The Bitcoin Credit Gold Rush | Jeff Walton

You're going to 2032, like this is a gold rush, right? Like 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. Why was Bitcoin birthed? Bitcoin was birthed because we were losing trust in the existing institutions that existed on the planet. civilization is a function of trust being extended beyond our biological capability.

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. Good to have you back on the show. So I think it was December when we recorded, we were in Abu Dhabi. And I'm pretty sure, had SATA launched then, or had it maybe just launched? Yeah, it was about a month old. Just got into the market. Yeah, it was probably maybe

not even a month old. And so at that time, I think you had, Strife had something like 7,500 Bitcoin and I'm pretty sure SATA was trading way below $100. And now we're sat here, you know, six months later, you've got, I think you've stacked nearly 10,000 Bitcoin since then and SATA's at par and crushing it, man. You've done good. Yeah. Yeah. We've been, we've been working really hard and you know, there, there was a lot of, it doesn't just happen. Like there was so much work that

happens behind the scenes to get there. I mean, we went through the acquisition was similar. That was a, an entirely big process. We made some adjustments to how Seda works. We changed the target range. We bolstered our cash reserves. We weathered the drawdown. We did a follow on offering as a result of having all the similar Bitcoin on the balance sheet. So like the team has just been working so hard in that time horizon too. It's been about six months.

Yeah, the team has been working crazy hard. And that's a result of how hard the team's been working. So we've just been continuously pushing the envelope and then watching the leader, right? Strategies been incredibly successful with STRC and we've gotten some really good advice from the strategy team and Sailor on how to think about these things, communicate to the market and start to establish this credit profile

in the industry. You've been getting some attention from outside just before we started recording. We were talking about the CoffeeZilla show. I thought you did really well. And that's as someone who's been like skeptical of Bitcoin treasury companies, I still thought you absolutely crushed that. But maybe for anyone, I'm sure most people know what SATA is, but do you want to explain it and then we can get into it? Because I've got a load of questions around some of the

details. Yeah. SATA is our marquee perpetual preferred equity. It's a digital credit instrument We're calling this digital credit. Perpetual preferred equity is a senior equity that sits on our balance sheet. So we have two equities. We have a senior equity being SATA. It pays 13% annualized. And starting on June 16th, it will pay daily dividends every single business day.

This is the first security in US capital markets history to ever pay a daily dividend. So we think that's a pretty big deal. This is our marquee instrument. And then we've got our common stock, which is ASST and that's uh the residual the residual common stock like any other typical common stock and that's it we don't have any debt on our balance sheet we have those two instruments both of them are publicly traded uh SATA uh publicly traded on the NASDAQ and then ASST

also publicly traded on the NASDAQ. All right I've got a ton of questions on both of these things actually but we let's start on on SATA so notes I know I was just getting my notepad out I I was like, I'm going to write some stuff down right now. Helpful. But so you say that there's no debt, but you do have obligations. So how do you try and figure out your leverage profile? Because I don't know how much Sater has been issued, but you owe a lot of money. Yeah. In dividends. Yeah. So let's see.

As of today, I think we've got about $1.3 billion of Bitcoin on our balance sheet. We owed 16,500 Bitcoin. We announced that this morning. And then we've got $575 million of perpetual preferred equity outstanding at 13%. So I think it's just a touch over $70 million annual interest obligation last I checked. So on our balance sheet, not only do we have the 16,500 Bitcoin, but we also have 12 months of USD cash reserve and six months of SDRC reserve.

That's our kind of first line of defense is how you could think of it for our flexibility of being able to pay out the dividends. And then we're in this process of constantly raising capital, whether that's through Common Stock ATM, whether that's through our perpetual preferred equity instrument, SEDA, or any other business operations that our company is engaging in. And so, sorry, you go on. Yeah. So there's a few ways to think about this.

Amplification has been how to think about financial leverage.

Amplification has been one of the standard ways to think about financial leverage on the balance sheet. And amplification is the notional preferred equity outstanding relative to the Bitcoin on the balance sheet.

