1: it cumulative and so gave it some seniority privileges. And
Speaker 1: that's for people that kind of just they don't want
Speaker 1: to buy bitcoin and be on the roller coaster. They
Speaker 1: want to get I call it a bitcoin fellowship. It's like,
Speaker 1: you know, it's like you buy it, you're waiting for
Speaker 1: the upside and you're getting paid to you know, a
Speaker 1: living stipend right while you're waiting, you know, for the
Speaker 1: principle to appreciate. So that's one instrument.
Speaker 2: Because it will convert into mstr A thousands.
Speaker 1: Because it's got a conversion right. Right, So if you believe,
Speaker 1: if you want to hold something for thirty years, well
Speaker 1: you're going to get thirty years worth of dividends. And
Speaker 1: at the end of thirty years, you're you're holding, say
Speaker 1: for one hundred dollars stock, you're holding if you have
Speaker 1: about one of these, you've got a forty dollars worth
Speaker 1: of of equity when you buy one hundred dollars instruments.
Speaker 1: So that's for people that want some upside with downside
Speaker 1: protection with guaranteed cash flow, right, which a lot of
Speaker 1: investors want, right, I mean a lot of investors they
Speaker 1: if they wanted max upside, max volatility, you would buy
Speaker 1: the bitcoin, right. But can I go thirty years without
Speaker 1: any cash flow? Can I go ten years without cash flow?
Speaker 2: And can I stomach the volatility?
Speaker 1: Yeah? And there are a lot of people that just
Speaker 1: don't want the volatility right for any number of reasons.
Speaker 1: So that Strike, it turns out that Strike is the
Speaker 1: most volatile of the four preferred instruments because it's got
Speaker 1: that equity component in it, and it's got longer duration,
Speaker 1: and so that means it's got more volatile to interest
Speaker 1: rate forward curve and has got more volatility to bitcoin
Speaker 1: price and more volatile to MSTR price. The second thing
Speaker 1: we did with Strife STRF, and that was long duration
Speaker 1: senior credit. So it pays ten percent dividend in par
Speaker 1: forever and that means that it doesn't adjust. It's like
Speaker 1: it's like a you know, it's not a bond because
Speaker 1: it's a dividend. It's better than a bond because in
Speaker 1: that if you want cash flow, because the dividends get
Speaker 1: better tax treatment, and it becomes if it becomes a
Speaker 1: return of capital, which is what it is right now,
Speaker 1: it's completely tax deferred. So that's that's for someone who's
Speaker 1: a long term credit investor, and it happens to be
Speaker 1: senior in the capital structure, so it so it gets
Speaker 1: paid off before everything else, and it has penalty provisions
Speaker 1: if we ever skip a dividend, right and so extremely
Speaker 1: risk adverse institutional investors that want the credit but they
Speaker 1: want to be ahead of everybody else in the stack,
Speaker 1: they would buy that. Well, that's trading above par right now,
Speaker 1: so it pays like nine percent effective yield, okay, because
Speaker 1: it's senior. We followed that with the identical instrument. We
Speaker 1: basically weeded ten percent at par, but instead of cumulative,
Speaker 1: we made it noncumulative, and we may instead of senior,
Speaker 1: made it junior, and instead of the penalty provisions, we
Speaker 1: took them.
Speaker 2: Out so get a little more yield.
Speaker 1: And so what it does is it makes it theoretically riskier,
Speaker 1: you know to the person studying the contract, but it
Speaker 1: means the trades lower, so that trades like in the eighties,
Speaker 1: so that that yields twelve and a half or twelve
Speaker 1: point six percent. So the issue is why would somebody
Speaker 1: want to buy the one without all the investor protections
Speaker 1: in the security And the answer is because you get
Speaker 1: paid three hundred and sixty bases points. So do you
Speaker 1: want do you want twelve points five or twelve point
Speaker 1: six percent for the junior instrument or do you want
Speaker 1: nine percent to be senior? Well, if bitcoin, you know,
Speaker 1: go sideways or up, and if the company doesn't fail,
Speaker 1: then it's going to cost you three point six percent
Speaker 1: a year for the rest of your life to not
Speaker 1: trust us, right you see, So now you've actually got
Speaker 1: there an actual credit spread. If you're wondering what is
Speaker 1: the equity premium between being senior and then having having
Speaker 1: none of the representations where you've actually got the market
Speaker 1: tell it's like three point six or three point seven
Speaker 1: percent or something. It varies every single day. If you
Speaker 1: don't trust bitcoin, if you think bitcoin's gone to zero,
Speaker 1: you wouldn't want to buy any of this, right, And
Speaker 1: so then it comes down to how much do you
Speaker 1: trust the company? And if you know, people buy dividend
Speaker 1: bearing equities all the time, like every single equity, if
Speaker 1: you buy Verizon equity, if you buy a telephone AT
Speaker 1: and T equity, they pay dividends, but they're not required to.
Speaker 1: They could suspend them without prejudice and without penalty at
Speaker 1: any time. So could Apple. Do you trust the company? Correct?
Speaker 2: You know that if they suspended, their stock's going to
Speaker 2: take a hit, But otherwise you're completely trusted in your view.
Speaker 1: Is like, well, they probably won't because the stock will
Speaker 1: take a hit. And so the issue is with Stride,
Speaker 1: will we pay the dividend? Well, of course we will,
Speaker 1: but what happens if we don't. Well, if we don't,
Speaker 1: Stride will trade way down. But then we won't. But
Speaker 1: and then you're like, well, why would the company care.
Speaker 1: We want to sell it, right, Like, if we actually
Speaker 1: default on that obligation, then the instrument isn't the capital
Speaker 1: raising vehicle for us. And the big idea is, unlike
Speaker 1: most companies that issue credit apologetically in order to deal
Speaker 1: with the crisis, we issued credit strategically, enthusiastically, with the
Speaker 1: intent that the credit is the product. See when Boeing
Speaker 1: issues preferred stock, the product is the airplane. They sold
Speaker 1: the preferred stock because they ran out of money to
Speaker 1: build airplanes. We issue the preferred The product is the
Speaker 1: preferred We didn't never run out of money. We issued that.
Speaker 1: You know, why did you sell a billion dollars of
Speaker 1: Stride so I could sell ten billion dollars more of Stride?
Speaker 1: Why did you sell a billion dollars of Strife so
Speaker 1: I could sell ten billion dollars more of Right, So
Speaker 1: we have a very different business model in that regard.
Speaker 1: We created the Stride so we could create the credit
Speaker 1: spread because we literally wanted to have an investment grade
Speaker 1: type instrument, a senior one, and we wanted to have
Speaker 1: a junior one because there's one class of investors that
Speaker 1: want the junk credit, like they want twelve percent yield, right,
Speaker 1: it's like, it's very simple, do you trust the company?
Speaker 1: Do you want twelve and a half percent? You know,
Speaker 1: do you have trust the company and you prefer to
Speaker 1: take the nine percent? Well, iron it. There's markets for both,
Speaker 1: and they are not the same investor. Yeah, there are
Speaker 1: days when everybody wants to buy Strife and they don't
Speaker 1: want Stride, and there are other days when they want
Speaker 1: to buy Stride, and so so that was part of
Speaker 1: building out the risk curve. And then the last thing
Speaker 1: we did stretch was a very different idea. Instead of
Speaker 1: paying an eight or ten percent perpetual dividend forever, we
Speaker 1: just said, hey, let's actually reduce this to one month duration, right,
Speaker 1: and so we're only promising to pay this dividend for
Speaker 1: a month. The other one is a promise for one
Speaker 1: hundred years. And so theoretically the mcaulay duration, the theoretical
Speaker 1: duration on the other instruments ends up being between like,
Speaker 1: you know, eight and twenty years or eight and fifteen years.
Speaker 1: It's very long range. Take of a lever that's one
Speaker 1: hundred and twenty months to two hundred and forty months long,
Speaker 1: and you know, you have a little change in interest rates,
Speaker 1: and that's a very big lever to the good of bad.
Speaker 1: But with Stretch, the idea is a one month duration.
Speaker 1: Of course, inherently that's going to be less volatile. And
Speaker 1: you're like, well, I'm not going to get capital appreciation
Speaker 1: if Soufur dives by foreignerd basis points, I'm not going
Speaker 1: to double my money. Well, exaly, exactly, it's the treasury instrument.
Speaker 1: You're not buying it to double your money. If you
Speaker 1: want it to double your money if Sofur dives, you
Speaker 1: would buy strife. Right, that's the instrument for the credit
Speaker 1: investor that wants to actually ride it up when interst
Speaker 1: rates fall, or wants to do the opposite when interustrates rise.
Speaker 1: That's a different instrument. It turns out the most people, right,
Speaker 1: corporate treasurers, retirees, retail most people, they're not really interested
Speaker 1: in being long duration credit investors. Like ask the average person,
Speaker 1: do you have a bank account? Yes? Do you have
Speaker 1: a thirty year treasury bond?
Speaker 2: No?
Speaker 1: Like the difference is like fifty to one. Stretch came last,
Speaker 1: But ironically, stretches the best piece of financial engineering, and
Speaker 1: it's probably the most universally applicable product because what you're
Speaker 1: doing is just giving people pure currency cash flow, pure
Speaker 1: pure currency yield without the volatility, the risk, the duration,
Speaker 1: or the delta. It's like, you know, some people want delta,
Speaker 1: like I want the thirty I want thirty or forty
Speaker 1: percent of the upside of the common stock. Other people don't.
Speaker 1: Other people like I want nothing to do with the
Speaker 1: common stock. I just want you to pay me ten
Speaker 1: percent on my money until I ask for my money back, right,
Speaker 1: That's what they want. It's a very different, uh financial
Speaker 1: instrument for a different investor.
Speaker 2: You mentioned how when Boeing issues debt it's because they
Speaker 2: need the money. And when you do it, when Mike,
Speaker 2: when Strategy does it, you're issuing the debt because that's
Speaker 2: the product. And we think about like, if I'm buying
Speaker 2: the debt of Boeing, then I'm trusting that their investment
Speaker 2: into their airline will have enough cash flow maybe to
Speaker 2: pay me in the future, versus I'm paying you, but
Speaker 2: you're buying the asset, so I'm not depending on future
Speaker 2: cash flows because I know you have the asset and
Speaker 2: the debt is over collateralized. Yeah, governments will never stop
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Speaker 1: Well, if you look at the credit markets. You've got
Speaker 1: corporate credit that's basically a credit issued against future cash
Speaker 1: flows of a company. You've got investment great corporate credit
Speaker 1: from Apple or Microsoft, and you've got distressed corporate credit
Speaker 1: from quasi bankrupt companies. You've got junk from companies that
Speaker 1: can barely cover that cash, right, And so that's corporate credit.
Speaker 1: You've got mortgage back credit. It's when you're basically issuing
Speaker 1: credit back by mortgage payments of homeowners.
Speaker 2: Yeah, we saw that play on two thousand and eight.
Speaker 1: Yeah, and you know it's like the good news bad
Speaker 1: news is if it yields a lot, they probably can't
Speaker 1: afford to pay it. And if it yields a little,
Speaker 1: you're not getting much yield. Right, So either they're not
Speaker 1: going to default but it doesn't pay you much, or
Speaker 1: it pays you a lot and they're probably going to default.
