Passive capital is chasing bitcoin to $1,000,000+

Hi everyone. Thank you for tuning in to my new podcast and Michael. Thank you for taking

the time to record today. Really appreciate it. Yeah, happy to be here.

I want to start off with first question. If you were appointed to Director of Bitcoin

Strategy at similar scientific, what was your top priorities be?

I think number one priority is make sure the operating business generates cash and

doesn't burn cash. Because if people think the operating business is a liability, then

they won't focus on the Bitcoin strategy at all. So make sure that you have the operating

business under control. Then I'd make sure I have a very clear communication of what

the operating business looks like for the next three years. Because equity investors

need to understand how much cash flow from the operating business is going to flow into

Bitcoin. So when I look at the Bitcoin strategy, then, right, you've got a certain amount

of Bitcoin. You're going to generate Bitcoin yield via sweeping operating cash flows.

Then you're going to generate Bitcoin yield via selling equity to buy Bitcoin and issuing

equity. And then the third way you're going to generate Bitcoin yield is by issuing Bitcoin

back credit instruments. So if you're the head of Bitcoin strategy, right, the question

that every equity investor has for you is how much yield do you expect to generate from

operating cash flows under what circumstances will you sell the equity? Are you going to

sell the equity at MNAB of two or better, three or better, 1.5 or better? Will you sell

the equity at MNAB of one or better? Right. So giving some kind of clear guidance or setting

expectations about how you're going to issue equity is important. And then the third

issue is, so what's your credit strategy? Do you have one? Are you going to issue convertible

bonds? Are you going to issue convertible preferred stock? Are you going to issue fixed

preferred stock? So I would have a plan and be able to communicate the plan. And then I

would start to execute on the plan. I got a lot. Do you think that similar and other

Bitcoin treasury companies should copy the structure of your preferred securities? Should they

get creative and come up with their own preferred securities? How do you envision that playing

out for other Bitcoin treasury companies? I think if you're a Bitcoin treasury company,

you should issue preferred securities. I would probably skip all other forms of leverage.

I don't think you should issue senior debt, junk bond debt, convertible debt. I wouldn't

do asset backed borrowing. I wouldn't pledge my Bitcoin for a loan. So most of those other

forms of leverage, I would skip unless you had a really good reason. I would, I think

that the ideal strategy for a Bitcoin treasury company is first you build a bunch of Bitcoin

equity as much as you can. And then when you get to a certain scale, you issue a convertible

preferred equity like strike. And then you issue a senior fixed preferred like strike

and then maybe you issue a junior fixed preferred like stride. I'm not going to say that all

three of our securities are perfect, but they're pretty good. And they've all, they're the

three most successful preferred equities in the last century, like for 30 years, if you

were to look around, you won't find a more successful preferred set of stocks in a decade,

or decades. So you would be getting the top, you would be going to top 1% just to copy

them. So probably I would copy them. Why? Because if you copy them, then the investors

already know how ours performed and investors don't like to take unquantifiable novel new

risk. What we've already, we've already blazed the trail, you're basically giving them what

looks to be, I'm not going to say it's a sure thing because there, because every single

issuer is a different counter party with different counter party risk and different circumstances

at different points in time. But what you are doing is giving them an understandable thing

like this is like strike or this is like strike or this is like stride. So I think that's

fairly straightforward. I think the issue is, you know, an investment grade preferred,

probably you ought to be targeting like a BTC rating of 10. And I think a convertible

preferred, you ought to be targeting five or better for a junk preferred, you could probably

go to three, might even go to two or three depending upon the volatility of Bitcoin at the

time that you issue the junk preferred. But that's what I'd be thinking. And of course,

of course, the limiting factor to all this is how much Bitcoin you have. So if you've

got a billion dollars of Bitcoin, you could probably create a hundred million dollars worth

of investment grade Bitcoin credit. That's and you're going to be capped at that, right?

If you have 10 billion dollars of Bitcoin, you could create a billion dollars of investment

grade Bitcoin credit. You could create two billion of the mid grade and you could create

three, four billion worth of the junk grade credit. So you'll be in a balancing act, you

know, between raising equity capital. You can either you can get more Bitcoin by issuing

equity. You can get more Bitcoin by waiting for Bitcoin to appreciate. You can have more

collateral by blowing away senior things in your capital structure. If you have a senior

convertible note, equitize it. All of those are reasonable. And then, you know, you're

going to generate yield and generate gains by issuing BTC back credit and the and the

amount of gain you can generate as a function of how much credit can you issue and how fast.