So our amplification as of today is, I think, around 40, 46, 47-ish percent. And so that's if you're taking the notional relative to the Bitcoin. Now, I think a little bit of the misnomer there is these aren't debt obligations. So there's no cliff repayment on the horizon. We get this money as equity capital, and we never have to pay back a principal.

okay so that kind of changes your perspective of how you view a risk profile or financial leverage on these instruments and in my opinion what i think is a little bit more valuable of a view is um what we like to call bcr internally this is a bitcoin coverage ratio so it's how much bitcoin do you have relative to your annual interest obligation and so i think as of today For us, it's around 17, 18 years of just Bitcoin coverage relative to our annual interest obligation.

And I think that's a helpful perspective when you're thinking about why would somebody hold this instrument? Well, you're holding this instrument. If you're holding an equity instrument for income, you're holding it for income. You're not holding it necessarily to get your principal back. That is it. These are hybrid instruments. These are like hybrid equity type debt instruments. They are equity. You do not get the principal repayment. And I'm not surprised that it's kind

of breaking people's brains on how to think about this because it's a hybrid. It's a little bit of both. And so that changes the construction. That changes the psychology. That changes the construction of how you would design a portfolio. That changes how you would think about liabilities into the future. And a lot of this stuff is novel because there's never really been an instrument that's been this attractive before with that high of a yield and that high of a liquidity profile.

So I would say it's hard to conceptualize because nothing like it has ever really existed before. And you have to think of it slightly differently than a traditional debt instrument because it is

a hybrid vehicle. Okay. And with the structure of this, can you pause dividend payments whenever you want in the same way that strategy can we stretch yeah we we have the ability to uh to to pause dividend payments that's not our that's not our intention um our intention is to have a very high credit quality and very high credit profile forever we want to be continuous issuers of this credit instrument if there's a lot of psychology associated with these instruments if

there were a situation where we were to pause the dividends that would impact the psychology of the holder. That would impact the risk profile, that would impact the people that are holding it, that would impact the common, that would impact the flywheel of the entire capital structure.

So that is a tool in our toolkit. I think that's a little bit more of a break glass scenario after depleting a cash reserve or depleting all the other reserves and looking at all of the other ways to pay a dividend, turning over all of the other stones before using any of those tools. And the yearly dividend is 13%, is that right? 13% is the annualized APR. With daily dividends, the annualized APY, including compounding, is 13.88%. These are return of capital instruments.

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Okay, so when I first saw that you were doing the daily dividends, I kind of, because I think a little bit before that, Stretch had come out saying they're going to do every two weeks, semi-monthly, yeah. And I thought it was initially like a marketing thing, like a marketing thing to retail where it's like you get daily dividends. It looks more like a money market account, like you're just getting money constantly coming into your account.

Is there something more to it than that? Do you think it's more interesting than that? I think it's way more interesting than that. So first of all, yes, I think it is like a money market account, but let's, or well, I think the design, it's designed to be better than a money market account. So if you think about how the money market account works, when you hold money in a money market, you accrue interest daily, but you get paid the interest monthly. So you don't

actually get paid daily. They give you the illusion that you get paid daily. You just get paid at the end of the month. Now we're actually going to pay the dividends every single day. Okay. So that's interesting. I think it's a, you can now, you can now put them next to each other. You can now put a money market and this instrument next to each other and you could compare them. Obviously they're different. I'm not saying that they're exactly the same, but you can compare them.

The next piece is what I, what I think is incredibly fascinating is like we were moving into an algorithmic world. Like the world is getting more algorithmic every single day. AI is getting exponentially better. It's not getting linearly better. That is working its way into trading systems. That is working its way into DeFi. That's working its way into finance. And the biggest incentive for algorithms is like in the financial world. It's in crypto. It's in

all like take traditional finance and digitize it. Like that is, we're going through a multi-decade transition of digitizing traditional finance. And we're living in the middle of it. We are smack dab in the middle of it. Okay. So why is that important? Why is that valuable?