Speaker 1: And that's the Great Financial Crisis. And we learn that. Well,
Speaker 1: then you've got municipal credit. You know, a little bit safe,
Speaker 1: but it pays nothing, right, it's like almost no two
Speaker 1: to three very little yield in municipal credit back by
Speaker 1: cities and projects like you know, you've got bank credit.
Speaker 1: That is when you deposit a million dollars in the
Speaker 1: bank account you bought bank credit. You know, they're selling
Speaker 1: you bank credit and they're paying you the sofa rate
Speaker 1: or the risk free rate, et cetera. So that's there's that,
Speaker 1: but you know it's pretty uncompelling in most countries. I
Speaker 1: mean the best is the US, In Switzerland and in Japan,
Speaker 1: it's like nothing, right, it doesn't pay anything.
Speaker 2: Uh.
Speaker 1: And then you've got sovereign credit fiat credit. You know,
Speaker 1: the government of the United States or the government of
Speaker 1: the UK issues it's sovereign debt and it's and that's
Speaker 1: backed by the cash flows of the country in theory,
Speaker 1: the taxing ability of the country, or just the ability
Speaker 1: the country to print its own currency. And when the
Speaker 1: country has a collapsing currency Turkey, those interest rates have
Speaker 1: to be very high. But the country's currency is collapsing.
Speaker 1: And the issue is are you going to want what
Speaker 1: are you gonna be able to buy with the currency
Speaker 1: or the issue you're gonna get paid? So really, the
Speaker 1: big bran, when's the last time in one hundred years
Speaker 1: there's a new form of credit. Every one of those
Speaker 1: credit instruments, they've all been around for a while. You
Speaker 1: could argue that mortgage credit evolved into a higher form
Speaker 1: with Freddie, Freddie Mac and Fannie May. Right when what
Speaker 1: happened the government started underwriting the credit risk of mortgages.
Speaker 1: That drove down the rates, that created systemic risk, right,
Speaker 1: so that changed a little bit. But the idea that
Speaker 1: a company's going to borrow money, or someone's going to
Speaker 1: mortgage their property, or a government's going to borrow money,
Speaker 1: or a seat's going to borrow money, none of those
Speaker 1: are new ideas, right that you can trace them all
Speaker 1: back for hundreds of not thousands of years. So the
Speaker 1: idea that you know, what was a quasi stable idea
Speaker 1: issue credit on gold on a monetary asset, well that
Speaker 1: you know, we saw that in the seventeenth century, the
Speaker 1: eighteenth century, the nineteenth century, even the twentieth century. You
Speaker 1: could argue, you know, British sovereign debt, French sovereign debt,
Speaker 1: they were all gold back credit instruments, and they were
Speaker 1: all backed by various amounts of gold, but it was
Speaker 1: almost never one to one. It was always like under collateralized,
Speaker 1: and eventually it would probably got down to five percent collateralized.
Speaker 1: In nineteen seventy one, and that's the end of the
Speaker 1: gold back credit era, right right. And so now you
Speaker 1: have digital credit, you have digital gold, you have bitcoin.
Speaker 1: Bitcoin is digital gold digital capital. The killer use case
Speaker 1: of digital gold is issued digital credit instruments. And the aha,
Speaker 1: the aha moment is any company, any publicly traded company,
Speaker 1: can create a digital credit instrument with any degree of yield, duration, delta,
Speaker 1: or risk, and to a certain degree with a man
Speaker 1: with any amount of volatility that they want. Right, if
Speaker 1: you want extremely low volatility, you can't create a lot
Speaker 1: of it. Like if you have one hundred billion dollars
Speaker 1: a capital, can you create one hundred billion dollars of credit?
Speaker 1: That's low volatility enough. But you know, the real interesting
Speaker 1: question for all of us in the industry is can
Speaker 1: I create ten billion dollars of low volatility credit with
Speaker 1: one hundred billion in capital? Or do do I need
Speaker 1: one hundred x? Can I only create a I'm sure
Speaker 1: I can create one billion dollars of very very low
Speaker 1: volatile at one hundred times over collateralization. You certainly get
Speaker 1: done with ten x over collateralization. I think you'll probably
Speaker 1: also get it done at what level five x, three
Speaker 1: x too? It at what level can you not? And
Speaker 1: of course that's a function of the bitcoin volatility too,
Speaker 1: because the less volatile Bitcoin gets, the easier it is
Speaker 1: to create these low volatility credit instruments.
Speaker 2: Would it also depend on the credit worthiness, the trustworthiness
Speaker 2: of the company issuing it.
Speaker 1: Yeah, I think it's a function of the issuer, their reputation,
Speaker 1: their balance sheet, what senior and junior the instrument. It's
Speaker 1: a function of the type of credit instrument. Is it
Speaker 1: a bond, is it a preferred stock? The container it's in,
Speaker 1: the security design, the rails it's running on. Is it
Speaker 1: trading on the New York Stock Exchange, the NASDAQ, the
Speaker 1: Frankfurt Exchange, the Toronto Stock Exchange, how much liquidity. It's
Speaker 1: a function of the regulators because in a more flexible
Speaker 1: regulatory environment, the issuer has more tools to strip the volatility,
Speaker 1: and more inflexible traditional primitive regulatory environment, the issuer doesn't
Speaker 1: have the tools. They can't legally take the action, and
Speaker 1: even the technology rails. For example, you know, on the NASDA,
Speaker 1: you can't tissue a preferred stock denominated in euros on
Speaker 1: the NASDAK on the Nasdaq can't do it. You know,
Speaker 1: So what if I wanted to pay a weekly dividend,
Speaker 1: in theory it would be less volatile. But technically, with
Speaker 1: the existing US banking system, it's not practical to snapshot
Speaker 1: the holders of record every week because there's like a
Speaker 1: three day delay, you know, So it's very problematic to
Speaker 1: pay a daily dividend or a weekly dividend. Even monthly
Speaker 1: is about the quickest anybody's done. You know. There are
Speaker 1: some exchanges where they they're more inflexible on your about
Speaker 1: to say, do ATMs and issue securities at the market.
Speaker 1: You know, there are other there are other places in
Speaker 1: Switzerland they never issued. There's no support for preferred stocks
Speaker 1: in the market, okay, just the entire countries.
Speaker 2: Right, you know, in the UK they're hardly used as
Speaker 2: well preference share well.
Speaker 1: So there's an issue of whether they're used or whether
Speaker 1: it's impossible to do it too. And then and then
Speaker 1: of course it's there's a question of can the exchange
Speaker 1: you want to trade on support it? And the second
Speaker 1: question is can will the regulator allow you to issue it?
Speaker 1: And the third question is will the investors in the
Speaker 1: country buy it? And the fourth question is will the
Speaker 1: bankers that control those networks sell it?
Speaker 2: Right?
Speaker 1: And so you really have many, many layers of support
Speaker 1: that you need, and I think over time many of
Speaker 1: the better ideas will spread. But it's just like this
Speaker 1: right of electricity or gasoline or crude oil or whatever.
Speaker 1: It's like they didn't all spread in the first year,
Speaker 1: right right, take take Robinhood. Robinhood is is the way
Speaker 1: people buy a lot of securities today. They hold they
Speaker 1: support common stocks, but they don't support preferreds. You can't
Speaker 1: buy stretched, strike, strife stride on robin Hood. Why you
Speaker 1: can't buy any preferred on robin Hood. Why because no
Speaker 1: one ever created one anybody wanted to buy. Because the market,
Speaker 1: because most there's a market for garbage, like there's a
Speaker 1: market for twentieth century traditional defective crippled credit instruments in
Speaker 1: the preferred market. Okay, they all pay six percent, they're undercollateralized,
Speaker 1: their opaque, their heterogeneous credit right, and they're issued by
Speaker 1: any of five thousand regional banks you've never heard of,
Speaker 1: or buy five thousand reach you've never heard of. And
Speaker 1: they train cheap. They're all liquid. The bit ass breads
Speaker 1: are wide, they have QSIP numbers, there are no ATMs
Speaker 1: on them. No one's ever heard of them. Your private
Speaker 1: wealth that you know, think about this, one hundred thousand
Speaker 1: private wealth advisors. They're you know, pulling out their Bloomberg
Speaker 1: and they're finding the ninety seventh issue of some big
Speaker 1: bank preferred and they're putting it in your retirement portfolio.
Speaker 1: And when it comes due or it gets called, they're
Speaker 1: rolling into something else and they manage your money and
Speaker 1: they charge you an x percent fee. And the person
Speaker 1: that actually owns that thing doesn't know what they own.
Speaker 1: They've got xxy QSIP fourteen nine two two three and
Speaker 1: they couldn't even read the screen. And by the way,
Speaker 1: there is no quote on the screen. You have to
Speaker 1: buy a Bloomberg and pay twenty five thousand a year
Speaker 1: to get the quote. So yeah, there's that market. But uh,
Speaker 1: but the modern retail market, the digital market is like
Speaker 1: fifty million people you know, want to be able to
Speaker 1: trade on Saturday afternoon. And so that's that is not
Speaker 1: a criticism by the way of Robinhood. That's an observation
Speaker 1: that you invent a new thing, the existing distribution infrastructure
Speaker 1: never seen the new thing. There was no demand, so
Speaker 1: they didn't build out the rails to move the new thing.
Speaker 1: So there's been an inertia in the system. At the
Speaker 1: point that those things become screaming home runs and twenty
Speaker 1: seven million people ask for them, then you know, somebody
Speaker 1: upgrades the rails and then they start to distribute them.
Speaker 1: And so that's what's going on in the world right now.
Speaker 2: It's interesting that you use Robin in an example because
Speaker 2: they're one of the newer digitally tech forward into crypto,
Speaker 2: so they're sort of at the forefront of that, and
Speaker 2: yet they're still behind the girt.
Speaker 1: And their defense. What I've just described didn't exist in
Speaker 1: January of this year, sure, right, Like we're literally about
Speaker 1: to be October, and in January, none of these digital
Speaker 1: credit instruments existed. So even if you move back lightning
Speaker 1: fast is within a year or two years, right, Most
Speaker 1: big banks they take three to five years to study something.
Speaker 1: There are literally credit investors and fixed income investors their
Speaker 1: of you as well, and money manager's got to have
Speaker 1: a three to five year track record before we'll consider
Speaker 1: an allocation to them. Yeah, right, So I'm not again
Speaker 1: not being critical. That's just the natural inertia of the world.
Speaker 1: And we are moving very very fast in our industry
Speaker 1: right now, and the world's going to take a while
Speaker 1: to catch up.
Speaker 2: Yeah, when we were in London, I was meeting with
Speaker 2: some of the bankers there. We were talking to the
Speaker 2: Rothschilds and they're like, you know, we have this century
Speaker 2: long timetable and we don't move really quickly, and preference
Speaker 2: shares aren't really something that's used a lot in the UK.
Speaker 2: And I said, forget the preference shares for a minute.
Speaker 2: Is there an appetite for overclladalized debt that pays ten percent?
Speaker 2: And they're like, well, of course right, So of course
Speaker 2: the appetite is there. You just have to get a
Speaker 2: packaged up vitally in front of the right people.
