Michael Saylor: The Blueprint for A New Financial System

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
There are no losers here except the twentieth century antiquated
oligopoly that is selling inferior credit instruments. But that's technology.
The human race has got to move forward. The skeptics
and the cynics, they choose to be strategically ignorant.

Speaker 2 (00:18):
Twenty seven years ago you didn't have trading apps on
your phone, and now it's even more accessible, but yet
the market is still held back.

Speaker 1 (00:24):
The investment cycle is one thousand times faster than technology,
real estate, anything else you've ever seen before in your life.
We're literally selling fifty million an hour or one hundred
million an hour and buying one hundred million dollars a
bitcoin the same hour.

Speaker 2 (00:41):
Is there an appetite for over collateralized debt that pays
ten percent?

Speaker 1 (00:45):
Just go walk down the street and ask one hundred people,
would you like a stable investment that yielded ten percent
tax deferred? If you think the bitcoin is okay, I
can jack your retirement income from thirty thousand to one
hundred and twenty thousand. So what we're really talking about
is creating an annuity or a pension, And so what's
the offers like? Happily ever after, it's social security. That's

(01:08):
the product for how many people a.

Speaker 2 (01:10):
Billion we need to go build the world that we want.

Speaker 1 (01:13):
The real interesting question for all of us in the
industry is.

Speaker 2 (01:20):
Michael. First of all, thank you for taking the time
to sit down with me here in DC.

Speaker 1 (01:23):
Yeah, happy to be here.

Speaker 2 (01:25):
I've gotten to spend a little bit time with you,
but I've never sat down one on one, so I've
been excited for this. There's one question I've always wanted
to ask you because I love history, and I know
you majored in science of history of science, but you
also have the MIT engineering degrees in astronautics, system dynamics,
and history of science. It seems like this unique blend
and I'm just curious how that the history so you

(01:47):
sort of get the history as well as like aeronautics,
helps you maybe understand bitcoin better and maybe sort of
see where the future of bitcoin goes.

Speaker 1 (01:56):
Yeah, I think when you read I've read a lot
of history of late in its original form, you see
historians observing things. They're making observations that are noting its suboptimal,
like observing ten thousand tragedies.

Speaker 2 (02:13):
Right.

Speaker 1 (02:15):
Then occasionally you'll see philosophers who are complaining about it.
So philosophers synthesize and they complain about about what they
don't like, or they lament that it isn't better the
Austrian economies. The philosophers. The engineers build machines that work airplanes, ships, railroads, right,

(02:37):
et cetera, electric motors. The scientists they divine the relationships.
The math that you know explains the universe, and the
physicists you know, and the mathematicians take that you know
to the extreme right. I had a background on all

(03:02):
those things. I think it was useful to have studied physics.
It's useful to have studied math. It's useful to have
studied all of the sciences and the engineering disciplines, which
get deep in thermodynamics and mechanics. And I think it's
also useful to have studied history and philosophy and the

(03:22):
history of science. It's particularly interesting subject because it goes
back and looks at the histories, but it's extrudes it
through or filters through a scientific lens, like the classic
non scientific historian says this happened, and this happened, and
that was sulb optimal, right, and the history of science

(03:45):
historians says that happened because of this. That happened because
of this, Yeah, guns, germs and steel. Right that the
Europeans didn't just show up to the New World and
then they conquered it. They showed up to the New World,
brought a German every but he died. They didn't have
to conquer it. I think ninety ninety five percent of
the natives died, you know, And that's that's actually, you know,

(04:09):
a biological explanation for what happened. If you don't understand
you know, the science of immunology, or you don't understand germs,
you couldn't explain it. And then you know, if you
think about the impact of steel, what's to take to
create steel and explosives and gunpowder? You know. And so

(04:29):
the history of science is all about how technology dynamics
channeled the course of human history. And I think the
reason it's important to bitcoin is is you can't really
understand bitcoin if you're not an engineer. If you don't
understand engineering systems, engineering control systems, servo mechanisms, the system stability,

(04:57):
you've got to understand all those concepts. Intuitive if you
don't understand thermodynamics. You know, the people that are pure
computer scientists who are weak on physics and engineering and systems.
Oftentimes they create Reube Goldbherd devices in code that a
hardcore engineer wouldn't build, right, And so you can't just

(05:19):
be a coder. And of course if you're a pure
engineer and you reduce the world, or I built a
ship or I built I built a gun, but you
don't consider the implication of the ships and the guns
on the course of economic and political history, right, then
you don't really understand bitcoin either, because you have to
understand the history of money and the history of economics

(05:42):
and mercantel networks and yeah, yeah, the idea, the idea
credit networks are local, like a German prints can have
a credit network, a British prints can have a credit network.
But gold or silver networks tend to be transnational. Right
that the French, the Germans, the Brits, the Persians and

(06:03):
the Chinese could all agree to trade on a silver
network or a gold network, but not on a Chinese
paper money network. And so when you start to understand
the impact of technology has metallic money on economic networks,
and then the impact of a ship with guns on it,

(06:24):
you know, on that economic network, or the impact of
not having immunity to all the germs the Europeans brought,
or the impact of not having steel and being stuck
in the Stone Age. All of those things have an
impact on the way the world evolved, and I think
bitcoin is it's crossing every one of those fields right now, right.

