The Bitcoin Credit Gold Rush | Jeff Walton

21:31Jeff Walton:and and then for the holders of sata like the benefit is that they're essentially they can now do a daily dca i assuming they're putting that money back into sata instead of doing a

21:41What Bitcoin Did:monthly dca daily dca is interesting yeah you think about uh like a drip right or a drip program If you have capital in there and having the drip that the dividend that you get every single day, you can kind of recycle it back in. Have a market order goes back in every single day. I think that structure is interesting.

22:03What Bitcoin Did:Yeah. Again, I mentioned earlier, this is a hybrid instrument. It's like a debt. It is an equity, but it's got a dividend payment. So it's a hybrid instrument. So if you're most concerned about principle to protection, you want the least amount of volatility, right? You want high yield, low volatility, high liquidity. That's like the trifecta. If you could get all three of those, you could have liquidity, low vol, high yield. It's never existed before. Like go look at anything else in the traditional financial markets, you get two out of the three, right? If you get high yield, it's going to be illiquid.

22:47What Bitcoin Did:If you got low volatility, it's going to be low yield, right? And so really we're hitting this trifecta in the capital markets that just becomes really appealing as a trading vehicle.

22:59Jeff Walton:And so let's talk about like the makeup of Sata because it's made up largely of stretch, right? And then what else on top? Like how do you outperform stretch in terms of like the dividend

23:10What Bitcoin Did:repayment uh it's not made up largely of stretch i mean it's helpful to think about our balance sheet construction let's walk through it we've got 16 500 bitcoin about 1.25 billion dollars then we've got 12 months of usd cash and we've got six months of strc uh again the usd cash you kind of think of that as like a buffer layer or uh like a first first line of defense the strc the reason we hold that on our balance sheet is because we view that as a moderate duration instrument uh what do i mean by that like uh you have duration liabilities right so we have we know what our liabilities are over time and if our alternative is holding usd cash at three and a half percent or four percent whatever the number is we would rather be getting clipping a little bit of a higher yield when we think that the risk profile is significantly misunderstood and better if not just as good as the U.S.

24:10What Bitcoin Did:treasuries that we also hold. So we hold those a little bit more protected into our balance sheet, thinking about them as a medium duration asset that's providing a higher yield than just parking in the treasuries. It's like the Andrew Carnegie thing, right? Andrew Carnegie goes and builds the steel bridge and Saylor goes out and walks on it. And we are too. But this is good. This security is good. We're going to put it on our balance sheet. And that's another perspective, how we view it.

24:44Jeff Walton:So this might be a funny one for people, but this is one of the areas where I kind of, I didn't necessarily agree with CoffeeZilla, but I do think it's a very valid question. How do you kind of forecast Bitcoin price and make sure that this product is going to be sort of sustainable in the medium to long term. Let's start with just how you look at Bitcoin price. I've heard you say you think a 30 % CAGR is reasonable. How do you get there?

25:15What Bitcoin Did:Yeah, we get there from really several different things. It's institutional structure. It's the dynamics of capital globally. It's the global debt situation in the United States, the corporate infrastructure, the regulatory environment. It's a little bit of art and science.

25:37What Bitcoin Did:one of the biggest things we're underwriting is just like the structure of Bitcoin itself, right? So the fact that the Ibit ETF exists, the fact that digital credit exists, the fact that the regulatory landscape is what it is, and the incentive structure around all of these different things. And like how much capital it takes to move the price of Bitcoin. This is something that I think CheckOnChain, he's done a lot of work on like, you got to bring this capital in the door to push these assets higher. And I agree with that. It takes a lot of capital to push these assets higher, but I think the incentive structure is there such that a significant amount of capital can be onboarded into Bitcoin very quickly, particularly from these digital credit instruments that will attract a lot of other capital into spot Bitcoin, into the derivatives market, into the common equity of these things.

26:29What Bitcoin Did:looking at the landscape of how like global monetary supplies changed looking at the metallic capital in the world and just the general capital landscape so it's a little bit of art a little bit of science a combination of the two and then thinking about the downside risk the So the, we don't need Bitcoin to go up 30 % a year for this to work. That's what we're anticipating.

26:58Jeff Walton:See, that's good to hear because that was like really going to be my big question. I played around and I was figuring out the Kager of Bitcoin and I picked January 1st, 2017. So you capture all the 2017 bull market and then the next two. And if you bought Bitcoin every single day from the 1st of January, 2017, I'm pretty sure the Kager came out at something like 26%. And so like for me looking forward, like I'm insanely bullish Bitcoin. I've literally bet everything on it. But like if 30 was a benchmark that you needed to hit, like that's something I would be skeptical of.

27:30What Bitcoin Did:One data point to throw out for you, Danny, the 200 week moving average of Bitcoin has gone up at 30 % over every single return period. Go look at, go pick data points along the 200 week moving average of Bitcoin and it's 30. Interesting. Like every single one, go look at it. Um, that's, that's one way, one way to view the framework. Another way to view the framework is look at four-year compounding, uh, compound annual growth rate periods and, and break them up into percentile distributions. That's how my brain works. I think about the statistics, the probability analysis. If you look at four-year compound annual growth rates, uh, there has been around 4 ,000 four-year compound annual growth rates in Bitcoin's history.

28:11What Bitcoin Did:Every single one of them is positive. the 99th percentile of worst performing four-year return periods is like 9%. So we're talking like worst 1 % of four-year compound annual growth rate periods. The median is like 60. Very high. Very, very high. So you can start to think about that as like a distribution or a probabilistic landscape. I think using all of those components in combination, thinking about the incentive structure thinking about a fixed a finite asset thinking about metallic capital thinking about how the world's moving that's how we land on that number the thinking about what we need uh we need bitcoin to go up around i think it's around 5.7 or 6 annually in order to pay our interest obligations forever the value of the bitcoin going up gives that additional buffer to pay the dividends forever.

29:09Jeff Walton:So that's true right now. But again, this is like, if SATA absolutely blows up and you start selling an absolute shit ton of the stuff, then your obligations are going to go up and that number will increase as well.

29:23What Bitcoin Did:Obligations will go up, but so will the Bitcoin on our balance sheet. True. As soon as we sell a share of SEDA. Is it one-to-one? As soon as we sell a share of SEDA, It just depends on what our capital markets activities are like, whether that's the common stock or SEDA. But we're in the market buying Bitcoin within an hour, often much faster than that. And we own the Bitcoin very quickly. And that is a, I think that's just a fascinating element of this entire Bitcoin landscape. is something that I learned a lot about when I jumped into this ecosystem, understanding how quickly you can hold Bitcoin and have it in custody and move it.

30:08What Bitcoin Did:The speed is just breakneck. If you were to go raise$50 million of capital, go buy a piece of real estate, it would take you 12 months to go find a piece of real estate. You go raise the capital 50 million and then you're like, okay, well, let me go find a$50 million property. Well, guess what? There's not a lot of$50 million properties out there. So you got to go find one that's like for sale. And then you got to think about like, do I actually want that one? Is that the yield that I'm trying to get out of it? And like, it just takes forever. I can, I can deploy$50 million in an hour if I wanted to.

30:43What Bitcoin Did:It's awesome. That's crazy. And it's a capital asset and I can hold it. So I would think of it that way. It's like if SEDA does very well, we're going to be in the market buying Bitcoin. We're going to be adding Bitcoin to our balance sheet, which should in theory bolster the value of the common equity. The market cap of the common equity should be a function of what the underlying Bitcoin is on the balance sheet and our ability to continue issuing that into the future. So we think we're looking at the dynamics of all these instruments day to day very closely, sometimes second by second, how the commons trading, how the how the perpetual preferred equities trading, what's happening in Bitcoin, how the rest of the Bitcoin treasury markets are moving.