Just give you a couple examples in DeFi for a moment. What's happening in DeFi, decentralized finance, is they're taking these perpetual preferred equity instruments and they're wrapping it and providing a different instrument to the DeFi world.

and so what they're doing in the defi world is that what what they initially did is they took the strc instrument and and put it in defi and they're providing daily dividends in defi and daily liquidity so you can trade it on the weekends and you can get paid a dividend every single day now when you do that you have to take on risk like that secondary industry is taking on

liquidity risk and they're taking on interest rate risk. Because what if like liquidity comes out the door before the dividend comes out, you know, like you're taking on 29 days of risk to facilitate liquidity. Okay. Now, as that changes, as the frequency increases, the optionality and the risk profile of what you can build on top of this increases drastically.

so for example if you go from one day a month you're taking on 29 days of risk and if you go to 22 days a month you're now taking on eight days of risk so just by making that change you reduce the risk profile by 70 percent in the secondary market that's huge that's massive like if you wanted to facilitate like a hyper liquid market that's trading on algorithms you need you need a transparent risk profile. So that's a fascinating development. And I think this stuff

is just going to get way faster, like way, way, way faster. And we don't know exactly what the innovations are going to be because nothing like this has ever really existed before. But you can start to imagine this also creating more liquidity on the underlying. So this is one of the primary reasons we did this. Not only is it mathematically a better instrument, but it should

facilitate a higher liquidity profile every single day for the SATA instrument. What we noticed is over time, every single month, there was a spike in the trading volume that came in the door right before our record date. So people were coming in the door to get the dividend and then they were leaving. And then the volume dried up and we would wait another 30 days. And then the trading volume would ramp back up into the record date and then it would leave and then go find

other opportunities. So what we wanted to do was smooth out that volatility in the trading volume. We want to increase the liquidity every single day. So when a holder is holding this instrument, right, if you want to hold your instrument for principle, you want to get your principle back out of it. You want to know that you have the liquidity to go get your principal back out of it because there's a lot of people that are trading it. There's computers that are consistently trading

it back and forth. They know that they're going to get the dividend every single day. And it's just going on behind the scenes. Now, another thing that's really fascinating here is the optionality of trading in this interest environment balloons. The number of carry trades that you can perform, it goes exponential. What do I mean by that? I mean, if you wanted to short a high yield bond, so for example, I've been obsessed with this trade and I haven't done it. If I had more

time to trade, I think I would try it. You can short HYG the ETF. It's a high yield bond fund. It pays about 6%. Incredibly liquid. It's got about $20 billion of AUM. It's a pretty big fund. You could short HYG and theoretically buy Seda or Stretch, and you can hold it for the 29 days that HYG doesn't pay a dividend and then close that position. You get paid the dividend the entire time, and then you close that short theoretically for whatever the price risk you took

on HYG. That's an interesting trade. And you can run that trade for an extended period of time. You can have algorithms that are working back and forth, thinking about different points in time. And I think that there's just a continuous opportunity to find different things to trade. And one of the True North members, Soleil, he brought up the idea of these, like day traders is you start the day in cash and you end the day in cash. That's common with day traders.

And he brought up the idea, well, what if you start the day at Seda and you end the day at Seda? It's like, okay, well, I'm taking my car out of the garage. I go to work and I come home and I park my car in the garage and I get my daily dividend. That's interesting. And that's, that is going to change how people work and like fundamentally think about these instruments. The second and third order impacts are absolutely enormous. And you think about like, what can you build on top of this?

You can think about the design of a, sailors called it digital money. I'm going to call it a Bitcoin dollar. I just made that up 10 seconds ago. Like you could design a Bitcoin dollar and the Bitcoin dollar is a stable dollar, but it's paying you, you know, I don't know, 11% yield. What do you got? Something back there that's called the Bitcoin dollar? I've got a book for you. The Bitcoin dollar. The Bitcoin dollar. Yeah. Shout out to my good one.

