Michael Saylor Responds to Bitcoin Critics

There really is no example of a

successful technology investment where

you didn't have to weather the 45% draw

down and go through that valley of

despair. Ours is currently taking 137

days so far. But you know it might take

2 years, it might take 3 years, it might

take four years. If it took seven years,

congratulations. It's just like Apple

computer. The biggest biggest success

story of the decade.

Everyone wants to hear from him. Michael

Sailor, thank you so much for joining me

on the show. It's great to see you.

You're one of the only bulls left. It

feels like

>> I think there's a lot of bulls out

there. [laughter]

Just uh they're waiting.

>> Well, let's start right there. Bitcoin's

price is down. Sentiment is pretty

negative. The critics are saying the

thesis is breaking. What do they not

understand?

Okay, first of all, you know, it's 137

days since the last all-time high. 4 and

a half months. Half the amount of time

it takes to make a baby. 4 and a half

months. Now, we're [clears throat] off

45%, right? The all-time high is like

125. We're 67,

you know, 675

or so. So, you know, there's a famous um

video of me in 2013

uh speaking about the virtues of the

iPhone and Apple, and it went viral for

a while.

>> There's not an 8-year-old on the planet

that doesn't want an iPhone 5.

>> And uh if you go back and you look at

maybe the greatest company of our era,

Apple, and the greatest stock, a stock

that made people insanely rich, Apple

releases the iPhone in 2007. The PTOE of

Apple is 30.

The iPhone isn't a success for two

years. Around 2009

on the iPhone 3, people start to think,

and myself included, I didn't think the

iPhone, the original iPhone 1 or two

were that useful. There was no app

store. There was no cut and paste. They

were kind of toys. Around 2009, the

iPhone starts working. It's iPhone 3.

[clears throat]

By 2012, [snorts] they're around the

iPhone 4, iPhone 5. Everybody agrees

it's a cool product. Apple stock peaks.

Then it crashes between late 2012 and

May 2013.

Apple stock falls 45%.

The same 45% bitcoins fall. Uh the Apple

PTE goes to 10. The Ford PD less than

10. It's being valued like a a tired

cash cow, you know, utility company.

Like no technology, no future. People

are down on it. You know how long it

takes, Natalie, before Apple recovers to

a PTE of 30

>> from 2013

>> years.

>> Seven years.

>> In 2020, Apple returns to a PD of 30. So

it's 13-year cycle from 2007 to 2020.

The greatest company of its era, you

know, at at many times the most valuable

company, the most successful product,

the product that a billion people agree

is is something they can't live without.

Maybe the most successful product in the

history of the human race.

Takes 13 years peak to peak to trough to

peak. seven years to recover. And you

know what it took for people to give

Apple the PD of 30 again? The

endorsement of Carl Icon and Warren

Buffett.

>> Wow.

>> Two people

who probably didn't even use the iPhone

that much, if at all. You never would

have read a review from Carl Icon or

Warren Buffett on the iPhone, did you?

like are they at the top of your

technology,

you know, advocate list or technology

reviewer list. So that's an example of

how conventional markets evaluate

innovation. And and here's the irony,

right? At the point that I give that

speech, you know, I'm saying, "Hey, this

is an iPhone 5. There's not a

six-year-old that doesn't want this

iPhone 5." Um, at the point I give the

speech, there's general consensus that

the iPhone is something you can't live

without and no one's got a product

nearly as good. And yet the the

conventional market's counter trading

it.

>> Okay. So, if you got rich in the past

decade, you probably bought big tech.

You probably bought Apple. You probably

bought Google. You probably bought Meta.

Maybe you bought Amazon. Maybe you

bought Nvidia.

Maybe you bought Tesla. There's no way

you got rich without buying big tech.

Big tech has been the primary screaming

success. The stocks are up 10x, 20x,

30x, 50x. But in all cases, you find

examples of the conventional market that

underappreciates them and underestimates

them. With Apple, it was 7 years through

the wilderness. With Amazon, I remember

Amazon for something like 4 to 8 years.

conventional wisdom was Amazon's an

awful company. They'll never make any

money. They'll never amount to anything.