Make sense. I want to ask you about the long term growth rate of Bitcoin and how you are

thinking about that. Like I've seen you before suggest that maybe the long term annual

growth rate of Bitcoin might be something around 20%. I'm curious like, how do you arrive

at a figure like that? And I think also like that would suggest that Bitcoin would outperform

the S&P 500 over the long run. I'm curious how you think about that. Well, not

text of the long term growth rate of Bitcoin. Yeah, well, I mean, you can look at the history,

right? Bitcoin's been decelerating from 120% of year growth, 100% growth to 80%. It was

clocking at 80, 90% when I got into it. It's been about 55 to 60% for the past five years.

If you look at the at the rate, my forecast is it decelerates from 55% AR down to 20% AR over 20

years. Why is it decelerating? Well, obviously for the law of large numbers, when you've got a

hundred trillion dollar asset, you're not going to grow 80% at that level. It's decelerating because

it's merging with the capital markets. And as it merges with the capital markets,

there's less and less money. It's harder. It's harder. I mean, anybody knows. A million dollar

Which can go faster than a ten trillion dollar company which can grow faster than a hundred trillion dollar company, right?

Not complicated. It's it's simply

It's simply the law of large numbers and math

The 20% target is you know if I look at it if you want a bucket of

the most

High quality scarce capital in the world before Bitcoin was the S&P index

It's basically equity capital that's managed you know via buybacks in order to stay reasonably scarce

And you know what that benchmark is it's been about 10% a year for a hundred years

Right so what are you gonna get from the S&P 10 to 12% 10 third you know the actual amounts gonna be a

function of the the growth and the you know in the equity plus the expansion in the money money supply

I think the Bitcoin will

outperform the S&P index and I think it's very simple as to why it will outperform the S&P index

It doesn't have the counterparty risk of corporate structures and

It doesn't have

It doesn't have currency exposure, right? So the S&P

The S&P is saddled with a huge amount of corporate risk factors dozens and dozens of them

Terriff supply chain, etc. It's got legal risk. It's got political risk. It's got physical risk

I have warehouses. I have nexus. I have an operation in Ukraine. I have you know

natural gas facilities in Iran

Right, there are a lot of a lot of things in the real world that the constitute risks in the S&P if I strip away the physical risk

And if I strip away the political risk and if I strip away the management risk and then I

Then every company takes in cash flows and pesos and Ira and Euros and C&Y and Robles and Dollars and

Canadian currency and AUD and whatever so when you strip away all of those risk factors and

Keep the pure capital

You've got Bitcoin

So whatever those things are Bitcoin will be more than that

How much more like what what is the cost of that?

68% a year so if you if you're targeting the S&P at 12 you target Bitcoin at 18 to 20

Why will it be 18 to 20? A I stripped away the risk factors. I also stripped away the constraints

Uh

For example, you cannot go long 50x on Apple stock on Sunday morning

In Iran

Right you can't

I we can talk about why you can't but you just can't so you can't go long and you cannot short

An equity 20x on Sunday morning

So you have all of these uh these guardrails on equity and they limit the leverage they limit the utility

If I had pure capital and I could have unlimited leverage unlimited utility anywhere in the world 24

7365 there are no holidays for Bitcoin right

So what happens on a bank holiday

To a security that you should short or you should go long well you can't

Okay, so

That bucket that benchmark which is the S&P it's less volatile

It is less liquid. It is less useful

It is more risky. It is more diversified and it's all and it's got some human factors in it too. I mean the S&P board just decides what to put in it right

Like maybe they don't maybe they don't put the right thing and maybe they leave something that shouldn't be in it right

So so if you're looking for a pure objective

monetary index

governed by the laws of nature

The most useful type of capital asset in the world to everyone under all circumstances at all times

That's Bitcoin

So yeah, if I were to say it ought to be twice as performant as the next best thing

That wouldn't be unreasonable

My forecast is it's probably 50% better

Maybe 60 70% better than the next best thing

Six you know, so my long-term forecast is like 21% AR and 21 vol

And I would say you know the S&P will be more like 10% ARR 15 vol

Bitcoin's gonna have the higher sharp ratio

Bitcoin's gonna have the higher vol Bitcoin's gonna have the higher performance

Because it's engineered

And it's accessible

There's going to be someone in a country

Doing something with capital that you don't understand

That's illegal in your country

That's going to make you money

Right

Right the redneck in Arkansas with Bitcoin buried in their backyard is going to make money off of some rocket scientists in Singapore or Beijing

