Metaplanet, Strategy, and the Corporate Bitcoin Race | Dylan LeClair

27:41Do you have unsecured convertible debt? Do you have debt due in one year? If you have a$2 billion treasury and a billion dollars is due in six months, well, that could be a problem, especially if the credit markets freeze up and you can't access, You can't roll that debt. Right. So it will be dependent. Part of the reason Sailor Lust prefers is there's no debt maturity ever. It's just the dividends. Right. So that in terms of your flexibility, like one of the biggest things that everybody, all the analysts or the commentators, if you will, would flood, create fear, uncertainty and doubt around is, well, OK, the converts are coming up.

28:17You're going to have to pay off all that and sell the Bitcoin. And so, yeah, with think in terms of the discount that sailor traded at the mstr traded at last bear market i think if i'm not entirely sure but i think if you looked at the enterprise value so you factor in the debt into the market cap that if you looked at just face value market cap to bitcoin holdings it looked like it traded at a deep deep discount but the reality was like you know at the bottom he had a couple billion of of bitcoin and a couple billion of debt right so in reality the discount wasn't as severe as it looks. But it's still, you know, the conditions were pretty rough, right?

28:58So I think for us, you know, we're focused on staying, you know, keeping a pristine balance sheet, maintaining maximal flexibility. You know, we don't want to be put in a tough spot. So we've kept the leverage pretty low. If I, you know, off the top of my head, I think our Bitcoin to debt, you know, our BTC rating, as Taylor calls it, is like 16X, I believe, right? So we have like 100 million of debt. And yeah, it's 16.5X is our BTC rating. So, you know, we have 16 bucks of Bitcoin for every dollar of debt. That's intentional. You know, and I think, you know, when the opportunity arises, we will look to, you know, increase that leverage ratio a bit.

29:34But yeah, it's going to be, yeah, there's going to be companies that trade at a discount. There's going to be companies that trade at large discounts. There's probably going to be a sort of a, you know, acquisition merger season, if you will. right there'll be there'll be opportunists you know clear off some debt buy the bitcoin at a discount uh you know that's a very familiar world for the traditional you know financial wall street world and so i don't expect that to change um but that's at least at metaplanet that's not our intended strategy we're pretty laser focused on on just btc uh you know if someone else wants to do the acquisitions and all that then then have at it um like one of the reasons i i I like talking to you about this is because you're definitely a Bitcoiner first.

30:20Before you joined MetaPlanet, you were already very deep in this world. I think there's a lot of people who are trying to copy this play who are kind of cosplaying as Bitcoiners because they see kind of a gap in the market. From your just like pure Bitcoiner perspective, what do you think of this cycle so far? Do you think we are out of the sort of traditional four-year cycles? And how much does people like Saylor play into that in the sense that they're kind of a buyer regardless of price? Yeah. You know, it's, um, it's, it's, it's interesting to kind of, uh, you know, be a come from the Bitcoin world, if you will, and then sort of enter, um, you know, the traditional financial world and, uh, kind of see it through both lenses.

31:01Um, yeah, I mean, to be honest, I, I obviously I, I can feel, you can see that there's certain people that are more convicted than others. I think investors can see that too. The fact that we can, I mean, Simon was in the, not publicly, but he had some Bitcoin ML Gox and saw the last 10 years of craziness, the good and the bad. And I had sort of been talking about strategy and Bitcoin and everything else for the past five years. So it was a pretty natural fit plug and play at MetaPlanet. It was just like, okay, let's go, you know, turbo, turbo, hyperspeed, everything is 110 % Bitcoin. I think now it's like, it's sort of the opportunistic phase.

31:44And I don't think that's a bad thing. I think it's perfectly rational. The real conviction or test is like, can you eat the 70 % Paramount? Right? If it comes, right? You know, whether it's 60 or 50 or 40%, who knows? You know, but that tests your conviction, right? I mean, outside of the Bitcoin price, like, in the in the 15 months since i've joined metaplanet metaplanet stock has fallen six you know 50 60 70 percent like three three times you know maybe maybe four depending on where you're measuring from right so like we're running we're speed running a bitcoin cycle like every every few months you know once a quarter maybe um and so i think that you know that sort of not test your conviction because we didn't change anything we continued on unabated nothing changed we didn't waiver.

32:30But for the person from the traditional world, right, if you're just stepping into this new, you're opportunistic, you know, that sort of move will test your conviction, will test your will, test your kind of resolve. So, yeah, I mean, I think there will be some wipeouts. I mean, the reality is like, as I'm a diehard Bitcoiner, but it's naive to say that every company that adopts Bitcoin will be a success. There will be failures. I mean, it's like every company that adopted the internet didn't succeed. Like there was failures. Um, so there'll be failures. There will be a bankruptcy. Like there, there will be, you know, it's not all good.