That, yeah, I guess hopefully he's trademarked that. So I guess what I'm saying is you can build on top of this and you can design different financial instruments and because the risk profile is unique and you're taking on a lot less risk than having a single monthly dividend payment. So for you on your side, it smooths out that volume across the month. Does that also help you keep Seta at par because you're not getting

huge inflows and outflows around the end of the month. Yeah, that's the thesis. Yeah, that's the thesis is that because there's less speculation on the, I guess, the single dividend payment that month what I think will happen is we actually start to see volumes be a little bit dynamic every single day So because we going to pay out what it going to be like about a nickel a day we may see the instrument drop about a nickel a day and then come back to par throughout the day,

throughout the end of the day. So it will be interesting to see the exact dynamics, but that is, again, part of the design of the instrument is to incentivize people to be in this instrument much longer. And it's not even necessarily retail.

it's computers like we want the computers to be just incredibly fascinated with this instrument and just park there running different trading algorithms back and forth at a million miles an hour faster than the speed of light like that's that's what we want to incentivize is that that kind of structure so you want them to almost use sata as like the benchmark you start from there and then go and do other stuff throughout the day and then come back there.

Yeah. Or think of it as like the blood in a body, like the liquidity layer of a market. And then for the holders of SATA, the benefit is that they're essentially, they can now do a daily DCA, assuming they're putting that money back into SATA instead of doing a monthly DCA.

Daily DCA is interesting. Yeah. You can think about 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. Yeah. And again, I mentioned earlier, this is a hybrid instrument. It's like a, it's like a debt and it's like a, 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. 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. Go look at anything else in the traditional financial markets. You get two out of the three. If you get high yield,

it's going to be illiquid. If you got low volatility, it's going to be low yield. And so really, we're hitting this trifecta in the capital markets that just becomes really appealing as a trading vehicle. And so let's talk about the makeup of Sata, because it's made up

largely of stretch, right? And then what else on top? How do you outperform stretch in terms of like the dividend repayment? 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. Then we've got 12 months of USD cash, and we've got six months of STRC. Again, the USD cash, you can kind of think of that as like a buffer layer or like a 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. 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 and that's uh that's another perspective how we view it um so this is this might be a funny one for people but this is one of the areas where i kind of i don't didn't necessarily agree with coffeezilla but i do think it's a very valid question um in the like how do you how do you kind of forecast bitcoin price and make sure that this product is going to be sort of sustainable in the long medium to

long term. Like, 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? 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. 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, looking at the landscape of how global monetary supply has 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 we don't need bitcoin to go up 30 a year for this to work that's what we're anticipating see this would that that's good to hear because that was like really going to be my big question like i i played around and i was figuring out the kagra 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 cargo

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 um but like if you if 30 was a benchmark that you needed to hit like that's something i would be skeptical of one data point to throw out for you danny the uh the 200 week moving average of bitcoin has gone up at 30 over every single return period go look at go 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. There has been around 4,000 four-year compound annual growth rates in Bitcoin's

history. 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 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, 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. 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. 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. It's 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. The speed is just breakneck. Totally.

If you were to go raise $50 million of capital and go buy a piece of real estate, it would take you 12 months to go find a piece of real estate. Yeah. 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, in an hour if I wanted to It awesome That crazy And it a capital asset and I can hold it So I would think of it that way It like if SEDA does very well we 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 perpetual preferred equities trading, what's happening in Bitcoin, how the rest of the Bitcoin

treasury markets are moving. 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 that we use behind the scenes. It's pretty killer. I know you say it's variable, but like just roughly, rough numbers. If I bought a million dollars of SATA, how much Bitcoin would you be buying? I mean, we could be buying a million dollars of SATA immediately. A million dollars of Bitcoin.

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. 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 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

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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 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 SEDA. 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 whether or not we deem that a worthy hold. I don't think that's incredibly likely. 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. The leader's accumulated 800 and 800

440,000 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, we are uniquely positioned to understand the actual risk profile of that and think about how that adds value to our balance sheet. Ultimately, how I think about it is like, would you rather us hold $50 million in cash or would you rather us hold $50 million in STRC and extend our runway by a month? I'll be content. 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. It's not even a concern. It's just like, these are questions people ask and I want to put them to you. Yeah. Yeah. It's, uh, it's something that we're aware of. Um, again, it's, it's kind of communicating this risk profile of these instruments. Like we, 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 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, and we're parking Bitcoin on our balance sheet, but like that's that's how i i view it is it's a it's a really good moderate duration instrument to help you manage like cash position uh and get a juiced yield on on something that you're holding for a medium term so one of the other questions 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 uh like you're obviously looking at both of those very carefully like how do you kind of weigh the two off against each other I love both of them. I love both of them. And we want to foster, uh, amplify Bitcoin as much as we

do digital credit. But obviously like when you're buying a, when you're buying a common stock, you're buying the company, you're, 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 cashflow 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 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. 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 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.