Doing something with some capital they've never heard of in a way they

Can't understand that it's that's either illegal and they'll be doing it while the guy in Arkansas is sleeping

But the dude in Arkansas is making money. So this is the highest common denominator

Whereas you know an American company that owns stuff in Arkansas is not getting

Is not getting its value increased by some

Chinese actor right or some

Yeah, there's no nation-state central banker that's going to do something to enhance your Arkansas strip mall

Or you're whatever best idea. So that is the basis of my

assumptions about the long-term performance

Of a Bitcoin obviously it's all it's all

Driven by some base rate assumptions one base rate assumption is how fast is the money supply expand another base rate

assumption is how rapidly does technology

Inprove and how much productivity is driven by technology and if you're bearish on technology and bear and if you believe inflation is going away

Then you would probably have a lower estimate than me

Yeah, no, that makes a lot of sense. So I guess would you say that in a way Bitcoin is like a global

productivity index fund to some extent

It's a it's a global monetary index or I'll go you know you could say it's a it's the greatest global

Investment index in the world if you want to characterize as global productivity and actually you you could do it if

If the world's more productive that will flow into Bitcoin

If the world inflates the currency supply it'll it'll flow into Bitcoin

If

If the world is more insecure that should flow into Bitcoin right so

So it's being driven by chaos

It's being driven by order

it's being

Driven by conflict

It's you know it's it's being driven by the robots right

Eventually if the robots do all the work and and there's a trillion ais and cyberspace doing the thinking and the cars drive

Themself and a billion robots build build all the robots and produce everything

There's going to be massive amount of equity value created for the companies that own the robots to build the robots

All that money is going to flow into Bitcoin

I agree

A hot topic recently has been the idea of micro strategy or strategy eventually qualifying or being included in the S&P 500

Do you think that you know that might happen? Do you think that it's important if that happens? Is it overhyped?

How are you thinking about that

Yes, it might happen the decisions above my pay grade it'll be made by human beings by by a committee and they may or may not make it whenever they may or may not decide

On the margin. I think

The direction of travel is we will be incorporated into more and more indexes and I think eventually we will be in

Incorporated in the S&P 500

I don't know when right to the extent that the S&P 500 stays relevant right the risk for them is if they don't incorporate the innovative tech companies

Then they become irrelevant and they underperform versus

QQQ or

Or so actively manage fun. So there's an incentive but on the other hand

You know organizations have a degree of

Of risk aversion and inertia to them. So some move faster than others

I think that maybe the salient point which is interesting is

Is um yesterday it came out that Vanguard is our biggest shareholder

20 million shares of mstr and of course Vanguard it illustrates a lot of points

First of all the CEO and the management team of Vanguard doesn't embrace crypto and doesn't invent embrace bitcoins

at all

But it doesn't matter what they think

Because the funds they run are passively investing in this whether they like it or not and the whole

The whole premise of John Bogall in the Vanguard 500 was

Human decision making is an adequate compared to the market and will generally be the market is smarter than any individual's opinion anyway

So passive investing out performs active investing most of the time and Vanguard has lots of large passive funds

And once you understand that you realize the the core premise of a bitcoin treasury company is

Is we're driving bitcoin adoption

By capturing equity investors who

Can never by mandate by a commodity

I mean in our last presentation we showed 35 trillion dollars of discretionary capital for equity investors

Versus

billion dollars

Of discretionary capital investing commodities

Right, so that's 50 x as much so so 50 x as much capital can flow that way

Then bitcoin treasury companies are creating an own ramp for credit investors

Right because there's 65 trillion dollars of that we showed so so there's even more credit

You know not quite a hundred x as much but 90 90 95

Times as much

Capital to buy credit instruments as opposed to commodities

And then this Vanguard example which is also the s and p example is there's a set of investors that just parked their capital index funds

They don't make a decision. It's all passive capital

passive capital locked up in the s and p or the nasdaq 100 or or the ms c i index or

Total stock market indexes

They can never buy the commodity they can never buy bitcoin. They can never buy silver gold or palladium

Doesn't matter how good it is you could record 18 million hours of bitcoin podcast

You could give away the bitcoin for free

They're still never going to buy it right because they can't

Because the capital markets in the world is structured

So we're we're benefiting from passive flows. We're benefiting from

Accuative equity investors. We're benefiting from active credit investors

Then we're benefiting from you know this i can't even name all the different types of capital that are locked up

You know the the retirement accounts in the UK where you have control of the

But you can only invest the money in a compliant equity

That the retirement account lets you invest in

So there's lots of that 401k's ir a's retirement accounts

They've got them all over the place. They've got them in austria. They've got them in japan. They've got them in the UK