Speaker 1: For example, like we could have sold our stuff as
Speaker 1: a ten year bond, a twenty year bond, or a
Speaker 1: thirty year bond, or you could do a five year bond.
Speaker 1: The reason that we didn't do it is because you
Speaker 1: can sell prefer in the US, and if it's a
Speaker 1: perpetual instrument, you can attach at the market shelf registration
Speaker 1: to it. And if your goal was not to sell
Speaker 1: a billion dollars or half a billion of bonds, but
Speaker 1: rather to sell a billion dollars a quarter forever, if
Speaker 1: you wanted to sell billions of dollars a year forever,
Speaker 1: then you need to do with the perpetual instrument. And
Speaker 1: of course a five year bonds no good because in
Speaker 1: three years the bond's almost about to be called so.
Speaker 2: And you'd have to liquidate the bitcoin and give it back,
Speaker 2: which goes against the entire purpose of accumulating the bitcoin.
Speaker 1: The reason that we don't use that kind of debt
Speaker 1: is because eventually there's a refinancing event, and you know,
Speaker 1: we wouldn't liquidate the bitcoin. We want to refinance the bond,
Speaker 1: so we'd issue a new bond. But the point is,
Speaker 1: who wants to be beholden to the bond market? Do
Speaker 1: you want to issue Do I want to raise a
Speaker 1: billion dollars account up the every four years for the
Speaker 1: next hundred years, because that's twenty five deals and each
Speaker 1: one of them is two percent fee, and so I'm
Speaker 1: going to pay fifty You're going to pay five hundred
Speaker 1: million dollars in underwriting fees. Or do I just want
Speaker 1: to issue the billion dollars once for the next hundred
Speaker 1: years and was not paid the next fifty percent in fees?
Speaker 1: And of course the problem is not just the fees.
Speaker 1: The problem is the risk because if you get to
Speaker 1: a refinance point and there's a financial crisis or bank crisis,
Speaker 1: in the window to refinance bonds closes and now you
Speaker 1: have to actually sell some of the underlying assets. So
Speaker 1: you know what, speaking of the raw Child's, if you
Speaker 1: read the history of the raw Childs, they were very
Speaker 1: famous for selling consoles which were British government sovereign debt
Speaker 1: issued you know, from like seventeen sixty on, you know,
Speaker 1: for a hundred years, and they paid three to five percent.
Speaker 1: They were perpetual that never came to par value one
Speaker 1: hundred pounds. So if you think about what that is,
Speaker 1: that's actually just what stride is or strife. It's you know,
Speaker 1: what we did is just copied British sovereign debt from
Speaker 1: two hundred years ago. And it's a very humbling to
Speaker 1: notice that the world went backwards. In my opinion, one
Speaker 1: hundred dollars pounds one hundred dollars par value in pounds
Speaker 1: that pays five percent forever. A perpetual instrument is a
Speaker 1: better way for the government of the UK to raise capital.
Speaker 1: It's a better instrument for an investor to hold. It
Speaker 1: would adjust the par value, adjust up above par or
Speaker 1: the principle adjust the above part or below part, depending upon
Speaker 1: the risk of the nation and the prevailing you know,
Speaker 1: interest rate environment. You never have to refinance it. What
Speaker 1: happened between then and now, we forgot We swapped that
Speaker 1: for issuing five year notes, three year notes, one year notes,
Speaker 1: three month notes, and in the preferred market we issue
Speaker 1: retail preferreds baby preferred to the part value twenty five
Speaker 1: dollars or institutional part value one thousand dollars. I mean,
Speaker 1: is it not obvious to a schoolboy that one hundred
Speaker 1: is a better part value than twenty five? Yeah, on
Speaker 1: one thousand, And isn't it obvious that having a perpetual
Speaker 1: thing that never comes due is a lot more elegant
Speaker 1: way to raise capital than having nineteen different You literally,
Speaker 1: if you look at US government debt, right, you have
Speaker 1: stuff coming due in March, in September, in April. Like
Speaker 1: you've converted a simple idea into twenty five or fifty
Speaker 1: different tranches of individual securities that have to be continually
Speaker 1: joggled and traded. Yeah, you made it an accounting nightmare.
Speaker 1: You've made it a tax nightmare. You've made it a
Speaker 1: trading nightmare. What about that is better than the way
Speaker 1: that the British did it during the Napoleonic Wars.
Speaker 2: Yeah, you know, sometimes we have to relearn those lessons.
Speaker 2: Speaking of relearning those lessons, you've been moving fast than
Speaker 2: you've been pioneering this whole industry obviously, and so sort
Speaker 2: of micro strategy which used the convertible debt now strategy
Speaker 2: which is maybe the two point zero version, using the
Speaker 2: ATM and prefs, You've rolled out four prefs you called
Speaker 2: stretch like the iPhone moment it had this huge splash
Speaker 2: you were over subscribed I think two point six billion
Speaker 2: in the IPO something like that. Now, looking backwards, is
Speaker 2: stretched the perfect instrument? Or really do we need all
Speaker 2: those different instruments for all the different people? And more specifically,
Speaker 2: my question is if you were starting over, would you
Speaker 2: skip ahead to like a stretch and maybe strike? Being
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Speaker 1: I think we have provided the entire market with a roadmap.
Speaker 1: With all those instruments, they can see how you can
Speaker 1: see how they all trade. You can see the the
Speaker 1: way the volatility profiles come off them, like, for example,
Speaker 1: the senior credit instrument STRISS is traded to a ten bowl.
Speaker 1: Stretch traded about a ten ball. The junior instrument is
Speaker 1: more like a twenty bowl. Strike is more like a
Speaker 1: twenty seven ball, the equity is more like a fifty
Speaker 1: bowl or something. So you can actually see that. You
Speaker 1: can see the demand in each one of them. You
Speaker 1: can see the liquidity profile. They all do serve different
Speaker 1: investor bases, so I don't regret having any of them
Speaker 1: out there. We will let the market decide what their
Speaker 1: appetite is. For each of the four. I would say,
Speaker 1: you know, in terms of plan, what we know is
Speaker 1: we won't focus on convertible bonds or eight bonds, junk bonds,
Speaker 1: unsecured bonds. We won't do that. We will gradually equitize
Speaker 1: our convertible bonds as they come do and then, uh,
Speaker 1: if I were giving advice to a new digital asset company,
Speaker 1: a new bitcoin treasury company, if you will, I would say,
Speaker 1: you want to raise as much capital as you can,
Speaker 1: You want to buy as much bitcoin as you can.
Speaker 1: You don't really want to have senior debt. You don't
Speaker 1: want to have debt that has a lean on the bitcoin.
Speaker 1: You know, you in the ideal world, you might do
Speaker 1: a convertible bond, but you don't. But it's not clear
Speaker 1: to me that you should. If someone wanted to buy
Speaker 1: a convertible bond from you while you're private, if they
Speaker 1: showed up with two hundred million cash and said, i'll
Speaker 1: give you two hundred million dollars in you and I
Speaker 1: don't want the equity, but I want to bond with
Speaker 1: conversion right and a thirty five percent premium, I might
Speaker 1: take that money. That's not really reasonable. Having said that,
Speaker 1: if you're already trading in the aftermarket, the reason to
Speaker 1: do a convertible bond is you want to raise a
Speaker 1: lot of capital in a hurry. But the way you're
Speaker 1: going to raise the capital is the person that buys
Speaker 1: the bond is going to sell that much of your
Speaker 1: equity in four hours. So if you sell a two
Speaker 1: hundred million dollars bond, you're probably gonna create one hundred
Speaker 1: and fifty million dollars of selling pressure on the equity
Speaker 1: that day. And then the question you'd have to ask
Speaker 1: yourself is whyannt you to sell the equity yourself? Right?
Speaker 1: And so a lot of five people that have the
Speaker 1: convertible bond, they don't have an ATM, so if you don't,
Speaker 1: if you're crippled because you don't have an ATM, the
Speaker 1: convertible bond is the de facto. You know, try party ATM,
Speaker 1: but you pay a price. Right, you might as well
Speaker 1: just dump two hundred million dollars of your own stock
Speaker 1: on the market, not owe anybody. The stock will take it.
Speaker 1: Going to do it anyway, the stock will take a hit.
Speaker 1: But if you do the convert the stock will take
Speaker 1: a hit, but you'll still owe the money. You see,
Speaker 1: So I think that you could potentially skip that stage,
Speaker 1: and then you know, if you take if you take
Speaker 1: the perfect structure. Here, here's here's an ideal structure. You
Speaker 1: raise a billion dollars, you buy bitcoin, and then you
Speaker 1: go to the market and you sell two hundred million
Speaker 1: dollars worth of treasury preferred credit instruments treasury preferred stock
Speaker 1: like stretch like if you just wanted as simple as possible.
Speaker 1: The equity is high ball, high performance, high risk, and
Speaker 1: the credit is lowball.
Speaker 2: So you have tools and the preferred.
Speaker 1: Yeah, right, And the leverage for the equity comes from
Speaker 1: the preferred and the collateral right, And you know, for
Speaker 1: the preferred comes from the equity sale and from the
Speaker 1: bitcoin capital and then sell the equity to pay the
Speaker 1: divenot on the preferred.
Speaker 2: Yeah, so that might be the best kind of combination
Speaker 2: to come out with.
Speaker 1: You could very well build one hundred million dollar company
Speaker 1: from scratch with one credit instrument. Just yeah. So if
Speaker 1: you were to say, you know, what would I do? Yeah,
Speaker 1: I would distill kerosene, Like, is that a big enough market? Yeah,
Speaker 1: it's thirty trillion dollars in the US, it's seven trillion
Speaker 1: dollars in Japan. Must be fifteen trillion dollars. Right, Basically,
Speaker 1: ask yourself what is the sum of bank deposits, money
Speaker 1: market accounts, treasury preferred repo, short duration treasury credit instruments,
Speaker 1: and then you're given capital market. I would just uh,
Speaker 1: what is the word? Like, skip all the intermediary steps
Speaker 1: and go direct to the answer.
Speaker 2: Yeah.
Speaker 1: In my opinion is uh kerosene is the answer, or
Speaker 1: in this case, treasury credit. A bitcoin treasury company is
Speaker 1: in the unique position to create treasury credit, digital credit,
Speaker 1: digital treasury credit. And people are gonna they're going to
Speaker 1: endlessly torture you and say, well, why should the equity
Speaker 1: trade at a premium? And the answer is because an operating
Speaker 1: company can create digital credit, an ETF cannot, and like,
Speaker 1: well why would I all? I like, well, I whant
Speaker 1: I just buy the bitcoin? It's like, well, I'm not
Speaker 1: selling to the big to people that want bitcoin. I'm
Speaker 1: selling to people that want ten percent bank accounts. Do
Speaker 1: you do you have a bank account the year is
Speaker 1: ten percent?
Speaker 2: No? What I want want?