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 i love that i love that for you i love it myself um i buy bitcoin every single day but like if you're buying common stock of the the amplified Bitcoin version, you're buying, 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, you're buying that excess like amplification. That's why it's called amplification. Cause it's, 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. 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, MSTR 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 a pure expression of this corporate capital vehicle given that we don't have any debt we only have one instrument it's a very clean expression i um i know you think i'm skeptical and i know why because i obviously have been skeptical in

the past i think these i think these are really cool um like one of the things i really like looking at your website is like you can see the bitcoin you've accumulated and like until a couple of months ago it was basically just like slugs of accumulation and and now you just see it like trickling up and and obviously that's with the money that's coming into sata and i think it's really cool that you're essentially now like dcaing bitcoin almost constantly i think that's

really good for bitcoin market i think you guys are going to do really well um 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? Man, probably. I guess we'll continuously monitor what that probability looks like. We've got a few different custodians there. institutional. They're very big names. You'd be familiar with all of them. And we are constantly monitoring what that custody of 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

corporately. It's basically like the recipe for Coca-Cola. You can't have multiple people on the same airplane at the same time. We've got all of that crazy stuff in place. And we've been working on that for months, really like September through January. That was, we were laser focused on that. We did an enormous DDQ process. We had a 200 question DDQ questionnaire. We went out and just absolutely grilled all of the custodians on everything. 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.

Not only from a corporate investment standpoint, somebody being willing to invest in the equity of your company or the credit of your company, the risk profile of me going on an airplane and being somewhere it's completely heightened right like the risk profile of Matt our 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? 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, um, the, the, it's a new landscape of trust is being built. Uh, and we, 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, 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 like trust in that we've done the hard work behind the scenes to vet our custodians, 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 other custody potential in place. So that's, I think broadly to answer your question, like on custody risk, is that 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 want to be fiduciaries of this capital moving forward. 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 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.

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? Uh, yeah, we we've considered it. It's something that we're, we're looking into if there becomes an industry standard way to do it. Um, I think it's something where we're open to doing the, the bigger thing is

like that the reserves are less of the issue. It's the liability. And if you, 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 the in my opinion like we get audited we have auditors that come in and look what our bitcoin is every single quarter yeah 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 um and so in our 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 viewing the exposure of the company relative to uh 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 um and you know ideally you could hold a little bit of an anonymity for some of those assets. 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 of reserves, particularly. particularly. You know, honestly, Danny, you're the first person that's brought it up in like,

I think since we've launched Seda, to be honest with you. Um, I know it was, it was a bigger issue in 2025, but I think the people that are buying the credit instrument don't really care. Um, if we had an overwhelming, uh, if we had an overwhelming demand from our credit, or credit buyers and saying, we're not gonna buy your credit unless you show us proof of reserves,

then that would be something we would heavily consider But at the moment it you know we seeing capital flow from you know international capital we seeing institutional capital we seeing retail capital coming from all different areas that interested in this type of instrument. Yeah. 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? What is the makeup of it? How much is retail versus institutional capital? 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 is like 80-20. I think ours might be 70-30, something like that, maybe 60-40, not 100% sure. Yeah, I did see, I think Phong came out and said they were 80% retail. Did that surprise you?

Because the narrative has been that this is sort of driving 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 that got in in 2015 2017 they they just front ran everybody for seven years right i

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. 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 like a three-year filter. So they'll go on there, like any of the assets they could buy, it's like filter greater than three years. And it's like, okay, those are the assets that pop up. And why is that?