That you almost could have bought Amazon

anytime for a decade while conventional

investors crapped all over it. And it

wasn't until 2020 during the lockdowns

that people go, "Oh, wow. I guess we

need Amazon." Mhm.

>> And uh of course just this last week,

Amazon's revenue uh surpassed Walmart

and Amazon became the largest company in

the world by revenue. But when could you

have concluded Amazon was going to work?

2010, 2012. It was it was already

obvious there was going to be no

competitor to Amazon. No one could

possibly do what they were doing by

2012,

eight years later. You know conventional

wisdom is that the same is true with

Apple. It's like so Bitcoin at what

point do you have the fundamental

ability to comp conclude that Bitcoin is

global digital capital? Now like what's

the indisha? The president of the United

States is telling you, right? The head

of the Fed, Kevin Walsh, is telling you,

the head of the Treasury, Scott Bessett,

is telling you, the head of the SEC, the

head of the CFTC, eight other cabinet

members, you know, all the Middle

Eastern sovereign wealth funds are

telling you, Black Rockck is telling

you, right, my company is 100x its

enterprise value, right? When in the

history of the capital markets did a

company ever buy $55 billion worth of a

commodity and then loudly declare that

this is digital capital and this is the

new money of the world. Never.

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>> Okay, so is a billion enough? Is 10

billion enough? Is 50 billion enough?

Right. At what point do you have enough

fundamental insight on this? Well, I

would say you had enough to know that

Amazon was unstoppable a decade before

the world agreed. You had enough insight

to know that Apple was unstoppable

7 years before probably 10 years

actually in 2009 11 years before the

world agreed. You knew it was

unstoppable. You have enough information

to know that Bitcoin is unstoppable

right now. The world's going to

eventually come to a consensus and it'll

be the Warren Buffetts and [snorts] the

Carl icons of the world that will be

what creates that consensus. They won't

be first. They'll be last. They won't

make a huge amount of money. They'll

double or triple their money, right? and

they will enter and the PD goes from 10

to 30. They triple their money in a in a

12 month time period.

And if you're if you're able to think

for yourself and if you're able to

weather volatility,

you can 10x, 20x, 30x on your

investment. But there really is no

example of a successful technology

investment where you didn't have to

weather the 45% draw down and go through

that valley of despair. Right? Ours is

currently taking 137 days so far.

>> But you know it might take two years, it

might take three years, it might take

four years. If it took seven years,

computer. The b biggest success story of

the decade. What do you say to those out

there who feel disappointed by the bull

market that we didn't go higher than

126,000 and what is your reasoning for

why we didn't get to maybe some of those

price predictions that a lot of people

wanted?

>> I think the market is uh evolving. The

entire ecosystem is evolving in

seasoning and if you [clears throat]

look at all the dynamics, the

derivatives market is migrating from

offshore to onshore and it is maturing.

And so as derivatives in the US

regulated markets grow, that strips some

of the volatility off of Bitcoin and

some of the upside off of it. It damps

the upsides. It also damps the downside.

instead of an 80% draw down and an 80

vol you get a 40 or 50% draw down and a

50 ball. So you're seeing volatility

damped on the upside and the downside by

the seasoning of the markets. But you

also have a situation where the banking

establishment is embracing Bitcoin at a

at a progressive but um a slower rate

than people with short attention spans

would like. It'll take the banks four

years, 5 years, 6 years before they

embrace an entirely new asset class.

People would like for Bitcoin to be

recognized in four months. But

[clears throat] if the banks take four

years before they start to bank it,

extend credit on it, acknowledge it and

handle it, trade it, custody it, etc.,

then that means that what you have

>> [snorts]

>> uh at the top of the market is $2

trillion worth of uh Bitcoin,

probably$1.8 trillion held by retail

investors or offshore investors, and

they cannot access the traditional

banking system. They're in the shadow

banking system. So if you had um $1.8

trillion or or or more than a trillion

dollars worth of capital and no one

would give you a loan on it,

then how do you monetize it, right? Um,

if I posted $10 million of Apple stock

with JP Morgan or Morgan Stanley, I

could take a $5 million loan at Sofur

plus 50 basis points and I could spend

it. But but you can't even post $10

million worth of Bitcoin with JP Morgan

or Morgan Stanley right now. Therefore,

you can't take a loan. Therefore, you

have to go to a shadow banking system.