And we're just uh, we're creating these instruments whether they're equity or their credit

To tap into those pulls a capital

And it seems inevitable

That passive capital will definitely drive this movement

The one thing that's worthwhile to note about bitcoin treasury companies

Uh, that's not true of other equities is bitcoin treasury companies are pure energy creatures

We're absorbing capital every single day in the market

So if you're looking at my enterprise values like tipping to 140 billion right now

The enterprise value the company is 1.2 billion

Uh, four and a half five years ago

So if you were a passive investor

You might have had a billion of it

But of course as we get a hundred x bigger

You're buying a hundred x more and we're qualifying for a lot more indexes

And as we get indexed that means that you know

When there are passive flows

And there are always passive flows on the margin. There's always going to be more euros and more dollars flowing into passive

Uh, capital markets funds

That's going to flow into the bitcoin treasury companies and the index

And when that flows it's going to drive their premium

And when they premium expands then they can simply issue the equity by the bitcoin expand their equity market cap expand

They're awaiting in the indexes rinse and repeat

And uh, and so

BTC companies are positively polarized at the capital they're magnetically attracting it

And I can't help but be amused

By the fact that every major successful bank

Is upping their dividend and they're upping their buybacks

So they're surrendering capital

To decrease their equity market cap

And then every well run tech company

Is buying back their stock

Serent and issuing dividends to decrease

They're waiting in the indexes

So every well run company running a traditional corporate finance playbook

Is surrendering capital as rapidly as they can

In fact the more successful they are the faster they surrender the capital and the more they diminish their waiting

In the passive funds

And then every BTC company is attracting capital

increasing their waiting in these funds

And uh, and thereby increasing their credit and equity premiums to the underlying assets

Which is beneficial to all their investors. So there's a very positive cycle going on for bitcoin treasury companies

And there's very negative capital cycle going on for companies capitalized on a traditional credit instruments

Absolutely

If a mag seven tech stock came to you and and really hey we want to adopt bitcoin

How would you recommend that they do it? Should it should they start slow and just

Deploy some of their cash in a bitcoin or should they just go on a full bitcoin standard immediately and issue fixed income instruments and buy bitcoin as fast as possible

If you're optimizing for economic results and you had a charismatic CEO

The CEO would say we've embraced bitcoin. We're switching to the bitcoin standard

You would convert all of your discretionary cash to bitcoin

You would cancel your dividend and make it a bitcoin a bitcoin buy you would cancel your buyback and make it a bitcoin buy

Right you would you would basically do everything that strategy is done

Then you would issue debt to buy bitcoin

That's if you just wanted to make the money and that that assumes

Well, who could do that? Well, Mark Zuckerberg could do that right if if you have a

very charismatic

powerful founder that has a

controlling interest and isn't insecure about their position they could do that if they just wanted to make money if you wanted to make a trillion dollars

At Facebook. That's what you would do or so it met it

If you're more of an employee CEO and you don't have that much control

Uh, you would creep into it

You know, we're gonna take 5% of our assets and buy bitcoin test the markets then you would increase it

And you would do all of this progressively over three to five years

Building shareholder support and accommodating them right you wouldn't make as much money

But you'd still be better off

and then you would uh you would

First test the investors of their enthusiastic you would increase your allocation from 5% to 50%

Then you would uh instead of raising the dividend you would implement a bitcoin buy

Right and then instead of raising the buyback you would implement a bitcoin

You know so and and so it would replace

Every bank every mag seven stock announced an increase in a dividend and increasing the buyback

You would replace the growth in those things with the with the bitcoin program

That's a very incrementalist approach. You'd still make a lot of money

Not trillions you wouldn't make two three four five trillion dollars, but you would make billions or tens of billions

Maybe hundreds of billions in time

Yeah, so that's what I would say it all depends on who you're talking to and

You know the great irony of bitcoin is the question is who wants the money right?