31:30What Bitcoin Did:we've got some very advanced analytics behind the scenes that we've got like a i don't know like a 40 tab advanced analytic platform that we've made uh that that we use behind the scenes it's uh it's pretty killer so if um i know you say it's variable but like

31:47Jeff Walton:just roughly rough numbers if i bought a million dollars of sata how much bitcoin would you be

31:52What Bitcoin Did:buying uh i mean we could be buying a million dollars of sata immediately a million less less less fee. Yeah. Sorry. A million dollars of Bitcoin. Less fees from our banks that sold the shares. So you're not putting any of that into like cash or anything like that? Again, like I said, it's a function of our capital markets activities and what we have going on at the time that could be, we look at everything in tandem, right? So it's what does the entire position look like? What is, as you will know, if you go look at our 8Ks over the last few weeks, we have been bolstering our cash position in line with the growth in SEDA as well to maintain our dividend reserve.

32:35What Bitcoin Did:So that's something that I think we're a little bit flexible in how this, and we need to manage a little bit tighter in my opinion, because strategy is significantly bigger. They're just on a whole nother level, like another playing field. But considering we're a smaller issuer, considering we want to grow this credit quality into the future, we want to manage that reserve or that cash position a little bit tighter. And I guess tighter and what I mean by tighter is like a hawk. We're watching it very closely and how it all interacts together. Because what we really want is to foster liquidity in both of the instruments, our common equity and the preferred equity at the same exact time.

33:19What Bitcoin Did:So we're constantly thinking about the credit quality. We're constantly thinking about the financial leverage profile, the amplification, and then the cash position and all those things in tandem.

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35:15Jeff Walton:BitKey is a multi-sig hardware wallet built by the team behind Square and Cash App. It packs a cryptographic recovery system and built-in inheritance feature into an intuitive, easy-to-use wallet with no seed phrase to sweat over. It's simple, secure self-custody without the stress. And time named BitKey one of the best inventions of 2024. Get 20 % off at bitkey.world when you use the code WBD. That's B-I-T-K-E-Y dot world and use the code WBD. is the um an issue at all like or a foreseeable issue in the future with the fact that you've have stretch on the like as part of the makeup of sata that you're kind of at the whim of their company in a way in terms of like the actual dividend that they're paying out so for example if they drop the rate are you going to have to also drop the rate in tandem no i it's not a part

36:07What Bitcoin Did:of sata it's just on our balance sheet like that's that's how i would view it anybody that's listening to this like it's not a part of sata it's just it's a part of our balance sheet and if they drop the interest rate we would make an analysis of its relative interest rate relative to the other things that we're holding being the cash position and uh whether or not we we deem that a worthy hold i i don't think that's incredibly likely i think you don't think it's incredibly likely that they dropped the rate or that they dropped the rate and we would want to shift into a cash position um we our team is probably the most familiar with the actual risk profile of strc than anybody else on the planet i can believe that right so like because we've done all of the work on our end thinking about the risk profile of our own instrument we we've got to we've got to think about the leader right we're also underwriting the leader you asked why we why we're anticipating a 30 % CAGR, look at the leader.

37:10What Bitcoin Did:The leader's accumulated 800 and 840 ,000 Bitcoin. They're going to have a million Bitcoin in August or September. And they've got the most successful perpetual preferred equity in history. And it's, you know, trading hundreds of millions of dollars a day. We're underwriting that. Right. And, and so we're constantly like we have the hurdle rate podcast. We literally talk about strategy every single week. I have the true North podcast. I talk about strategy every single week, right? So we are uniquely positioned to understand the actual risk profile of that and think about how that adds value to our balance sheet.

37:44What Bitcoin Did:Ultimately, how I think about it is like, would you rather us hold$50 million in cash or would you rather hold$50 million in STRC and extend our runway by a month? I'll be honest. Right. Like what's a better credit profile? And this is something that we're navigating with the market too. I mean, there are some people that don't like it. It sounds like you've got a little bit of a concern with it. Coffeezilla obviously had a concern with it.

38:08Jeff Walton:It's not even a concern. It's just like, these are questions people ask and I want to put them to you.

38:12What Bitcoin Did:Yeah. Yeah. It's something that we're aware of.

38:20What Bitcoin Did:Again, it's kind of communicating this risk profile of these instruments. We think they're a really good moderate, we think SDRC is a really good moderate duration instrument. If I were running an insurance company and I had liabilities on my balance sheet. You carry cash for some of your short-term liabilities and then you start to carry like equities and bonds and reinsurance for your medium-term liabilities. If I ran an insurance company, I would shake out all of the bonds on my entire balance sheet and I would park 100 % of it into stretch. Now I'm not running an insurance company, right? I'm running a different capital vehicle, a digital credit vehicle.

39:00What Bitcoin Did:and we're parking Bitcoin on our balance sheet. But that's how I view it is it's a really good moderate duration instrument to help you manage like cash position and get a juiced yield on something that you're holding for a medium term.

39:14Jeff Walton:So one of the other questions that I've heard asked a little bit is whether companies like you and Strategy are kind of putting all the attention on the preferreds and ignoring the common stock at all. And I know a minute ago, you said that you're like, You're obviously looking at both of those very carefully. How do you kind of weigh the two off against each other?

39:33What Bitcoin Did:I love both of them. I love both of them. And we want to foster Amplify Bitcoin as much as we do digital credit. But obviously, when you're buying a common stock, you're buying the company. You're buying a residual claim on the assets of the company and their ability to grow the assets of the company or grow the cash flow of the company. Obviously, there's a lot of market tension figuring out what the value of that is and a lot of dislocation in both directions there are periods of time where it's rich there are periods of time where it's very cheap and there's a fight between the bitcoiners and the and the strategy maxis and and all of the all the like but the uh how yeah i i i view this is that we are we are fostering both of them and the i guess for us Like the base effect math is really interesting when you're thinking about like the success of SEDA relative to our common equity and how much Bitcoin it would take to move the relative market cap value, the 1x MNAV value of our common stock.

40:38What Bitcoin Did:So thinking about how much we can increase the yield, how much Bitcoin per common share, how much can we increase the potency of the common share of the common equity. And we're really focused on that. So thinking about, again, like you're buying the vehicle, you're buying the corporation. And I think a lot of people lose sight of that. You're buying this vehicle and its ability to operate into the future and not necessarily the underlying assets. Like this isn't a claim on Bitcoin, right? You buy a common stock, it's not buying Bitcoin. Like if you want to go self-custody Bitcoin, go self-custody Bitcoin.

41:17What Bitcoin Did:I love that. I love that for you. I love it myself. I buy Bitcoin every single day. But if you're buying common stock of the amplified Bitcoin version, you're buying the excess risk and the excess return that the preferred equity holders don't want to hold. So if you want that, that volatility has to go somewhere and that volatility goes to the common stock. You're buying that excess like amplification. That's why it's called amplification, because it's moving more than the underlying Bitcoin commodity. And it's true. The data shows it. Like our common stock, for example, let's start with strategy.

41:59What Bitcoin Did:Strategy has got a beta of 1.5 relative to Bitcoin. This is going back over the last like four years. That means for every point that Bitcoin moves, MSDR moves 1.5. Okay. Our common stock has about a 1.6, 1.7 beta to Bitcoin. So every point that Bitcoin moves, our common stock moves 1.6 to 1.7. And some people have pointed out that our common stock also has a beta to MSTR. Because our relative size, we move more than MSTR does. And we've got a higher amplification. We've got a little bit more of a pure expression of this corporate capital vehicle, given that we don't have any debt. We only have one instrument.

42:40What Bitcoin Did:It's a very clean expression.