Speaker 1: Yeah? Yeah, well once just buy bitcoin instead. But but
Speaker 1: and that basically tears apart in the argument of the
Speaker 1: short sellers, Like the reason that people aren't going to
Speaker 1: buy bitcoin is they don't want bitcoin. What they want
Speaker 1: is a bank account that's high yield. And in Switzerland
Speaker 1: they want ten percent, not zero percent. In Japan they
Speaker 1: want eight percent, not five you know nothing. In Europe
Speaker 1: they don't. They want more than nothing. Right, So the
Speaker 1: beauty of just focusing upon that mark is it's such
Speaker 1: a simple story. It's like, I have a company, we
Speaker 1: own bitcoin, it's digital capital. We use it to back
Speaker 1: digital credit. We're selling a creditement or what does it do? Oh,
Speaker 1: it pays you five percent more than your bank account.
Speaker 1: Do you want it? Of course I want it? Right,
Speaker 1: So what's the objection? The only objection is it is
Speaker 1: the principal value stable, How volatile is the principle? How
Speaker 1: risky is it if it's If it's under collateralized and volatile,
Speaker 1: you're not going to sell that much of it. If
Speaker 1: it's over collateralized and stable and theory, you're going to
Speaker 1: sell quite a lot, right, And just that simple. The
Speaker 1: largest IPO of the year this year, And you know,
Speaker 1: as states is stretch is our IPO. You're asking why
Speaker 1: because it's the simplest, most obvious thing. I'm going to
Speaker 1: give you ten percent?
Speaker 2: Yeah, the biggest tam ten percent.
Speaker 1: You know, strip away the risk and the volatility. Yeah,
Speaker 1: And like, I don't know what will happen in the future,
Speaker 1: but I'll just park my money there until I figure
Speaker 1: out where what gives me better than ten percent. That's
Speaker 1: the idea. And it's a very simple idea and you
Speaker 1: can test it. Just go walk down the street and
Speaker 1: ask one hundred people. Would you like a stable investment
Speaker 1: that yielded ten percent, you know, tax deferred? Yeah, and like,
Speaker 1: of course I would. And it's a question that do
Speaker 1: I trust you? Do I trust bitcoin? So you reduce
Speaker 1: the entire thing down to is bitcoin? Am I trusting Bitcoin?
Speaker 1: Is the basis? You know, and do I trust the company?
Speaker 1: And it's kind of like, Hey, I have this penthouse apartment,
Speaker 1: you know, in an island city and it's beautiful and
Speaker 1: it's free. Do you want it? And the question is, well,
Speaker 1: is the only going to sink underneath the ocean? Do
Speaker 1: I want to live there? That's bitcoin? Is the granite solid?
Speaker 2: Yeah?
Speaker 1: And then oh yeah, who built the building? And then
Speaker 1: do the elevators work?
Speaker 2: And do I trust them?
Speaker 1: Yeah? Do I trust?
Speaker 2: You know?
Speaker 1: Do I trust the neighborhood? So if I get comfortable
Speaker 1: with the company and get trump comfortable with the locale,
Speaker 1: but of course I want it, it's better than my
Speaker 1: current situation. So it's a very straightforward, constructive thing to
Speaker 1: focus on.
Speaker 2: The trust piece was the one I was thinking about
Speaker 2: if maybe the stretch one takes more trust, and so
Speaker 2: a strike or strife might be a little bit less trust.
Speaker 2: So maybe as a new company, easier to roll out
Speaker 2: because they're a little bit more senior in the stack,
Speaker 2: build some track record and then roll out the stretch.
Speaker 1: I don't think. So, to tell you the truth, I've
Speaker 1: thought about it a lot. I mean to be honest,
Speaker 1: we did strike because it was the first thing we
Speaker 1: thought to do, and it felt like a perpetual convertible bond,
Speaker 1: and we were bootstrapping it with existing convertible debt investors
Speaker 1: and existing equity investors, you know, and we didn't really
Speaker 1: have a big base of retail or fixed income investors.
Speaker 1: That's where we did it. It was a gateway product, yeah,
Speaker 1: and it's got a role. But and then we did
Speaker 1: Strife because it was the next obvious thing we thought
Speaker 1: of we needed a perpetual instrument, and we didn't. It
Speaker 1: didn't occurt us we could do anything variable. So we
Speaker 1: did the perpetual ten percent because that's what we could sell.
Speaker 1: And then after we did it, we did Stride because
Speaker 1: we thought, well, if we strip away the cumulative rights,
Speaker 1: then this instrument potentially gives us unlimited leverage risk free,
Speaker 1: like we could in theory sell one hundred billion dollars
Speaker 1: of it with no credit risk. So, you know, why not.
Speaker 1: And because we'd already sold Strife, and Strife and Strike
Speaker 1: were already successful, they already traded above par, it wasn't
Speaker 1: a hard thing to sell the identical instrument at a
Speaker 1: thirty percent discount through the thing that people already owned.
Speaker 1: You see. Yeah, we did stretch because we ran into
Speaker 1: a bunch of other headaches trying to trying to globalize
Speaker 1: the first three. It's just the lawyers are slow, the
Speaker 1: regulators are slow. I thought, what can I do in
Speaker 1: the US market, which is not going to cannibalize those
Speaker 1: I thought, well, I'm on the fart of the yield curve.
Speaker 1: Let's go to the short end end of the yeld curve, right,
Speaker 1: the short end of the duration curve. So we kind
Speaker 1: of stumbled on it accidentally, and then as we iterated
Speaker 1: through it, we realized that it really was, you know,
Speaker 1: a better product, and that's what people really wanted. So
Speaker 1: a lot of people that were buying the other instruments,
Speaker 1: they were buying the high yield, but they were getting
Speaker 1: the duration not because they wanted it. They wanted like,
Speaker 1: do you want the twelve percent with the risk that
Speaker 1: the principal will move up and down? You just want
Speaker 1: twelve percent?
Speaker 2: Right?
Speaker 1: I just want the twelve percent, right to say. So,
Speaker 1: they were buying it, but.
Speaker 2: They were stomach in the volatility because they wanted the yield.
Speaker 1: Yeah, yeah, you took the delta, you took the vall
Speaker 1: because you wanted the yield. So with stretch, we stripped away,
Speaker 1: the delta stripped away, they'll the vall kept the yield. Yeah,
Speaker 1: and so I think that it's a simpler product. It's
Speaker 1: you know, look, it's a bank account. If you put
Speaker 1: in ninety nine dollars and ninety nine cents, you'll get
Speaker 1: back down to the last penny. With a money market,
Speaker 1: you know, you expect to get back down to like
Speaker 1: one significant digit past the decimal point of something very close.
Speaker 1: May not be the last penny, but it's you know,
Speaker 1: plus or minus, you know, a small rounding error with
Speaker 1: a product that's a preferred stock, that's trading. You know,
Speaker 1: you're not looking to get to the sixth significant digit
Speaker 1: or the third decimal point, but you want to be
Speaker 1: plus or minus you know, ten, twenty, thirty, fifty basis points. Yeah,
Speaker 1: you don't want to be varying by one or two percent.
Speaker 1: You want to be varying by fractions of a percent.
Speaker 1: And what you offer in return is, okay, I'll give
Speaker 1: you five percent more yield, and that is just slightly more.
Speaker 1: It's it's more flexible than a money market. And you
Speaker 1: got to go into that. It's not a money market.
Speaker 1: You got to go into it with your eyes open
Speaker 1: that money markets are trying not to break the buck,
Speaker 1: you know, at all. But on the other hand, you're
Speaker 1: targeting something to pay double.
Speaker 2: Yeah, the yield is going to make up for that volatil.
Speaker 1: You know, we're giving you a competitive money market to
Speaker 1: pace double that will get of his attention. That's a
Speaker 1: simple discussion. Also, I mean, the truth of the matter
Speaker 1: is it's easier to judge whether it's successful or not.
Speaker 1: For example, you know, stretches March from ninety up to
Speaker 1: ninety seven and some chain now and you know the
Speaker 1: target is one hundred, and when it gets to one hundred,
Speaker 1: you know, if it were to jerk up to one
Speaker 1: oh five or down to ninety five, you know it's
Speaker 1: not working. But if you look at strike or you
Speaker 1: look at strife, those things could trade if the interest
Speaker 1: rates fall one hundred basis points, strife could trade up
Speaker 1: ten or twenty percent. And that's not because it's failing, right,
Speaker 1: you know. And if you know, when Jerome Palell gives
Speaker 1: a speech and says, you know, I don't I don't
Speaker 1: really think we're going to lower instrates as fast. You know,
Speaker 1: So strife trades down three four five dollars ten it
Speaker 1: could trade quite a bit because of what Jerome Powell said.
Speaker 1: That's not a failure of our instrument, you see, but
Speaker 1: you understand how much more complicated it is to explain
Speaker 1: that strife reacted rationally to the forward yield curve expectations, right,
Speaker 1: whereas with Stretch, I don't have to With Stretch, everybody
Speaker 1: knows the mission. It's like we're pegging it to be
Speaker 1: between ninety nine and one o one, Like we're targeting
Speaker 1: for ninety nine to one oh one. And the way
Speaker 1: you'll know that it's in the range is what it's
Speaker 1: between ninety nine and one oh one, right, And when
Speaker 1: you canted, like my goal for strife is I want
Speaker 1: to see a trade to one fifty or two hundred, Right,
Speaker 1: you can imagine a world where strife is way over collateralize.
Speaker 1: The risk cre rate in the US is two percent.
Speaker 1: We have a three hundred basis point credit spread. Strife
Speaker 1: trades with an effective yield to five percent, which means
Speaker 1: it should trade it two hundred. You see, that's success
Speaker 1: for that, but you understand how much more complicated that is,
Speaker 1: because what if it gets a two hundred, Well, we're
Speaker 1: going to be paying an effective yield to five percent.
Speaker 1: We'll be selling at a two hundred. But now what
Speaker 1: happens if you buy it at two hundred and interest
Speaker 1: rates get jacked two percent of the trades down to
Speaker 1: one sixty. Did it work Yeah? Exactly as designed? Is
Speaker 1: some is a retiree going to be irate? Yeah? Like, waitmen,
Speaker 1: I got five percent more, three percent more, but it
Speaker 1: traded down twenty percent or something, and that's not what
Speaker 1: I signed up for. So you understand that looks scary.
Speaker 1: Those long duration, high delta, high high duration, high delta
Speaker 1: instruments look scary. They're very exciting for people that are
Speaker 1: professional investors. But we're we talked about the iPhone moment.
Speaker 1: I mean, it's iPhone is kind of maybe not even
Speaker 1: the perfect metaphor. I mean, the perfect metaphor is a
Speaker 1: comfortable retirement. It's like you pick up the phone and
Speaker 1: call your dad and you say, hey, Dad, you know
Speaker 1: you have some capital and your four to one k.
Speaker 1: You put it in a stretch. It was paying you
Speaker 1: thirty two thousand a year. You put in a stretches
Speaker 1: going to pay you one hundred and twenty five thousand
Speaker 1: a year. What's the risk? Okay, there's no risk. I
Speaker 1: mean there's risk, you know of a security. But the
Speaker 1: point is, you know, it looks like it's eight x
Speaker 1: over collateralized or five x over collateralized, which is more
Speaker 1: than investment grade companies offer you. Right, So it's great
Speaker 1: comparable risk if you believe in bitcoin. If you hate bitcoin, dad,
Speaker 1: don't take it. But if you think the bitcoin is okay,
Speaker 1: I can jack your retirement income from thirty thousand to
Speaker 1: one hundred and twenty thousand. If you do this, well,
Speaker 1: what do I have to do?
