You’ve Got IPO

0:09Hello and welcome to Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Bloomberg. I'm here with Elizabeth Spiers of New York Times.

0:21Elizabeth Spiers: Hello. And guess what? Emily Peck has disappeared off onto a much-needed and well-deserved vacation, and in her spot is the single greatest Slate Money host in the history of Slate Money. Come back as a special guest, the one and only, the irreplaceable Stacey Marie Ishmael. Stacey, welcome back. No pressure. Hi. Great to be back. It's so great to have you back, but for the three people here who don't remember you, introduce yourself. Who are you? I'm Stacey Marie Ishmael. I play video games and I work for Bloomberg News. So we are going to talk to Stacey about, well, video games are going to come up at some point, but we are going to talk about bending spoons.

1:03If you don't know what bending spoons are, stay tuned and you'll find out. We are going to talk about prediction markets and the World Cup. We are going to talk about strategy and Bitcoin and what on earth is going on with that. We have a Slate Plus segment about strawberries and berries and even bananas. It's a wide range Well, just awesome conversation because Stacey's part of it. So stay tuned. It's all coming up on Slate Money.

1:50Felix Salmon: to hear the stories making news in Washington right now. Host Mike Townsend, Charles Schwab's Managing Director for Legislative and Regulatory Affairs, takes a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement savings, taxes and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors, and even the entire market. Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio. Download the latest episode and follow at schwab.com slash Washington Wise or wherever you listen.

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3:41Vanguard Marketing Corporation Distributor. Okay, so let's start with bending spoons. Elizabeth, you're the media person. So what is a bending spoon?

3:54Elizabeth Spiers: A bending spoon in this context is a Milan-based company that has been rolling up every internet property that you thought was dead 10 years ago, including AOL, eventbrite vimeo meetup and evernote and they are going public and they are going public at what kind of crazy insane value it's like 20 some billion dollars on profits of 20 some million dollars that's us i can make out they're going public at like a 1000 p.e ratio 1.68 billion that's the that's the amount of the raise yeah they're raising a billion dollars because they are going off acquiring all of these companies from billions of dollars and they're raising like 1.7 billion dollars at a 22-ish billion dollar valuation which is kind of wild because as you say this is they're buying up a bunch of companies for huge sums of money none of which really make money but their playbook is super interesting to me because basically what they do is what Elon Musk did at Twitter.

4:59They buy a well-known household name internet company like Evernote or Vimeo or AOL or whatever. And then they just fire everyone. And they're like, the product is there already. We will keep on selling the product. We will keep on raising the price of the product. They have 9 million paying subscribers. And they're like, do we need to support this? Yeah. I mean, we can probably just find an AI agent to make sure that the site doesn't go down. And then we bring in all of this recurring revenue and we cut costs massively and bosh like profits. Who cares about employees?

5:33Elizabeth Spiers: Doesn't this feel like a private equity model to you because they're using leverage to kind of acquire these things? And it very much is. And the other thing about private equity is I always think of the public markets as being a place where you go for if your company is growing and private markets are really good places to go if your company is shrinking. And PE in particular is quite good at working out what the net present value is of your future profits and paying a little bit of a discount to that and extracting all of the value out of a company before it finally dies. The interesting thing here, of course, is that they're doing exactly that, but they're going public and they have a growth story.

6:15And that is the thing that, and as far as I can make out, their only growth story is we will keep on acquiring people and we will grow by our acquisitions. But there's something, Stacey, does any of this add up to you? Well, there's been some interesting commentary going back to your point about you, what is the growth story? On the fact that part of the growth story is the argument they've been able to make. And I can say this as an Evernote customer of eons at this point, that they have been able to convince at least a non-trivial number of existing subscribers of these services to pay ever more for the subscriptions to the companies that they're acquiring.

6:49Because you're locked in, right? I have a lot of history and Evernote I needed to keep going. I keep saying that I will export my stuff and then every year I'm like, I'm just going to pay the fee. But the problem, and this is where I think perhaps what you're alluding to, is they also have a bunch of debt. And they have a debt burden that is not insignificant at a time when we may or may not be going back to a rising interest rate scenario. And it's unclear how they're going to support that.

7:14Elizabeth Spiers: I'm kind of of two minds about this. I think there was some analysis we read in the prep, and it was a straightforward equity analysis, but you could tell that the analysts kind of didn't know how to understand this company. Is it a sort of growth-oriented tech company, or is it a typical private equity firm? And the analyst was particularly stuck on the idea of the way they were treating capital expenses in their filings. And historically, it's not unusual for tech companies to put a lot of money into R &D and be able to consider part of that CapEx. In this case, it's kind of hard to tell whether, especially given a lot of the stuff that they're doing is cost cutting and then maintaining the products, whether that looks like a traditional tech company or it just looks like, you know, the normal business of a private equity fund.

7:59Elizabeth Spiers: And I think per Felix's point, normally a tech company that was just doing roll ups and was really in growth mode wouldn't go public. But also part of the raise was that a lot of people who are already investors were getting out. They were able to sell the shares that they already had. And I always think that was a big part of the reason why they decided to go to public markets for this. Well, I mean, Bending Spoons is a VC-backed company. And VCs do want an exit. And some of those VCs are doing that. This is the exit for them and good for them. And they've made a huge profit on that. And so in that sense, it feels more VC-ish than PE-ish just because, you know, it literally is.

8:39and you know i think stacy is right that they're kind of running up against the limits of how much they can borrow as a private company and so this ipo helps them in two different ways number one it makes them a public company and public companies in general can borrow at lower rates than private companies and number two it just gives them equity and it gives them the ability to raise you know to to acquire with stock rather than with cash it gives them as elizabeth said 1.7 billion to pay down debt or invest in further acquisitions without having to borrow more. And now, you know, if they have whatever it is, like$3 billion of debt.