42:43Jeff Walton:I know you think I'm skeptical and I know why, because I obviously have been skeptical in the past. I think these are really cool. One of the things that I really like looking at your website is that you can see the Bitcoin that you've accumulated. And until a couple of months ago, it was basically just slugs of accumulation. And now you just see it trickling up. And obviously that's with the money that's coming into Sata. And I think it's really cool that you're essentially now DCAing Bitcoin almost constantly. I think that's really good for Bitcoin market, I think you guys are going to do really well.

43:11Jeff Walton:But like when you talk about risks, I think we've gone through a couple of them there. But one of the obvious ones is like the custody risk of the Bitcoin. Because I imagine you're not doing that in-house at the moment. So you're kind of offloading that risk to another company. I'm sure they're incredible at what they do. I'm sure they're very well vetted, but like it's not you doing it. Is there ever a scenario that you would take custody in-house?

43:36What Bitcoin Did:Man, probably, I guess we'll continuously monitor what that probability looks like. We've got a few different custodians. They're institutional. They're very big names, so you'd be familiar with all of them. And we are constantly monitoring what that custody risk looks like. We know where all of our Bitcoin is. We know we have access to all of it. We've got protocols in place to prevent it from being moved uh corporately is basically like um it's like the recipe for coca-cola right you can't have multiple people on the same airplane at the same time like we've got we've got all of that crazy stuff in place and we've been working on that for months uh really like september through january that was uh we were laser focused on that we did an enormous ddq process we had a 200 200 question uh ddq questionnaire we went out and just absolutely grilled all of the custodians on everything.

44:33What Bitcoin Did:And not just price. It's like, I want security, like every single question you could possibly come up with. And then we had our entire finance team kind of review the risk profile of all of those. And that's how we selected our custodians. So it was a well-vetted, very long process. So that's point number one. Point number two on self-custody, I think the risk profile of self-custodying Bitcoin starts to get incredibly tricky. Um, not, not only from, uh, not only from a, like a corporate investment standpoint, somebody being willing to invest in the equity of your company or the, the credit of your company, uh, the, the risk profile of me going on an airplane and being somewhere, it is completely heightened, right?

45:22What Bitcoin Did:Like, uh, the risk profile of Matt or CEO being somewhere or it just changes the dynamics of how somebody I think could be thinking about the equity that they're holding or the credit that they're holding. And something that I like, Bitcoin is trustless, right? And this is something I've been kind of steering towards a little bit is trust. Trust is incredibly important for like humanity. And if you haven't wrapped your head around this one, it's like a pretty big idea and it kind of takes a while to kind of sink in. trust is human's oldest technology it's been around for 200 000 years right before language before writing before any other technology existed like that was how that was how humanity separated from 150 person tribes into what we see today right like it is civilization is a function of trust being extended beyond our biological capability so one why why was bitcoin birthed.

46:23What Bitcoin Did:Bitcoin was birthed because we were losing trust in the existing institutions that existed on the planet. So how do we start to, so it gives you the opportunity to be trustless, right? You could be your own bank. You could go take custody of your assets. Like absolutely, you could go do that. But it also establishes a new foundation for what trust can look like. So there are corporations that are involved in these trust networks. There are corporations that are doing custody. There are corporations that are holding the Bitcoin and issuing credit and equity against it. There are, it's a new landscape of trust is being built.

47:01What Bitcoin Did:And we've got a lot of branding work to do because of the challenging trust environment that we had in 2022 with all these shitty companies that were super opaque, go out of business, right? Completely different environment that we're in today. We are the complete opposite, right? Like we actually want you to see our balance sheet. We want to show it to you. and we want to show you that like we are good stewards of this capital and we are going to protect these assets and we want you to see what they look like and part of that is uh like trust in that we've done the hard work behind the scenes to vet our custodians uh that we're not going to take risky positions with how we are custodying our bitcoin and like to us self-custody is a little bit of a, that's a riskier proposition, despite having, you know, other custody potential in place.

47:53What Bitcoin Did:So that's, I think broadly to answer your question, like on custody risk is that we are, we are very focused on custody risk. We spend a lot of time and effort to do it. We are incredibly incentivized to protect our assets and we are, we want to be fiduciaries of this capital moving forward.

48:15Jeff Walton:So, I mean, that does make sense because if you were going to bring custody in-house, you need an entire security team. You need to build this out in like a way that's, and you can just outsource that to someone else. And I understand why that makes sense. And especially when you're looking at like the investors that are potentially coming into this company, if they're not like deeply into Bitcoin, they may be questioned why you would even risk holding your own Bitcoin. So I do understand that. But there's also like a load of chatter, which by the way, I think is completely unfounded in that like does say they're actually on the Bitcoin he does.

48:41Jeff Walton:I'm sure I'm convinced he does. Like clearly he will. But like you could just do proof of reserves to prove that. Like, is that something that you would look at doing?

48:50What Bitcoin Did:Yeah, we've considered it. It's something that we're looking into if there becomes an industry standard way to do it. I think it's something where we're open to doing. The bigger thing is like that the reserves are less of the issue. It's the liability. And even if you did proof of reserves, like you still don't know what the liability is on that Bitcoin is. Like you don't, you aren't aware of what that, what exists, like what is the financial structure on top of that? Right. So in my opinion, like we get audited, we have auditors that come in and look what our Bitcoin is every single quarter.

49:27Jeff Walton:Yeah.

49:27What Bitcoin Did:Right. We've got to go through the whole audit process. That's part of being like a publicly traded company. You got to go do the financial colonoscopy every once in a while.

49:37What Bitcoin Did:And so in our opinion, having that like up-to-date dashboard of like, here's what our balance sheet looks like, here's our liability profile. I think that is far more important for like viewing the exposure of the company relative to, I guess, proof of reserves. Because like these companies are already going to do it, right? They're already going out and they're tagging wallets and they're going to say like, this is strategies, Bitcoin. They found like 90 % of it. I think they've already done it with several of our wallets as well. And, you know, ideally you could hold a little bit of an anonymity for some of those assets.

50:14Jeff Walton:Yeah. No, I don't disagree with that. And I know like River, obviously not a publicly traded company, but they do attempt at proof of liabilities, which I think they'd be the first to admit it's like, it's a little bit, trust me, bro, but they're like, you know, they're doing everything they can to be transparent, but like just for such an easy lift, do you not think it would kind of just alleviate some worries that people might have. Like, it's not hard to do a proof reserves, particularly.

50:37What Bitcoin Did:You know, honestly, Danny, you're the first person that's brought it up in like, I think since we've launched SATA, to be honest with you. I know it was a bigger issue in 2025, but I think the people that are buying the credit instrument don't really care.

50:58What Bitcoin Did:If we had an overwhelming

51:04What Bitcoin Did:demand from our credit buyers and saying, we're not going to buy your credit unless you show us proof of reserves, then that would be something we would heavily consider. But at the moment, we're seeing capital flow from international capital, we're seeing institutional capital, we're seeing retail capital coming from all different areas that's interested in this type of instrument. Yeah.

51:30Jeff Walton:Fair. Like, I mean, all you can do is react to the market and if they're not demanding it, that's fair. Yeah. Yeah. So in terms of those people coming in, like what is the makeup of it? How much is sort of retail versus institutional capital?

51:44What Bitcoin Did:Yeah, I think it varies and we've got a decent view into what that looks like. I think it's a similar profile to STRC, but I would say ours leans a little bit more institutional because we had the IPO in November And then we had the follow-on offering, which was to retire some of the convertible bonds that we had. There was$100 million of convertible bond outstanding. And we did some swap of the convert for the perpetual preferred equity. So I don't know the exact numbers, but I think we're probably a little bit more heavily weighted towards institutional than retail, than the strategy SDRC instrument, which was like 80-20.

52:18What Bitcoin Did:I think ours might be 70-30, something like that, maybe 60-40. Not 100 % sure.