Speaker 2: Nothing is buy it in your equity a brokerids account.
Speaker 1: You know, like a lot of eighty year olds don't
Speaker 1: use an iPhone, A lot of senior citizens have a
Speaker 1: hard time using technology. No one has a hard time
Speaker 1: collecting a pension. So what we're really talking about is
Speaker 1: creating a living stipend or creating an annuity or a pension.
Speaker 1: And so what's the offers like happily ever after to
Speaker 1: It's social security. That's the products for how many people?
Speaker 1: Like a billion? Like everybody? Right, it's it's basically social
Speaker 1: security and living happily ever after for a billion people.
Speaker 1: What do I got to do? All you got to
Speaker 1: do is just A, understand bitcoin, trust it, and then
Speaker 1: b you've got to trust the company or the security
Speaker 1: that you're buying. But once you get over those two,
Speaker 1: those two barriers, what do you get. It's like how
Speaker 1: many people would like their salary to go from thirty
Speaker 1: thousand to one hundred thousand dollars a year?
Speaker 2: Everyone?
Speaker 1: So you understand why I would say that's the simplest
Speaker 1: product to sell. Yeah, because it's like the other ones
Speaker 1: lead you down a path of explaining conversion rights in
Speaker 1: delta and duration, interest rate risk, and it's just you know,
Speaker 1: and the like and what happens if the central bankers
Speaker 1: say this and do that and you make get this boost,
Speaker 1: but you might not get that, and it's a lot
Speaker 1: more complicated. And if you create something which is simple,
Speaker 1: that means you'll sell ten to one hundred times and
Speaker 1: much of it, right, But if it's a hundred times
Speaker 1: as much you sold, it's gonna be a hundred times
Speaker 1: of liquid. If it's liquid, it means you get in
Speaker 1: and you get out, right. So what we're trying to
Speaker 1: do is and that means there's less volatility. So at
Speaker 1: the end of the day, the simple universal product that
Speaker 1: everybody needs that's the most liquid with the highest day
Speaker 1: you whim you see. My criticism of the preferred stock
Speaker 1: market and the corporate bond market is is they were
Speaker 1: never trying to create good credit. It was always crippled credit.
Speaker 1: It's like, why doesn't a big bank have one hundred
Speaker 1: billion dollars worth of a single preferred instrument with a
Speaker 1: four letter ticker that trades five billion a day with
Speaker 1: a bit ass spread of a penny. Because because they
Speaker 1: never really wanted to create a good credit instrument, they
Speaker 1: they created, you know, ninety seven tranches of rolling debt issuances.
Speaker 1: It's it's an it's a traditional market and insider game
Speaker 1: they play with themselves. There is a set of traditional investors,
Speaker 1: and a set of traditional bankers, and a set of
Speaker 1: traditional issuers, and a set of a traditional mode and
Speaker 1: they're all basically they're going through this hyper inefficient process. Yes,
Speaker 1: whereas when we created these instruments like stretch, you know,
Speaker 1: ask me what I want. I want to sell fifty
Speaker 1: billion dollars of it? I want I want fifty billion
Speaker 1: with two billion three but I want it to be
Speaker 1: the largest, you know, outstanding preferred stock issued in the
Speaker 1: history of the world. And already these four credit instruments,
Speaker 1: they're already the most liquid preferred stocks of the century. Yeah,
Speaker 1: and that's in the first few months of their life.
Speaker 1: Imagine what happens three to five years from now after
Speaker 1: we've actually sold via the ATM every single month for
Speaker 1: the next thirty six months.
Speaker 2: Yeah. The difference is, as you said, for like Boeing,
Speaker 2: they're taking debt to build their product, and so a
Speaker 2: bank or Boeing, they're not trying to make the credit.
Speaker 2: It's not the product, it's not attractive. Whereas you want
Speaker 2: to sell the credit as the products. You're trying to
Speaker 2: make it to reach the biggest addressable market. And if
Speaker 2: you look at in the developed world, we have two
Speaker 2: to fifty million retirees, right and they all want the
Speaker 2: yield with no volatilities. The tam that told just what
Speaker 2: market is massive. As you've explained, the profit margin for
Speaker 2: you to create that product is also big. It's simple.
Speaker 2: The market's big.
Speaker 1: You see what breaks people's brains though, because they think
Speaker 1: of credit issuance as a mean to the end, and
Speaker 1: the end is tax arbitrage. At Apple, it's it's it's uh,
Speaker 1: you know, leveraging him. Microsoft stock Right, if you look
Speaker 1: at all the big well run companies in the world,
Speaker 1: they're solving a tax issue, a shareholder related they're trying
Speaker 1: to improve the quality of their equity or their EPs performance,
Speaker 1: or they're or they're building airplanes, or they're building buildings,
Speaker 1: or they're developing skyscrapers. Right, it's it's a means to
Speaker 1: the end. Or it's like the bank is, they're not
Speaker 1: bragging about issuing the world's greatest preferred stock. They did
Speaker 1: it because they have to for like tier one capital,
Speaker 1: mezzanine capital allocations so that they can make commercial loans
Speaker 1: so that they can do something else. Right, So what
Speaker 1: we stumbled upon in the bitcoin treasury business is we
Speaker 1: just realized that if you were the first well run
Speaker 1: company that actually thought of credit as the product, then
Speaker 1: the killer application of bitcoin and the killer application of
Speaker 1: capital is to issue credit. And the killer application of
Speaker 1: bitcoin is to issue digital credit. And now, if you
Speaker 1: look at the at these things that were languishing, any
Speaker 1: public company in the US can issue a preferred stock.
Speaker 1: Most just choose not to. When's the last time you
Speaker 1: bought a preferred stock from Microsoft? Microsoft, in theory could
Speaker 1: give you a ten percent yielding preferred stock. But could
Speaker 1: you imagine discussing that or pitching it to the CFO.
Speaker 1: They're like, are you out of your mind? Why would
Speaker 1: we do that? Right? And so most companies in the
Speaker 1: un less they could have, but it was never really
Speaker 1: I mean, it was never strategic to them. The ATM
Speaker 1: was developed I think by Michael Milken many many years ago,
Speaker 1: the at the market shelf registration. But you know, if
Speaker 1: you were to go to Microsoft or Apple or Google
Speaker 1: or Amazon or Meta and say, hey, what do you
Speaker 1: guys think about selling your own equity, They're like, are
Speaker 1: you out of your mind? We buy our equity the money. Yeah,
Speaker 1: we have no use of the money. We don't have
Speaker 1: the use of capital. Okay, well you could issue credit
Speaker 1: instruments at the market. Well, we don't want to issue
Speaker 1: credit instruments. And so what we did is we took
Speaker 1: existing ATM, applied it to a preferred stock, paired it
Speaker 1: with a radical different view toward treasury capital. We inverted
Speaker 1: the company, inverted the balance sheet, inverted the business model. Right,
Speaker 1: we're selling that's literally what we do. We credit is
Speaker 1: the product we created, We engineer the product, right, then
Speaker 1: we issue the product. We use the proceeds to build
Speaker 1: the capital structure, which then thereby boosts the performance of
Speaker 1: the equity. Right, the elegance of it, it really is
Speaker 1: a symmetric thing of beauty. We're selling US dollar yield
Speaker 1: us D yield to create BTC yield. That's the swap. Right.
Speaker 1: The equity investors value the company based on BTC yield,
Speaker 1: the appretion of bitpoint per share. Credit investors value the
Speaker 1: credit the credit security based upon us D yield. And
Speaker 1: so just swapping a FIAT yield, a y in a euro,
Speaker 1: a US dollar yield for a BTC yield with the
Speaker 1: bitcoin as the collateral on the middle is the business,
Speaker 1: you know, And and the skeptics and the cynics they
Speaker 1: choose to be strategically ignorant. And it's like like a hater,
Speaker 1: I don't want to understand the business because I might
Speaker 1: have to agree with you. So if I've already decided
Speaker 1: I hate you, I don't want you to explain why
Speaker 1: what you're doing is going to save the world or
Speaker 1: help anybody, or help the shareholders. I just don't want
Speaker 1: to know. I'm going to choose to stick my head
Speaker 1: in the sand and be ignorant. But if you're more
Speaker 1: open minded about the entire thing, and you just embrace
Speaker 1: the idea that this is a new kind of company,
Speaker 1: a new It's not a bank because it doesn't it's
Speaker 1: not regulated, doesn't take consumer and commercial deposits. It's not
Speaker 1: that kind of bank. It is a financial kind of company, right,
Speaker 1: and it's a new form of company. They're a bank,
Speaker 1: they're insurance companies, you know, et cetera. So, a treasury
Speaker 1: company is a company that issues securities in order to
Speaker 1: acquire capital. Now a commodity really you're issuing securities to
Speaker 1: buy a commodity. And if you pick a commodity that
Speaker 1: happen to be scarce, you create a very powerful feedback loop. Right,
Speaker 1: work through your mind. If I if I do this
Speaker 1: on bitcoin going at fifty percent a year, I can
Speaker 1: easily pay ten percent capture the forty percent spread. That
Speaker 1: is an amplifier.
Speaker 2: Yeah.
Speaker 1: If I issued the credit to buy soybeans, Yeah, without
Speaker 1: the keg gar or natural gas or crude oil or
Speaker 1: some other you know commodity that returned three five percent
Speaker 1: anything less than the cost of the credit, then I've
Speaker 1: run the feedback loop. In the opposite direction. I'm destroying
Speaker 1: capital as fast as I can. The business is not
Speaker 1: really much more complicated than that. It's just no one's
Speaker 1: ever seen it before, which is why people just have
Speaker 1: a hard time getting their head around it.
Speaker 2: And if they don't believe in bitcoin. Now you've talked
Speaker 2: about the different preferreds and how even just one could work,
Speaker 2: and it gives you leverage. And in the in the
Speaker 2: last quarterly report, which are brilliant by the way you're
Speaker 2: changing industry with that. It's great. You showed several slides
Speaker 2: of this Bitcoin factor, which is like this amplification of bitcoin,
Speaker 2: and so by doing the preferge, you're adding the leverage
Speaker 2: which then over time you use a ten year window,
Speaker 2: you can give you a bitcoin factor of two point
Speaker 2: eight to five six whatever. Does that number sort of
Speaker 2: relate into this m NAB number over a long period
Speaker 2: of time and sort of justify or show why that
Speaker 2: m NAB number should be greater than two or three
Speaker 2: or four.
Speaker 1: Yeah. So if you think about think about the value
Speaker 1: of the equity over and above net asset value. If
Speaker 1: the company did nothing, if it just bought bitcoin and
Speaker 1: held bitcoin forever, it starts to look like an ETF.
Speaker 1: Probably a trades around NAB The way that a company
Speaker 1: generates a premium to NAB is primarily through credit amplification.
Speaker 1: So if a company can generate, say thirty percent leverage,
Speaker 1: then it's going to create an amplifier because you can
Speaker 1: see systemically, I issue a billion dollars of a preferred
Speaker 1: stock paying ten percent, I buy a billion of bitcoin. Right,
Speaker 1: if I own a billion dollars a bitcoin already and
Speaker 1: I was able to do that trade, I'd have two
Speaker 1: billion dollars a bitcoin, no additional common stock outstanding, you know,
Speaker 1: so you end up with fifty percent leverage on that.