Is that because like if it's survived three years, the risk is reduced? Or is it to do with like liquidity? What's the reason? Yeah, I think Saylor brought this up in a recent interview as well. 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 around, 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's gonna go bankrupt. They have a 9% leverage ratio. And like they've got the ability to pay, they've got 30 plus years of Bitcoin on their 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 these, these, 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.

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. And it just, it takes time to like go into the market and communicate this to people. Yeah. 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 nerdiest conference I've ever heard of. Oh man, 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 and we 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 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 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's what everybody started with. But here's the thing. We're going to go back next year.

We're going to have paid all of our dividends. 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 going 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. 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. 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, um, you know, spreading and spreading like a wildfire. These things are far more attractive in my opinion, to like the normie, the, 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 everybody you go on thanksgiving you go sell you go sell your family on bitcoin inevitably it's at the all-time high and you know your family your uncle buys bitcoin and then it drops 70 percent and he sells it at the bottom 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 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. You have to like really get them plugged in hard to do now 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. 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 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 a position is significantly different than taking Bitcoin principal risk when you're looking at like 20 years of life left.

Completely different. Completely different conversation. Yeah. So, and then who's got all the money, right? The boomers. 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 transfer? You create a product that is perfect for them.

Low volatility, high yield, go live out the rest of your life and, you know, transfer. And when you look at like 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?

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 US debt situation looks like, what the interest rate environment looks like, the rest of the credit world, the rest of the

equity market You know I wouldn be surprised if the interest rate stayed relatively high for quite a while I mean six eight years I wouldn be surprised Like you 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 so um it's so hard to speculate i i think the the probability

that you could bring the interest rate down is probably pretty high um yeah just it time will tell time will tell and do you think that this like i remember when we spoke in december we were talking about like how the kind of raise like issuing debt to buy bitcoin sort of side of the bitcoin treasury market 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 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 preferred equity and no debt all 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 might be silly but like why is that more attractive because the cost of capital is higher than all the converts the converts have a cliff

maturity so you can think about the cost like okay a convertible bond they strategy's 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 for that instrument. And there's a cliff maturity risk. 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 sell Bitcoin or figure out like refinance the debt or do something. You have to make a decision. Okay, so are the incentives worse in that scenario then? 100%. Most, yeah.

a hundred percent the incentives are worse the there's a few different things the um the convertible bonds also have uh 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 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. 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. Yeah. They wouldn't be where they are today without them. 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 of 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 PrefEquity, you could buy it. Right? Like it's exchange traded on NASDAQ. Okay. It's now available to 8 billion people theoretically. Right?

Okay. So it's 30 people in a high rise in Manhattan or 8 billion people, which is better?

I'd probably take the 8 billion people that would 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 pref form and it's now available and I exchange straight a ticker ticker to everybody 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 can watch this like clockwork. When the deals get priced, the price of the stock falls because the convertible bond holder is shorting the stock right on the moment to like delta hedge the position.

So there's consistent hedging and the convertible bond holder 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. 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 back alley in Manhattan, the incentive structure is not aligned with the convert.

Okay, so 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. With the PREF equity.

so it's better for everybody it's better for the equity holder it's better for the pref holder everybody's aligned on the you know the the capital structure that makes total sense um you brought up strike before their uh strategies one of their other preferreds like stretch has taken so like all the headlines and i don't really hear much about the rest of them now have i i understand like what sailor is trying to do like he's obviously issued is it five preferreds he has

like what's happening with the other ones are they also being successful uh their their trading liquidity is far lower 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 when you're talking about like almost like the yield curve of bitcoin yeah yeah because right strf is senior that uh to strc so it should trade um the interest rate that it trades at should be lower so that it's going to be the price is going to be volatile strk has got the conversion premium into mstr so it's 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. 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. 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. 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 Another unique thing is because these are exchange traded, it creates another unique nuance. Like if you were to go hold a bond, 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 go 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 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 And I think it going to make the world a lot more difficult to go raise credit capital because you 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? Yeah. Makes no sense. It becomes like you say, it becomes the new hurdle, right?