52:23Jeff Walton:Yeah, because I did see, I think Phong came out and said they were 80 % retail. did that surprise you because like the the narrative has been that this is sort of driving

52:30What Bitcoin Did:institutional no not at all honestly it didn't surprise me at all because the you think about how did like what's happened with bitcoin in the last 15 years like did it start with institutions no no the institutions didn't show up until 2020 to and the etf didn't even show up till 2024 so any retail investor that got in in 2015, 2017, they just front ran everybody for seven years. Right. I think we're in a very similar type situation where institutions are going to be late to adopt this stuff by design. Like that's what they do. And there's an opportunity of alpha here, a period of time between retail being here to when institutions show up.

53:16What Bitcoin Did:And this is something that like our firm is uniquely familiar with because we are an asset manager so we've got 13 etfs out in the market we started in 2022 so they're all starting to get to this like three year track record of seasoning you kind of have to season an etf for institutions that start to be interested in them and so we're starting to hit this three-year track record and that's where you hit this like what the industry is known as like a hockey stick growth pattern or many of these institutions have a like a three-year filter so they'll go on there like any of the assets they they could buy it's like filter greater than three years and it's like okay those are the assets that

53:51Jeff Walton:pop up and and why is that is that because like if it survived three years they the risk is reduced or is it to do with like liquidity what's the reason yeah i think sailor brought this up in a

54:00What Bitcoin Did:recent interview as well i think it's like it's called the lindy effect if you think it's been around for a year you think it can last another year if you think it's been it's uh something like in new york if a restaurant's been around for 10 years you think it's going to last another 10 years. And so there's this kind of like seasoning bias. If you think it's made its way through three years, it's going to make its way through another three years. And that kind of compounds on itself. And I mean, you think about it, like look at the noise in the market right now, right? Like everybody's running around with their heads cut off thinking the strategy is going to go bankrupt.

54:32What Bitcoin Did:They have a 9 % leverage ratio. And like they've got the ability to pay, they've got 30 plus years of Bitcoin on the balance sheet to pay dividends, right? They're probably the most financially secure company in the market, maybe aside from Berkshire Hathaway, Apple, and any other huge cash cow, right? Like this company is very financially secure relative to many of the other thousands of publicly traded companies out in the market. So yeah, I think it's just going to take some time and the things are going to be built on top of this very quickly. Like we were seeing it in DeFi land already. Um, the fact that this instrument's gone from two and a half billion to 10 billion in under a year or not even at the one year anniversary of, of STRC.

55:22What Bitcoin Did:And it just, it takes time to like go into the market and communicate this to people. Yep. And the track record. So I'll give you an example of track record as well. We went to risk world like a month ago. That sounds like the nearest conference I've ever heard. Oh man, it was, it was, it was nerdy. So Risk World is like the leading insurance industry conference of like people that are taking financial risk, right? So you got all these balance sheet companies, you got CNA, the Hartford, Berkeley, Allianz, Nationwide, Liberty, all these companies are there and they're all like, you know, working.

55:58What Bitcoin Did:And we went there this year and we got a booth and we're like, let's go to Risk World because we're doing something unique with risk, right? We're taking on financial risk. We want to go tell people about this. And we got this tiny little booth and it's just me and two other employees that were sitting there working at. And we're just trying to talk to people. We're like walking around trying to talk to people. We had people walk by, call us a scam. Like people are like, you're a scam. And I was like, Hey, let's talk about our$1 billion Bitcoin balance sheet. And they're like, yeah, okay, but for you.

56:28What Bitcoin Did:So like we had a couple of good conversations, but they're all also several very, very skeptical conversations. And we had like a TV screen. It said, uh, 13 % paid, uh, paid monthly, 13 % annualized paid monthly. And we almost, we probably would have been better off if we would have said 8 % annually paid monthly. Like people would have thought it was, uh, like not too good to be true. Like the people that we did talk to, they're like, this is too good to be true. I don't believe you. Like that was what everybody started with. But here's the thing. We're going going to go back next year. We're going to have paid all of our dividends.

57:05What Bitcoin Did:The interest rate might still be at 13%. We're going to be paying it daily. And we're going to get 25 more people that are going to show up. And they'd be like, wow, you're the crazy guys that were here last year that had a billion dollar balance sheet. And we're like, yeah, we're here again. And we've got, I don't know,$5 billion balance sheet, whatever the number is. And so then that's year two track record. Okay. Then the next year we're going to pay our dividends again for an entire year. We're to show back up and maybe there's 50 or 75 people and they're like, wait, I've heard of you. My neighbor holds your product, you know, like those types of things.

57:36What Bitcoin Did:And so that, that's like, it's really boots on the ground, man. Like you got to go talk to these people. You got to infiltrate trust networks. And that just takes so much time. These are, we're selling trust, right? Like these are trust products. Any credit instrument is a trust product, right? You're selling a trust product. You're selling education as well. And so how do you do that? You've got to go talk to other people that are trustworthy. And the people that are trustworthy that are interested in these products, if they start using them, they're trustworthy in their communities. They go start talking to their communities about, hey, these are trustworthy products.

58:13What Bitcoin Did:These work like, you know, all of that, all of that stuff. So really, it's going to be like an infection, like a wildfire, just like Bitcoin was in the early days of, you know, spreading and spreading like a wildfire. These things are far more attractive, in my opinion, to like the normie, the pleb population. If you think about the dynamics of going to sell Bitcoin to somebody like your relative, everybody's had this story, right? You go on Thanksgiving, you go sell your family on Bitcoin. Inevitably, it's at the all-time high. And your family, your uncle buys Bitcoin, and then it drops 70%, and he sells it at the bottom.

58:53What Bitcoin Did:He hates you. You no longer talk to him. you ruin family Thanksgiving forever. And then you come back at the Thanksgiving next year and it's like all time highs and you're like riding high again. And then that family member still hates you. Yeah. I did this in 2017 and now I never told everybody's got it. Everybody's got it. Like I've had the same experience now. Okay. There's, there's risk. There's like family risk associated with like getting people involved in Bitcoin, right?

59:25What Bitcoin Did:You going to tell your family member, like you're 65, like my father-in-law, like I'm, I'm having conversations with my father-in-law all the time. It's like, Hey, you're 65. Uh, you're starting to enter retirement. You're going to start drawing on your retirement. Like these might be interesting to have in your portfolio. And he's not going to kill me if it, like you're talking about a 13 % instrument that's going to be relatively stable our our goal is to keep that stable our goal is to pay the 13 yeah there's a risk associated with it this is a risk product just like any other financial instrument in the entire planet but the price risk the principal risk associated with uh a position is significantly different than taking bitcoin principal risk when you're when you're looking at like 20 years of life left completely different completely different conversation.

1:00:19What Bitcoin Did:Yeah. So, and then who's got all the money, right? The boomers, the old, the older generations have all the money. Like they screwed all of us, right? They bought all the homes, they're holding all the homes, they bought all the equity before we had a chance to make a ton of money. Right. And that's, how do you facilitate that, that transfer? You create a product that is perfect for them. Low volatility, high yield, go live out the rest of your life and transfer.

1:00:50Jeff Walton:When you look at how this is going to mature over the next few years, what do you think the interest rate that you'll be able to offer will be? I imagine you think it's going to drop, but how quickly do you think it's going to drop over time?

1:01:04What Bitcoin Did:It's tough to say. I mean, it all is a function of Bitcoin price performance, the relative market scale, like how fast Bitcoin moves, what the U.S. debt situation looks like, what the interest rate environment looks like, the rest of the credit world, the rest of the equity market. uh you know i wouldn't be surprised if the interest rate stayed relatively high for quite a while i mean six eight years i wouldn't be surprised like you're going to 2032 like this is a gold rush right like we are in a we are in the digital gold rush to acquire as much bitcoin as humanly possible as we make this transition into a more digital world a digital capital world digital dollar world.