Speaker 1: So you start to generate amplification. Now we have models
Speaker 1: to calculate how accretive that is, how does that contribute
Speaker 1: to bitcoin per share? And it turns out that it's
Speaker 1: more accreative. But this won't come as a surprise. It's
Speaker 1: more accreative if the cost of capital falls. For example,
Speaker 1: raising the ten billion at five percent instead of ten
Speaker 1: percent is more accreative, right raising it at one percent.
Speaker 1: Imagine borrowing a billion dollars at one percent and buying
Speaker 1: bitcoin that returns fifty five percent. You're capturing fifty four
Speaker 1: percent spread, right, So the spread that you're capturing as
Speaker 1: the function of you're cost to capital. So the lower
Speaker 1: the cost of capital, the more the amplication. The higher
Speaker 1: the leverage, the more the amplification, the faster. If you
Speaker 1: did all that the bitcoin went up zero percent a year,
Speaker 1: it's not terribly You don't get a lot of good amplification. Right.
Speaker 1: So it bitcoin goes out fifty percent a year, right,
Speaker 1: that's more amplification. So the rate of growth of bitcoin,
Speaker 1: the ar bitcoin plus the leverage, plus the cost of capital,
Speaker 1: all those are primary factors that drive the amplification. That
Speaker 1: is a rule of thumb. You know, we kind of
Speaker 1: calculated that. You know, assuming bitcoin appreciates thirty percent a
Speaker 1: year and we get thirty percent leverage, then we should
Speaker 1: be able to get a three x BTC factor, or
Speaker 1: we can accumulate three times more bitcoin per share over
Speaker 1: a ten year timeframe. So you could imagine an m
Speaker 1: non floor of three, right, makes sense? Or you know,
Speaker 1: how what do you do in percentage? Or you do
Speaker 1: that a factor and you know, for when you're evaluating
Speaker 1: a company, the question is how high can they take
Speaker 1: the leverage? How much is it going to cost them?
Speaker 1: There as second order effects like credit risk. Right, So
Speaker 1: I'm describing perpetual instrument never comes to there is no
Speaker 1: credit risk there. But if you were, if you were
Speaker 1: achieving that leverage with a six month loan, yeah right,
Speaker 1: you can go on an exchange and you can actually
Speaker 1: crank up the leverage to three or four or five.
Speaker 1: But the duration is instant, right, you get forced liquidated overnight.
Speaker 1: When we're managing the business, we're constructing credit amplification in
Speaker 1: the most intelligent way. And of course, in my opinion,
Speaker 1: the least risky, most intelligent way to create credit amplification
Speaker 1: is through publicly issue preferred stocks that are perpetual. Right,
Speaker 1: for the obvious reason, you never refinance them. The principle
Speaker 1: doesn't come due, and so the risk on the principle
Speaker 1: is the minimus. And then the dividends you know, are
Speaker 1: are subject to the approval of the board of directors,
Speaker 1: and the company can suspend the dividend or delay it
Speaker 1: for a time under financial duress, and so the coupon
Speaker 1: risk is dominimous as well as the principal risk. The
Speaker 1: opposite extreme is a one year senior loan pledge the
Speaker 1: coladal of bitcoin, pay off the principle in one year
Speaker 1: and pay interest every month as a coupon, missed the
Speaker 1: interest in a month, you're in default, missed the principal
Speaker 1: delay it you're in default, missed the principle, you're in default,
Speaker 1: and the claudal gets ripped away and the entire company collapses. Right,
Speaker 1: So intelligent leverage unintelligent risky leverage. Right, you want to
Speaker 1: go for one not the other.
Speaker 2: So you think it sets in that example. And as
Speaker 2: you said, there's three different factors in there, but that's
Speaker 2: sort of that. In that example, that set an m
Speaker 2: NAB number about a three times. When you look at
Speaker 2: other hat asset heavy companies banking, insurance, oil, they kind
Speaker 2: of trade in that one to two times. But do
Speaker 2: you think, because this is not oil as an asset,
Speaker 2: that's got this fifty times or call it a thirty
Speaker 2: times kagar over this long period of time.
Speaker 1: I would stop there and I would say m NAB
Speaker 1: is just price to book value. Okay, Well, run banks
Speaker 1: traded a price to balk north of two, but what
Speaker 1: is Microsoft's price to book value? It's like twenty ten.
Speaker 1: So a lot of companies traded a price to book five, six, seven, eight, ten, right,
Speaker 1: Like they have very productive capital, right, they have huge
Speaker 1: leverage on it. Right, So an m NAB of three
Speaker 1: is just a price to book of three, So you know,
Speaker 1: how do you get there? There? It's it's simple to
Speaker 1: figure out how you get there. For example, if you
Speaker 1: have ten billion dollars a bitcoin and you sell ten
Speaker 1: billion dollars worth of Stride s TRD, you would have
Speaker 1: a leverage factor of fifty percent no credit risk. Yeah, right, right,
Speaker 1: so you'd sell another five dolling of Stride right if
Speaker 1: you can sell it? Right? This all comes down to
Speaker 1: not should you? Can you?
Speaker 2: Can you? Right?
Speaker 1: Not should you? And if you do, you will get there?
Speaker 1: Right if in that particular case, it all comes down
Speaker 1: to what kind of credit can you issue and under
Speaker 1: what terms and how rapidly?
Speaker 2: So at fifty percent leverage with no credit risk, I mean,
Speaker 2: then there's the five times right.
Speaker 1: Yeah, you could get to it and have a five,
Speaker 1: or you could be priced a book at five. But
Speaker 1: ask you off the question, how do banks get to
Speaker 1: a price to book more than one? Leverage?
Speaker 2: Right?
Speaker 1: Why do preferred stocks exist at all? So banks can
Speaker 1: generate leverage on the common yeah? Right? And so everything
Speaker 1: I'm describing is it's not we didn't invent that, Yeah,
Speaker 1: there's five thousand banks in the country right now. There
Speaker 1: are twenty five thousand banks one hundred years ago, thousands
Speaker 1: and thousands of banks, and you know, all sorts of
Speaker 1: finance companies. They generate intelligent leverage using various various tiers
Speaker 1: of equity, capital, mezzanine equity, preferred equity, senior, preferred, junior, preferred,
Speaker 1: little bit of debt, and then they got common equity.
Speaker 1: And the question is, so why, I mean, why does
Speaker 1: your favorite bank have to issue anything at all? They're
Speaker 1: the bank. And the answer is because they're actually creating
Speaker 1: a luck. What are you on the They're generating leverage
Speaker 1: on the common that's all. I mean, JP Morgan, all
Speaker 1: these they could basically pay off all their debt if
Speaker 1: they wanted. But the point is they're they're trying to
Speaker 1: create leverage on the common to give the common stock value.
Speaker 1: So the only difference is they're not really strategic about
Speaker 1: their They're not trying to make their credit instruments the
Speaker 1: best in the world and brag about it, make them
Speaker 1: homo genius and transparent.
Speaker 2: We are, right right, Yeah, they're trying to set the
Speaker 2: terms for them. You're trying to set the terms for
Speaker 2: the customer. So it's like a different difference. Yeah, different
Speaker 2: there part of there you talk about the common I
Speaker 2: remember in Prague you talked about you give a vivid
Speaker 2: example how how MSTR trades as volatilated bitcoin and everybody
Speaker 2: wants it to trade volatileated bitcoin. And you gave this
Speaker 2: example that if God came and spoke to you tonight
Speaker 2: and told you the market was going to crash tomorrow,
Speaker 2: and you woke up and headed your position in the
Speaker 2: market crash, but Microsoft didn't go down, be great, And
Speaker 2: you said, no, that wouldn't because the market expects us
Speaker 2: to move with bitcoin. And I think you were trying
Speaker 2: to explain to us during that during that is that
Speaker 2: sort of when the company is lean and sort of
Speaker 2: strips down, it can trade volatility to bitcoin. And so
Speaker 2: I'm curious your take on sort of then having like
Speaker 2: that pure play company versus a company that's like a
Speaker 2: big underlying business that has a bitcoin treasury, and how
Speaker 2: that then maybe maybe potentially takes that common away from
Speaker 2: really being used like in the ATM, sort of almost
Speaker 2: neutralizes that part of the tool.
Speaker 1: Yeah, so you can have an operating company h that
Speaker 1: has cash flows that uses bitcoin as a treasury asset,
Speaker 1: if it's a retailer, if it's a utley company, a
Speaker 1: power company and water company, of you know, fill in
Speaker 1: the blank software company. The world's every one of the
Speaker 1: mag seven companies. The world's full of companies that have
Speaker 1: good businesses to generate cash flows, but they have a
Speaker 1: defective treasury strategy. All of those companies have a treasury
Speaker 1: which is not schinerating shareholder value. Right, if you take
Speaker 1: a billion dollars and you buy money markets with it,
Speaker 1: the yeld two percent are three percent after tax, and
Speaker 1: if the S and P is generating fourteen percent, then
Speaker 1: you've underperformed the cost to capital by eleven percent. Therefore,
Speaker 1: your treasury is a cost center, not a profit center
Speaker 1: for the shareholders. And so what happens is it shribles
Speaker 1: up the company, basically decapitalizes the balance sheet, and they
Speaker 1: give all the money away. And that it just describes
Speaker 1: in a nutshell, every well run company in the United States,
Speaker 1: right except Berkshire, Hathway, everyonewhere else, like all the MAGS seven.
Speaker 1: What they do is they defund the treasury. So if
Speaker 1: you're one of those companies, you could just place money
Speaker 1: markets with well, you could replace it with bitcoin instead,
Speaker 1: and bitcoin is fifty percent, or let's say a reasonable
Speaker 1: twenty year forecast is thirty percent. If you're a believer,
Speaker 1: twenty percent of you're an investor, ten percent of your
Speaker 1: a skeptic. Right, But whether it's ten or twenty or
Speaker 1: thirty percent, they're all better than two percent or three percent,
Speaker 1: which is the status quo. Right, So if you're in
Speaker 1: the twenty or thirty percent camp, it outperforms the hurdle rate,
Speaker 1: which is the S and P index. And so at
Speaker 1: that point, the treasury in the balance sheet becomes profit center,
Speaker 1: which means that you would stop paying dividends, you would
Speaker 1: stop doing buybacks, you would roll it into bitcoin, and
Speaker 1: the company's market cap would grow faster and the stock
Speaker 1: would grow faster. Right, So that's whay to create sheeriolder value.