Speaker 2 (06:49):
Yeah, So being able to synthesize that information and understand
the cause and effect, and then looking at the changes today,
as you said, sort of a multinational asset, strong, a steel, fast, etc.
Then you can start to it seems like you can
start to see maybe the future that that creates better
than most people.

Speaker 1 (07:06):
Well, I just I think if you've got a broad
synthetic educational background, if you've studied a bunch of different subjects,
had a lot of experience, you appreciate bitcoin more. If
you have a very narrow background, if you understand economics
or i you've studied economics but never studied engineering, you'd

(07:26):
be missing half the equation. And if you're an engineer
that doesn't understand economics and never been in business, or
never traded internationally or never traveled yet, or didn't know
anything about history, yeah, you would also understand only a
part of the equation. So I just think you need
to know a lot of different subjects in order to
fully appreciate the impact and the significance of the invention

(07:51):
of bitcoin.

Speaker 2 (07:52):
Yeah, which is then in your professional career building technology companies,
and so you kind of predicted a lot of those
technology companies that have grown some of your books that
you wrote in the past. But then also navigating those
tech companies through the capital markets then sort of gives
you a new perspective to see the deficiencies in the
current capital markets that we have today and then help
you kind of think about fixing those with jumping into

(08:14):
sort of like this refinery model, trying to see solve
some of the deficiencies in those capital markets the way
companies are crue capital.

Speaker 1 (08:22):
Yeah, I think what can be said of the capital
markets is ninety nine point nine percent of the companies
were locked out of them, right, So the first question
you got to ask is how come this forty million
businesses in the United States, But there's only like four
thousand publicly.

Speaker 2 (08:39):
Traded companies, right, so don't have access to the capitol.

Speaker 1 (08:43):
Okay, So it doesn't sound like a like if I
said only four thousand companies have telephone and internet access
and the other forty million businesses don't.

Speaker 2 (08:51):
What would you say, Yeah, that'd be a problem.

Speaker 1 (08:53):
Yeah, you know what if I said four thousand companies
have bank accounts and the other forty million don't. Right,
So you just start with the observation that the capital
markets can't be all that effective if ninety nine point
nine percent of the companies can't access them. And you know,
beyond that, the other observation is if you look at

(09:15):
the companies that are in the public market, if you
look at the thousands of publicly traded companies, it's like
twenty that control all the attention. And so you know,
most public companies are zombie companies. They're uninteresting, no one
cares about them, They carry a huge burden of regulatory compliance,

(09:37):
and they don't get the attention they deserve. So one
could characterize the capital markets as being unwieldy, ineffective, right,
And it's you know, and what is that they're twentieth
century instruments that never really evolved in the twenty first century.

(09:58):
You got to ask the question, why does it take
three years to raise money if you have a small business,
Why can't you do it in three days?

Speaker 2 (10:03):
Right?

Speaker 1 (10:04):
Why is it? Uh? You know, why does Why is
it impossible to take custody of your own stock shares?
Why is it impossible to trade shares on Saturday afternoon?
Why is it impossible to transfer things globally? You know?
Why is it? Why is it that you can actually
take a million dollars of cash and get paid interest

(10:26):
on it, but you can't take a million dollars worth
of stock shares and get paid for that? Yeah? Why?

Speaker 2 (10:34):
Why?

Speaker 1 (10:34):
You know? So there are all these things that just
are very inefficient that we just take for granted, but
they don't work very well.

Speaker 2 (10:41):
Right. A lot of that is technology being inefficient, and
here we're at this in DC, at this bitcoin policy event,
and a lot of that might also be regulatory, right,
So a lot of that regulations maybe prevent some of that.

Speaker 1 (10:54):
Yeah, generally, often oftentimes whenever you have a highly regulated industry,
progression stops. Right the banking If you look at the
credit markets, they seem to be stuck and stuck in
a mode that was probably probably modern thirty years ago,

(11:16):
Like they're thirty forty years old and they haven't advanced.
If you look at the equity markets, it's the same way.
For example, now, my company came public in nineteen ninety eight,
we traded on NASDAK from nine thirty in the morning
till four in the afternoon. The year is twenty twenty five.
We trade on NASDAK from nine to thirty in the

(11:36):
morning till four in the afternoon. Right, what's the difference
between the way my stock trades today and the way
it traded twenty seven years ago?

Speaker 2 (11:44):
Yeah?

Speaker 1 (11:44):
Nothing? Nothing?

Speaker 2 (11:47):
Yeah?

Speaker 1 (11:47):
Right? Could you imagine any other industry where there was
no material change for twenty seven years.

Speaker 2 (11:55):
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(13:01):
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the differences, I mean, twenty seven years ago you didn't
have trading apps on your phone and now it's even
more accessible. But yet the market is still held back,

(13:22):
even though retail could access it easier.