33:06It's not all sunshine and rainbows. It's a, it's a brutal competitive world. There's a lot of sharks out there and wall street and everything else. Um, so yeah, I mean, I, we're not, I'm not naive to that. Um, so yeah, I mean, the times are good now. Bitcoin's around the all time high. Um, there will be a cycle. Um, and so I think that's what will separate the men from the boys, if you will. But until then, I think that, yeah, we'll see what happens. But, you know, I think we're really focused on staying disciplined and, you know, managing risk responsibly in a Bitcoin, you know, in a Bitcoin standard.

33:42Right. And for us, you know, managing risk means buying as much Bitcoin as we can, staying de-levered and making sure we can, you know, weather any storm. Yeah. And one of the most interesting things in this world that's come out in the last, well few weeks really is this kind of pivot from some companies to go to like crypto treasury companies um i think it was bit digital sold their bitcoin and bought ethereum and the share price tanked um what's your take on that i mean i think i know the answer but give me your take on that yeah i mean i i um i don't i don't know not to say i don't agree with it um because you know you're free to do whatever you want but um yeah it's it's it's clear to me that uh it was going to happen.

34:21I was surprised it took as long as it did. But at the same time, you know, there's a reason that I'm a Bitcoin maximalist. You know, I turned down a lot of, you know, financial and whatever opportunities over the years because it was crypto related, right? And not Bitcoin. And, you know, I'm focused on what I believe in, which is Bitcoin. And so, you know, the XRP treasury company. I mean, to be honest, it's not clear to me that a lot of these things are commodities. And so if you, I know the SEC has sort of rolled back some stuff, but, you know, if you are capitalizing on security, there's a different set of rules, at least in the US.

35:01But, you know, I guess that's another question. For me, it's pretty simple. It's just like, you know, chart any of these things. And even if you're not a, you know, an analyst or someone that likes to chart things, just look at any of the altcoins denominated in Bitcoin, right? Like it's pretty clear. Yeah. Right. Like I've, the past couple of days I've heard, um, you know, on the, on the Ethereum treasury company, someone, well, someone said, well, you know, Dylan, you guys aren't getting a yield on your Bitcoin. And they are. And I was like, yeah, well, you can get a yield on your fiat. It's still underperformed Bitcoin, you know?

35:32So like, you know, the point is like these, the, the crypto companies or whatever, like the crypto alternate cryptocurrencies, the altcoins, something like ETH staking yield, like it's just recycled dilution. The reason that ETH BTC has gone down only since the merge with a dead cat bounce in the last week is because of, you know, people realize that there was like a fundamental shift in the protocol. It's not nuclear weapons grade like Bitcoin is. And it's a, you know, it's a VC bet. It's a venture bet. It's a tech. It's like Tesla. It's a, it's a, it's something with, you know, a team in charge.

36:05It's not just, it's not a kind of an autonomous protocol like Bitcoin. So, yeah, I mean, I wouldn't be comfortable doing, you know, building a lasting foundation on any altcoin. And, you know, obviously you agree there, but I think it's more so the, you know, there was obviously going to be some copycats. It's funny that like the Ethereum people in general or the crypto people, you know, religiously mocked Michael for years, you know, like he's buying the top. What is he doing? He's averaging up. He doesn't understand this. And now they're all like it's finally after looking into it all in the last two weeks, they've realized that, whoa, the public capital markets, you know.

36:44So it's a funny, funny, you know, change of events, I guess. But I wouldn't say I'm shocked. Yeah, a 7 % yield when you're down 50 % on Bitcoin doesn't sound like a great trade. Yeah, yeah. Enticing. What if you could lower your tax bill and stack Bitcoin at the same time? Well, by mining Bitcoin with Blockware, you can. New tax guidelines from the Big Beautiful Bill allow American miners to write off 100 % of the cost of their mining hardware in a single tax year. That's right, 100 % write-off. If you have 100k in capital gains or income, you can purchase 100k of miners and offset it entirely.

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39:41And I know it's not a traditional stable coin, but it kind of essentially is. Do you want to explain what Stretch is? Yeah. I didn't see it coming. I should have seen it coming. I actually put out a few thoughts or ideas the past couple of weeks. I think if we kind of take a step back, people are talking like Bitcoin treasury companies are a new idea. It's a new model. the reality is like in the kind of the long arc of history bitcoin treasury companies aren't really that unique right like if we think of the the model of like the central banks of the past or the banks of the past right what are you doing you're capitalizing on a hard asset gold and you're issuing liabilities against that right and you know fiat or you know gold-backed ious or whatever it was but if we think of all of the reasons that these that these you know financial institutions of the past failed, you know, it was basically, you know, an asset.