9:174.1. A week ago, that felt like a massive amount of money. Now it looks like kind of modest compared to their market cap.

9:26Elizabeth Spiers: Also, the notes comes due in 2031, I think. A lot of stuff can happen between now and then. They might buy six more Evernotes. I don't know. None of the companies they buy are super profitable or like throwing off enough cash to service all of this debt. But the idea is that once they've fired everyone, they will. I would just want to caveat that by saying they don't fire everyone. They keep the engineers. No, they fire 80 % of them. They keep the engineers and a handful of the product people to kind of, you know, keep the platforms going. And they claim that they're like improving the product and rebuilding the companies.

10:03But Stacey, as an Evernote customer, have you seen any improvement in the product? This is where I like sigh dramatically and think about the glory days of software as a service. What I will say is one of the things that they have done, and again, you know, have been a pro subscriber of this product since they had pro subscriptions, is you can really feel like Evernote for a long time felt like it was ticking along. and there's a stage that you get to, particularly in mature software, where ticking along means works worse than it did before because it's not necessarily keeping up with, you know, changes to operating systems or changes to mobile devices.

10:39And for sure, over the last two or so years, like it's felt faster, it's felt snappier. But, you know, like every other tech platform and tech company out there, it's also now like AI in everything. So like every time you open it up, it's like AI your notes or AI whatever your whole life. that's part of what a lot of folks are doing to say, look, we're being so innovative, we're adding the latest in technology. But I, as a person who's just like, do not delete my files. I just want you to not delete my files. I'm less impressed with the AI-ification of all productivity software. And I just want stability and archive maintenance.

11:15Elizabeth Spiers: Now I'm just imagining a bot popping up and saying, Stacey, would you like us to delete your files? I'm like, no. No. No, do not. I am fascinated by this. You're absolutely right. And it's not just Evernote. It's everyone is Google is probably the worst offender, but everybody does it. They're like, we will push and push AI on you in a way that almost no one I know, appreciates. And they're, you know, they're trying to make fetch happen, you know, and I do think that a lot of enterprise executives are like, this is good. We want to get our employees to start using AI more because that's going to make them more productive.

11:55But at the consumer level, we know that consumers have really embraced AI chatbots as new friends and romantic partners and doctors and lawyers and everything else. This is not an endorsement. This is just a fact. This is definitely not investment advice, even though ChatGPT now will hook up to all of your bank accounts and give you investment advice, God help us all. Outside ChatGPT and Claude, and to a certain extent maybe Gemini, like the pure AI chatbot interfaces, can either of you think of anywhere that you've been like, oh, AI, this is maybe kind of useful? I can think of one, maybe at the margin.

12:39Elizabeth Spiers: What? We're recording a podcast, right? And I think like AI transcription is life-changing. Oh, as a journalist, having AIs to transcribe my interviews is amazing. Yeah, but I mean, journalists are not people, obviously. We're like a different consumer category. But for me, that's been like a really helpful use case. I think there's so much pressure, especially for public companies, though, from shareholders and investors to apply AI in any way that they can, that it turns into, we have this great hammer, everything must be a nail problem. And they don't have that much incentive to not tell that story, given the incredible valuations that AI is generating for pure play AI companies.

13:23Elizabeth Spiers: But it means that they're not necessarily developing the product backwards from user needs. Exactly. It's the kind of MSG of SaaS. You just sort of sprinkle it on top and expect that it will improve the flavor. And I'm totally not convinced. But the one possible counterexample is one that I've been talking to for a few weeks with a colleague that Stacey and I have named Walt Frick down in DC. And he is a big fan of Ask Matt in Google Maps. If you open up Google Maps on your phone, not on desktop, but on your phone, there's a little button which says Ask Maps. And you can type in questions and it will give you answers.

14:02Like what's the closest restaurant to me? How is that faster than... just typing what's the closest restaurant to me which they already do i have tried it in a few different ways if i want to go from here to there but i want to swing by a gym on the way yeah and sometimes it gets it right and most of the time it doesn't and i'm not super impressed with its answers but walt has has had better experiences i do think that the margin sometimes it can be helpful but most of the time it's not and since we since we seem to have wound up on this subject of AI. I know, Stacey, you have opinions about this.

14:36Where are we at in the pendulum swing between token maxing and token minning these days? Ooh, this is such a good one. So just, you know, first of all, I just want to make a linguistic commentary on like the idea of maxing as a thing that everybody's talking about, whether it's like looks maxing or friends maxing. I'm just like, I try not to be a language prescriptivist, but that one really annoys me. But the idea of token maxing, you know, which is so interesting. Like tech companies and media companies learn this every single cycle that as soon as you give people a metric to optimize for, they're going to find ways to game it into a lack of utility.

15:11And so for about five minutes, various of the very large tech companies that have embraced AI, the metas, the Amazons, et cetera, had these leaderboards where they were rewarding people for using a very high number of tokens, which is just a way of saying, like of doing a lot of stuff that required a lot of, you know, computational processing power in various AI tools. And at around the same time, whether they were using internal models or paying, you know, the anthropics and the open AIs of the world, they realized that was very expensive because the cost of those licenses, the costs of the tokens, the costs of the access to the models have been going up perhaps more than people were expecting or paying attention to.

15:51And so now we've kind of swung to an austerity model in a lot of different companies that they're calling, including me, I confess I have used this phrase, token minning. So how can you minimize the number of tokens to do things? And you're getting these really hilarious stories about consulting companies and consulting firms realizing that most of the token spend was on people turning PDFs into presentations to present back to those same partners about how they were using AI for work. And I think that what's going to happen, as it often does with these sort of management things, is something in the middle.