Speaker 1: You won't be better than us, you won't be better
Speaker 1: than a pure play try company, but you'll be better
Speaker 1: than your peers. Right, Like, if if you're a native
Speaker 1: business or your organic business is growing ten percent, you
Speaker 1: will go thirteen. Right. If every other retailer is losing money,
Speaker 1: you'll make money. Right. What we've done is created a
Speaker 1: pure treasury company. So risk, our risk free rate, our
Speaker 1: HERD rate is thirty percent. That's what I expect at
Speaker 1: a bitcoin over the next twenty years, twenty nine percent
Speaker 1: of let's call it thirty percent round up. So my
Speaker 1: benchmark rate is thirty percent. If I put leverage on it,
Speaker 1: I should be we'll grow fifty or forty. I don't
Speaker 1: think there's any any non financial company. There's no there's
Speaker 1: no physical company that's going to actually appreciate at that
Speaker 1: rate because you can't do it with real estate or
Speaker 1: oil or natural gas. The investment cycles are too slow,
Speaker 1: you know, the develop cycles are too slow, the risks
Speaker 1: are too ineff of ball, et cetera. So I would say,
Speaker 1: across thousands of companies, every company ought to recapitalize their
Speaker 1: balance sheet on bitcoin because that will cause them to
Speaker 1: grow fifty percent faster than their peers or than they
Speaker 1: would otherwise. They'll just be better and the compounds. Yeah,
Speaker 1: so a billion dollar company will be worth ten billion
Speaker 1: dollars instead of two billion dollars in a decade. Okay,
Speaker 1: if they were a pure play, they might go from
Speaker 1: a billion dollars to one hundred billion. They won't do that,
Speaker 1: but that's not their bogie, And the truth is they
Speaker 1: probably can't get political consensus to change their retail or
Speaker 1: to sell the retail business and become a pure financial company.
Speaker 1: That's probably not going to happen. So I just think
Speaker 1: it's not a bad idea, but your expectations ought to
Speaker 1: be adjusted based upon the enterprise value mix, right Yeah.
Speaker 1: Like if Microsoft bought one hundred million dollars a bitcoin tomorrow,
Speaker 1: ninety eight percent of the enterprise value would still be
Speaker 1: index to the software business, right yeah. If they bought
Speaker 1: a trillion dollars a bitcoin tomorrow, they still be seventy
Speaker 1: five percent indexed to the software business. So you can't
Speaker 1: get to one hundred percent digital exposure unless you actually
Speaker 1: start with a clean balance sheet.
Speaker 2: And starting with a clean balancee So it seems like
Speaker 2: for the new crop of companies that are starting up
Speaker 2: in micro strategy, when you raise the convertible debt, then
Speaker 2: you had the debt to cover. So then there was
Speaker 2: a lot of questions in the industry about how you
Speaker 2: cover the debt with the underlining business model. But in
Speaker 2: sort of the strategy two point zero version skipt that
Speaker 2: if you could just go raise a billion dollars of
Speaker 2: bitcoin and start issuing preferred SR doing.
Speaker 1: It again, I'd raise a billion dollars, I'd take the
Speaker 1: thing public, and then I'd sell one hundred million, two
Speaker 1: hundred million, three hundred million worth of preferred stock as
Speaker 1: soon as possible yep. And then I'd rock back and
Speaker 1: forth between levering delevering the thing, and I would grow
Speaker 1: it with the minimum most elegant set of credit instruments. Well,
Speaker 1: if you look at expansions for US right now, stretch
Speaker 1: seems like the killer product in the US. Maybe we
Speaker 1: do the same thing in yen or euros or Canadian
Speaker 1: or pounds, right, But otherwise there's nothing else that's all
Speaker 1: that exciting, right, I mean, and even those things are
Speaker 1: much less exciting than just growing the business in the
Speaker 1: US by a factor of one hundred.
Speaker 2: Yeah. So speaking of that, then in New York you
Speaker 2: had talked about the potential to have a thousand of
Speaker 2: these companies. Yeah, when you think about if it's just
Speaker 2: as simple as just selling that one product, can there
Speaker 2: be a thousand companies selling that one product? Or is
Speaker 2: it that there's going to be a thousand companies each
Speaker 2: doing their own variations. Some are like more like insurance companies.
Speaker 2: Some of the more like banks is we have ten
Speaker 2: major banks, there's a lot of products. There's thousands of
Speaker 2: regional banks. There's like ten major banks.
Speaker 1: Yeah, so I think there's huge amount of How many
Speaker 1: insurance companies are there in the world, a lot. How
Speaker 1: many life insurance companies are there in the world that's
Speaker 1: sell essentially the same exact product, right, like more than
Speaker 1: a dozen.
Speaker 2: And they're completely different than banks.
Speaker 1: Yeah. How many car insurance companies? Right? How many dn
Speaker 1: O insurance? How many reinsurance companies?
Speaker 2: Like?
Speaker 1: So off the top of my head. Products the obvious
Speaker 1: ones yourself, treasury credit in every country in the world, Brazil, Argentina. Look,
Speaker 1: you won't be better than a US company, but you
Speaker 1: will be better than every Argentine company, right the Brazil
Speaker 1: you know, Brazilian treasury company. It won't be as good
Speaker 1: as the US one, but it will be better than
Speaker 1: every country in Brazil. And by the way, in that
Speaker 1: way it may become better because if you're this, if
Speaker 1: you're the most compelling, fastest growing company in Brazil, then
Speaker 1: aren't you going to slurp up all the equity capital
Speaker 1: and all the credit capital in the entire country?
Speaker 2: Right?
Speaker 1: Which is, which is interesting. So you can do this.
Speaker 1: There's place to create a treasury company in Switzerland, the
Speaker 1: twenty sixth country is it twenty six or twenty seven
Speaker 1: countries in the Eurozone, they're all different. There's a German one,
Speaker 1: a French one, a Swedish one, in Norwegian one. You
Speaker 1: can do you know, Netherlands, Belgium, UK, Ireland, Spain, Portugal, Italy, right,
Speaker 1: you know, and then Japan, Korea, China, China, Kingdom of
Speaker 1: Saudi Arabia, India, Australia, Canada, Mexico. Okay, So there you
Speaker 1: could just be the first provider of digital credit, right,
Speaker 1: and maybe you sell kerosene, you sell stretch, but then
Speaker 1: maybe you also sell long duration credit or convertible credit
Speaker 1: or whatever. But then let's I've I've broken it down geographically,
Speaker 1: but then let's come back to the US and break
Speaker 1: it down by industry sector. Right, you could be the
Speaker 1: one that specializes in insurance or feeding the insurance company.
Speaker 1: Or you could create a credit product that's like a
Speaker 1: reinsurance product. Right, you could you could create various credit
Speaker 1: products that are tailored to the life insurance, the annuities
Speaker 1: that you know, every other type of insurance, you know,
Speaker 1: flood casualty, property insurance businesses. There are a lot of
Speaker 1: buyers in the market, fixed income buyers. They just will
Speaker 1: not buy prefers no matter what. They'll want to buy bonds. Okay,
Speaker 1: So I don't want to sell them because it doesn't
Speaker 1: make sense for me. But if you were saying, Mike,
Speaker 1: I got ten billion dollars, I want to compete with you,
Speaker 1: and I want to grow just fast or what it
Speaker 1: should I pick up, I'm like, man, I'm not going
Speaker 1: to do ten year bonds. Why don't you just do
Speaker 1: what I did, but raise ten billion dollars and issue
Speaker 1: a billion dollars a bar. It'll do one for four
Speaker 1: A offerings. Not compete with me. By the way, the
Speaker 1: market loves them. Yeah, start to do basically over the
Speaker 1: counter institutional bond offerings. And the debate is do you
Speaker 1: sell five year instruments. I'm gonna sell five year secured
Speaker 1: bonds and I'm gonna roll them every quarter, or I'm
Speaker 1: gonna say, you know, you could go and do the
Speaker 1: convertible bond market if you want, or you could do unsecured,
Speaker 1: or you could do secure. I'm like, Mike, I found
Speaker 1: like the biggest insurance company in the US. They don't
Speaker 1: want to prefer, they don't want the converts, but they
Speaker 1: would take senior debt as long as it's they've got
Speaker 1: a claim on the capitol for up to twenty percent
Speaker 1: of the capital structure or whatever. Yeah, and they have
Speaker 1: one hundred billion dollars they'll give me. Do you want it?
Speaker 1: I'm like, I don't want it right now. It confuses
Speaker 1: my story, confuses my investors. It puts credit risk senior
Speaker 1: to all my other instruments, and that kind of is
Speaker 1: not good for my capital structure. But should you take it? Absolutely?
Speaker 1: You could probably take one hundred billion dollars. There's probably
Speaker 1: a one hundred billion dollars senior debt thing, one hundred
Speaker 1: billion dollars of junk unsecure. There's one hundred billion dollars
Speaker 1: or fifty billion to take out of the convert market.
Speaker 1: You could probably write all sorts of custom instruments for
Speaker 1: the annuity industry, the insurance industry, and guess what, none
Speaker 1: of that's going to be interesting to the Japanese insurance companies.
Speaker 1: They're going to want different. So when you say what
Speaker 1: are all the products, I think the products are if
Speaker 1: there's three hundred trillion dollars of credit instruments. I think
Speaker 1: the products are every possible currency every by the way,
Speaker 1: we can say euro, but you know, French bonds and
Speaker 1: euros aren't the same as German bonds and euros, right,
Speaker 1: So it's like every type of currency, every jurisdiction, every
Speaker 1: type of credits, every flavor of credit. You know, we
Speaker 1: issued a lot of things that you know. And then
Speaker 1: every districtribution channel do you go public on that exchange?
Speaker 1: Do you do direct institutional sales? It's not clear to me.
Speaker 1: For example, we couldn't do something where we just like
Speaker 1: roll ten year bonds and you know, it's like, how
Speaker 1: do you handle the credit risk? Well, just every year
Speaker 1: we'll refinance ten percent of them, will never have more
Speaker 1: than ten percent, or maybe I'll just refinancing them every quarter.
Speaker 1: I'll never have more than two percent two and a
Speaker 1: half percent. So there there are other credit products that
Speaker 1: can be created. There are other buyers, they're investors, right,
Speaker 1: But then again there's also corporations that would bypass, so
Speaker 1: like the pension funds and the insurance companies would get
Speaker 1: you could go direct to them and open up a pipe,
Speaker 1: and then there are all the bond traders and the
Speaker 1: pimcos and the vanguards and the fidelities of the world,
Speaker 1: and indirectly the pension funds and the endowments are behind them,
Speaker 1: right yeah, so you know, you might be able to
Speaker 1: create the perfect product for an endowment. It's like, well,
Speaker 1: we like bitcoin, but we don't want we can't stomach
Speaker 1: the volatility. Can you just give me a ten percent guarantee?
Speaker 1: And then and then there's issue of liquidity, like, well,
Speaker 1: we would give you ten billion dollars, but we need
Speaker 1: the right to redeem five hundred million in any given
Speaker 1: quarter direct from you. Like I wouldn't do that deal
Speaker 1: like for my company because it's complicating for me. But
Speaker 1: you might do that deal if the choice was have
Speaker 1: one hundred million dollar company and agree to create five
Speaker 1: hundred million dollars in cash on hand or not, right right, yeah,
Speaker 1: And but we haven't explored that. But but there's a
Speaker 1: lot of there's a lot of you could create a
Speaker 1: quasi money market instrument where you are actually you know,
Speaker 1: Alix kept five percent of all the capital available for
Speaker 1: ready redemption on a daily basis, and then you you
Speaker 1: know how funds they'll create gated redemption windows, Like you're
Speaker 1: invested with me for seven years, but once a quarter
Speaker 1: you have a one day when you can give me
Speaker 1: redemt you can call, you could put you could put
Speaker 1: call options and put rights or redemption rights into a
Speaker 1: preferred stock. I haven't you could. It's a different product,
Speaker 1: you No, some people like polyester, some people like lycra Yeah,
Speaker 1: you know, nylon. Yeah, right there, there's a lot of
Speaker 1: things you can do with carbon, hydrogen and oxygen.