40:44It was one, these are fractional reserve banks, right? So they, you know, they would issue all this, all this, you know, these liabilities and money they didn't actually have and just hope that they wouldn't get bank run. But also, you know, in that process there, you know, they were a lot of these, the gold, you know, the gold banks of the past, they were issuing the liabilities were redeemable in gold, right? So not only were the liabilities callable at any one point, but they were in the hard asset. And so when there was any sort of crash or financial crisis or whatnot, all of a sudden, and there was a rush to gold, all of a sudden your liabilities are much more valuable and there's a run on the bank and you're toast.

41:25So the reason we got to fiat in the first place was because the hard asset treasury companies of the past failed spectacularly over and over and over again. So if you had to think, if you were a monetary theorist of the past and you said, okay, well, let's design a financial institution that solves every problem that we faced or faced today back 200 years ago. Well, you'd want the gold to teleport. You would want there to not be able to mine any more gold to devalue your assets. You would want your liabilities to not be callable, to not be able to be run on your liabilities. You'd want them to be perpetual.

42:05You wouldn't want them to ever come due. And you'd want the currency your liabilities are denominated in to be printed forever. Theoretically, if you had to optimize a perfect bank of the past on a gold standard, that's what you'd want. And so when you think of what Michael is doing, if you think of what strategy is doing, they're capitalizing on Bitcoin. Obviously, we know that. It's better than every way than gold. We know that. Bitcoin talking point 101. But the real interesting thing is the engineering and innovation on the liability side. And they've kind of tested this out all in public, right?

42:38If you think about the maturation of their liability profile. MSDR first issued convertible bonds. They did a couple converts. They did a senior note. So just a straight bond. They issued that through a subsidiary. So they put 100 ,000 Bitcoin in a subsidiary. They issued a bond against it. It was encumbered collateral. You know, that Bitcoin was, you know, first claim before all the equity was secured. Right. They went to Silvergate and did an over collateralized loan. And everyone in the bottom of 2022 is saying, seller's going to get margin called. He's going to get margin called. You better sell your yacht, Michael.

43:10Like, right. So they tried everything. Right. And they, you know, did more converts in 2024. And, you know, the perpetual preferreds now, I think this is sort of kind of the final evolution of what theoretically the best liability is. profile for a hard asset treasury company financial institution looks like, right? You have the perfectly engineered asset Bitcoin, but on the liability side, you want something that's perpetual denominated in a bad money relative to what your asset's holding. It's going to devalue forever. That can't be cult, right? And so, you know, strike and strife were interesting.

43:48You know, strike is essentially a tokenized convertible bond. Strife is, you know, a perpetual Bitcoin dollar swap that has a duration of, you know, a thousand years. But, you know, stretch is really interesting, right? Because, you know, everybody, there was that report from like Bernstein, I think six months ago, and it was like, strategy wants to become a neobank. And everybody interpreted that like, oh, they're going to, you know, acquire a bank and they're going to become, you know, get a commercial banking license and, you know, service deposits. What they did is actually much, much better.

44:21Being a bank is a total nightmare. You know, infinite regulatory hurdles and red tape. There's a limit to what you can do on the balance sheet. There's, you know, it's just, it's a total nightmare. And so instead, you know, it's like the stretch is essentially they're issuing a stable coin. It's a, you know, sort of a neo stable coin that's perpetual, right? That's, and, and, and so I think that it's a pretty genius feed of financial engineering. I think that the total addressable market for Stretch is huge. It's like every dollar in money market funds. I understand that money market funds are a technically different thing from a regulatory perspective.

45:01And maybe there's just a lot of money that's siloed in those accounts that won't leave to go to a brokerage account. But how many Bitcoiners do you know or people you know? Our conversation just before this, you're talking about, oh, if you have extra cash in a brokerage account, what do you do with it, right? You know, stretch is short duration. It's a cash equivalent, essentially. I understand it's technically different, right? But yeah, it's, you know, the theory, there's this trilemma problem in international economics. I posted about it yesterday. I saw this tweet. Can you explain this trilemma?

45:34Yeah. So essentially, this is a sort of kind of an international economics problem, you know, theoretical, where you can only have two of three. You can have an open capital account, You can have a fixed exchange rate currency, or you can have control of your interest rates. You can't have all three, right? And so, you know, like for instance, the U.S., we have an open capital account. We control our interest rates, but the dollar floats, right? Right. You know, something like China, they, you know, I guess it's debatable whether it's, you know, they truly have an exchange rate peg. They have bans.

46:11Right. But they control their interest rates. They control their the kind of the price of their currency, but they have a closed capital account. Right. And so strife, strike and stride are essentially I know this is not a you know, that's not a sovereign issuing their own money. But if you can sort of pick up what I'm putting down, you know, these are monetary instruments. And so, right, obviously there's free capital mobility. And in terms of what monetary autonomy means is are you setting your own interest rate? And so with Strike and Strike, they set the interest rate. It's fixed, right? The dividend is fixed in perpetuity, but the exchange rate floats.