You [clears throat] have to go offshore.

So, how would you actually monetize it?

You either have to sell it, right? The

safe way is to sell it, but that damps

the upside. Uh, what else can you do?

You can, by the way, you can get loans,

a very small amount of loans from a few

crypto exchanges where they don't

rehypothecate your Bitcoin, but but, uh,

the sum of that capital is a few billion

dollars probably.

So maybe there's a few billion dollars

of Bitcoin credit that you can tap at

sulfur plus 500 basis points or sulfur

plus 400 basis points. Okay, this not

sulfur plus 40, sulfur plus 400. So it's

10 times as expensive to actually draw

down capital. And how much capital?

1,000th

of the amount of capital available for

securities portfolios. So there's a

there's

1% or less of the capital available

through the conventional banking system.

It's expensive. Okay. What else can you

do? Well, uh I guess you can convert the

Bitcoin to IBIT and just in the past six

months some banks are starting to extend

credit against IBIT and it's it's

>> a bit more expansive than Bitcoin

credit. It's a bit cheaper, but we're

only in the first 12 months and it's

still expensive and still it's like

limited in uh in its loan to value. Now,

there's a third place you can get

credit. And the third place is you go to

a crypto exchange or an OTC exchange and

they'll often times give you a loan at

4% or 3% or 5% or 2%. I've had people

offer me uh Bitcoin back credit at 1%

or 0%.

What's the catch, Natalie?

>> Right, that's the question.

>> There's always c the catch is they want

me to transfer the Bitcoin to them so

they can rehypothecate it.

>> Right. So, if you have $10 million, you

either cannot get a loan from a

legitimate bank, or you can get a small

loan at a 10% interest rate, or you can

get a 3 or 4% loan, but then it gets

rehypothecated. So, your $10 million of

Bitcoin gets sold once, gets sold twice,

gets sold three times. You might have

you might actually create 30 or $40

million worth of selling because the

Bitcoin that you posted is that you

transferred to the shadow bank or the

crypto exchange rehypothecated it three

times. Okay. So, what's holding down the

price? I think what holds down the price

of the asset is the lack of a fully

formed uh nonrehypothecating

credit system. Right? And uh there's a

limit to how much you can rehypothecate

certain other assets. Right? When you

post your home as collateral for a

mortgage, the bank doesn't turn around

and sell the house on your street 10

times. If they did, the price of houses

on your street would be lower. Right? So

I I think that uh the lack of a fully

formed banking system holds the price

back. the existence of rehypothecation

in the crypto economy uh damps the ball.

It works to both sides, right? When when

people want to get short, they might get

short 50x

>> leverage. When they want to get long,

they might get long 50x

leverage. So, right now we're in that

that uh bare market where you've got the

rehypothecation holding back the price

and uh I think at some point it reverses

itself. We'll just have to wait.

>> Well, you always say that volatility is

vitality. So do you worry that your

projections of like Bitcoin 40% ARR

could be changing and diminishing or are

your bare bull and base cases pretty

similar for the next 10 to 15 years?

>> I look out 21 years, you know, and and I

expect about 29% ARR over the next 21

years. Um I've always thought that we

would have rallies and drawdowns, right?

So I I see it as a serpentine pattern,

you know, where it's just slightly less

than 30% over time, but there'll be

periods when it will surge and there'll

be periods when it will draw down. Uh

that doesn't change. I think you know I

if you listen to people um someone will

say well you know this weekend there

might be some problem in Iran or in the

Middle East and if there is a problem in

the Middle East and if the US does

something with regard to Iran then

Bitcoin's the only thing you can sell

and then Bitcoin price may crash and

we're worried about it and I'll say well

you know if something happens in the

Middle East Bitcoin will be the only

thing you can sell it'll also be the

only thing you can high.

>> Mhm.

>> And so that just means that a lot of

people that want to trade on the weekend

are transferring capital to crypto

exchanges so that they can either buy or

sell or sell buy sell and buy Bitcoin

four times between Friday at 400 p.m.

and Monday morning at 9:30 a.m. And

yeah, if you're a trader, what does that

make this? It makes it the most

interesting asset in the world for you.