16:23There are just going to be certain types of tasks where the return on the maxing remains very high. And there are going to be other types of tasks where you're like, did you actually need to use AI for that? But I also think it's forcing some companies to look at, does everything need to be done in the largest possible model, right? The really expensive general purpose ones. Can you get things that are more efficient? Can you help people design prompts and queries that are more efficient? And so there's a little bit of rationalization happening that is interesting. But in the meantime, what you're getting, and our colleagues at Bloomberg just reported on this, like an idea of haves and have-nots in different companies and tech companies.

16:58Who gets access to Fable, the super fancy new model from Anthropic? Who has access to Claude at all is a big topic of conversation in a lot of different companies. So it's a hunger games out there. My general model of what's going on here is the token maxes in terms of the executives, the ones who are encouraging token maxing are the ones who look at the cost of tokens compared to the cost of an employee. And they're like, even if you're spending a fuck ton on tokens, it's still much less probably just an employee's health insurance, let alone the employee themselves. And so like, go ahead and knock yourself out.

17:37If it saves us, you know, even a fraction of an employee, then it's worth to just go out and use it. Meanwhile, the token min is the one saying like, we have this payroll and all of this token cost is over and above the payroll and it's just increasing our expenses. And so unless and until the AI use directly results in headcount reductions, you're just spending more money and your expenses are going up and that doesn't help you. And interestingly, to your point, what a lot of folks are finding is that the AI use has so far, even with many companies proclaiming their cutting headcount because of AI, they're saying that proactively.

18:12They're like, we've gotten rid of 2 ,300 people or however many it was because AI is going to make us super efficient. But then on the flip side, you have companies that are like, we tried replacing a bunch of people with AI. It didn't work. And now we have to hire those people back relatively expensively. So I don't think it's necessarily like a straightforward thing right now where the replacement theory is as one-to-one as people had thought it might be. So let's just bring it full circle here and come back to Bending Spoons. Bending Spoons is a relatively young company, but it was founded in what you might think of as the sort of pre-AI universe.

18:43Like it doesn't need AI for its model to work, although I'm sure AI is a nice little accelerant there. Do you consider the valuation of Bending Spoons and the story of Bending Spoons and just generally that whole thing to be an AI story? Do you think it's an AI company? I don't think of Bending Spoons as an AI company. No. So if it's not an AI company, what the fuck is it doing worth 20 some billion dollars? Everybody's worth 20 billion dollars these days. 20 billion dollars is just like a rounding error on the SK Hynix valuation. Yeah. It's like, are you even a company bro? Like, you know, you're not worth 20 billion dollars.

19:33okay let's move on to the world cup because obviously we need to talk about the world cup and what makes this world cup different from all other world cups prediction markets i was say hydration breaks, but prediction markets also. Which is worse. And hydration breaks, which, you know, if you ever doubted that FIFA is in it for the money, doubt no more. They have managed to turn football into a game of four quarters. What is going on? It's so American, even though they're based in Switzerland. I have to say that I am thankful to prediction markets as someone who suffered through the England-Mexico match, which was one of the great football matches of all time.

20:15Truly, truly incredible football. It was truly incredible football in the Azteca Stadium and all the rest of it. And my heart was in my mouth in the last 11 minutes, I believe went on for seven and a half hours. But the one thing keeping me sane in that match was the fact that I could get a second screen, i.e. my phone, and call up Cauchy and look at the price of England winning on Calci. And even though I'm convinced that Mexico is going to win, it still says, no, England has a 90 % chance of winning. And it helped me breathe a little.

20:49Elizabeth Spiers: You trust the wisdom of crowds on Calci? The wisdom of crowds got me through that match. You and a lot of other people, judging by the volumes on these markets on Calci. Yes. It's massive volumes, right, Stacey? Yeah. I mean, so across poly markets, which is, you know, mostly not available to folks who are based in the United States. And then CalSHI, which is because they operate within a U.S. regulatory framework. If you look at all of the different markets that have some kind of World Cup related theme, it's about five billion notional has been traded across them since the, you know, since the beginning of the tournament, which is compared to all of their other markets put together.

21:24Very, very large.

21:25Elizabeth Spiers: Do you think some of this growth is really coming from people who, you know, they're not sophisticated enough to know what a parlay is, so they wouldn't be on a sports book. but on a prediction market, it's, you know, because it's all binary. Oh, this is a deeply existential question. I mean, I will say that the marginal level of sophistication at Calcium Polymarket is higher than sportsbooks. Sportsbooks are very hard to beat, because if you get any good at sports betting, the sportsbooks will just cut you off. And there's a whole chapter in Nate Silver's book about this, because you're ultimately, when you place a bet at a sportsbook, you're placing a bet against the sportsbook.

22:04They're taking the other side of the bet and they don't want to lose. And if you're good, they're more likely to lose. Calci and Polymarket, because they don't have any skin in the game, they're not taking the other side of your bet. It's a market. They are happy for all of the smartest bettors to come in. We have Susquehanna Group, which is an incredibly sophisticated hedge fund, basically doing a lot of the market making now on both of them. And so you get much tighter bid-offer spreads and you really do get the smartest bettors in the world on both of them. They've moved there from the sportsbooks.

22:35And, you know, what that means is that 90 % of the people who bet on Calcio Polymarket lose because they're up against complete sharks like Susquehanna. But I do think that also makes things like, you know, the 90 % probability of England winning a little bit more accurate.