It's the new hurdle, right? It's like, if you're, do you think your business is going to outperform your cashflow of your business is going to outperform, uh, STRC or SATA, right? Like what, What's the risk profile of that proposal, that proposition relative to this? Does the ultimate hurdle rate not remain Bitcoin though? Bitcoin's our hurdle rate. I think that's our hurdle rate for capital deployment. And I mean, our ultimate goal is to increase Bitcoin exposure per share.

So the potency of the common stock, but the credit markets, which is a huge market, $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. 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. 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. Strike traded $8 million.

okay so the timing in comparison 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, you can, there's like a little bit more of a learning curve and it's a bit more difficult.

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? 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 could put that on your radar, but that's something we'd consider. We've kicked it around internally. I think there's... There's some ideas that are interesting, but we're not going to rush. 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, let alone the similar business. We can scale this 10x without any additional people.

like we don't have to we don't have to change anything we're doing you know what i mean it's interesting to hear though that um you think you could have this for 20 years because like sailors 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 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 um but are you saying we've like reached the killer product now and this won't you know there's nothing new novel coming in the future like if you think this can be a 20-year thing like do you think this is it or do you think there's more to come i i think that's like building on top of this is it like these are this is a new substrate to like build a new found like foundation right so

you got bitcoin the commodity and we've split it into two right now you've got the senior professional preferred equity in 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 DeFi. You can also do that in TradFi. And the market to do it in TradFi is enormous. Yeah. So, so like this is a perpetual preferred equity, right? It lasts forever. So is Bitcoin. Bitcoin's a perpetual, lasts forever.

a lot of trad fi 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 let's tranche this into a different layer and have a senior uh senior instrument of strc let's call it uh 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. 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 a hundred. 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 hundred billion dollar idea. Like you can go create a hundred billion dollar 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. Interesting. So you're asking me, could this happen for 20 years?

Yes. I think the scale, 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 16,000 insurance companies, I think, in the world. 16,000. None of them hold Bitcoin right now.

and like maybe five hold strc 16 000 insurance companies okay well they don't want to hold a perpetual but if there's if there's uh somebody that's issuing investment grade digital credit they could do 50 million dollar tranches i can issue infinite of it i can issue infinite 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 Bitcoin. As someone who holds Bitcoin, this is music to my ears. That means the price of Bitcoin goes very high. Yes. So like this is, it's like, we've, we've, 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. We're crazy busy moving on all 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 question that, um, say the kind of doubted 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. 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. I think we will be cheerful and constructive, day 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 were 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. Yeah. So you over took Coinbase, by the way, which is very embarrassing Coinbase as a company that's been in this space since 2012. Yes. You've done very well.

You passed Coinbase. So the reason I bring that up is we're number seven and we have a $1.37 trillion 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. They're at least on the Bitcoin treasury dashboard.

So there's a likelihood that they've gotten more holders of their common equity than if they were to have not held Bitcoin. So that's probably better off. 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 right the company's there's there's three around us right now that i've heard of and i've like had to scroll through a couple pages kohl's wendy's and uh oh there's one other one lazy boy like the couches kohl's as in like the australian supermarket kohl's it's like a supermarket here it's uh k-o-h-l-s it's uh okay It's like they sell clothes. 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 are the three that are just notable. 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 any of these are buying Bitcoin is probably good for their optionality into the future.

So 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? Sure. Is their common equity going to be massively outperformed? It just depends on what they do with it. Like, are they going to go run an operating business? Are they going to take out a loan and go start like 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 don't think we've hit the pinnacle. We're going to see thousands of companies add Bitcoin to the balance sheet in the next decade. Yeah. I think the companies are more likely to add digital credit to their balance sheet before they add Bitcoin.

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.

probably i think that's far more likely again it's like the same like go convince your board to add bitcoin on the balance sheet and they they smash by the pico top and they get hammered and you're 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 is a much easier

value proposition for like a board to discuss the um i think there will be other issues of perpetual preferred equity in the market Like that again we a trillion company Like if there were a trillion sorry not trillion billion billion company hopefully we're a trillion dollar company in the future. Yeah, that would be, yes, that's our goal.