If you're an investor over four years,

what the heck difference does it make

whether or not it gets bought, sold,

bought, and sold this weekend? In fact,

here's the difference it makes. There's

capital, hot money that's flowing into

this this ecosystem, into the Bitcoin

ecosystem that otherwise would not be

allocated. Right? There's there's a

trader. Someone's got $20 billion of

capital and their choice is they can

either leave it in the bank earning

sulfur

or they can put it into the crypto

exchange system and they can buy and

sell and buy and sell and maybe they'll

make 4% this weekend.

>> Right. When Bitcoin crashes by 5%,

there's someone buying

>> while there's someone selling. So people

are like, "Oh, it fell 5%." Well,

someone someone woke up at 4:00 a.m. on

a Sunday morning to buy it at a 5%

discount. So, someone's going to

actually make more money on the weekend

than they would make holding holding

conventional money for a year. And that

capital is not flowing into New York

City real estate. It is not flowing into

gold. It is not flowing into

conventional derivatives. It's not

flowing into Nvidia stock. It's not

flowing into Apple stock. Why? because

you're not buying and you're not panic

selling and rage quitting and buying and

capitulating and you know and leaping

into the market on these volatility

waves. So, Bitcoin is most volatile

because it's most useful

and [clears throat] you know in the US

there's things like reggg t where you

can't have more than 2x leverage. Okay,

we have laws that prevent you from going

to more than 2x leverage. Well, there's

no such law, you know, in nature,

>> you know, in nature, you know, like they

don't have those laws. You see one

centipede and then you see 10,000 ants

and it's like 10,000 to one and it

doesn't seem quite fair. There's nothing

fair about nature. If you want to gang

up 10,000 to one on the centipede, you

get to do it. Just like if you want to

trade Bitcoin 50x and crossc

collateralize it to another yo-yo token

which is 10x and you want to create a

500x

machine.

You can do it. There's no one stopping

you from doing it. Is it wise?

Well, maybe 99 out of 100 times it isn't

wise. You get wiped out. But the point

is if that's the case, the people that

do stupid things get wiped out and then

in a year they won't be doing it

anymore, will they?

>> Right. Presumably the people that are

trading with 50x crossc collateralized

leverage offshore on Saturday morning in

response to a Reuters posting and

they're panic selling Bitcoin and then

they're like, "Oh, well, the world

didn't end on Sunday afternoon." Then

they're, you know, they're desperately

buying it back. Presumably, those people

have a reason to do it and they're

making money because if they weren't

making money, the free market would

separate them from their capital, right?

There's no quicker way to go bankrupt,

right? So uh Bitcoin represents the

global capital market and there are

people doing things that you can't do

that you could that you won't do

that you don't choose to do you don't

wish to do and they're doing it with

that asset and that's what's creating

the volatility but that's also creating

the gravitational or the magnetic field

which is attracting all of the energy

all the financial energy of the world's

being drawn into this space, all of the

political energy, you know, all all all

of the digital energy, it's all being

drawn into this space because of that

utility. And uh I think you just got to

make your peace with it. Either you're a

short-term and you're a trader. If

you're worried about what Bitcoin is

going to be in four days or four weeks

or four months, you're a trader. call

yourself a trader and then you better

have a trading methodology or or trading

excellence or be in the trading business

or be, you know, neutrally hedge. So, it

doesn't matter to you.

>> You're either that or you're an

investor, you got a four-year time

horizon and then it just doesn't matter.

All you know, all you'd be thinking is

uh a lot of capital is surging into the

space and a lot of attention is being

given to the space that otherwise would

not be given to the space because of

those crazy traders and let's just let

them do their thing because I'm an

investor. I'm holding for the long term.

>> Well, you know, I'm very passionate

about empowering the average individual

and Bitcoin is still primarily owned by

individuals, but I just had Lynn Alden

on and she said that retail really did

not participate in this last bull

market. Why do you think that is? And

what will bring sort of the average

retail investor into the best savings

technology?

>> I think that the that the retail

investors

that are passionate and and uh and and

committed to digital capital, to

Bitcoin, I think they found it already.