Speaker 1 (13:24):
Yeah, because you know, the traditional finance industry is highly
regulated and it has settled into a comfort zone, and
you know the forces of progression are in the crypto industry.
Most of the forces of the traditional finance industry are
forces of regression like that that the knee jerk reaction

(13:44):
is why shouldn't we do this? Why is this a
bad idea? If you listen to all the guenslor speeches
for the last four years, it's always why this is
a bad idea, right right, Like why can't why can't
I issue a token, you know, for my small business
over the weekend? Well, we got to protect the investors, right, Okay,

(14:07):
So that's why we're going to disenfranchise forty million companies
for being able to raise money, because the people that
might want to invest in them might not be qualified
to make that investment. So it's kind of like, well,
why don't we give cars to people below the age
of sixty? Got to protect the pedestrians or protect the work.

Speaker 2 (14:26):
You know.

Speaker 1 (14:26):
It's like if you if you took that rule and
you applied it to phones, or cars, or websites or
flying in an airplane, we would have no automobive industry.
We'd have no aircraft industry, we'd have no telephones, we
have nothing, because we wouldn't do anything until we're sure
that no one would be harmed by the doing of
the thing. We wouldn't even have fire, you know, we

(14:47):
w'udn't want someone to get burned. We wouldn't have electricity.
People might get shocked, right, got to protect you know,
got to protect the people that might get hurt by
the new idea. So that's pretty much should be the existing
status quo in traditional finance, and it has been for
thirty years.

Speaker 2 (15:06):
Yeah, and with the advancements of technology, I'll get I
want to get more into the politics side. And you
talked earlier on your keynote about maybe the last twelve
months of this big political wins that shifted, but kind
of sticking with some of the ways that technology is changing.
On your keynote, you said you spent I think about
thirty years trying to come up with a billion dollar idea,

(15:26):
which you did and then couldn't come up with the
next one and now half a dozen billion dollar billion
dollar ideas in the last year or two. And that's
sort of in New York at the unconference, you talked
about this refinery model and standard oil sort of taking
this raw asset like bitcoin and creating products off of it.
And so you're creating now products off of it. That's

(15:47):
the model to do is what would be the kerosene
of this industry.

Speaker 1 (15:53):
Kerosene represents most highly refined crude oil. It's like it's
pure liquid energy. Right if JEF you put it in rockets, like,
you can't refine oil more than kerosene. So it's an
important metaphor. It's the cleanest, highest grade distilled liquid energy,
like pure grain alcohol. Right, that's what you're talking about

(16:15):
there from a bunch of potatoes, stock of potatoes and
outcomes pure grain alcohol. The equivalent of kerosene in the
bitcoin industry is a treasury preferred credit instrument like stretch.
So on one side you have digital capital bitcoin and

(16:36):
bitcoin is a long duration, volatile, high energy, high performance
source of capital. Long duration. Think of it in terms
of like two hundred and forty months, like twenty years.
You should if you want to get the optimal performance,
you can hold it for twenty years. It's a ten

(16:58):
to twenty year type in man high volatility. Right now,
it's about forty five ball implied ball. It's been fifty,
it's been sixty, it's been seventy ball and high performance,
you know, appreciating fifty percent a year. So that's the
raw commodity. What happens if I if I strip away

(17:21):
the volatility, strip away the risk, strip away or compress
the duration, translate it to a given currency, and extract
the yield. That's what a treasury credit instrument or treasury
preferred is. So that's what stretches. The idea is you
build something that's got one month, like I'm going to

(17:43):
give you ten percent dividend yield for one month. Like
the duration is one, the yield is ten percent, the
currency base is US dollars. The spread. It's like, if
the risk free rate is four hundred basis points and
that's a six six hundred basis point credit spread, I've
extracted a six hundred basis point spread for the next

(18:07):
month in US dollars. Maybe I five x overcollateralize it.
Maybe I ten x if I, you know, raw bitcoin
is like one to one. It's like if I have
a dollar bitcoin. I have a dollar a bitcoin and
bitcoin trades down fifty percent, I've lost half my money.
But if I ten x overcollateralize something I have ten

(18:28):
dollars a bitcoin, I have one dollar of stretch. A
bitcoin trades down fifty percent, I still get a dollar
stretch a bitcoin trades down ninety percent, I still have
a dollar of stretch. The statistical odds of bitcoin trading
down ninety percent or like points something. Right, It's a
small percentage. So by over collateralizing, you strip away the

(18:50):
risk by structuring it to adjust. If you put a
set of adjustments or representations below below one hundred, you
start to strip away the ball Telly on the downside.
If like with Stretch, what we did is we put
in a call option at one oh one, and then
we told the market we're going to sell it actively

(19:12):
at one hundred or better. And then we also told
the market we're not going to sell it below ninety nine,
and if it's below ninety nine, we're going to raise
the dividend. Okay, So you're kind of collaring this instrument.
And then the last point is we created a preferred
instrument where we pay it monthly in cash and then

(19:35):
we adjust the dividend every month. So it turns out
if you scan in the history of preferred stock or
the history of the credit markets, no company has ever
issued a perred preferred stock where the management has discretion
to adjust the dividend every single month. Like there are
some preferred. That are floaters where they set the credit

(19:57):
spread at three hundred and fifty bases points over SOFA,
and they will float with SOFA with the risk free rate.
And there are a lot that are fixed where you
sit it at seven percent, and the principle will trade
up and down if sofur falls or arises. But the
idea that the credit spread is completely variable is a
new idea. But by the way, not a new idea

(20:21):
in a world of credit, because who does this, well,
Nation States do it.