22:51Elizabeth Spiers: How much of the volume in prediction markets, though, is institutional like that? The easy answer is to say half, right? Which is to say that any given bet is some random punter betting against Susquehanna. So one side is a moron and the other side is a shark. And then it balances itself out. The people who are making, to your point, it's always a relatively small overall percentage or fraction of the folks who are betting are making any money. But a lot of those folks, especially the ones that we've talked to for different kinds of reporting, they are themselves, they might not be institutional, but they are very sophisticated.

23:28So, you know, you have this kind of interesting bifurcation in the market, as you always do when you have something that's gone very retail, where it's almost like three sided, like the super sophisticated hedge fund market making type folks who are like, we can put 500 million down for this. It's all good. The people who would in other, you know, contacts be winning money in like Vegas. And then somebody who's like, I, a person, would just like to express my delight in Egypt. I like earning Holland. I think I'm going to place a bet on him. Yeah, exactly. Yeah, so there's, you know, I'd say those are roughly the kind of categories.

24:02And there are truly, and the ads, because we have to talk about the ads, right? The ads really do try to play up that democratization of access to, you know, wisdom of the crowds. This is a fun thing to do. But the reality, as with many of these kinds of markets, is that the people who are making the money have, you know, 17 monitors with all different kinds of feeds and they're reading things about, like, the statistical likelihood that Messi is going to take a corner from that particular position in this particular match. They're not just operating on vibes. And they are trading much more frequently.

24:35A lot of their trades are just on five-second time horizons. They come in and come out. They're making markets rather than really placing bets at the citadel of prediction markets. And you need that. So I wanted to ask you, Stacey, because you were mentioning the poly market isn't really accessible to American bettors. It is also the case that one of the more turgid and boring and hilariously bad and not particularly interesting matches of the World Cup so far was USA-Belgium. Not particularly interesting. I mean, come on, there's two third-tier teams. Who really cares about USA or Belgium when it comes to international football?

25:15Elizabeth Spiers: Says the Englishman. Yes, exactly. But on Polymarket, that match wound up with absolutely record volume. No other football match has seen anything like the amount of Polymarket volume in that match. So there are two possible explanations to this. One is that all of the American punters are firing up their VPNs and they're betting on Polymarket. The other is that the American punters are just punting away on Calci. And then you just have arbitrageurs hedging Cauchy bets on Polymarket. Which one is it? Well, do we know that most of the bets were coming from American bettors? Yeah, because no one else on the planet cared about USA Belgium.

25:59There are a lot of Americans and Belgian people.

26:03Elizabeth Spiers: Also, not even just because of the teams. I think a lot of people were watching this game because of Trump's interference in the World Cup. And they were sort of rooting for Belgium against the US. Maybe they were. No, but yeah, no. No, that was, you know, the final demand in terms of betting on that match was definitely American. So to answer your question, it is a little bit difficult, you know, and I say this as somebody who's had to edit some of these stories and try to figure out how to verify some of this. It can be very, very hard to say definitively what the constitution of the nationalities or even the types of traders or operators on these platforms are because the exchanges themselves are not necessarily releasing that data.

26:47And in some cases, they are not capturing the level of granularity. You know, so like on Polymarket's international platform, for example, the level of, you know, like know your customer checks is different from what Kalshi is doing to confirm that somebody is in fact a U.S. domiciled person, etc. But I would say based on, you know, the conversations that we've had in the reporting that we've published is that it's like a both and situation where you're getting you're simultaneously getting those super sophisticated arbitragers who are like, oh, yeah, that looks like something we can make money on.

27:14And also, as we saw with crypto four years ago, people were like, have VPN, will travel, and are attempting to end run the regulations to be able to take positions on things they might not necessarily technically legally have access to. Stacey, is it legal for an American in the USA to fire up a VPN and place a bet on Polymarket?

27:37Elizabeth Spiers: Felix is asking for a friend here, by the way. There are so many overlapping regulations and jurisdictions. Like there are some states that will crack down on you really hard. You know, Polymarket and Kelsey themselves will say like they do all of these things to try to prevent people who shouldn't have access to have access to things. But highly motivated people who are going to try to game the system are going to try to game the system. And I think one of the things that is generally true in the U.S. right now is there's not a lot of enforcement at the federal level on, you know, on this kind of activity.

28:09Like the regulators have had other priorities for, you know, a year and a half or so. And so even if, you know, under, say, a Biden administration, when, you know, folks were trying to do this for crypto, like that might have been something that there were, you know, somebody from the CFTC or the SEC would come calling and say, hey, you platforms need to do a much more aggressive job of trying to police this. You're not getting that same kind of intervention right now. And then just because we need to bring this up, we don't talk about prediction markets that much. The big picture here, as our colleague Matt Levine has written many times, is that sports betting, which used to be very tightly regulated by the states, has now moved almost entirely to prediction markets which are not regulated by the states.

28:53I have to say this, the sports books will assertively dispute that characterization. They do not at all feel that they are being replaced wholesale by the prediction markets. And some of them have even embraced their own versions of prediction markets on their classic platforms, as it were. Right. But like if you go, if you live in Texas, where there are no sports books because they are illegal in Texas, and you are betting on sports rather than, you know, trying to find some illegal mafia type to take your bet, you just go to Kalshi.com and do it perfectly legally. I mean, obviously that is going to increase demand and obviously that is going, you know, but by the same token, the Texas legislature quite reasonably is saying like we tried to ban sports betting for various reasons of our own.

29:38We should be able to do that under the federal system. And this is not by in any way, shape or form, a legitimate financial product that really belongs under the oversight of the Commodity and Futures Trading Commission. So the question is, does this weird situation where somehow the CFTC is in charge of sports betting, despite never really wanting to be in sports betting, is that going to remain the case more or less forever? Or is this just a weird Trump thing? And then once, you know, the sort of crypto Trump bro people have left the administration, it will go back to some semblance of common sense?