I think that I think that they've had 10

years to find it. So if you're looking

for a non-s sovereign store of value

bearer digital asset,

I think that sometime between 2010

and 2015,

you found it in one of those successive

waves and then you bought as much as you

could possibly afford to buy. Okay? And

that's fine. Um I think that if you want

to draw the next uh cohort of retail

investors,

they don't want uh a 40 v 40 arr

asset.

What they want is uh something more like

a 10v 10 arr asset or a zero v 8

ar a arr asset. So, I think that the way

that we draw the mass of of investors is

you offer them something like digital

credit like STRC where where we say,

"Well, here's 11%.

It's tax deferred.

We're stripping the ball off of it."

Like the one-year volatility of STRC is

less than the NASDAQ, is less than the

S&P index, it's less than gold. Right?

I'm going to give you an asset which is

less volatile than conventional stores

of value, but it's a but it's kind of a

it's a certain right straightforward

defined 10% or 11% and you get it

monthly. Um, and you can test this

yourself, Natalie. I would challenge you

to test it. walk down the street and

find a hundred people and say, "Uh,

would you rather have 30% a year, uh,

over the next 20 years, but you're going

to get, um, 40% draw downs and 40

volatility. It'll be three times as

volatile as the S&P index, and uh, you

know, some years you won't make any

money and some years you'll make a lot

of money, but it'll be 30%." or would

you rather have a bank account that pays

10% where you can take your money out

whenever you want but you'll just

collect 10% while you're waiting now ask

them take the survey I I would think

like if you were to say 95% of the

market wants a 10% bank account they

don't have to pay tax on and only 5%

wants the 30% a year.

>> I I think that that's optimistic like

like that's probably too pro Bitcoin. I

don't think 5%

of retail investors want to hold Bitcoin

and collect 30% a year tax deferred with

a volatility that's double or triple the

S&P like I you might find differently. I

would I would suspect it's possible that

that number is one 2%. Right? So the

great mass of the retail investors

they want something which is 2x or 3x or

4x better than a bond fund.

or they want something that looks like

the S&P but without the draw downs of

the S&P.

And so we're going to attract retail

investors to the ecosystem

when we um take the best of equity, the

best of credit and the best of uh crypto

and we put the three together. So what

does that mean? uh double equity is

doubledigit returns and tax deferred

gains. Credit is price stability,

principal protection and low volatility

and um and a very defined yield like

defined consistent cash income.

crypto, Bitcoin is digital innovation,

right? Uh transformation and two, three,

4x the productivity of the conventional

economy, right? It's massive growth.

Okay. So, right now the retail investor,

they have to choose between massive

growth and a and a roller coaster that's

pulling 9gs,

>> right?

>> That's Bitcoin, right? or they have to

take the S&P or the NASDAQ index and

accept 50 to 20 V with good years and

bad years but over time 10% AR r or

better or they have to accept um a

credit spread uh from an investment

grade bond of 70 basis points which

means they're getting four and a half%

interest and it's fully taxable as

ordinary income. So, you know, you're

you're a California resident. You're

either getting 2% on your Apple bonds

after tax,

2%.

but you feel safe

or you're getting 10 to 15% on your S&P

and NASDAQ portfolio, but you're getting

no not much of any yield and you're

you're on a a small kind of a a

conventional roller coaster.

>> Or

you buy Bitcoin and you're getting 3x

the roller coaster ride. you're getting

better performance, but you know, for

the last 137 days, people think that

you're crazy.

>> Yeah.

>> Right. And so those are your three

choices. I think that the way that we

break that log jam is we simply engineer

digital credit. That's that's why that's

been my passion for the past year. Can I

actually take a 45 V 45 AR asset which

is Bitcoin and strip 80 to 90% of the

volatility off it. Strip 80 to 90% 90%

of the risk off it. And let's give you

something four to five times over

collateralized.

Let's create a double-digit yield. Let's

do it in a way that's a return of

capital. So you get tax deferred uh or

you get you get deferred tax treatment.