46:48And so what stretch is, is they just decided to flip it. And they said, okay, obviously there's free capital mobility, but we're going to fix the exchange rate at 100 or you know between 101 and 99 uh and we're going to let the interest rate float right and so this is a this is basically a market you know there's a they're going to decide the stretch rate every month but essentially this is going to be a free floating essentially currency um that exists and i i think it'll be you know it'll have a premium to t-bills because the US is the money printer. But yeah, I mean, this is quite the financial engineering instrument.

47:33I mean, it's really, really impressive. But with all their products, they're covering every side of this triangle. Yeah. Well, not C, right? They always have an open capital account or capital mobility. But like for another example of this at the sovereign level is you know, Hong Kong, right? They have an open capital account, right? And they manage the price of their money, right? It's pegged to the dollar, but they don't have monetary autonomy, right? They follow whatever interest rates are set by the Fed, right? So this is sort of kind of an age-old question or theoretical choice for sovereign nations.

48:14And so, yeah, it's interesting that I don't think, I think like people like, you know, Checkmate and Odell and kind of, they said, oh, well, yeah, you know, Sailor will create a stable coin or, you know, Chuck and I had a conversation in 2022 where we said, you know, really the, from an engineering point of view, the biggest, you know, the golden goose of crypto generally, like what all of, all of the Ethereum DeFi engineers were chasing for all of this time, you know, for years was, okay, how do we make a stablecoin that's, you know, decentralized, you know, that that's not, you know, and I understand that this is centralized.

48:55It's listed on the NASDAQ by a, you know, Delaware, a Delaware company. But, you know, the, the interesting thing is that no one can really figure it out. I understand it's not a decentralized Oracle and it's not this, like, you know, cypher crypto anarchist, holy grail that, that, you know, they were intending for, but all of crypto has been spending a lot of time to try to figure out how do we make a stable coin that's not some T-bills or money in a bank account that's sitting in Circle's vault or tether, right? How do we do this? So they tried DAI, they tried all these different options and none of them caught on.

49:38And Saylor just listed it on the NASDAQ and none of the crypto people that have been trying this for 10 years have even said anything about it. No one even knows. Um, so yeah, I mean, I think that stretch might be the most in demand product of the preferreds, right? Because with strike and strife, there's a very high interest rate, but you're taking, you're taking what's called duration risk. Right. And so it's like the reason that if, you know, this is just sort of some finance jargon, but, you know, if you have a one year, uh, bond or a T bill, or you have a 30 year bond, right? A 1 % change of interest rates for a one-year instrument doesn't change much.

50:19Interest rates go from 5 % to 4%. The value of your money doesn't change much. You get less interest, but the value of your money stays pretty much the same. If you put money in a bond at 4%, or let's say 2%, and it goes to 3 % or 4 % the yields, the value of your money you put in collapses. This is what we saw in 2022. too, right? The whole, you know, the Bank of England and, you know, all of these bond markets were imploding because interest rates went from 1 % to 4%, and the bond market got cut in half. And, you know, non-finance people were like, what do you mean the bonds fell by 50 %? Well, that makes no sense, right?

50:57But that's just kind of how do these things work. So, you know, with Strife and Strike, these are long, long duration instruments. So, you know, people last week, they bought at 125, and now it's at 116, you know? And obviously, long-term investors, they understand this and they understand where this is all going and they're not too worried about that right but the beauty of of stretch is that there's no duration risk i mean i'm not to say no duration risk but there's minimal duration risk it's a perpetual instrument but because this interest rate's floating and not fixed it's going to be a stable price at least you know this is the this is the target for sailor and team so yeah i mean i wouldn't be surprised if we saw a huge huge demand for this instrument.

51:39They intentionally price the interest rate at nine. I think they know that that's extremely attractive. And so, yeah, I mean, another tool in the arsenal and money market, mutual funds and cash equivalents and stable coins, that's a real big game. It's also, I think it's a bit ironic and a little funny that the sort of the meta of crypto, industry has been stablecoins, right? Everyone's like, what's the real use case for this? Okay, yeah, Bitcoin, but that's for boomers. That's boring. What's the real use case? Where can I make money from this industry? None of the Ethereum or Solanas or none of this is interesting, but stablecoins have a real use case.

52:24And Circle's IPO was a huge success. And now everybody's sort of looking, okay, well, where's the next sort of opportunity here? And MSTR dropped dropped a stablecoin at 5 p.m. when no one even said anything. It's just the Bitcoiners on Twitter, right? So it's pretty ironic in my opinion. It should be much, much bigger story than it actually has been so far. Especially when Circle and Tether have both been told they can't offer yield on their stablecoins and then Saylor comes out with this product that is offering at least at inception 9%. I would like to get your opinion on where that dividend rate will go.