Speaker 2 (20:26):
The Fed.

Speaker 1 (20:27):
Literally, that's what a central bank does, right, That's what
every central bank does. They set the interest rate on
their currency. Ye what we did was just copied you know,
traditional bankers, and we set the interest rate on our currency,
which is stretch. So that is the kerosene of of
the bitcoin you know, Treasury company, or of the digital

(20:50):
assets industry. Because it's the it represents the greatest degree
of financial engineering, just like kerosene represents the greatest degree
of petroleum engineering. Right, I've done the most refining. I've
distilled the highest quality product. You could imagine, for example,

(21:11):
you could you could extract the same product and yen.
So I want to create a yen instrument that's ten
thousand yen that pays you know, a monthly yen cash
yield or a cash dividend. I changed that every month,
and now I've created the equivalent of kerosene for the

(21:32):
Japanese market. And of course, what does everybody want? Everybody
kind of just wants. I've got some money I need
to park for the next ninety days. If I put
it in the bank, If I put it in the
bank in Japan, I got fifty basis points or less.
I put it in the bank in Switzerland, I get
minus fifty basis points. If I put in the bank
in Europe, I get two hundred basis points or less.
If I put it in the bank in the US,
I got four hundred basis points or less. And so

(21:56):
what I'd like to do is put it in some
kind of structure where I'm going to get my money
back in nine months or six months or whatever. The
principal is not going to move around, but I'm going
to get ten percent. Everybody wants a bank account of
base ten percent out of four percent, two percent or
zero percent. And and so I think I think the

(22:18):
most interesting product that you can create, the most interesting
digital credit product is a treasury preferred credit instrument for
corporate treasurers or for retirees. Right, just you know, and
how big is that, Marcus, Like thirty trillion dollars in
the US. Yeah, of just short term treasury money. So
thirty trillion in the US that's getting paid, so fur.

Speaker 2 (22:43):
Yeah.

Speaker 1 (22:43):
And the opportunity with digital credit is you create a company,
you hold bitcoin, that's digital capital. You start to issue
credit instruments on top of the capital, and you can
decide how much risk do you want to strip away?
Is it a BTC rating of two, which is two
times over collateralized, or is it ten? Right, Two is

(23:07):
less risk stripped away. Ten is more risk strip strip away.
The amount of risk you want strip away, the amount
of volatility. The smaller the instrument compared to the overall
collateral pool, the less the volatility. And then there are
a lot of terms and conditions that you can put
in the instrument that would constrain the volatility. So you

(23:29):
decide how much volatility and risks you want to strip away,
decide how much yield do you want to give it.
You decide whether you want it to be in pounds
or Canadian or euros or yen or whatever you know,
and then you distill out, you extrude the yield and
the pure you know, boost over the risk free rate,

(23:50):
and you offer that to the marketplace.

Speaker 2 (23:52):
Yeah, I saw you ask it both in New York
conference then today at the keynotes. Just let me see
a raise of hands, like how many people have a
bankcount that like ten percent? And of course everybody wants that,
so we can see the demand for that is.

Speaker 1 (24:04):
Nobody in the world's getting paid five.

Speaker 2 (24:06):
Right.

Speaker 1 (24:08):
We created a product STRD stride. It's the junior long
duration credit instrument right now. It pays about twelve point
six percent twelve point six percent and so the average
part by twelve point six percent as a return of capital.
So it's tax deferred and if you put your money

(24:31):
in the bank, you're going to get four percent pre tax,
three percent after tax. Right, So it pays anywhere from
three to four times as much cash flow. Yeah, so
that those are really interesting products that we're creating in
the market.

Speaker 2 (24:48):
I mean, just in the US, we have seven trillion
in money market accounts just trying to earn a third
of that yield that you're paying out there. And so
then you have four different products, and so not everybody
wants cares. Some people might want other products. Yeah, you've
got strike, stripe, stride, and now stretch, and so each
one of those sits in a different location that gives
them a little bit of a different variation of the kerosene.

Speaker 1 (25:11):
Yeah, pure kerosene like the I would think, I would say,
the other ones are kind of like gasoline or diesel,
or plastic or you know there naphthos. There's a lot
of other petrochemicals. You know, the entire petroleum ministry is
fascinating because out of a barrel of oil doesn't just
come gasoline, diesel and jet fuel. Also, you get acrylics,

(25:36):
you get fibers, you get polyester, you get lycra, you know,
you get PBC. You get the stuff that we make
doors with it, we make walls with it, we make
pipes with it, We wear it, we look through it,
we burn it. Think about how profound it is. Like
just around this room, if you glanced at the room,

(25:56):
you probably find there's probably one hundred or hundreds of
petrochemical products in this room.