It's infinite money if you want the money right is like

And some people want the money more than others the irony is the best run companies in the world don't really want the money

Right, they don't need it they that the question is do you want the money more than you want to be

uh

Criticized or ridiculed if you wonder if you want to risk the ridicule or risk

risk

The volatility you can have the money

but most

Successful money managers most successful corporations

They don't want the money as much as they want stability and they want to avoid the risk and so

So you have to find that rare combination. I don't think you're gonna find it with you know

You're not gonna find it with Berkshire Hathaway or the mag seven or the mega banks because

they're really

They're operating you know as a pillar of stability they've got a good thing arguably the mag seven and the seven greatest companies in the world

So if you have the seven most powerful companies in the world out of four hundred million companies

They're the seven out of four hundred million that least need Bitcoin

I mean try the bottom hundred million companies

Pick every company or every company in the s and p 500 below the rank of the first ten that has no hope or chance of competing with the mag seven

They have a they have more upside less downside

But it's uh, you know, it's

It's it's always hard to predict who

will

Grab an innovation and run with it and sometimes it comes out of love field from someone that you didn't expect it

from

Makes sense you touched on this a little bit earlier

How do you see the preferred and convertible markets evolving for

MSTR are you like pivoting away from convertible notes going forward and really going full in on the

Preferreds or will you continue to do both here and there?

Yeah, I think we'll focus on preferds

I think that preferds are a much better source of leverage and they attract

um

More long-term capital and they're more scalable

so um

I think you see I think that

That for Bitcoin Treasury company if I was creating a Bitcoin Treasury company from scratch

I'm advising a Bitcoin Treasury company

my advice is a skip bank debt

Skip scuritized lend borrowing don't borrow against your Bitcoin

skip senior debt skip junk bonds

skip the convertible bonds if someone yeah, I would go direct

to

The preferred market I would issue a convertible preferred stock first

Then a senior fixed income preferred stock second

Then a junior fixed preferred third

Then there are other things you could do

And we're exploring some of the other ideas but but what I just described is strike strife and stride

It's right in front of you you could just copy them. They're the three most successful preferred in the century

Why wouldn't you just copy them?

Um if you're a Bitcoin Treasury company

You ought to be thinking if I issue a preferred that's got a btc rating of 10

It's investment grade

If I have a billion dollars a Bitcoin I can issue a hundred million dollars of that

If I issue a convertible preferred with a btc rating of five it's pretty high quality

You know, it's maybe it's a

um just one notch below investment grade

And uh if I am going to a btc rating at three it's more like high yield or junk or btc rating at two

It's like junk grade

And you have the option to issue things at any level there you want

When you do it put an ATM on it

Right follow shelf registration and uh and then

You're in the business of basic of generating yield and generating btc gain by issuing credit instruments in the capital markets and

And your competitor is um low quality bank preferred

junk bonds private credit mortgage back securities

investment grade

bonds

Money markets all of these things corporate paper

Right

Whatever it is except your advantage is you can pay a higher yield and you can offer more collateralization

If we go through another Bitcoin bear market similar to 2022

Do you think MSTR and other Bitcoin treasury companies will go back to trading below one x m nav

No, I don't think so you can never be sure what will happen

But I don't think well first of all I don't think we'll have a bear market like 2022

I think the the only people that say that are the crypto bros

And the crypto bros are the ones that created the bear market of 2022 and they did it because they don't understand finance

And if I explain it in a nutshell

It's if you lever up yo yo token

10 or 20 to one and

In order to create a 10 like 10 billion dollar FTT market cup

And then if you pledge a billion dollars of yo yo token and and borrow tether and then you buy

Jojo coin

And then if you lever that up 10 to one and then you take that and you buy Bitcoin with it

Then at some point yo yo token or jojo coin collapses and you've got a hundred to one leverage in the system

And by the end if you're silly enough

To give someone a billion dollars of loan a billion dollar loan with 800 million dollars of Jojo

Coin or yo yo token as collateral like you're under collateralized the start

Then you've just created this massive hundred to one

leveraged structure and that's exactly what happened in 2022

You know you had you had all of these players that were under collateralized lenders and

A hundred to one lever and they all got wiped out and bankrupted

Uh, yeah, what I'm describing there you literally cannot do in the traditional finance system

Go go to your bank and offer them a billion dollars of Bitcoin and then try to get a loan

Now offer them a billion of Bitcoin and try to get a one point five billion dollar loan. They'll literally laugh at you

Right you'd be you know like it's are you kidding me you you cannot leverage

All the Bitcoin treasury companies they're not levered

Right, they're like 80% equity and 20% convert and the convert is almost always hedged

When when you sell a billion dollars of convert the convertible arbitrage or soul 750 million dollars of your equity

So there's only 250 million dollars out of you know

5 billion dollars. It's actually in any way levered

So we don't have the leverage in the system that we had then you can't even get the leverage in the system

Because as long as you're using and I'm combining my comments to Bitcoin

Uh and traditional finance. I'm not talking about other tokens and other token treasury companies, right?