1:01:46What Bitcoin Did:So it's so hard to speculate. I think the probability that you could bring the interest rate down is probably pretty high. Yeah, just time will tell. Time will tell.

1:02:01Jeff Walton:Do you think that this, I remember when we spoke in December, we were talking about how the issuing debt to buy Bitcoin side of the Bitcoin treasury company market had kind of slowed down we've seen like you've obviously retired some converts um sailor just recently bought some of his own bonds like do you think that part of the industry we'd like we've moved

1:02:23What Bitcoin Did:on from that part of the sort of this growth phase uh i mean the the ideal is that you you have a clean sheet of paper and a professional for equity and no debt right that's uh i think that's the perfect perfect scenario in my opinion can i ask you a question on that because this

1:02:42Jeff Walton:might be silly, but like, why is that more attractive?

1:02:45What Bitcoin Did:Because the cost of capital is higher than all the converts. The converts have a cliff of maturity. So you can think about the like, okay, a convertible bond, the strategy has got a bunch of zeros, right? There's zero convertible bonds. There's no interest rate. Okay. But the interest rate is priced into the conversion premium so it's how much how many shares are you giving up uh for that instrument and there's a cliff maturity risk so so there's two ways to look at it like with the convert you've got the cliff maturity risk so you've got to take the risk that your common stock doesn't move right and then if it doesn't move and it doesn't convert then you got to figure out how to come up with capital and that's either that's either sell bitcoin or you figure out like refinance the debt or do something.

1:03:34What Bitcoin Did:You have to make a decision. Okay. So are the incentives worse in that scenario then? A hundred percent. Most, yeah, a hundred percent. The incentives are worse. There's a few different things. The convertible bonds also have several of them from the smaller Bitcoin treasury companies, terrible covenants, like margin requirements. They've got a post margin. If the Bitcoin hits a certain price, they've got like liquidation preferences where the Bitcoin will actually get sold. They've got collateralization. There are several different requirements on a lot of the convertible bonds right now. The terms were very bad, which is why we didn't take any.

1:04:11What Bitcoin Did:When Strive went and raised$750 million of equity capital, they could have raised a billion and taken on$250 million of convertible debt, but they didn't like the terms. So we said, okay, we're going to go equity only and we're going to figure it out. And luckily the PREF model was kind of evolving and we were learning a lot about it and how it could work and we can manage the capital. And that's the route that we took. Will it exist? I think the convertible bond market will exist for some of these moving forward into the future. It's like, it's how strategy scaled the balance sheet. They wouldn't be where they are today without them.

1:04:45What Bitcoin Did:So I think that they were a necessary part of strategy's growth. I think other companies will make the risk calculus on whether or not they want to use a convertible bond. The really interesting thing, Danny, about the converts relative to the prefs is the holder's incentive. So a couple things. Convertible bond trades 144A. So it's a private instrument that you can't buy. You know who could buy it? It's 40 dudes that trade in the back alley at a high rise in Manhattan. Right? That's who buys and trades 144A. now the pref equity you could buy it right like it's exchange traded on nasdaq okay it's now available to eight b eight billion people theoretically right okay so it's 30 people in a high rise in manhattan or eight billion people which is better i'd probably take the eight billion people that'd be interested in the instrument they could be designed very similar right like strike strk is very similar to convertible bond it's just in a pref it's in a preff form and it's now available and I exchange straight a ticker ticker to everybody.

1:05:51What Bitcoin Did:Okay. That's interesting. The next piece is the, uh, the convertible bond market is very interested in the volatility of your underlying common stock. So they're hedging every single day. So they're, they're longing the stock, they're shorting the stock. And immediately when you go out to market for a convertible bond, you could, you could watch this like clockwork when the deals get priced, the price of the stock falls because the convertible bondholder is shorting the stock right on the moment to like delta hedge the position. So there's consistent hedging and the convertible bondholder is long the volatility and they don't give a shit about the rest of the, they don't give a shit about the common, they don't give a shit about the credit quality, they know that they're senior in the capital stack and they just want the common stock to be volatile because that's what they're trading on.

1:06:41What Bitcoin Did:Now the PREF equity, you think about the incentive structure, the PREF equity is not long the volatility of MSTR or long the volatility of ASSD. They're long the credit quality of your company. They only want you to have a high credit quality. They want to know that they're going to get paid and they want to know that you're going to manage this instrument. So the incentive structure, not only is it like 33 dudes in a in a back alley in manhattan the incentive structure is not aligned with the convert okay so the the pref the incentive structure the people are aligned with the credit quality of your company and so you have hypothetically significantly less hedging exposure people that are shorting your common stock that makes sense on that with the pref equity so it's better for everybody it's It's better for the equity holder.

1:07:33What Bitcoin Did:It's better for the pref holder. Everybody's aligned on the capital structure.

1:07:39Jeff Walton:That makes total sense. You brought up Strike before, their strategies, one of their other preferreds. Like Stretch has taken all the headlines, and I don't really hear much about the rest of them now. I understand what Saylor is trying to do. He's obviously issued, is it five preferreds he has? What's happening with the other ones? Are they also being successful?

1:08:00What Bitcoin Did:uh their their trading liquidity is far lower i i think they're great products i think the other preferreds are great products stretch is just the best right now it's the best product it's a variable rate low um variable rate stable price it's that's where a lot of the retail demand is right like the retail demand wants something that's stable and they're just going to get paid the interest rate the sailor calls it like a bank account right it's like a bank account that pays you 11 11 and a half percent i think the other products are very good like very good i think they're super interesting in creating like a an entire risk profile but they're like before their time they're like too good they're too good that the market doesn't know what to do with them yet and the market will know what to do with them in like four years in my opinion that's because this is when you're talking about like almost like the yield curve of bitcoin Yeah, yeah.

1:08:55What Bitcoin Did:Because, right, STRF is senior to STRC. So it should trade, the interest rate that it trades at should be lower. So it's going to be, the price is going to be volatile. STRK has got the conversion premium into MSTR. So it should have significantly more convex upside. That should be a very interesting product. You effectively have structured Bitcoin exposure with an 8 % downside. Right now, as of today, I think it's around 8 % to 10 % interest rate that you get to have a protected downside. And then you've got Bitcoin convexity upside. It's an interesting product for somebody that wants income and convexity.

1:09:38What Bitcoin Did:So my father-in-law holds that one. And then you've got STRD and Stream. And STRD is interesting, right? It's the junk bond version, right? It's the lowest on the totem pole, but its relative risk profile is still really high. It's a non-cumulative instrument, so it's got one different feature than the others. And what I'm getting at is they have unique features. I think they're all very interesting, and I think the liquidity profiles of them will increase in the future as the world starts to wrap their heads around these. How I imagine this is there's never existed a period of time where you have a credit instrument that's backed by Bitcoin and you can calculate the risk 24-7, 365.

1:10:26What Bitcoin Did:So theoretically, you should be able to price all of those instruments in parity with each other every single day. There is a technical mathematical risk parity every single day. And you should also theoretically be able to calculate a mathematical risk parity between everything else in the credit market and those instruments every single day. So there should be like a balancing mechanism that's happening all the time. That's not really happening right now. There's a disconnect between some of the other pref equities, the risk profile and SDRC and our instrument and then everything else in the credit market.

1:11:04And another unique thing is

1:11:08What Bitcoin Did:because these are exchange traded, it creates another unique nuance. Like if you were to go hold a bond, if you're going to go buy a bond of any other company one again that also trades 144a but it's illiquid and you can't like you you can't go you know in and out of that instrument very easily and that that that's a that's a challenge for the existing credit market that i think will um kind of iron itself out over time as the world starts to move a little bit like faster and quicker, like having some more transparency on credit instruments. I think that will attract more capital into the transparent credit instruments.