30:18What I would say is even within this current environment where like what regulators do, which things are at a very different stage than they were under previous administrations, the states, to your point about Texas, have tried to be very assertive in saying like, we don't care what you're trying to figure out over there. We're going to just try to sue everyone and we're going to try to reclaim or reassert the ability to legislate around this. And I think the other thing is, and we haven't really mentioned this, but it's not only that prediction markets are popular because they're accessible in some states, etc.

30:50It's because there's been this really normalization of financial transactions related to sports across the NBA, Wimbledon, obviously now the World Cup. Like you're looking at a game and there's like odds flashing up on different things or you're like this game is sponsored by XYZ Sportsbook or XYZ Prediction Markets Company. And so I do think at a general level in the United States, we've really gone from this idea that like some people know how to do sports betting to this idea that everybody is being told that they should be making some kind of financial wager on the outcome of. And like, is that athlete going to score a goal or, you know, to your point, Elizabeth, what parlays and these kind of complicated four sided bets?

31:31That is something that's going to persist long after the Trump administration. So like whatever happens to the specific contours of the CFTC regulation, states are now confronted with this normalization of wagers that just wasn't true a couple of years ago.

31:46Elizabeth Spiers: Do either of you know if there's a correlation between the volume of people who are willing to make these kinds of wagers and how they feel about the economy? Is there any relation to how financially insecure people feel? Yeah, the more wages you make, the more money you lose. And the more money you lose, the worse you feel about the economy. Also, there's all of these interesting papers on SSRN and other places for like those of our listeners who love that stuff. Around, you know, kind of similar to the idea of like meme stocks and crypto, where the less included you feel in traditional finance, the more you look to things like prediction markets and to an increasing extent you know sports betting as a way to say well if i strike it rich over here like i'm never going to own a share of goldman sachs or apple or whatever that might be but i can make this transaction out of like a very small amount of money for which the odds are amazing compared to what i might get in the equity market i would like here to plug my money talks with scott smith where i where we talked about risk maxing.

32:48Oh, maxing is back. Maxing is back. But yeah, it's a key place where people do the risk maxing. And I also just want to quickly come up with my theory here that I just want to run by you guys. I think there are two reasons why the USA-Belgium match saw such an enormous amount of betting. The first reason, as we discussed, is because America is where most of the sports betting goes and obviously americans do all the betting on america for obvious reasons but the other one is i think related to what elizabeth is talking about which is the you know price insensitive retail traders coming into the market versus you know and trading with the sophisticated shops and hedge funds and my theory is that to elizabeth's point especially after Balogun got reinstated for the match, a bunch of Americans were like, yeah, go USA, we're going to win, and just came in to bet on USA winning.

33:51And they kept on seeing a relatively low probability of USA winning on prediction markets. And so they were this massive weight of buying pressure on that. And they kept on sort of pushing the price up above where it made perfect sense for any sophisticated investor to sell to them. And normally what happens in those kinds of situations is the buying pressure sort of people, everyone who wants to buy USA just, you know, buys, but eventually the selling pressure pushes the price back down to a sensible level. And, but in this case, the Americans just never gave up. And so like all of these sophisticated counterparties were like, however many billions of dollars you want to bet on USA winning, We are happy to take the other side of that bet.

34:38And that was the reason why we saw so much volume.

34:41Elizabeth Spiers: Maybe they thought that if we lost, Trump would just fix it. We'll just intervene and we'll have won, technically. I mean, the other thing is, this is like one of the strongest performances by the U.S. men's team in a World Cup in ages. Like, because usually it's like the women, the American women national, like football. Oh, yeah, they're fantastic. Incredible. Champions, legends. But the, you know, the men were playing really well. Like they had some strong games. It looked like they knew what they were doing. So I don't think it was only that they were like, you know, dude no longer has a red card.

35:13Like I'm just going to like blindly bet. It's like you're a host country. You know, there was a lot of momentum. Like you had usually like fairly hostile to the American men's team, you know, international press being like, oh, yeah, actually like not terrible. And then the goalkeeping. It was one of those things where it was the failure was on the pitch, I would say, as opposed to with the expectations going in.

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38:36Felix Salmon: Amazon ads enables a business to be able to expand their product shelf because of the visibility and the reach you can get.

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38:56Okay, Stacey Marie, since you are here. I am here. We do need to talk about crypto. I'm so sorry. One of these things, again, every like two years or so, we need to check back in. I will say that I lost a bet with Emily about a year or so ago about the proportion of all Bitcoins that were going to be held by Bitcoin ETFs. And for my sins, for losing that bet, I was forced to buy a Bitcoin ETF. What? this is the terms of the bet as proposed by a slate money listener whose name i can't remember but i had to go out and buy a thousand dollars of a bitcoin etf and promise to hold it for five years which i did and my thousand dollars worth of bitcoin etf is now worth about six hundred dollars or less because as we know bitcoin has imploded in price and one of the epiphenomena one of the things that happens when Bitcoin goes down is that leveraged Bitcoin goes down a lot.

39:57And everybody's favorite leveraged Bitcoin is strategy, formerly known as micro strategy, which is run by this wild man named Michael Saylor. And this is a publicly listed US corporation, which owns something on the order of 4 % of all of the Bitcoins on the planet. Stacey, explain explain why, and if Bitcoin is down, you know, 40, 50 % or whatever, strategy is down, what, like 85 % or something? Yeah, MicroStrategy, the company formerly known as MicroStrategy, now known as Strategy, trading under the ticker MSTR, run by a dude named Michael Saylor, is, I think, one of the most fascinating corporations ever to exist.