So you get the benefits of equity, you

get the performance of equity, you get

the principal protection of credit or a

bond, you get a defined yield, you get

paid monthly in cash. If you want to

reinvest it, you just reinvest the

dividends back in the principal and it

becomes like a consistent 11%

tax deferred growing asset. And when

when you want to get off the roller

coaster to pay your kids' tuition or pay

a tax bill, then you just withdraw your

money or you or you sell, right? And for

that to work, you can't you can't have

the volatility and the draw downs of

equity. You can't have the volatility

the draw downs of of Bitcoin. You need

some credit instrument and you need an

issuer that's going to overcolateralize

it. and you need to actively manage that

credit instrument so as to create price

stability. And so I I think uh STRC or

digital credit in my opinion is the way

that we draw the next cohort of retail

investors into the space. And I I don't

know why we couldn't draw 10 to 100x

as many. I I would think, you know, if

if 2 to 4% or 2 to 5% of retail were

able, by the way, if you find 5% of

retail that like Bitcoin, they're not

going to allocate 100% of their capital

to it, right? They're going to allocate

some portion. So, I think if we got 2 to

4% the first go around, I think we'll

get to 20 to 40% with digital credit.

And I I think that that is a that that

is in a way one of the killer

applications of digital capital.

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for up to a $1,000 funding bonus. Out of

all the preferreds you've issued, it

seems like you're most excited about

Stretch and you've been using it more in

order to accumulate Bitcoin. Is there a

strategy behind that?

>> Yeah, if you if you look at all the

credit instruments,

um, you know, what are we doing? We're

stripping volatility off of Bitcoin and

extracting yield and eliminating

currency risk and and eliminating

capital risk. So, uh, Bitcoin is like 45

V over the past year. With Strike, we

managed to get that down to like 38.

With uh, Stride and Strife, we got it

into the mid20s.

with stretch. We got it down into the

teens or the low teens, even for a

while, down into the single digits.

And uh and then all that volatility we

stripped off then flows into MSTR, the

common equity, which is 80. So what

we're engaged in is [clears throat]

volatility engineering. And um

if you ask if you ask the average

person, right, do you want um a bank

account that pays you 10% or do you want

a 30-year bond that pays you 12

and but you got to wait 30 years? Well,

most people just want the 10%. They

don't want like they don't want an extra

2% if the volatility doubles. Like do

you want 24 V and 12 or do you want 10%

10 V and 10? Most people just want the

truth is what they want is they want 10%

and zero V.

>> I want zero volatility, zero duration.

Give me double or triple the money

market or quadruple the money market.

So,

you can overthink this, but if you look

at all of all of our credit experiments,

and we've done, I don't know, almost 20

different fixed income deals, okay? We

we did uh senior credit, you know, with

Ebida Covenants, and that was not

scalable. So, X that off the list. Then

we did uh a Bitcoin back loan with

Silvergate, but that creates too much,

you know, collateral coverage risk and

margin call risk. So, X that off. And

then we did convertible bonds, many of

them, but they're all 144A offerings,

which means it's illegal for retail to

buy them, right? We c we can, you know,

try to put lipstick on the pig and say,

"Oh, it's 144, it's over the counters,

whatever." Let me translate it. It's a

it's an illquid market with about two or

three dozen participants and it's

illegal for you to buy it. How is it in

any sense a good idea to create a

product that's illegal for normal people

to buy?

>> That's stupid. Okay. So, X that off the

list, right? All the by all those things

are 10x 20x over collateralized. They

trade like triple junk.

Okay. So, the market's broken.

>> Right. Right? Like the market's broken.

A bond that's got $70 of collateral for

every $1 of liability trades with a

credit spread like a going out of

business junk company. It's like it's

broken. Why is it broken? The market's

broken. You can't buy it. It's over the

counter. What is over the counter? It's

like 16 people get together in a back

alley to trade with each other and

there's one dude making the market with

a bid ass spread of 300 basis points and

they meet, you know, on Friday afternoon

from 4 to 5 in the afternoon and we call

that 144a over the counter. It's it's an

illquid, broken, non-transparent,

crippled market. Okay, make that go

away. So after you've gone to all that,

now you start think about, well,

how do I take it public? Well, it makes

no sense to take a bond public. Like

selling a 5-year bond and then taking it

public as a listing makes no sense. Why?