1:11:47What Bitcoin Did:And I think it's going to make the world a lot more difficult to go raise credit capital because you're competing against this. So I think these instruments are going to re-rate the entire cost of capital for the entire credit market, which is a big idea, like a really big idea. If you're a company, think about it. If You're like, I don't know, you're a startup. Okay. And you're like, I want to go raise debt capital. Why as an investor would you take anything less than whatever STRC is paying?

1:12:19Jeff Walton:Yeah. Makes no sense. It becomes, like you say, it becomes the new hurdle rate.

1:12:23What Bitcoin Did:It's the new hurdle rate. Do you think your business is going to outperform, your cashflow of your business is going to outperform STRC or SATA? right like what what's the what's the risk profile of that proposal that proposition relative this

1:12:42Jeff Walton:does the ultimate hurdle rate not remain bitcoin though bitcoin's our hurdle rate i think uh that's

1:12:49What Bitcoin Did:our hurdle rate for capital deployment and the uh i mean our ultimate goal is to increase bitcoin exposure per share so the the potency of the common stock but the the credit markets yeah Yeah, the credit markets, which is a huge market, a$300 trillion market, I think that the hurdle rate is going to move to these credit instruments. You have to outperform these credit instruments or you're not going to get access to money. That might take five years, might take a decade, but I think that's where the world is going to trend a little bit.

1:13:21Jeff Walton:So with the strategy preferred, it's like the tools are good, the tools are there. It's just the market doesn't really know how to use them yet, I guess is kind of what you're saying. Yeah. Yeah. There's probably a good arbitrage option there if these are inefficient and not being used properly. Yeah.

1:13:37What Bitcoin Did:I think there's alpha there. But again, the other tricky part is that they're just relatively illiquid, the other ones. So, for example, I've got a little data. Strategy. Stretch traded$189 million today. Seta traded$59 million. Wow. Strike traded eight. stride traded seven and strife traded seven so so sata traded eight times more than strike stride and strife today and it traded uh double what they all traded combined wow sata our instrument yeah yeah that's impressive right so it's that that liquidity profile uh makes them a little bit more challenging as a as an investment instrument like that so like i was talking about duration a little bit earlier you might have to take a longer duration view on those instruments again these are these are complex financial concepts that we're like trying to talk to people about um a lot of people can wrap their head around strc and sata and as they're like liquid as they're more liquid people are a little bit less concerned they don't have to learn as much but if you're interested in the other instruments, there's like a little bit more of a learning curve and I think it's a bit more difficult.

1:14:59Jeff Walton:Would you at Strive look at doing these other preferreds with different durations and different seniorities in the stack or are you kind of happy with what you've got at the moment?

1:15:08What Bitcoin Did:I love what we have at the moment. It's very clean. It's very pure. The market can wrap their head around having one senior perpetual preferred equity and one common stock. And it's like a very pure expression of both. That being said, I think we're open to it at different market times and different market conditions if the market need is there. We've said that we will not issue another perpetual preferred equity within 12 months of launching SEDA. So you will not see one from us before November of 2026. So you can put that on your radar, but that's something we'd consider. um we've kicked it around internally i think there's um there's some ideas that are interesting but uh we're not going to rush we we think we're we could have these two instruments for 20 years we could be damn near final form of what this instrument looks like paying daily like we can scale this from where we're at right now we have 31 people that operate at strive so let alone the similar business, we can scale this 10X without any additional people.

1:16:17What Bitcoin Did:Like we don't have to change anything we're doing. You know what I mean?

1:16:21Jeff Walton:It's interesting to hear though that you think you could have this for 20 years because like Saylor's shaking the market up completely twice. Like essentially when he first started doing the treasury play and then I think the preferreds were huge. And to be fair, like I've always thought since they came out with the preferreds that that was like a killer feature that if you didn't have that as a treasury company. I thought you were going to struggle against the others. But are you saying we've reached the killer product now and there's nothing new novel coming in the future? If you think this can be a 20-year thing, do you think this is it or do you think there's more to come?

1:16:54What Bitcoin Did:I think it's like building on top of this is it. This is a new substrate to build a new foundation. So you've got Bitcoin, the commodity, and we've split it into two. Now you've got the senior professional preferred equity and the common stock well now you can take this senior instrument it's happening already had a conversation earlier today a pendle is like this taking strc and splitting it into a principal piece and a yield piece okay so that's now you can have a principal protection at a lower interest rate and a yield uh a yield strip at a higher interest rate and you're like protecting the senior instrument that's that construction is super fascinating and i think that could be that those business ideas like that that idea of splitting it into a senior tranche and a junior tranche that example i just explained is in defy you can also do that in trad fi and the market to do it in trad fi is enormous yeah so so like this is a perpetual preferred equity, right?

1:17:57What Bitcoin Did:It lasts forever. So is Bitcoin. Bitcoin's a perpetual, lasts forever. A lot of TradFi actually can't wrap their head around that, like a perpetual credit instrument. So what they need for their mandates is a term, a true term credit instrument. Okay. So you could start to think about, well, let's, let's tranche this into a different layer and have a senior instrument of STRC, let's call it investment grade digital credit and amplified digital credit. You could split it into two again. You could like tranche it again and you could slap a term on it. So now you have a, let's just say a four-year term, $50 million tranche and you can go get it rated by a rating agency.

1:18:44What Bitcoin Did:And the junior tranche is just taking the perpetual risk, like everything out the side of four years and then also the equity risk of the instrument like de-pegging from 100. That's interesting. I think there's infinite demand for both of those things. I think there's infinite demand for investment-grade digital credit and I think there's infinite demand for like amplified digital credit. So that's happening in DeFi right now and that's like I think that concept is a$100 billion idea. Like you can go create a$100 billion business I think doing just that, just taking these instruments and tranching them again and just doing what we do, but doing it with a perpetual preferred equity as opposed to Bitcoin.

1:19:32What Bitcoin Did:Interesting. Like that's, so you're asking me like, could this happen for 20 years? Yes. I think the scale, like the amount of scaled capital that you could bring onto this. And you think about if that were to work, imagine this, you've got hundreds, it was 16 ,000 insurance companies, I think, in the world. 16 ,000. None of them hold Bitcoin right now. And maybe five hold STRC. 16 ,000 insurance companies. Okay. Well, they don't want to hold it perpetual, but if there's somebody that's issuing investment grade digital credit, they could do$50 million tranches. I can issue infinite of it. I can issue infinite.

1:20:16What Bitcoin Did:because what am I doing? I'm going to take that capital and maybe buy Bitcoin with it. I could issue infinite of it, Danny. How crazy is that? Think about that. Like Microsoft, Boeing, they can only issue a certain amount of investment grade credit. Yeah. Right? Like they can only, because it's a function of like how big can their business go? You're like, I can only get so big if I'm Amazon. Like I can only sell so many iPhones. I can only send so many packages to homes, right? I can only get so big where you're like, I can't issue any more IG credit sorry insurance company like you're you're shit out of luck I can issue infinite credit because I'm just going to take that energy and I'm going to shove it into

1:20:57Jeff Walton:Bitcoin as someone who holds Bitcoin this is music to my ears that means the price of Bitcoin goes

1:21:01What Bitcoin Did:very high yes so like this is it's like we've we've oh we've turned on the spigot to bring this like credit capital in the door. And now we want to, we want to like cut it open. So it's like a funnel of capital that could like comes in the door. And so how do you do that? You've got to build on top of it of, you've got to like structure it in a slightly different way, um, to make it attractive to a different pool of capital and you know, all of those, all of those different things. So we're early. A lot of this stuff is moving. Like ideas are moving forward. We're having conversations with people every single day.