Speaker 2 (26:04):
Yeah, that have been created.

Speaker 1 (26:06):
So the possibilities are endless. But if you come back
to just what we've done. Right, we're just one company
and we're just we're showing what's possible. Strike was the
first and it is a convertible preferred. So Strike shows
how you can you can extract any amount of yield, delta, duration, risk,

(26:33):
or volatility. So we Strike. We basically gave it about
thirty five delta, that is like thirty five percent of
the upside of the equity. So you get you know,
you get an equity component, then you get like a
right now, it's like eight and a half percent yielding,
like it pays eight percent at part. So we gave
it a divid end at eight percent. We gave it

(26:54):
an equity component for some upside, and then we made
it cumulative and so gave it some seniority privileges. And
that's for people that kind of just they don't want
to buy bitcoin and be on the roller coaster. They
want to get I call it a bitcoin fellowship. It's like,
you know, it's like you buy it, you're waiting for

(27:15):
the upside and you're getting paid to you know, a
living stipend right while you're waiting, you know, for the
principle to appreciate. So that's one instrument.

Speaker 2 (27:25):
Because it will convert into mstr A thousands.

Speaker 1 (27:27):
Because it's got a conversion right. Right, So if you believe,
if you want to hold something for thirty years, well
you're going to get thirty years worth of dividends. And
at the end of thirty years, you're you're holding, say
for one hundred dollars stock, you're holding if you have
about one of these, you've got a forty dollars worth
of of equity when you buy one hundred dollars instruments.

(27:51):
So that's for people that want some upside with downside
protection with guaranteed cash flow, right, which a lot of
investors want, right, I mean a lot of investors they
if they wanted max upside, max volatility, you would buy
the bitcoin, right. But can I go thirty years without

(28:14):
any cash flow? Can I go ten years without cash flow?

Speaker 2 (28:17):
And can I stomach the volatility?

Speaker 1 (28:20):
Yeah? And there are a lot of people that just
don't want the volatility right for any number of reasons.
So that Strike, it turns out that Strike is the
most volatile of the four preferred instruments because it's got
that equity component in it, and it's got longer duration,
and so that means it's got more volatile to interest
rate forward curve and has got more volatility to bitcoin

(28:42):
price and more volatile to MSTR price. The second thing
we did with Strife STRF, and that was long duration
senior credit. So it pays ten percent dividend in par
forever and that means that it doesn't adjust. It's like
it's like a you know, it's not a bond because

(29:04):
it's a dividend. It's better than a bond because in
that if you want cash flow, because the dividends get
better tax treatment, and it becomes if it becomes a
return of capital, which is what it is right now,
it's completely tax deferred. So that's that's for someone who's
a long term credit investor, and it happens to be
senior in the capital structure, so it so it gets

(29:26):
paid off before everything else, and it has penalty provisions
if we ever skip a dividend, right and so extremely
risk adverse institutional investors that want the credit but they
want to be ahead of everybody else in the stack,
they would buy that. Well, that's trading above par right now,
so it pays like nine percent effective yield, okay, because

(29:50):
it's senior. We followed that with the identical instrument. We
basically weeded ten percent at par, but instead of cumulative,
we made it noncumulative, and we may instead of senior,
made it junior, and instead of the penalty provisions, we
took them.

Speaker 2 (30:05):
Out so get a little more yield.

Speaker 1 (30:08):
And so what it does is it makes it theoretically riskier,
you know to the person studying the contract, but it
means the trades lower, so that trades like in the eighties,
so that that yields twelve and a half or twelve
point six percent. So the issue is why would somebody
want to buy the one without all the investor protections

(30:29):
in the security And the answer is because you get
paid three hundred and sixty bases points. So do you
want do you want twelve points five or twelve point
six percent for the junior instrument or do you want
nine percent to be senior? Well, if bitcoin, you know,
go sideways or up, and if the company doesn't fail,

(30:51):
then it's going to cost you three point six percent
a year for the rest of your life to not
trust us, right you see, So now you've actually got
there an actual credit spread. If you're wondering what is
the equity premium between being senior and then having having
none of the representations where you've actually got the market

(31:11):
tell it's like three point six or three point seven
percent or something. It varies every single day. If you
don't trust bitcoin, if you think bitcoin's gone to zero,
you wouldn't want to buy any of this, right, And
so then it comes down to how much do you
trust the company? And if you know, people buy dividend
bearing equities all the time, like every single equity, if

(31:33):
you buy Verizon equity, if you buy a telephone AT
and T equity, they pay dividends, but they're not required to.
They could suspend them without prejudice and without penalty at
any time. So could Apple. Do you trust the company? Correct?

Speaker 2 (31:47):
You know that if they suspended, their stock's going to
take a hit, But otherwise you're completely trusted in your view.