Speaker 2: Yeah, and not everyone's going to want to do all
Speaker 2: those things. In the US, we have almost five thousand
Speaker 2: ETFs that are each just a little flavor of something, right,
Speaker 2: thousands of bonds and a lot of.
Speaker 1: Us question of what can you market? More like, what
Speaker 1: can you sell? And what I think there is there'll
Speaker 1: be a Cambrian explosion in digital credit issuers and there's
Speaker 1: all you know, You're like, well, isn't that a lot
Speaker 1: of stuff? Well have you ever studied the mortgage backed
Speaker 1: security industry? You know, I mean thinks people created. Yeah,
Speaker 1: I mean there's hundreds of thousands of credit instruments, maybe
Speaker 1: millions of credit instruments, and you know, start to go
Speaker 1: online and figure out every possible twist and turn of
Speaker 1: every credit instrument. The average person can't even name the
Speaker 1: top five categories or top ten categories. So there's an
Speaker 1: industry there. The beauty is, the beauty is, there's a
Speaker 1: there's a methodology or a distribution channel to figure out
Speaker 1: whether your idea is a good one. Like you create
Speaker 1: a security and you go and you offer it, and
Speaker 1: it's a two day road show or a one day
Speaker 1: road show, and the investors are either going to buy
Speaker 1: two hundred and fifty million dollars of it in one
Speaker 1: day or they're going to tell you we don't want
Speaker 1: any of it. It's very So you can create billion
Speaker 1: dollar product lines in a conversation with the investors in
Speaker 1: a one forty four a offering. How many consumer products
Speaker 1: that are a billion dollars can you create in two
Speaker 1: days where you know for certainty it's going to work. Yeah,
Speaker 1: So I think that the capital markets are primed for
Speaker 1: innovative digital credit issues to go and create a dozen different, interesting,
Speaker 1: compelling things. You might not come up with the thing
Speaker 1: they want, but you won't spend more than a few
Speaker 1: days finding out. And you know, in the real estate business,
Speaker 1: people create a billion dollar building and no one's to
Speaker 1: lease it and it takes five years and they lose
Speaker 1: a billion dollars. Yeah, that's never going to happen with
Speaker 1: the digital credit instrument.
Speaker 2: Yeah, you can essentially sell it before you build it.
Speaker 1: Like we're literally building it in real time, right mark,
Speaker 1: Like we're open for business every day with four credit ATMs.
Speaker 1: If someone hit the bid and wanted to buy five
Speaker 1: hundred million dollars in a minute, we build a building
Speaker 1: in a minute. Yeah, in sixty seconds, trade is done,
Speaker 1: cash changes hands, we create the collateral, we bought the
Speaker 1: bitcoin underlying that day. Sometimes we're literally selling fifty million
Speaker 1: an hour or one hundred million an hour and buying
Speaker 1: one hundred million dollars a bitcoin the same hour. Like
Speaker 1: we could do a billion dollars of capital raising in
Speaker 1: a day, and we might have twenty million of exposure
Speaker 1: at four pm, and by five or six pm, we're
Speaker 1: fully done. The investment cycle is one thousand times faster
Speaker 1: than technology, real estate, oil and gas, anything else you've
Speaker 1: ever seen before in your life. And maybe the more
Speaker 1: profound idea is think about all these other credit instruments.
Speaker 1: You know, what's backing corporate credit, what's backing mortgage credit,
Speaker 1: what's backing bank credit, what's backing all the you know
Speaker 1: all these things. If you saw a billion dollars of
Speaker 1: mortgage backed securities, who's going to build a billion dollars
Speaker 1: worth of real estate that someone wants to rent? And
Speaker 1: how long will that take? So this is a profound
Speaker 1: new idea and and that's why those digital credit issuers
Speaker 1: can grow so fast.
Speaker 2: Man, you've explained it so well. I'm gonna I'm going
Speaker 2: to wrap it up with this last question here since
Speaker 2: we're here in Washington, DC and the nation's capital at
Speaker 2: the at the keynote you justcabed earlier. I love the
Speaker 2: way that you closed it down. It was like this
Speaker 2: empowering message of sort of telling people like this amazing
Speaker 2: opportunity that we have right now. The winds have shifted,
Speaker 2: like now is the time for those that want to
Speaker 2: embrace digital intelligence and digital capital. That's kind of how
Speaker 2: you said it in New York. You had said, I
Speaker 2: want to push back on the fix the money, fixed
Speaker 2: the world narrative, and because it was like, in order
Speaker 2: to succeed, we have to fix the equity and fix
Speaker 2: the funds and fix the mak. So we need to
Speaker 2: go build the world that we want, And so I'm
Speaker 2: just curious, while we're here in DC, think about bitcoin policy,
Speaker 2: how do you think we should be sort of fixing
Speaker 2: that in this political environment more of like a constitutionalist
Speaker 2: we're sort of trying to get them to sort of
Speaker 2: pass laws that sort of protect us, or we are
Speaker 2: we pushing for regulations that give us clarity and direction.
Speaker 1: Well, I think the good news is bitcoin has already
Speaker 1: got the best regulatory treatment of any digital asset in
Speaker 1: the world and has rights. It's globally recognized as a
Speaker 1: digital commodity and property, even in China. In China where
Speaker 1: crypto trading is illegal, where crypto mining is illegal, bitcoin
Speaker 1: mining is illegal, bitcoin holding is not illegal, and bitcoin
Speaker 1: is represented is recognized by the courts as digital property,
Speaker 1: as property you can own it. So we're already starting
Speaker 1: with a good place. If your business model is digital credit,
Speaker 1: we've already got pretty well developed credit laws. The US
Speaker 1: has the most advanced rules. So if you're a US
Speaker 1: company you could get There are a thousand ideas I
Speaker 1: just gave you who knows how many different ones. There's
Speaker 1: a thousand things you could do starting with bitcoin in
Speaker 1: a public created company. Right now, you don't need any
Speaker 1: regulatory changes, You don't need any new laws. You can
Speaker 1: go at it if you're a bitcoin treasury company outside
Speaker 1: the you and it's look that the Swiss are a
Speaker 1: bit behind on some things. The Europeans are slightly behind.
Speaker 1: They're slower on ATMs, the Swiss are slower on preferred stocks.
Speaker 1: The Japanese are a bit slower on this and that.
Speaker 1: So you have to go and lobby those regulators and
Speaker 1: those politicians to upgrade and update their exchanges, their rigs.
Speaker 1: Sometimes the tax code is prejudicial, you know, like in Japan,
Speaker 1: the taxes on bitcoin we're much higher than the taxes
Speaker 1: on equity. So any company has a responsibility for advocacy
Speaker 1: on behalf of its investors, you know, and on behalf
Speaker 1: of its constituents. We think about what's good for the
Speaker 1: credit buyers, and we think about what's good for the
Speaker 1: equity holders. Right, we think about what's good for the
Speaker 1: world and what's good for the United States, and we
Speaker 1: only advocate for things that are good for everybody. Right.
Speaker 1: The thing is, there are no losers here except the
Speaker 1: twentieth century antiquated oligopoly that is selling inferior credit instruments.
Speaker 1: So it's like you just invented the car, and there
Speaker 1: are a lot of horse and buggy manufacturers that are
Speaker 1: going to be out of a job, and if you
Speaker 1: feel sorry for them, no one's getting cars. And we've
Speaker 1: got the atomic powered, flying faster than light hover car.
Speaker 1: And yeah, there's a lot of people selling antiquated, crappy
Speaker 1: vehicles and no one's going to want to buy them anymore.
Speaker 1: But that's technology. The human race has got to move forward.
Speaker 1: So if you're offering digital credit, digital capital, digital equity,
Speaker 1: it's a better thing, and ultimately you're feeding the four
Speaker 1: hundred million companies. Look every for every company that can't
Speaker 1: sell a crappy credit instrument, their treasurer can buy our
Speaker 1: credit instrument and get triple or quadruple and maybe that'll
Speaker 1: save the company. Right. So, yeah, there's technology that's putting
Speaker 1: you out of business all the time, and then there's
Speaker 1: a new technology that will make you a fortune and
Speaker 1: put you in business. If you're a critical, skeptical cur mudgeon,
Speaker 1: you just focus on the negativity, and you're just a
Speaker 1: negative on everything. I hate that, I hate that that's bad,
Speaker 1: I hate that. I don't want to change. And if
Speaker 1: you're constructive and shareful. If you're an optimist, you're like, well,
Speaker 1: I won't be you know, my a trac take collection
Speaker 1: isn't that valuable anymore. But I do have unlimited free
Speaker 1: streaming music. Yeah, you know, And I guess you know.
Speaker 1: I lost a little money invested in whatever record stores,
Speaker 1: but I also bought some applestock and made a fortune. Right,
Speaker 1: And I would say, all these corporate operators, their job is,
Speaker 1: you know, look at the you know, anticipate the future,
Speaker 1: look at the past, move forward. Do it in the
Speaker 1: most graceful, sibyl, responsible, you know, elegant fashion. You can. Right,
Speaker 1: the world isn't the way it was one hundred years ago.
Speaker 1: It won't be this way a hundred years from now.
Speaker 1: That's the human condition. If there were, if there wasn't
Speaker 1: work to do to move us from the past of
Speaker 1: the future, you wouldn't have a job. There'd be no
Speaker 1: reason to get up in the morning. There'd be nothing
Speaker 1: to get excited about. Right, you're irrelevant. And I got
Speaker 1: to tell you. You don't want to wake up one
Speaker 1: day and think I'm irrelevant. Nobody needs me, no one
Speaker 1: will care. And the way we did it for the
Speaker 1: past one hundred years is probably just the way we
Speaker 1: should do it forever.
Speaker 2: Yeah, that's not a way to succeed. We want to grow.
Speaker 2: We want to challenge ourselves and learn. All right, Well,
Speaker 2: I think we covered everything. Thanks so much, And I
Speaker 2: want to say I kind of said it in New York,
Speaker 2: but I just want to say thank you for all
Speaker 2: the education that you put in the space. I mean,
Speaker 2: you're tiresly going on everybody's show speaking around. I know
Speaker 2: you're in DC speaking so and the education piece is massive,
Speaker 2: So thank you for that. I mean it's made a
Speaker 2: big difference, but also blazing the trail for what's what
Speaker 2: we can do with these credit instruments and these treasury companies,
Speaker 2: not just so other companies like ourselves can fall in
Speaker 2: the footsteps, but all these pensioners that need it right,
Speaker 2: And so I'm sort of taking bitcoin to the biggest
Speaker 2: group of people that need it the most but probably
Speaker 2: won't use it, and now they can have it. So
Speaker 2: I want to say thank you anything that you want
Speaker 2: to call out attention to for you to shut it down.
Speaker 1: Well, thanks for hosting me, and I'm happy to be
Speaker 1: on the journe I need with you.
Speaker 2: Yeah, all right, thank you