53:01But before we do that, just because we've talked a little bit about this, but for anyone who's not been following this closely, who didn't see Saylor's presentation, like how does he retain the peg to close to a hundred dollars? Yeah. So there's a few options, you know, above one-on-one. I mean, one, they don't have it yet, but they're going to attach an ATM to this. Meaning that if the price rises, they're just going to issue more securities. They're going to print more stretch, STRC, and they're going to sell it on the market so they can drive the price down. They also, they have a call in this at 101, right?

53:34So they are legally, they're allowed to basically, you know, take your stretch and give you$101 in return at any point. and so with these other preferreds I mean so the preferred market's interesting right because for bonds you know there's 5 year bonds, 10 year bonds, 20 year bonds preferred equity is interesting because there's a concept called perpetual instruments right and so perpetual means forever and so in the history of finance this perpetual preferred instrument isn't used much or too popular but if it was issued at all right there was always a call in it, meaning that if I'm a company, company A, and I want to issue preferred equity and I do, and I issue perpetual preferred equity with an interest rate, right?

54:22That means I'm on the hook for it forever. So any rational CEO or a management team says, okay, well, if the price rises or, you know, our conditions change and we don't need the financing anymore, we want to call it in, right? And so perpetual preferreds were always perpetual in name, but not actually, right? And Saylor's innovation was like, no, no, no, we want to make this the best credit instrument possible and we're accumulating Bitcoin and our belief is Bitcoin appreciates relative to fiat forever. So we're not going to give you, there's no call, right? And so this like sort of melted a lot of, you know, Wall Street minds when they said, no, no, we don't want the call, right?

54:54Because the call hinders the value of the call option and strike and everything else. But with Stretch, unlike the other preferreds, they do have a call. So they can call it in at 101, right? So that's, they have, they have ways to sort of, you know, kind of manage the upside. They can also lower the interest rate, right? So if you, if, if stretch is at 101, 102, it's constantly, you know, higher and, you know, they are not selling the ATM for whatever reason on stretch, they can lower the interest rates and they can do this once a month. Conversely, on the other side of this, what if it falls, right?

55:26The, you know, the real, the real worry by some is, you know, creating sort of a synthetic stable coin as well. The downside, right? What if, what if, you know, there's sellers or short sellers or people get scared and and i'll dump at once and there's a few tools one is you know the people that are comparing this to like previous algo stable coins or whatever it's it's it's just a total joke like it's totally totally different one because if the price of stretch falls to 95 or 90 they're not selling any bitcoin like there's no there's no like force redeem function here where everybody's going to all panic at once and take all of the collateral.

56:04Like it's like that, that's not going to happen. They don't, they're, they're not going to sell the Bitcoin. They have, there's no redeemability for the user or for the owner of the preferred. They can't just take the Bitcoin and run like you could with some crypto science experiment. The second is that, you know, if it falls, they're just going to raise the interest rate. Right. And then if their intention is to keep it at 100 and you have that sort of trilemma, right? Well, they said, we have open capital account and the exchange rate is going to be fixed at 100 or whatever. So if it falls and they said, they acknowledged, hey, we're going to raise 500 million in the IPO.

56:41If we sell it at 100, it's going to be a 9 % instrument. If we sell it at 95 or 90, it could be a 9.5 or 10 % instrument. So that means they could IPO. I expect it to be at 100, but it could, like the previous preferred instruments, it could open below the IPO price. It could open at 85 or 90 or 95. That's not out of the question. So what does that mean? It means that, you know, in a month, they're going to raise the interest rate to 9.25 % or 9.5 % or whatever they raise it to, right? And theoretically, that will draw in capital. So yeah, I mean, I think that there's a ton of runway for these preferreds.

57:17I think strategy is really looking forward to, they mentioned it in the presentation to let these converts roll off. And then you have really like a pristine, pristine capital structure. I mean, it already is a pristine capital structure. You have 70 billion of Bitcoin and, you know, 10 billion or so of combined liabilities, but 50 % of those converts are already through the strike price. It's already basically quasi equity that hasn't converted yet. Right. So, yeah, I mean, there's, there's a ton of runway for these preferreds. I think there's a huge, huge untapped demand for, you know, dollar equivalents backed by Bitcoin.

57:52Unlike previous sort of algo stables, if you will, or synthetic over collateralized stable coins is probably a better term. You know, this is like 7x over collateralized. It's like, you know, OK, you issue a few billion dollars preferreds, but it's 7, 8, 10x over collateralized. You know, that's unlike anything that's ever been tried and tested in crypto before. Why? Well, because if you have, if you wanted to make a 7x over collateralized stablecoin, it's super capital inefficient. Like if you're, if you're familiar with crypto DeFi or whatever, the Ethereum DeFi complex created DAI, DAI, right?