Like if you capitalize on a token that's got built-in leverage then yeah, you could you could have a rug pull and I could collapse on you but

But if you just look at the Bitcoin ecosystem right now for the most part is equity capital and if there's any leverage it's yeah

like

uh

MSTR might be 10% lover

Right

However you call it

During the 2021 run up your companies that were

I'm not describing 1.1 leverage. That's what we might be they were a 100x

leverage so there's a difference between 1.2

And 50 or 100

So I don't think you see that kind of volatility. I don't think you see that kind of drawdown

um

But having said it

You know Bitcoin comes back a bit you know the premiums they will fluctuate is it possible to create a Bitcoin treasury copy the trades that had

At a discount the nav sure. I mean if the operating business has debt on it

If the operating business is burning cash

If people lose confidence in the management team

You know if a 500 million dollar company has the CEO announced he's giving himself a 300 million dollar

Pay package right there are ways to crush the equity right be irresponsible

With regard to the way you run the business it crushes the equity and you traded a discount

but um

If you have a well-run

Bitcoin treasury company

You know say you have a billion dollars of Bitcoin and your equity trades to

900 million dollars in equity value. What do you do?

The logical thing you do is you wish you 100 million dollars of BTC 10 rated credit investment grade credit like strife

by the stock back

Right

Then you know issue two three four hundred million dollars worth of of of uh junk credit like stride

And by the stock back so you issue preferds and then you buy the stock or

You issue something like strike

Issue a convertible preferred with a 200% premium built into it and buy the equity back

Right that the the equity investors a look at that now think well there's massive volatility massive leverage

Why wouldn't I want to buy that it's like i'm

I'm buying the senior 20% of the capital structure and i'm creating a short squeeze so

The real key to protecting the equity premium and a Bitcoin treasury company is

building these BTC back credit instruments and

Getting them floating in the preferred market and attaching an ATM to them if you have the the reason to do what i've described

Is offensive because if you have a good BTC credit program

The mnav could trade to three four five six ten right i mean you could trade it a massive multiple

Like by the way i'm just describing price to book if you look at how you does how you value a bank

Oh, that trades at two times book value

Oh, mnav of two is two times book value for the company right so

So if you have the credit instruments you create leverage the equity will trade up so it's offensive

But it's also defensive if the shorts jump on you how do you rip the faces off of the shorts

You sell the credit instruments and

Like what would you hope you would hope that they would short you to 50% you know of net asset value

You would sell 200 million worth of of

A junior preferred or a senior preferred by the stock back and you're equitizing that your monetizing the discount

You're actually generating BTC yield buying the stock

And then you could a short squeeze and as soon as you start to squeeze the shorts on that side all the equity investors will jump on it

And the options investors will jump on her and they'll rip their faces off

so

You know

You don't really have to be in fear if you're a financial engineer

You have a hundred billion dollars of bitcoin

You're either trading at a premium and you're selling the equity or you're trading at a discount and you're selling the credit

Right

What shuts that down?

If you can't sell the credit right if you've impaired the reason that the company struggles is you've impaired the capital structures somehow by doing something stupid

But if you have if you have un unimpaired capital structure if I have a hundred billion dollars of bitcoin

I shouldn't theory be able to sell 10 20 30 40 50 billion dollars of credit

At various rates BTC 10 5 3 2

When you do that

You either buy bitcoin or you buy your own equity back

But you wouldn't have to buy that much equity back before like like once you once you punch a bully in the face

Like if you the short seller gets to a certain level once you slug them in the face

Right that they're not really in it for the pain

There

As far as I could see there's really no intelligent investor who's a short sell

Like for example, they don't have any courage

There's no one with 10 billion dollars of capital saying I'm willing to go short 10 billion dollars and you know and lose it all

Right, so you know, you got a fun the guy dabbles and he's like I got a short but

But no one wants to ride that that one to infinity

They just don't have the courage

Right, so they'll squirmish with you for a bid

But at the end of the day the winners in this market are

Our people that have conviction and capital and they're willing to look out a decade

And uh, that's the advantage of the bitcoin maximalist right

Like we can

We can go harder than anybody else. We can outlast anybody else

If you look if you look at my best speech by the way

Yeah

I think my best speech is at the Atlas Society if you go and you pull it

And if you look at me, I'm quite confident and comfortable and and articulate and uh, I don't

I don't I didn't have any concerns whatsoever

I think bitcoin that night had crashed from 66,000 down to 19,000

And it was trading below 20,000

And I had friends and the audience said yeah, yeah, you were so persuasive

I went and I bought bitcoin that day. I followed him enough

Well, we we were buying it at 19,000 18 17 and 16,000

I was just as convicted then as I am now. I didn't feel any different

Right

The the the shorts they can't handle that right their brains don't work that way right? I mean they're not they're not acting from

Fundamentals or first principles

My view was just

Was pretty obvious bitcoin's oversold to do to the crypto leverage coming out of the system that makes it less risky and a better buy today

Then it was at 50,000. Why wouldn't you buy more?