Well, because in four years, the bond's

only got 12 months left. It's not a

perpetual instrument.

Okay? So that means that you've got this

theta decay. You've got a decay in the

value of the bond because of course at

some point it's only going to have

30-day useful life. Why would you create

a public security that eventually dies?

That's stupid, right? It's like silly.

So, you have to create a perpetual

instrument to take it public. Erggo

preferred stock. So, then we we

basically think, well, we'll create a

perpetual preferred stock. And then we

started by doing the straightforward

thing. we'll just pay a 10% dividend or

we'll pay 8% with a conversion rate. So

those were two ideas, strike and strife.

And uh they were very successful. They

were 10x more successful than all the

other preferreds.

And we learned a lot. But then what we

realized is

people don't want duration

and they don't want complexity. So how

do you value a convertible preferred

stock? It's just too complicated for

people to figure out.

>> Okay. What what is the duration of um of

a 10% preferred that yields 10% forever?

Well, you can come you can calculate the

Macaulay duration. It's a theoretical

construct. It it works out to be about

10 years when it's trading at par. So,

it's like a 10-year duration instrument.

That's the same as like a 15 18year

government bond. You following the bond

math here, Natalie? It's kind of

complicated bond math, right? If the

bond has a 10 duration, then that means

when interest rates fall 100 basis

points, the bond should trade up 10%.

How many retail investors understand

that?

>> Not many.

>> Not many. Right? Duration math on a bond

is complicated, but but let me tell you

what the problem with it is. If I have a

duration of 10 and and the forward

interest rate expectation falls 100

basis point the the principal should

trade up 10%. But when the forward

interest rate falls or goes up 50 basis

points the bond falls 5%. So that means

every time Jerome Pal is giving a speech

the theoretical value of a 10 duration

instrument is moving plus or minus 10%.

How many retail people want their assets

to fall plus or minus 10% during a Fed

press conference? You know, when the

perceived risk uh like if Bitcoin falls,

the theoretical value of the collateral

falls. So, it's another way of saying

that a long duration instrument has a

lot of volatility.

Okay? So, I'm going to give you 10%

instead of three,

but the but the per the security might

fall 20% or 10% over the next 3 months.

That's what we created, Natalie. Okay,

who wants that? But by the way, it's a

screaming home run for a credit

investor. For example, if you think that

sofur is going to fall 150 basis points

and if you believe that uh Bitcoin is

not going to zero but it's going to

trade sideways or it's going to

appreciate 10%. The theoretical credit

spread on something like STRF or STRD or

STRK the theoretical credit spread falls

to 100 basis points or 50 basis points.

Right now you're getting [snorts] 6 7 8

900 basis points. What does that mean?

That means if you actually believe in

Bitcoin and you think interest rates are

falling and the company's misunderstood,

you're going to buy that instrument at

100 bucks and it's going to trade at

250.

Not look at your eyes.

You're going to buy Strike at 80 and

it's going to trade to 160

because it's a long duration instrument.

>> Okay. What's you what's the theoretical

value of an instrument that's currently

trading with a market credit spread of

900 basis points that should be valued

with a credit spread of 300 basis points

right it should trade up to the 100 200

300 400 so who wants the long duration

credit instrument it's someone that

actually has a long view a pro Bitcoin

view

>> if if Bitcoin is really rated as

collateral by the Basel under the Basel

rules. If banks start to custody it,

right? If the credit if the credit

rating agencies rate these things, then

those long duration credit instruments

have a capital gain potential of

doubling or tripling.

>> Okay. But it's like, well, what do you

think about sofur? What do you think

about the forward yield curve? What do

you think about the credit rating

agencies? What do you think about the

future of Bitcoin? So that is an

interesting investment.

But notice how long it took me to talk

about it. Okay.

>> It's hard to understand. Yeah.

>> Now let's move to retail.

What do I want? I want to put my money

in a bank. I want them to pay me 10%. I

don't want the government to tax it.

Okay. How long was that conversation?

That was like 12 seconds.

>> Okay. Well, what if the what if interest

rates fall? It doesn't matter. What if

the credit of the company improves or

falls? Doesn't matter.

>> Well, what if Bitcoin quadruples?