1:21:38What Bitcoin Did:We're crazy busy moving on all of this stuff. and uh and those are just like we don't know what we don't know yet either like the innovation that that we don't even we haven't even heard of yet and we've got several off the wall ideas that uh that we've bat bat around so yeah there's there's a lot more here so i'm going to ask you the

1:21:59Jeff Walton:question that um say the kind of shouted at me for asking but like one of the things that at least from my perspective obviously you're spending way more time than i am looking at treasury companies um but it seems like the long tail is getting left behind um like there's the companies like you like obviously strategy i think there's probably five six other companies that are like holding significant amounts of bitcoin that are doing interesting things like how do the smaller ones compete and one of the things that say they got annoyed at me for saying was compete but like You are competing over capital and buying Bitcoin.

1:22:34Jeff Walton:They seem like competition to me. Do you think that long tail is just going to get more and more insignificant? The long tail? What do you mean by the long tail? I mean the smaller treasury companies that aren't able to go out and issue preferreds and do the novel things that you're doing.

1:22:51What Bitcoin Did:I think we will be cheerful and constructive, David. the uh i just i think there's so much opportunity for all like any of these other companies a lot of these companies that went and went and purchased bitcoin um let's just say they're operating business a lot of them were already dead right they're already zombie companies and they went and go put bitcoin on balance sheet and it's like that's better than not like you're going to be around you've got some optionality you can do something with it and like there will always be investors that will be buying different stuff in in the marketplace and the reality is many of these companies are small like what we're the seventh largest holder of bitcoin

1:23:29Jeff Walton:yeah so you ever took coinbase by the way which is very embarrassing coinbase as a company that been in this space since 2012 yes yes you've done very well coinbase but so so we're the reason i

1:23:40What Bitcoin Did:bring that up is we're number seven and we have a 1.37 trillion dollar market cap so we are like the 1 ,750th largest company or something like that. Right. Okay. So there's several, like, that means all of the other companies are smaller than us. So you're already talking about like very, very tiny companies that traditionally, even if they didn't have Bitcoin on their balance sheet, you would never even have heard of them. So the fact that they have Bitcoin on the balance sheet, you've heard of them. Yep. Right. They're at least on the Bitcoin treasury dashboard. So So there's a likelihood that they've got more holders of their common equity than if they would have not held Bitcoin.

1:24:20What Bitcoin Did:So that's probably better. I've not really thought about that. They're just so small, right? Like go look at, one website that I really like is, what's it called? Like US companies ranked by market cap. And so I'm constantly looking at, it's like, where's our company rank relative to these other companies? And I like, I haven't heard of any of them, any of them. The company's, there's three around us right now that I've heard of. And I've like had to scroll through a couple of pages. Kohl's, Wendy's, and, oh, there's one other one. Lazy Boy, like the couches. Kohl's as in like the Australian supermarket Kohl's.

1:25:01What Bitcoin Did:It's like a supermarket here. It's K-O-H-L-S. It's like they sell clothes. Okay. It's like a Kmart or something like that. You know, it's just like, it's just a crappy brand store. And like those, um, those are the three that are just notable, but, uh, but around us, there's just like, I've never heard of any of these companies and they're so small. Like the fact that they're any of these are buying Bitcoin is probably good for their optionality into the future. So I, I, I don't, I think many of these other companies are going to be buying Bitcoin. Is there optionality for them to take on financial risk with the Bitcoin on the balance sheet?

1:25:40What Bitcoin Did:Sure. like is there is their common equity going to be like massively outperforming it just like depends on what they do with it yeah like are they going to go run an operating business uh are they going to take out a loan and go start like a uh a food truck that absolutely kills it and you know like go raise a bunch of money and go do that thing like maybe maybe it happens i i don't i don't think we've hit the pinnacle we're going to see we're going to see thousands of companies add Bitcoin to the balance sheet in the next decade. I think the companies are more likely to add digital credit to their balance sheet before they add Bitcoin.

1:26:15Jeff Walton:Well, I was going to say, I agree that I'm sure we'll see these companies add Bitcoin to their balance sheet at some point, but they're not going to do it the same way you are. And like you say, I could imagine them adding something like Sator or Stretch to their balance sheet before Bitcoin.

1:26:27What Bitcoin Did:Probably. I think that's far more likely. Again, it's like the same, like go convince your board to add Bitcoin to the balance sheet. And they smash by the Pico top and they get hammered and you're like, Like, well, the CEO's fired, CFO's fired. Like, I hate everybody now. Like, nobody wants to take that career risk. Like, that's a difficult proposition. Digital credit is a much easier value proposition for, like, a board to discuss. The, I think there will be other issues of perpetual preferred equity in the market. Like, again, we're a$1.37 trillion company. Like, if there were a$5 trillion, sorry, not trillion, billion, $1.37 billion company, hopefully we're a trillion dollar company in the future yeah that would be yes that's our goal um but i mean there could be a five ten billion dollar company that comes to market and and starts to uh convert their balance sheet into bitcoin and start issuing credit against it i i think we are going to see more of these and i think that's good for the market like i i think the market can handle having several issuers out there again like i said we're pounding the pay we're going to events so more people at events like creating with trustworthy like high quality products in the market is good for the entire industry like us being there helps strategy every bitcoin we buy helps pump strategies bags it also us existing helps provide them some flexibility like financial flexibility they're just like they're underwriting the bitcoin ecosystem them, they're underwriting that we exist.

1:28:01What Bitcoin Did:I think the fact that we exist has allowed them to rethink how they manage their bond exposure. Interesting. Like we went out in the market and we retired a hundred million dollars of convertible bonds. Before that, they hadn't talked about retiring convertible bonds. Okay. So we, we went out and we showed them like, Hey, we could do it. You could go negotiate this is what it looked like we've had conversations about it and that provides them a little bit now they can they can make that decision as opposed to having to wait until 2027 or 2028 to like change or move or evaluate the market having multiple people that are operating in the same direction is just super helpful going to be helpful for rating agencies yep like going like having two companies coming at you is like if it's just one company it's like wow you're crazy if it's two it's like wow both of you guys are crazy but i need to take you seriously now right yeah and etf issuers if you're if you're creating or designing an etf there's constraints on how much exposure you can have to one company okay well if you got two companies three or four or five companies that are doing this i'm like okay that actually starts to um help the entire ecosystem because like everything can be built around it diversity in the defy ecosystem um you know, several, it's good for the market to have more issuers.

1:29:22What Bitcoin Did:There will be more issuers. How long will it take? I think a long time. Will the products be exactly the same? No. Everybody's going to do a completely different flavor of it. Will there be a market for all of them? There will be a market for all of them because think about STRC versus Seta. They're different products. STRC has STRF that's senior to it. They have convertible debt. They also have 840 ,000 Bitcoin. Incredible. Right? Like that's a lot, but ours is a senior product. We don't have any convertible debt. There's nothing in front of it, but it's also our only product. There's nothing else.

1:29:58What Bitcoin Did:So you don't have to worry about the capital structure. It also pays 13%. It's going to pay daily. That's different. It's a different risk return profile. We also have 16 ,500 Bitcoin. It's like there's different reasons to hold those. If you're an institutional capital manager, you would be holding different ones for different reasons and managing a liability profile as a function of that.

1:30:20Jeff Walton:Yeah, that makes sense. I think it's really cool. You're buying a lot of Bitcoin. You're helping pump my bags. I think it's, I really do. We're aligned. We're aligned, Danny. Yeah, there you go. Can I ask you one more slightly fun question to end it out? Sure. There's obviously, there are companies out there that are struggling. We don't need to like necessarily go into the details of them but like a knacker for example like they've had a really rough time like if you were to take your strive hat off and you went into a company like that what would you do to try and like right turn the shit man um just keep keep pounding the

1:31:02What Bitcoin Did:pavement and try to try to ignore ignore the haters and try to communicate with your equity uh, partners and your credit partners as, uh, as cleanly and as cleanly as possible, try to communicate the mission, your capital structure. Uh, it's yeah, there are, there are some companies that are challenged out there at the moment. Uh, certainly. Do you think they will

1:31:22Jeff Walton:be able to turn that around?