Yeah, that's a great point. That was a great speech

I'm curious to hear your perspective on this actually. Is there any form of research or analysis on bitcoin

computer science

economics that you've never read before but you think someone should go out there and actually perform the research and do the analysis

I I think right now um

people ought to be um they ought to be focused upon

generating a theory of a BTC backed equity and a theory of BTC backed credit

Based on first principles and corporate finance, but then combine it with practical reviews of the equity

Capital markets and then the credit markets

You know when you start to look at the credit markets, you know, you're struck with it's a bunch of under collateralized

In liquid poorly yielding

heterogeneous paper

And the big idea is you know, what if we convert 10% of it to bitcoin backed credit and then what's

How's that going to work out?

And I think if you look at the equity markets

They're no different that basically the theory of equity is I'm valuing the equity based on

Future cash flows a forecast of future fiat cash flows

And the theory of credit is I'm

valuing the credit where I'm giving it a credit rating based upon

forecast a future cash flows

so

the

The issuers of credit don't have any money

And the issuers of equity don't have any assets

And

Yet the and yet you've got the equity mark equity capital markets and the credit markets

based upon investing in equity not backed by assets and credit not backed by assets and

I think that

The big idea is to turn the world inside out and

And value equity based upon assets and and

asset growth rates

right and and

Value credit based upon the assets that back it and you can probably

Joe in theory you can probably crank in the credit the credit market rates

The cost of equity and the cost of debt or the cost of credit

For any given capital market and outward pop

um

The fair or the rational

equity premium the Bitcoin Treasury company should trade at

Right like hot what what's a meta planet worth in the Tokyo market if the corporate credit rate is 50 basis points

if

if i think

Investment grade

corporations pay 50 basis points for their debt in Tokyo they pay

220 basis points for debt in europe

They're paying 450 basis points or something for their debt in the US

If you start to actually um

If you start to input

credit rates

And then consider you know things like liquidity volatility

You know of um

Of all these various markets and if you look at equity

That you know the equity returns what's the cost of equity capital in Japan?

What's the cost apparently there really isn't any return on equity capital in europe and and in Japan right now

And the cost of you know the return of equity capital in the US is sort of the S&P right

You can probably develop an entire new theory of corporate finance

That is rooted in

statistics

financial theory discounted cash flow

looking at the durations of all the instruments

and you can figure out

What the

What the range of

equity multiple should be for a BTC company or or what the range of BTC multiples or MNAV multiple should be and you can also figure out how much capital

A BTC company can raise and then how fast can it grow

Right and so there there's some interesting theory there

That I don't think anybody's done a scholarly piece of work on but

But it's worth delving into and uh

The other point I'd make on that is is I would approach that and I would grind

The silicon on it like I would put chat gpt into deep research mode

I would start to feed it all of the corporate finance textbooks. I would feed it all of the

The you know the successful instruments of mstr

Right we we basically pulled out of the ether these things which never in the history of the world had been created

In the history of the world you never had bitcoin as a digital scarcity to securitize

So no one ever created these perpetual prefers

So no one ever could put an ATM on them

So you could never create the reflexivity right so it's like you know

creating turbocharged

Engines for the first time and ever been done before but no one ever had the engineer

Engineering to do it so now we do or the materials

You can't you can't create a jet engine with balsa wood clay and ceramics either now can you so

So there are all these come materials that you need

They're now in front of your face. We've proven the concept

The the irony is

You know, I would say to anybody just copy us

And the more people that copy us the better it is for us

The better it is for bitcoin

The better it is for the world and the better it is for the equity capital markets

And the better it is for the credit markets and the better it is for the passive and best like there's no losers here

It's like we're just injecting steel electricity

nuclear power and semiconductors into the economy who's the loser

Just people that are prejudiced against those new ideas but

but the world I mean

The widows the orphans the pensioners the passive investors. They're all winning

and so um

I think it's worthwhile to do that. I think we've proven it's possible

um, but

we haven't um

We haven't sat down and reconceived the theory of corporate finance the the joke

The joke is the academics will do it last. So I'll tell you a funny vignette. It's um

It's you know harbor everybody goes well. We need a Harvard B school case study. Okay. I got one

The Harvard B school case study was written in like 2022

Yeah, right? Like like when we had achieved like uh, you know 10x return

Okay, it's totally out of date that can you know the conclusion is

Company took some some unwarranted crazy risk

It hasn't blown up in their face, but you know be careful, right?