58:29And so decentralized autonomous something. I forget exactly. But, you know, that whole idea was let's create a stablecoin backed with crypto collateral. And they first did it with ETH. But the problem was nobody wanted to put their ETH idle to back a stablecoin for no reason. Right. And so like it was really capital inefficient. So what ultimately resolved, what ultimately happened with DAI, the product? Well, it ended up being like 50 percent collateralized with USDC. the decentralized algorithmic stablecoin on ethereum was backed by the centralized stablecoin because it was more capital efficient to just back it one-to-one yeah then to like take a bunch of ethereum and and and you know and so like if you wanted a real real safe stablecoin on ethereum you could have theoretically backed it 10 to 1 with e for every you know every dollar of the stable but nobody wanted that because it was capital inefficient so there was no product market fit for this.

59:29And so that was the same sort of problem with all the other synthetic stablecoins, you know, that existed. Strategy is saying, no, no, no, you know, this is going to be senior to the common equity, senior to, you know, two of the preferred instruments. And ultimately, once these converts roll off, it'll be the second in the capital structure, right? So you have a supremely over-collateralized stablecoin that's probably going to be paying you, you know, 5, 6, 7 % interest. And so, you know, while the rest of crypto tries to sell you on, you know, holding a stable coin with no interest. Right. So that's the, you know, I think it's not really a close competition.

1:00:06And, you know, it's also, it sort of inverts the model. All the stable coin companies are issuing stable coins, not paying you interest and then collecting interest for themselves. Strategy saying, no, no, no, we want the liability and we're going to buy Bitcoin because that's what we believe in. Which I, you know, if you had to say, Dylan, would you rather sit on, you know, would you rather sit on a bunch of cash that, you know, other people have a claim to, but you collect the interest or would you rather be levered long Bitcoin forever? I would choose a second, right? I would want to be levered long.

1:00:35So I think it's a much superior model. Nevermind. We're not even talking about the nightmare of compliance and KYC AML and money laundering and, you know, blah, blah, blah, blah, blah, that you have to deal with as a stable coin issuer um so yeah i mean it's uh it's like the best of both worlds it's like you you know there's it's sort of an entrance into the quasi banking system slash stablecoin world without service servicing any you know true like uh i mean they're servicing customers they're not servicing customers they're servicing investors right and that's you know that's a much much better world uh to operate in in my opinion yeah i totally agree and i assume this is going to be massively the demand is going to be huge for this.

1:01:16What happens to the interest rates there? Because I assume the Fed's fund rate basically sets a floor that it likely won't go below. But do you see this trading down to like 5%, 6 %? Well, so the beauty of it is the floor is actually the SOFR rate. Okay. So the lowest interest rate will ever go is actually the Fed funds rate. But yeah, I think it'll be market driven. Um, to be honest, I think that, uh, you know, there's, I believe, and I have to read the documentation more clearly, but I believe the low, the, the most they can lower the rate per month is 25 basis points. It's like that difficulty adjustment.

1:01:52It is right. It is like the difficulty adjustment. Um, and so, yeah, there's, you know, once a month they're going to declare the stretch rate, they're going to pay the dividend. Um, you know, I, I think that, you know, and also anybody that's like, you know, making a fuss about the dividends, you know, they have to pay is like, you know, totally just missing the scale of this all. Right. Um, you know, they can raise, they have raised the dividends they need to pay for a quarter in an afternoon of trading and no one noticed, right. Like strategies, common equities, supremely liquid. Um, so that, you know, that doesn't worry me at all to be frank, but, um, yeah, I think the interest rate on the, on stretch probably, I mean, ultimately settles, you know, just right above the risk-free rate probably in the long term um with a bit of a spread just for the the you know any perceived credit risk um but yeah i mean right probably i would i wouldn't be surprised to see six percent in the you know or like like you know 200 basis points above the fed funds rate in the near term you know or the short medium term um but you know probably should go lower than that you know to be honest right there's not there's not another issuer of fixed income that's this over collateralized that's this transparent um you know everyone else that's borrowing money doesn't have it i guess you know the big big tech companies have the money and they just borrow it to get some leverage but most of the borrowers in the corporate credit market are companies that need the money that don't have it right and they're they don't have collateral they have you know future discounted cash flows to pledge right so so um yeah that's uh that's the real innovation is that they have the money they don't need it they're just doing it to get some some operating leverage uh and the collateral is transparent and homogenous so yeah it should it should be a pretty pretty low interest rate to be honest um and uh yeah short duration too you know we're not even talking about what happens 12 months from now when you know sort of a patsy fed chair uh is is put in that's if it takes 12 months yeah true right um you know and and And a Fed chair resigning from, you know, decree of the president or prime minister is sort of what happens in Banana Republics.