1:31:26What Bitcoin Did:Yeah. I think right now you look at their balance sheet. Well, just, I guess it depends on the drag of the company depends on the revenue, uh, depends on the price of Bitcoin. I think they do have like a, I think they have a 58K liquidation preference or something on their, or not a liquidation preference, but like a margin call on their convertible bond. I haven't looked at it recently. I looked at it a few months ago. So yeah, I mean, the market cap is trading at a fraction of what the underlying net assets on the balance sheet are. I think there's opportunity there for some arbitrage opportunity.

1:32:03What Bitcoin Did:But yeah, I mean, it's tough, right? Like if Bitcoin moves the other direction, then rising tide is going to float all the boats and the debt gets inflated away, convertible bond becomes less of an issue. And, you know, everybody forgets about everything that's happened. I think that one of the biggest one of the biggest challenges and this is like a totally misconstrued data point is um they do it on our our common equity as well they they look at the the trading history of the common equity before we were part of the company yeah because there's a pump before like

1:32:41Jeff Walton:any like just on the news of something potentially happening right so let's think about this for a

1:32:46What Bitcoin Did:moment. We announced that we were raising$750 million to run a Bitcoin strategy in May. We just passed the one year anniversary. It's May of 2025. Okay. We raised$750 million of capital to shove into this tiny company. The target company was a shell company and they had a$15 million market cap. So think about how many shares are available outstanding for a$15 million market cap. It's not very many. So there was a ton of speculation, right? A ton of speculation ran into this tiny company. And so the price of the common stock like ballooned. We weren't part of the company. That was our target. Our deal didn't close until September 15th, something like that.

1:33:34What Bitcoin Did:So you look at the price of the stock and it's like all over the place. What it did, we had no control over, right? It was pure speculation. It had nothing to do with, like, we weren't part of the company. On September 15th, we effectively got the keys to the company and we adopted the capital structure that the target company had. So we took$750 million of equity capital and we shoved it into a tiny$15 million company. So if you actually go overlay The price history relative to the market cap, completely different stories. We just hit a market cap all-time high of 1.37 trillion. And when the price of our stock - Billions.

1:34:20What Bitcoin Did:Billions. I'm thinking about where strategy's going. I'm like, yeah, 1.37 billion. Our market cap hit 1.37 billion. but in july when our when our the price of asst peaked the market caps like 50 uh 50 million or something like that like it's a fraction of where it is today so it's like not all of the shares were trading no like there were there was it was an institutionally complex product right you're talking about a reverse merger arbitrage scenario where everybody's speculating on the stock and moving in and out and on on a tiny float of a company that's going to be literally uh like 50 60x larger than it was so so the that's greatly misconstrued also with naka any of these like pipe transaction deals the same dynamics exist like the market cap relative to the price history is uh they're two different stories yeah and not if like you look at the the average cost basis of looking at the the volume volume turnover relative to price on most of these instruments and they're not nearly what everybody makes them out to be and so the company actually

1:35:45Jeff Walton:like you officially sort of got the keys to the company september 15th i think you said so you only actually had like three weeks of a bull market before this whole thing sort of turned on his head oh yeah and and like and the thing that's impressive though is that you're still trading above m nav um above 1x m nav and like this prefers obviously crushing at the moment i bet you are so excited to see what happens in a bull market yeah yeah it's one of my one of the

1:36:12What Bitcoin Did:things that i'm most excited about is we have we have an ability to buy bitcoin when the price of Bitcoin is down 40 % from an all-time high. Historically, in past cycles, strategy had access to the capital markets when everything was booming, when the equity markets were booming. And in the bear market in 2022, they bought hardly any Bitcoin, like damn near zero. And now both of us are buying Bitcoin when the price is down 40%. the architecture of the market is fundamentally changed. Like these instruments are, like I'm thinking of them as like the buyers of last resort. Like we've created a product where there's capital that's able to come in the door without the equity markets booming.

1:37:06What Bitcoin Did:And that changes, in my opinion, the structure, the future trajectory and the structure of what Bitcoin can look like.

1:37:16Jeff Walton:so yeah the cool thing with the fudds is it's not even just buyer of last resort it's the buyer of first resort it's the buy it's just the buyer you're just always buying it's just the buyer

1:37:23What Bitcoin Did:it's just always be buying right always be buying yeah yeah and we haven't seen what a a perpetual preferred equity bull market we haven't seen what strategy can do in a perpetual but like the last bull market with strategy had or when when everything went crazy november of 24 strategy had uh what was it 331 000 bitcoin that's crazy now they're 850 they now have 843 000 when okay check this data when bitcoin goes back to an all-time high strategy will have 109 billion dollar balance sheet that's assuming they buy zero more bitcoin crazy so so when Bitcoin goes back to an all-time high, they will have the second largest balance sheet on the planet behind Berkshire Hathaway.

1:38:17What Bitcoin Did:Holy shit, that's wild. Yes. So that's what's on the horizon. And the amount of noise that's going to make is going to be absolutely insane. And then it's like we're in a perpetual preferred equity model where all of the investors are aligned. You're not launching convertible bonds that are out there shorting your common stock right away. You've got the credit as the price of bitcoin rises that the risk profile the credit improves it gets consistently better your amplification drops your ability your capacity to issue more increases so there's uh there's a lot of things to look forward to on the horizon and when we see this stuff move it's i think it will be electric the crazy thing on the strategy side is i saw a

1:39:00Jeff Walton:tweet the other day and they've bought something like is 130 000 bitcoin this year is it something

1:39:05What Bitcoin Did:ridiculous like that yeah yeah yeah so they started the year with 300 wait no hold on uh they started the year with 672 000 yeah they're like over 150 000 175 000 bitcoin this year crazy

1:39:19Jeff Walton:do you think they'll get over a million in 2026 like august or september holy shit i mean that's does it get to a point where you worry about the uh concentration of bitcoin and i i know like the Bitcoin isn't necessarily strategies, it's the shareholders, but like, do you worry about that at all?

1:39:38What Bitcoin Did:Not really. Hopefully we've got a couple of basis points of the market by that point. I think we've got the ability to grow incredibly quickly here. We increased our Bitcoin stack 7 % last week. That's crazy. Last week. Yeah. So if we can keep up this trajectory and And if daily dividends provides the structure that we think that it can provide, I think we can scale the business very quickly. And ideally, you've got at least a couple of pretty big issuers out in the market that are vying for a very large portion of the network. Honestly, I think the credit issuers could be a very large portion of the Bitcoin network.

1:40:25What Bitcoin Did:I mean, it seems like it. It's happening. Yeah, like it could be 20 % like of the Bitcoin network, like long-term. I don't know how that makes me feel. Because I'm thinking about this is like, what's that? I don't know how that makes me feel. Well, let's 20 years from now, right? Like what does this look like? You've got universal Bitcoin income. Everybody's just getting paid by these instruments that, I don't know what that looks like. But yeah, look forward to being part of it.

1:40:56Jeff Walton:Yeah, well, it's awesome to see it. You're crushing, man. I think - Thank you. I'm really glad that there's another product that's alongside strategy in this. I think having multiple is definitely better than having one. You're doing really well. I'm very impressed, man. It's cool. Thank you. I appreciate it. Thank you for buying all the Bitcoin and pumping my bags. Happy to. We'll have to catch up again in a few months' time, but this has been cool. Thank you, Jeff. Cool. Yeah. Thanks, Danny. Appreciate it.

1:41:31Thank you.