40:38And because officially, Strategy is an enterprise software company. Like they theoretically have revenue lines related to selling, you know, like B2B type stuff. But for several years now, they have been effectively a Bitcoin hedge fund. And for a long time, particularly before the advent of Bitcoin ETFs, and definitely before the advent of, you know, companies known as like Bitcoin treasury companies, if you wanted to take a directional bet on Bitcoin, you would do it by taking a position long or short on strategy. And Michael Saylor has survived a lot of different types of corporate upheaval.

41:17He's switched jobs several times, including within strategy. You know, he's actually not the CEO anymore, which most people completely forget because he's still very much like the public face that they associate with this. But strategy, you know, pioneered this idea of we are going to just like buy and hold a bunch of Bitcoin and have it be on our balance sheets. And that's going to be our primary or at least a significant part of our value proposition to shareholders. And then the really smart, I mean, the one smart thing he did was like the buy part of the buy and hold. It's like, how do you buy Bitcoin?

41:50And the answer is by issuing convertible bonds, which the way the convertible bonds work is that the people who buy them immediately hedge in the stock market. But basically, you can sell convertible bonds at a higher price if your stock is incredibly volatile. And so what Saylor did was he created a stock that was incredibly volatile, that would go up and down by like even more than Bitcoin goes up and down. And then he monetized that volatility by creating like very low cost funds in the convertible bond market, which you would then use to buy Bitcoin, which would make his stock even more volatile.

42:29And you had this weird sort of volatility flywheel, which kind of worked until it didn't. Or maybe this is just it. Maybe what we're seeing right now is just part of that volatility. And that's what various analysts are arguing, right? Like as Matt Levine and others have described it, like there's this perception that strategy is like this infinite money machine that they've sort of figured out a glitch in the matrix that allows them to buy this, you know, financial assets and then turn that into profits through a series of like increasingly complicated machinations and bits of financial engineering that other companies that have tried this all over the world, you know, like companies in Japan, companies in Korea, companies in the United States have not been able to replicate with the same degree of success.

43:09And strategy, to be clear, like if we judge its degree of success by its market cap as a ratio of the Bitcoins that it owned, yeah, for a long time, the value of strategy was, it was basically a box holding Bitcoins and the value of the box was 2x the value of the Bitcoins in the box. Exactly. Yes. Now that is no longer the case. Now the value of the box, if anything, is lower than the value of the Bitcoins in the box. And strategy has actually for the first time started selling Bitcoins rather than buying them, which does kind of strike everyone as a buy high sell low strategy, which in most states of the world is not normally a very good idea.

43:51The strategy, to be clear, like they have it's not that they have never sold Bitcoin. What they tend to do is they'll buy a lot and then they'll sell some. And that was, you know, that was true in the last sale. I think it was like they sold just above 200 million at those prices. But they're, you know, they're kind of talking about tweaking that model that they're doing, which is, you know, they described it as liquidity preservation. Right. So, yes, a bit of buy low, sell high, which is actually very similar just to kind of bring back football into this. It's sort of what you see some of the countries that have gotten really into holding Bitcoin are also trying to do.

44:26They're like, this is how's El Salvador doing? Exactly. The idea that, you know, this is about like a long term bet against the U.S. dollar and all of these kind of classic things. I think, to your point, the challenge for strategy for about the past 18 months was there was a lot more competition, whether it was from Bitcoin ETFs or, you know, other financial services firms trying to take on the Bitcoin treasury model. But, you know, one of the things that Michael Saylor has that a lot of other people don't is just straight up conviction. Like he is Bitcoin pilled, as he would say, the man, he bleeds orange.

44:57And the idea is that no matter what happens in the market, this is what strategy is going to be doing. So he has really tried to signal and strategy has really tried to signal that them selling is not commentary on their belief in the long term future of Bitcoin. Like they are absolute, to use this phrase again, Bitcoin maxis. They really do believe that Bitcoin is the future of financial services. Bitcoin is the future of financial transactions. And they're going to find a way to present themselves as part of that future.

45:24Elizabeth Spiers: Well, at least in terms of the way Saylor presents himself, he's never really articulated any kind of hedge against this. So do you think some of this is that they really are true believers or they just don't have an alternative plan right now? He is a true believer. He has said that on the record multiple times. His social media presence is, I don't know if you follow him on X, but if you do, it's like AI generated videos of him doing Bitcoin related things in like extremely creative and mind bending fashion. So he, at least as an individual, is a true believer. And I think that there has been some kind of speculation of like, OK, if he's no longer like the chief executive officer of strategy, can he continue to, you know, direct their strategy for once of a better word in that particular direction?

46:06And so far, the answer has been yes. One of the competitors, one of Saylor's competitors in the Bitcoin treasury space is a man very familiar to one, Elizabeth Spires, named Eric Trump. Elizabeth, how's he doing?

46:21Elizabeth Spiers: Not well. He lost$600 million almost overnight with the Bitcoin plunge. Would that happen quickly or that happens like slowly with the Bitcoin plunge? He's down 95 % from peak. It was one of those where it was like slowly and then all at once, you know? Stacey, was he basically just trying to copy Saylor or what was going on there? So Eric Trump is an investor and co-founder in a company called American Bitcoin. So does what it says on the tin, right? The original kind of genesis of this was that they were going to be sort of a strategy, a pure or pure-ish play Bitcoin holding firm at a time when this seemed like a good idea and lots of different kinds of people were doing it.