1:04:05And I would implore anybody to sort of look at what happens to like the bond market in those scenarios. You know, ask someone from Turkey what happens when Erdogan fired their Fed, their central bank chief, you know. So, yeah, I mean, this is all very, very pro-BTC. um i i say that you know not like not political or social or whatever but just purely from like a flow's fundamental standpoint uh there's a lot of people in finance that are saying oh wow well if that happens then i really wouldn't want to own bonds it's like uh well yeah no kidding like where have you been um so all of this is is you know it's the the tailwinds are supremely bullish uh for for strategy and for you know for bitcoin and for bitcoin treasury companies all right last question on sailor because when i was watching his presentation of stretch um he was talking about something else that i thought was interesting um where he was talking about equitizing the convertible nodes why would you do that is that purely just to deleverage the company i think it's uh it's because they're sitting senior to the preferreds okay so right now the preferreds uh you know outside of the fact that the convertible bond guys are sort of, I guess it depends where the strike is, but a simple model is when the price of your stock goes up, they're shorting.

1:05:29And when the price of your stock falls, they're buying. And so there's never been a serial issuer of convertible bonds like MSTR, partly because there's never been a collateral or abuse of proceeds as strong as Bitcoin, but more so because you do a convert or two or three. And I mean, it's basically like, I guess the equivalent, then I could, this isn't a perfect metaphor analogy, but it's like, it's like, it's sort of like you're squeezing the volatility out of your stock, right? It's like, that's what their job is, is, you know, they're, they're gamma trading, which not to go into the weeds, but they're essentially like neutering the volatility.

1:06:04They're, they're dampening the volatility intentionally, right? And so strategies, business model is like, we want to be hyper volatile. And so part of it is one, I think for the converts is there's a maturity cliff. So if your stock isn't high enough, then you have to come up with the money or, you know, refinance and do another convertible bond. So that's that's annoying. It's like sort of a flood talking point. Two is the gap, you know, they're they're gamma trading it. So they're stripping the volatility and dampening the volatility. And then three is it sits senior to the preferreds. Right.

1:06:35So so there's a strategy that's come out with a risk model that says, OK, Bitcoin has a volatility of of, you know, X. And we expect the return profile of Bitcoin over the next 10 years to be Y. And, you know, there's, you know, this much collateral, there's 10 times the collateral as there is the debt. And so what's the probability of, you know, your Bitcoin, your debt position being under collateralized? So if you own this preferred stock, what's your probability of us having less Bitcoin, you know, than we have of debt outstanding, right? Or, you know, not insolvent, but, you know, you're in a bad position.

1:07:10And so when you do the math now, those converts, you know, those$8 billion converts, it means that there's a lot less collateral left for all the preferred equities. So I think when they want to equitize the convertible bonds, because it basically allows their preferreds to be that much more collateralized. And, you know, essentially, it creates a more runway to issue more preferreds is really what the unlock is there. That makes sense. Okay, cool. So then to kind of close out with this, what do all these products that strategy are now issuing mean for the other treasury companies? So like for you at MetaPlanet, do you see this as we have to do something similar or we get left behind?

1:07:50You know, that's an interesting question. I mean, I think what it means is that for Bitcoin in general is that the asset is maturing. And this is a way, you know, if Bitcoin is going to eat the world, and that's what kind of a lot of us came to the conclusion of five years ago. then it's not going to be everybody just buying Bitcoin on cold cards. There's huge pools of money that can't access the asset. And so, you know, common equity, just, you know, equity on the stock market was just the first pool. And, you know, really the bigger market in terms of exposure is the credit markets. Right. So the preferred equity, there's debt, you know, the sovereign bond market is much, much bigger.

1:08:30Right. And so if Bitcoin is going to entrench itself in the financial system, it has to get to all these different pools of capital. So I think that's the bigger idea. In terms of like the competition between the treasury companies, I mean, the preferreds, not only just having preferreds authorized, never mind having them issued, but having them be issued, liquid and a sufficient scale is a whole nother story. And I think that, you know, kind of circling back to what we said earlier, like that's the really the not the only true moat, but one of the strongest, right, is, you know, I think of preferreds as, you know, for strategy is in two ways.