Like and uh, you know 99 out of 100 harbor B school students will say well, we'd never do this even after you 10 extra money

They would never do it. So

Two years later

They're like, okay, we're gonna teach the case study again is 2024. I thought oh this is great

You're gonna so you're gonna redo the case study

Oh, no, we're just using the same case study from 2022

Like huh

Really we're 100x where we were and

And here's the point sometimes they'll take five six seven ten, you know people are teaching stuff

That's ten years out of date

Because it's a lot of work

To redo it right? I mean and so

Everyone that thinks they know corporate finance learned from a textbook written 20 years ago

There was ten years out of date when they wrote it

And if it was me I would

Reconceptualize the entire theory of corporate credit and the entire theory of corporate finance

Right every good every best practice is a wrong practice, right? You know

I just watched a parade of the best banks in the country

Every bank reports their results and and the news is

Increase their buyback increase their dividend increase their buyback increase their dividend and I went so I think

These are banks that issue $20 of credit or $20 of loans for every dollar of equity

They're the last companies in the world that should be surrendering capital

And yet they're the most enthusiastic about doing it

Like you're 20 to one lover you've got $20 billion a liability for a billion of equity

And you just made money and and your corporate finance idea is we're gonna divin into it out and buy back the stock

So that we're 40 acts lover

And it's like it's painful

and yet

Theoretically the greatest corporate finances in the world are the CFOs of the mag seven and the big banks right

Aren't they like out of a hundred thousand corporate finance people aren't the 20 best

Running big the top 10 banks and the top 10 tech companies

And their practice their playbook is

Increased the dividend buy back the stock

Oh do do an expensive merger pay 20 acts revenue to buy some fast growing company

So

So I know it's long winded answered your question, but it's like reconsive corporate finance and write a new textbook

You know like the Bitcoin standard, you know

rethought the theory of money in a way

But what about the Bitcoin corporate standard rethink corporate finance in an era of digital capital

Because everything that you know is wrong everything written is wrong everything you've been taught is wrong

Every case study is now irrelevant and every action by the top

1000 companies in the world is probably the wrong one

And they're enthusiastically pursuing them

So there's a big opportunity there

Yeah, I think that would be a great idea

It kind of blows my mind that more academics and traditional finance types are not just fascinated by

Strategies out performance. It's it's you know after five years. It's it's fascinating

Um, what to say is probably more likely they're dismissive

Yeah ignorant

or horrified

What yeah one of those three is probably the reaction of someone that's got 20 years of corporate finance experience

That was well educated at Harvard Yale or Stanford most likely

In my experience that makes sense to me

One more question Michael and then we can start to close it out if

Bitcoin adoption accelerates at a really rapid pace over the next four years or so

How different will the world look in four years from now

You know, we're not even one percent so I don't know maybe Bitcoin treasury companies will be two three four percent of the market

Maybe

I think I think uh will just be the new interesting thing four years from now

You know, can we be one two three percent of credit? I mean think think what does it take to become two percent of credit show

Yeah, right

Maybe maybe there'll be a Bitcoin treasury company is one of the mag seven maybe there'll be a mag nine or mag ten

Maybe maybe there'll be one

Right maybe maybe this will be new maybe people will say

You know

Bitcoin will be an asset like it's the it'll be viewed digital gold

Right if it's 20 trillion

We're 10 acts from here. Okay. What does that mean?

The world's the same as it is now

It's just Bitcoin is cooler than gold or it's not even quite it might just be the new gold and the world is the same as this now and there's

You know, there's a lot of multi-billion

Yeah, maybe there'll be three four five

50 billion dollar Bitcoin treasury companies maybe a few hundred billion dollar Bitcoin treasury companies maybe be one trillion dollar Bitcoin treasury come

Right and and everybody else will be doing their thing and

5% of the b schools in the world will be teaching Bitcoin theory

And they'll be bragging about their innovative

Finance programs and then half the other professors will be dismissing them as it's unproven

It doesn't have the track record of whatever and we'll be getting around to it. That's what I think

I like it will Michael. Thanks so much for taking the time to record. This has been incredible

Yeah, my pleasure. Keep up the good work. Good luck. Thank you. Similar. Appreciate it