Speaker 1 (31:52):
Is like, well, they probably won't because the stock will
take a hit. And so the issue is with Stride,
will we pay the dividend? Well, of course we will,
but what happens if we don't. Well, if we don't,
Stride will trade way down. But then we won't. But
and then you're like, well, why would the company care.
We want to sell it, right, Like, if we actually

(32:14):
default on that obligation, then the instrument isn't the capital
raising vehicle for us. And the big idea is, unlike
most companies that issue credit apologetically in order to deal
with the crisis, we issued credit strategically, enthusiastically, with the

(32:36):
intent that the credit is the product. See when Boeing
issues preferred stock, the product is the airplane. They sold
the preferred stock because they ran out of money to
build airplanes. We issue the preferred The product is the
preferred We didn't never run out of money. We issued that.
You know, why did you sell a billion dollars of
Stride so I could sell ten billion dollars more of Stride?

(33:01):
Why did you sell a billion dollars of Strife so
I could sell ten billion dollars more of Right, So
we have a very different business model in that regard.
We created the Stride so we could create the credit
spread because we literally wanted to have an investment grade
type instrument, a senior one, and we wanted to have

(33:22):
a junior one because there's one class of investors that
want the junk credit, like they want twelve percent yield, right,
it's like, it's very simple, do you trust the company?
Do you want twelve and a half percent? You know,
do you have trust the company and you prefer to
take the nine percent? Well, iron it. There's markets for both,
and they are not the same investor. Yeah, there are

(33:43):
days when everybody wants to buy Strife and they don't
want Stride, and there are other days when they want
to buy Stride, and so so that was part of
building out the risk curve. And then the last thing
we did stretch was a very different idea. Instead of
paying an eight or ten percent perpetual dividend forever, we
just said, hey, let's actually reduce this to one month duration, right,

(34:08):
and so we're only promising to pay this dividend for
a month. The other one is a promise for one
hundred years. And so theoretically the mcaulay duration, the theoretical
duration on the other instruments ends up being between like,
you know, eight and twenty years or eight and fifteen years.
It's very long range. Take of a lever that's one
hundred and twenty months to two hundred and forty months long,

(34:30):
and you know, you have a little change in interest rates,
and that's a very big lever to the good of bad.
But with Stretch, the idea is a one month duration.
Of course, inherently that's going to be less volatile. And
you're like, well, I'm not going to get capital appreciation
if Soufur dives by foreignerd basis points, I'm not going
to double my money. Well, exaly, exactly, it's the treasury instrument.

(34:53):
You're not buying it to double your money. If you
want it to double your money if Sofur dives, you
would buy strife. Right, that's the instrument for the credit
investor that wants to actually ride it up when interst
rates fall, or wants to do the opposite when interustrates rise.
That's a different instrument. It turns out the most people, right,
corporate treasurers, retirees, retail most people, they're not really interested

(35:17):
in being long duration credit investors. Like ask the average person,
do you have a bank account? Yes? Do you have
a thirty year treasury bond?

Speaker 2 (35:30):
No?

Speaker 1 (35:32):
Like the difference is like fifty to one. Stretch came last,
But ironically, stretches the best piece of financial engineering, and
it's probably the most universally applicable product because what you're
doing is just giving people pure currency cash flow, pure
pure currency yield without the volatility, the risk, the duration,

(35:56):
or the delta. It's like, you know, some people want delta,
like I want the thirty I want thirty or forty
percent of the upside of the common stock. Other people don't.
Other people like I want nothing to do with the
common stock. I just want you to pay me ten
percent on my money until I ask for my money back, right,
That's what they want. It's a very different, uh financial

(36:18):
instrument for a different investor.

Speaker 2 (36:21):
You mentioned how when Boeing issues debt it's because they
need the money. And when you do it, when Mike,
when Strategy does it, you're issuing the debt because that's
the product. And we think about like, if I'm buying
the debt of Boeing, then I'm trusting that their investment
into their airline will have enough cash flow maybe to
pay me in the future, versus I'm paying you, but

(36:42):
you're buying the asset, so I'm not depending on future
cash flows because I know you have the asset and
the debt is over collateralized. Yeah, governments will never stop
printing money, so inflation it's not going away. Now. If
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Speaker 1 (38:00):
Well, if you look at the credit markets. You've got
corporate credit that's basically a credit issued against future cash
flows of a company. You've got investment great corporate credit
from Apple or Microsoft, and you've got distressed corporate credit
from quasi bankrupt companies. You've got junk from companies that
can barely cover that cash, right, And so that's corporate credit.

(38:21):
You've got mortgage back credit. It's when you're basically issuing
credit back by mortgage payments of homeowners.

Speaker 2 (38:28):
Yeah, we saw that play on two thousand and eight.