1:09:06One, it's sort of it's offensive, right? We're levering the balance sheet. We're buying more Bitcoin. We're increasing Bitcoin per share. We had the potential to buy back our stock. or it's sailor said hey if mnav gets to one or below or maybe even above one i don't know i'm not sure if he said that but we can buy back we can issue stride and buy back our stock he said that right and so if you're a short seller and your thesis is okay well they're just you know they're sort of dribbling in stock every day and let's just front run them and you know play this mnav compression game and all of a sudden even if like you know strategy scale even if sailor goes and buys back 100 million of stock which is not that much for strategies 150 billion dollar scale right but all of a sudden those flows go the other way and so someone like a short seller has to unwind and get out right so it's it's the the preferreds are both like a offensive tool and it's defensive right like i i think of preferreds is like it's like an m nav defense mechanism right it's like okay well if if the you know the short sellers and the you know the the arbitrageurs are really really trying to short sell like like jim chanos right his whole thing it's like if you listen to jim chanos he's not he's not just a belligerent hater of bitcoin or sailor far from it he's just saying he's like actually i i get bitcoin or i don't i don't know how much he you know quote unquote gets it but he's like look i i get the trade i'm just you know playing the spread game right and kind of like dancing in and out and so with the preferreds like it gives it gives sailor or you know the operator sort of an option to okay we're going to continue to stack Bitcoin every week because that's our mandate and that's what we said we're going to do and that's our business.

1:10:42But at the same time, we're not going to put the pressure on the common shareholders. You know, one of the kind of the misconceived notions that people had is the convertible bonds, right? Like people see the leverage as something that's positive for the common. And that could be true, right? You know, increase the leverage, you know, a billion dollars of Bitcoin, especially like, you know, a couple of years ago makes a material difference in the market. So there was all these reasons it was supportive, but under the hood, you know, when, when they came out and says, okay, we're going to raise a billion dollars of convertible bonds under the hood, you know, there, someone like myself a few years ago, or, you know, analysts or commentators would be confused because the stock would drop.

1:11:21It's like, wait, they just raised a billion dollars to buy Bitcoin and the stock went down. I was like, well, yeah, the convertible bond desk just shorted 500 million of stock after trading, you know? And so the reality was like a sort of paradoxical. It's like, okay, well, we're going to lever up because we don't want to sell some common, but it's essentially, it's like you're selling 50 % of the stock. You know, it's like, it's like a, you're selling, it's like, it's like half the sell pressure as you would get by just selling a straight equity. So the preferreds are totally different. It's a, it's basically, it's a completely different profile of investor, right?

1:11:53And so, you know, they're, they're on the journey with you. They're, they're, you know, contributing, they're aligned with your worldview and the 20-year vision. The convertible bonds, they're not the same. So I think the preferreds, how I think of them in the treasury space, I think it's definitely the credit market, Bitcoinizing the credit market is a much, much, much bigger fish than Bitcoinizing the equity markets or equitizing Bitcoin. It's just a much, much bigger game. The pools of capital are huge, nevermind long duration and short duration. Right. Um, and so, yeah, I mean, I, I'm a, I'm a big fan.

1:12:37Uh, you know, it's, I think from a financial engineering perspective, it's absolutely fascinating and historic. Um, and I think that, you know, that's the real, you know, um, yeah, that's the real golden goose is, uh, can you get those figured out? Can you get those live? Can you get those liquid and can you hit a scale, you know, where whether it's your local market or globally that, you know, you can, you know, sort of really carve out a, I don't know, maybe a monopoly or a quasi monopoly, you know, in one of these markets. Because I think, you know, anyone, especially in the US that's saying, okay, like now we want to issue preferred stock, you're gonna have to issue it at a spread to Saylor, right?

1:13:19Because Saylor has more Bitcoin, it's more liquid, he's more established, the seasoned issuer. He's been on the NASDAQ for 35 years. He's been at this game for five. Right. So like, if you want to issue perpetual preferred, like a strife and you're in the U S on the NASDAQ, well, you got, he did it at 10, you got to do it at 12. Right. So I think there's like, this is the benchmark. This is like almost like the Bitcoin risk-free rate, if you will. And, you know, obviously there's all those instruments are different, but yeah, that's sort of how I think about it. Um, I think, uh, you know, the fixed income markets in general, are definitely in need of a revamp or kind of a revitalization, and Japan notwithstanding.

1:14:00So it's an exciting time. It really is. That's really interesting. I've not heard this described as like an MNAV defense mechanism. That makes a lot of sense. I think I've been mid-curving the treasury plays to a certain degree. This has definitely helped me. I've really enjoyed this, Dylan. Thank you for giving me the time. Where do you want to send anyone to find out more about you and metplanet yeah you can uh well one danny i i appreciate you uh giving me the platform it's been too long um so uh it's great to catch up um we have to do it in person next time for sure but uh yeah you can just um you can find me on twitter um or x uh dylan leclair underscore um or uh you know for metaplanet uh we also on x or you can just go to metaplanet.jp, Japanese domain, if you want to kind of see what we're doing.

1:14:51So yeah, I think that's all I got. All right, cool. Thank you, Dylan. And definitely in person next time. I'm sure I'll see you around at one of the conferences at some point soon. But I appreciate you, man. Thank you. Indeed. Cheers.