47:06But then there was also this idea that they would actually have a portfolio of data centers. Right. And so, you know, if you again, like there's been a lot of stuff happening in the crypto market over the past 18 months. But one of the things that was true early on, very early in like when the second Trump administration is, you know, he gave the speech before he was reelected that said America needs to be the Bitcoin capital of the world. And part of that was crypto miners. So the Bitcoin miners, the people who build the machines that like turn, you know, air and energy and water into Bitcoin, were thinking about pivoting at least some of that computing capacity into AI data centers.

47:42And so it looked for a while like a smart thing to do was sort of ride the wave, both of the Trump support for this asset class, but also the fact that AI was becoming really popular. And so American Bitcoin was supposed to be part of that data center strategy for various complicated corporate reasons. They went harder on the holding of the Bitcoin strategy than on the portfolio of potential AI data center strategy. And then the market was like, well, we're not super sold on the fundamentals of crypto, whatever those might be. And there was this sort of situation where a lot of folks were expecting there to be a much clearer regulatory environment than there necessarily has been.

48:26There's this bill that's been kind of going around the U.S. called Clarity for a long time. There's some stuff with stable coins. And so all of that led to a much more bearish environment for crypto than I think Eric Trump and others were expecting when they were signing these deals.

48:40Elizabeth Spiers: My Occam's Razor analysis of this is that Eric Trump wasn't that terribly sophisticated about all of it. And Trump had done several other crypto projects where even if the coins went down, they still made money because they were taking big commissions off the sales. and Eric Trump could rely on dad to get up on Truth Social and hype the coin or do whatever they needed to do to kind of make performance go up. And I think he just figured that this would work the same way. And I don't think that the market viewed it the same way because Bitcoin is not a random entertainment oriented coin like Trump coin.

49:15Or has political upside in any way. The big picture here is that the Trump org and the Trump family have made a lot more in crypto than they have lost, right? There's this one sort of corner of the Trump octopus that failed, but they seem to be relatively good at turning power into money. I mean, I don't know if I would even describe it as having failed necessarily, because American Bitcoin holds 8 ,000 Bitcoin, right? Like according to Eric Trump's public statements and records on the blockchain, etc. If you are kind of in the sailor camp where you're like, Like, this is not the first time we have been below 100 ,000.

49:55This is not the first time we've been below 70 ,000. It's not even the first time we were looking at like 55 ,000 as a number. Five years from now, holding 8 ,000 Bitcoin could be the single smartest financial decision that Eric Trump has ever made in his entire life. And that, I think, is very much the philosophy of a lot of these folks, whether they are actual true believers or conveniently believing for, you know, market messaging purposes. There's very much, you know, you might douse us now, but we think the fundamentals of this thing actually have a way to run, whether that is in the mining companies that could pivot to AI if required, whether that is in Bitcoin itself, whether it's in the fact that, yes, payments across the entire world are becoming increasingly digitized.

50:34That is the bull case that they are making. Currently, the market is like, the bull case is like maybe 72, 72 ,000. And we're at 64 right now. We're not looking at$100 ,000 and above. But, you know, as I have learned from covering crypto, like six months is an infinite time horizon for this particular asset class.

50:52Elizabeth Spiers: Felix, do you want to bet on where your ETF is going to be in a year? Please. I mean, so the one I have had, I mean, over the years, I have made a bunch of Bitcoin bets. I have lost that one. The other ones I have won. I've made bets with... You've made so many bets that you have no idea. Felix, you need like an Evernote. I do. Who have I made bets? I've made bets with at least one Collison brother. I've made two bets with Ben Horowitz. I've won all of those. But the one thing I never bet on is the price of Bitcoin. The price of Bitcoin is a random walk. It's a random number generator. And yeah, it just goes wherever it goes.

51:35So no, I'm not going to bet on Bitcoin price goes up or down because I feel like that's just random. I think what I would say to what Stacey was saying about the bull case of Bitcoin is that it's hard to articulate a bull case for Bitcoin based on there will be digital currencies or there will be digital payments or any of this stuff, because all of those things are kind of orthogonal to Bitcoin. You know, like the digital payments, if they ever happen, are not going to be in Bitcoin. We kind of we've worked that one out. The use case of Bitcoin is basically as a gambling mechanism. We are, what, 15 years into Bitcoin right now.

52:16And to this day, no one has really found a use case for it beyond buying it as a financial investment.

52:22Elizabeth Spiers: Money laundering. Don't forget money laundering. No, it's terrible for money laundering. We had a whole money talks on how really bad Bitcoin is for money laundering. It is genuinely difficult to hide transactions that are made in Bitcoin. So, yeah. It's not even good for that. You know, it's used a little bit in ransomware. That's pretty much the only use case. But yeah, no, I'm not going to bet on Bitcoin going up. But I guess I have a$600 bet on Bitcoin going up, right? I have that ETF. No financial advice from me. Definitely no financial advice. Do not go out and buy Bitcoin ETFs. Come on, people.

52:58Just put all of your money on the USA to win the World Cup. It's still possible, even though they've been knocked out.

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54:36Felix Salmon: Thank you. trends and more. Then it can turn those insights into real action. It might recommend a 10 % spot bonus to retain a top performer based on the data. All you have to do is review the recommendation, tap confirm, and the bonus is added to the next payroll run. Rippling AI understands your workforce, systems, and workflows, helping you make faster, more informed decisions across your business. Don't settle for AI that's all talk. Head to rippling.ai slash slate and get AI that turns insight into action. That's R-I-P-P-L-I-N-G dot A-I slash slate. Sign up for exclusive access today.

55:26Let's have a numbers round. Elizabeth, what's your number?