Speaker 1 (38:31):
Yeah, and you know it's like the good news bad
news is if it yields a lot, they probably can't
afford to pay it. And if it yields a little,
you're not getting much yield. Right, So either they're not
going to default but it doesn't pay you much, or
it pays you a lot and they're probably going to default.
And that's the Great Financial Crisis. And we learn that. Well,

(38:55):
then you've got municipal credit. You know, a little bit safe,
but it pays nothing, right, it's like almost no two
to three very little yield in municipal credit back by
cities and projects like you know, you've got bank credit.
That is when you deposit a million dollars in the
bank account you bought bank credit. You know, they're selling

(39:19):
you bank credit and they're paying you the sofa rate
or the risk free rate, et cetera. So that's there's that,
but you know it's pretty uncompelling in most countries. I
mean the best is the US, In Switzerland and in Japan,
it's like nothing, right, it doesn't pay anything.

Speaker 2 (39:36):
Uh.

Speaker 1 (39:36):
And then you've got sovereign credit fiat credit. You know,
the government of the United States or the government of
the UK issues it's sovereign debt and it's and that's
backed by the cash flows of the country in theory,
the taxing ability of the country, or just the ability
the country to print its own currency. And when the
country has a collapsing currency Turkey, those interest rates have

(39:58):
to be very high. But the country's currency is collapsing.
And the issue is are you going to want what
are you gonna be able to buy with the currency
or the issue you're gonna get paid? So really, the
big bran, when's the last time in one hundred years
there's a new form of credit. Every one of those
credit instruments, they've all been around for a while. You

(40:21):
could argue that mortgage credit evolved into a higher form
with Freddie, Freddie Mac and Fannie May. Right when what
happened the government started underwriting the credit risk of mortgages.
That drove down the rates, that created systemic risk, right,
so that changed a little bit. But the idea that

(40:42):
a company's going to borrow money, or someone's going to
mortgage their property, or a government's going to borrow money,
or a seat's going to borrow money, none of those
are new ideas, right that you can trace them all
back for hundreds of not thousands of years. So the
idea that you know, what was a quasi stable idea
issue credit on gold on a monetary asset, well that

(41:06):
you know, we saw that in the seventeenth century, the
eighteenth century, the nineteenth century, even the twentieth century. You
could argue, you know, British sovereign debt, French sovereign debt,
they were all gold back credit instruments, and they were
all backed by various amounts of gold, but it was
almost never one to one. It was always like under collateralized,
and eventually it would probably got down to five percent collateralized.

(41:30):
In nineteen seventy one, and that's the end of the
gold back credit era, right right. And so now you
have digital credit, you have digital gold, you have bitcoin.
Bitcoin is digital gold digital capital. The killer use case
of digital gold is issued digital credit instruments. And the aha,

(41:51):
the aha moment is any company, any publicly traded company,
can create a digital credit instrument with any degree of yield, duration, delta,
or risk, and to a certain degree with a man

(42:11):
with any amount of volatility that they want. Right, if
you want extremely low volatility, you can't create a lot
of it. Like if you have one hundred billion dollars
a capital, can you create one hundred billion dollars of credit?
That's low volatility enough. But you know, the real interesting
question for all of us in the industry is can
I create ten billion dollars of low volatility credit with

(42:33):
one hundred billion in capital? Or do do I need
one hundred x? Can I only create a I'm sure
I can create one billion dollars of very very low
volatile at one hundred times over collateralization. You certainly get
done with ten x over collateralization. I think you'll probably
also get it done at what level five x, three

(42:56):
x too? It at what level can you not? And
of course that's a function of the bitcoin volatility too,
because the less volatile Bitcoin gets, the easier it is
to create these low volatility credit instruments.

Speaker 2 (43:12):
Would it also depend on the credit worthiness, the trustworthiness
of the company issuing it.

Speaker 1 (43:16):
Yeah, I think it's a function of the issuer, their reputation,
their balance sheet, what senior and junior the instrument. It's
a function of the type of credit instrument. Is it
a bond, is it a preferred stock? The container it's in,

(43:37):
the security design, the rails it's running on. Is it
trading on the New York Stock Exchange, the NASDAQ, the
Frankfurt Exchange, the Toronto Stock Exchange, how much liquidity. It's
a function of the regulators because in a more flexible
regulatory environment, the issuer has more tools to strip the volatility,

(43:59):
and more inflexible traditional primitive regulatory environment, the issuer doesn't
have the tools. They can't legally take the action, and
even the technology rails. For example, you know, on the NASDA,
you can't tissue a preferred stock denominated in euros on

(44:23):
the NASDAK on the Nasdaq can't do it. You know,
So what if I wanted to pay a weekly dividend,
in theory it would be less volatile. But technically, with
the existing US banking system, it's not practical to snapshot
the holders of record every week because there's like a
three day delay, you know, So it's very problematic to

(44:45):
pay a daily dividend or a weekly dividend. Even monthly
is about the quickest anybody's done. You know. There are
some exchanges where they they're more inflexible on your about
to say, do ATMs and issue securities at the market.
You know, there are other there are other places in

(45:07):
Switzerland they never issued. There's no support for preferred stocks
in the market, okay, just the entire countries.

Speaker 2 (45:14):
Right, you know, in the UK they're hardly used as
well preference share well.