Doesn't matter. What if Bitcoin gets cut

in half? Doesn't matter. What matters?

Well, I'm getting paid 4% or four three

and a half% and it's taxable and you

know, and the government keeps half. So,

I'm getting 180 basis points on my money

market or I'm getting 11.25% 25% and the

government doesn't tax it. Do I need to

know anything else? Not really. Okay.

Well, what's the risk? Well, uh, Bitcoin

might go to zero forever. Okay. So,

you've got existential risk to Bitcoin,

right? And then you have to trust this

company strategy. Okay. Well, how much

capital do they have?

Yeah. Well, we just went and raised $9

billion to support your credit

instrument. Right.

>> Right. We'll sell we will raise a

billion dollars a week if necessary.

Right. Well, what did they say? They

said they said they're targeting a h

100red bucks. What are they going to do

if it doesn't trade at 100 bucks?

They're going to raise the dividend

rate.

Have they done that? Yeah. Five times.

Okay. So, why are we focused on STRC?

Well, because at the end of the day,

there's a $300 trillion credit market,

and that $300 trillion credit market is

collecting 4 to 500 basis points, and

it's all taxable.

And in order to get to 450 or 500 basis

points, you have to accept credit risk

of a junk bond. You have to accept the

credit risk of an investment grade

company. You have to accept the

illquidity of private credit. The Blue

Owl is currently in the news right now.

They suspended redemptions and people

are freaking out over, well, what if I

can't get my money out again? So, you're

either ac accepting ill liquidity or

liquidity risk or you're accepting

credit risk or you're accepting duration

risk. I'm holding, you know, Google just

sold a 100red-year bond. You have to

wait a 100 years to get your money back.

Who bought that? Why did they buy that?

Okay. So, duration, credit, liquidity,

right? And then currency risk, right?

You might have to accept, you know, you

might get a higher yield in a certain

currency and then you're accepting the

currency risk to the dollar itself.

You're accepting all those risks in

order to get what do you get? You get a

70 basis point spread for investment

grade. You get 70 basis points more than

the US government would pay you if you

buy a bond from Microsoft or Apple. Or

you get 275 basis points if you buy a

junk bond,

right? Or you get maybe 350 basis points

if you buy private credit, which is

illquid, which is invested in a

heterogeneous portfolio of private

companies with 10,000 pages of like

complicated contracts that may or may

not work out for you. Okay? So that is

the credit market. Now ask the question,

right? You're the retail investor. Do

you want duration risk? No. Do you want

currency risk? No. Do you want credit

risk? No. Do you want Do you want to be

able to get your money back? Yeah. Do

you want volatility? No.

What do you want? Give me two to four

times more than the money market. And I

don't want to pay tax on it, right? I

want tax I want I want good tax

treatment. I want the same deferred

capital gains tax treatment that I get

from holding a long-term investment. So

give me a fair tax treatment so I can

compound my assets and my investments

over time. Give me some stability

and strip away all these other things.

So

what what that tells us is is strategy.

At the end of our journey, we realize

that there's no point in creating bond

type credit because a bond's always

going to be short-lived, inefficient,

illquid, and it's always always going to

be fully ordinary income taxable. So

it's it's tax inefficient. It's market

inefficient. No point doing it. It's not

a benefit to the investor. No, you know,

these longer duration instruments,

they're for professional investors. If

you're a credit investor with a 10-year

horizon and you have an opinion on

Bitcoin and the Federal Reserve, you

could double your money by buying one of

our longdated credit instruments. Is it

a good idea for you? Absolutely. Right.

It's a you know you can you can collect

10 12%

for a 100 years on a credit instrument

and if the credit spreads compress

you'll double or triple your money but

retirees right 75year-old retired chief

master sergeants in the air force they

don't want that right and um I guess the

last point I'll make is in this journey

we kept iterating we're like well let's

get rid of the defects of senior bonds.

Let's get rid of the defects of asset

back bonds. Let's get rid of the defects

of convertible bonds. Let's get rid of

the defects of of perpetual preferred.

And then people were like, well, you

know, can I just have the money monthly?

You know, it's like, what do they want?

They want stability. Give me a stable

price. Give me monthly cash income. Why?