55:29Elizabeth Spiers: My number is 3.5%. And that's the amount of inflation that services ticked up in Europe over the last quarter. And this is because Harry Styles had a 10-day residency in the Netherlands, and that increased hotel prices so much. And then they just kind of stayed high. So all of Europe can blame Harry Styles if inflation is a little bit higher. That's incredible. And interest rates are 25 basis points higher as a result. I love that Christine Lagarde is sitting there going, fucking Harry Styles. I have to raise interest rates now because of Harry Styles. Bless him. That's incredible market power.

56:08It's the era of the English Harrys between Harry Kane and Harry Styles. Wow. They're both very good looking, very talented men. My number is$26.5 billion, which is the number of dollars that SK Hynix raised in its secondary offering in the United States. SK Hynix, of course, is the memory chip maker that sells memory chips to NVIDIA. Like, you know, it's like super hardcore, like real tech. It's in Korea. It recently passed a trillion dollar valuation. It realized that all of the people who really want to buy into this story are in America. So it decided to create an ADR, basically a US stock.

56:50It issued$26.5 billion of this stock in the US. the IPO did very well i mean obviously you can't judge it by like first day pot because the stock already trades in korea so there's an arbitrage there but there's a huge amount of demand for it and the idea is that so many people are going to want these us adr's that it's going to drive help drive up the price of the main listing in korea and the real number i wanted to i mean 26.5 billion is a huge amount of money. So we should firstly just stop and say, you know, Bending Spoons raises 1 billion. This is SK Hynix is raising 26 billion. We've talked about Google raising 75 billion, SpaceX raising 85 billion.

57:37The amount of money people are raising in the equity markets right now never fails to stagger. But the other number which really jumped out at me about SK Hynix was 4.5. Apparently SK Hynix, even at its trillion dollar valuation, is currently trading at 4.5 times forward earnings. So if that goes up to anything vaguely normal in the US, you know, what, 20? Just imagine how much that company could be worth. Stacey, what's your number? My number is 80 billion, which is the amount that Microsoft and Xbox spent on trying to make its video game streaming service Game Pass happen over the last few years.

58:21And it didn't happen. And now they are in a really unfortunate situation, both for these employees and the overall market for console gaming, of laying off over the, at least, you know, they're projected to lay off more than 3 ,000 people. as they tried to reset their gaming strategy. So what went wrong? If you play video games, and I say this as a person who plays video games, you tend to play a small number of video games for as many hours in your life as you can possibly make work and still have a job and family responsibilities. But the idea of Game Pass, it was sort of like a Netflix for video games, right?

58:58Where you would pay a certain amount of money a month, 20 to$30, and you would have an unlimited buffet of video games. But that is just not how most people play. Most people buy one, maybe two games a year. The whales in video games buy three to five on console, right? It's like a very different thing for mobile gaming where you might buy lots of them or you do a lot of microtransactions. And so if you have already bought your games for the year and you've already spent, say, you know, between$120 and$300, you don't need to be spending another$20 to$30 a month on stuff that you are not going to have time or interest in playing.

59:35And that was one of those things where, you know, Microsoft really, per the$80 billion, was like trying to change the model or the mentality of video gamers, which I would say as a species is very hard to do. I am fascinated by this. The idea that they had this kind of media model from books or movies or whatever, where people are like, I've read that book, now I need to read another book. Or I've watched that movie. I'm not going to watch the same. I mean, some people watch the same movie or read the same book, but most people don't. They love the idea of, you know, just being able to see something new every day.

1:00:13And video games, you know, I guess are closer to maybe like children's books where we just read the very hungry characters, Willa, like over and over again. Okay, time out. Time out. I'm not sure I would make that analogy for all kinds of reasons. But also the model over the past five years, especially in what's known as like the triple A super high end universe, is that video games keep getting new stuff added to them. So, you know, you play games that I play, you play Elden Ring and then they're like, surprise, here's new stuff in Elden Ring. Or you play Grand Theft Auto, like one of the most successful video game franchises of all time.

1:00:51Not a game that I play, but very many people that I'm very close to play compulsively and have since they were teenagers. and they've been playing this one game for a decade plus. And it has like new adventures, new things, like here's different things you can buy. Here's new missions. So your experience of playing those games evolves, right? So even though you paid once largely, or maybe twice if you bought some of the add-ons, you're getting to do new things. It's like, if you were going to use the children's book analogy, it was like if Eric Carle was personally writing you new stories every day.

1:01:23And so your book was just infinitely long. You enter a universe and then once you're in that universe, you don't want to leave that universe. Exactly. You just explore that universe.

1:01:31Elizabeth Spiers: Also, there's a kind of mental switching cost, I think, because if you have been in those games for a long time, probably accumulated a bunch of stuff that you either buy or win in app and you have this sort of treasure trove of goodies. Switching costs are real. Yeah. Switching costs are real. And you don't want to have to start over in a new game. Yeah, you know, like the Zelda franchise is a great example of this, where there's a way of playing that is very different from if you are a person who wants to play like the Final Fantasy series, right? There's a lot of different ways in which this idea of giving people access to a lot of things is sufficient to get them to leave the thing that they were already doing and try something else.

1:02:13okay on that note i think we will wrap it up for this week thank you to jasmine molly for producing and wait stacy who's your amazing producer there at bloomberg special shout out to kale brooks kale brooks we love you thank you for making this happen from the sixth floor of the bloomberg hq mostly thanks to all of you guys for emailing us on slate money at slate.com We appreciate you. And above all, I have to say thank you to Stacey Marie Ishmael, the one and only. We miss you every week on this show. We are so happy when you come back. Come back anytime. And, yes, everyone, please send us emails telling me how much you miss Stacey and how much better she is than me.

1:02:59If you are a Slate Plus subscriber, Then we have a Slate Plus segment on strawberries and branded berries. Otherwise, we will be back next week with more Slate Money.

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