But I mean, there could be a $5, $10 billion company that comes to market and starts to convert their balance sheet into Bitcoin and start issuing credit against it. I think we are going to see more of these. And I think that's good for the market. Like 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. Just like they're underwriting the Bitcoin ecosystem, they're underwriting that we exist. 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 $100 million 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. Uh, we 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 it's 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

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 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 that there will be a market for all of them because think about strc versus sata they're different products

strc has strf that's senior to it as 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 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. 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 um there's obviously there are companies out there that are struggling um 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 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 certainly. Do you think they will be able to turn that around? 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, depends on the price of Bitcoin. I think they do have like I think they have a 58K liquidation preference or something on there 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 opportunity there for some arbitrage opportunity 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.

a convertible bond becomes less of an issue and you know everybody forgets about everything that's happened the i think that one of the biggest one of the biggest challenges and and this is like a 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 just on the news of something potentially happening.

Right. So let's think about this for a moment. We announced that we're 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 dollar market cap so think about how many shares are available outstanding for a 15 million dollar 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 the price of the of the common stock like ballooned we we weren't part of the company that was our target our our deal

didn't close until September 15th, something like that. So you look at the price of the stock and it's like all over the place. It does, what it did, we had no control over, right? It was pure

speculation. It had nothing to do with, like, we didn't, 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 dollars of equity capital and we shoved it into a tiny 15 million dollar company so if you actually go overlay the 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 the price of our stock billions it kind of billion i'm i'm thinking about where strategies going i'm like yeah i'm at one point 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 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 its head. Oh, yeah. And the thing that's impressive, though, is that you're still trading above MNAV, above 1XMNAV.

And 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 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. Like historically in past cycles, uh, strategy had access to the capital markets when everything was booming in the, when the equity markets were booming.

And when 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.

and that changes in my opinion the structure that the future trajectory and the structure of what bitcoin can look like so yeah the cool thing with the fudds is it's not even just buyer of last resort it's the buyer of first is the buy it's just the buyer you're just always buying just the buyer just just always be buying right always be buying yeah yeah and we haven't seen what uh a perpetual preferred equity bull market.

We haven't seen what strategy can do in a perpetual, like the last bull market, strategy had, or when everything went crazy, November of 24, strategy had, what was it? 331,000 Bitcoin. That's crazy. Now they're 850. They now have 843,000. Okay, check this data. When Bitcoin goes back to an all-time high, strategy will have $109 billion balance sheet. That's assuming they buy zero more Bitcoin. Crazy. So when Bitcoin goes back to an all-time high, they will have the second largest balance

sheet on the planet behind Berkshire Hathaway. 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 that'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 like right away you've got the 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'll be electric for sure the crazy thing on the strategy side is i saw a tweet the other day and they've bought some like is 130 000 bitcoin this year is it something 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 do you think they'll get over a million in 2026 like August or September. Holy shit. I mean, that's incredible. Does it get to a point where you worry about the concentration of Bitcoin? And I know like the Bitcoin isn't necessarily strategies, it's the shareholders, but like, do you worry about that at all? Not really. Hopefully we've got a couple basis points of the market by that point. I think we've got the ability to grow incredibly quickly here.

Right, we've just got, we bought, we increased our Bitcoin stack 7% last week. That's crazy. Last week. Yeah. So if, if we can keep up this trajectory and if daily dividends, you know, provides the, the, um, you know, the, 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, uh, that, uh, are, you know, 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. I mean, it seems like it. It's happening. It could be 20% of the Bitcoin network, like long-term. I don't know how that makes me feel. This is like, what's that? I don't know how that makes me feel.

Well, let's do 20 years from now, right? What does this look like? You've got universal Bitcoin income everybody's just getting paid by these instruments that i i don't know i don't know what that looks like but um yeah look forward to being part of it yeah well it's it's awesome to see it you're crushing man um i think thank you like i i'm really glad that there's another product that's like alongside strategy in this i think having multiple is definitely better than having one

um you're doing really well i'm very very impressed man it's cool thank you 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.