Speaker 1 (45:18):
So there's an issue of whether they're used or whether
it's impossible to do it too. And then and then
of course it's there's a question of can the exchange
you want to trade on support it? And the second
question is can will the regulator allow you to issue it?
And the third question is will the investors in the

(45:38):
country buy it? And the fourth question is will the
bankers that control those networks sell it?

Speaker 2 (45:45):
Right?

Speaker 1 (45:46):
And so you really have many, many layers of support
that you need, and I think over time many of
the better ideas will spread. But it's just like this
right of electricity or gasoline or crude oil or whatever.
It's like they didn't all spread in the first year,
right right, take take Robinhood. Robinhood is is the way

(46:11):
people buy a lot of securities today. They hold they
support common stocks, but they don't support preferreds. You can't
buy stretched, strike, strife stride on robin Hood. Why you
can't buy any preferred on robin Hood. Why because no
one ever created one anybody wanted to buy. Because the market,
because most there's a market for garbage, like there's a

(46:36):
market for twentieth century traditional defective crippled credit instruments in
the preferred market. Okay, they all pay six percent, they're undercollateralized,
their opaque, their heterogeneous credit right, and they're issued by
any of five thousand regional banks you've never heard of,
or buy five thousand reach you've never heard of. And

(46:59):
they train cheap. They're all liquid. The bit ass breads
are wide, they have QSIP numbers, there are no ATMs
on them. No one's ever heard of them. Your private
wealth that you know, think about this, one hundred thousand
private wealth advisors. They're you know, pulling out their Bloomberg
and they're finding the ninety seventh issue of some big
bank preferred and they're putting it in your retirement portfolio.

(47:22):
And when it comes due or it gets called, they're
rolling into something else and they manage your money and
they charge you an x percent fee. And the person
that actually owns that thing doesn't know what they own.
They've got xxy QSIP fourteen nine two two three and
they couldn't even read the screen. And by the way,
there is no quote on the screen. You have to

(47:43):
buy a Bloomberg and pay twenty five thousand a year
to get the quote. So yeah, there's that market. But uh,
but the modern retail market, the digital market is like
fifty million people you know, want to be able to
trade on Saturday afternoon. And so that's that is not
a criticism by the way of Robinhood. That's an observation

(48:05):
that you invent a new thing, the existing distribution infrastructure
never seen the new thing. There was no demand, so
they didn't build out the rails to move the new thing.
So there's been an inertia in the system. At the
point that those things become screaming home runs and twenty
seven million people ask for them, then you know, somebody

(48:30):
upgrades the rails and then they start to distribute them.
And so that's what's going on in the world right now.

Speaker 2 (48:36):
It's interesting that you use Robin in an example because
they're one of the newer digitally tech forward into crypto,
so they're sort of at the forefront of that, and
yet they're still behind the girt.

Speaker 1 (48:46):
And their defense. What I've just described didn't exist in
January of this year, sure, right, Like we're literally about
to be October, and in January, none of these digital
credit instruments existed. So even if you move back lightning
fast is within a year or two years, right, Most
big banks they take three to five years to study something.

(49:07):
There are literally credit investors and fixed income investors their
of you as well, and money manager's got to have
a three to five year track record before we'll consider
an allocation to them. Yeah, right, So I'm not again
not being critical. That's just the natural inertia of the world.
And we are moving very very fast in our industry

(49:27):
right now, and the world's going to take a while
to catch up.

Speaker 2 (49:30):
Yeah, when we were in London, I was meeting with
some of the bankers there. We were talking to the
Rothschilds and they're like, you know, we have this century
long timetable and we don't move really quickly, and preference
shares aren't really something that's used a lot in the UK.
And I said, forget the preference shares for a minute.
Is there an appetite for overclladalized debt that pays ten percent?
And they're like, well, of course right, So of course

(49:51):
the appetite is there. You just have to get a
packaged up vitally in front of the right people.

Speaker 1 (49:55):
For example, like we could have sold our stuff as
a ten year bond, a twenty year bond, or a
thirty year bond, or you could do a five year bond.
The reason that we didn't do it is because you
can sell prefer in the US, and if it's a
perpetual instrument, you can attach at the market shelf registration
to it. And if your goal was not to sell

(50:18):
a billion dollars or half a billion of bonds, but
rather to sell a billion dollars a quarter forever, if
you wanted to sell billions of dollars a year forever,
then you need to do with the perpetual instrument. And
of course a five year bonds no good because in
three years the bond's almost about to be called so.

Speaker 2 (50:37):
And you'd have to liquidate the bitcoin and give it back,
which goes against the entire purpose of accumulating the bitcoin.

Speaker 1 (50:42):
The reason that we don't use that kind of debt
is because eventually there's a refinancing event, and you know,
we wouldn't liquidate the bitcoin. We want to refinance the bond,
so we'd issue a new bond. But the point is,
who wants to be beholden to the bond market? Do
you want to issue Do I want to raise a
billion dollars account up the every four years for the
next hundred years, because that's twenty five deals and each

(51:06):
one of them is two percent fee, and so I'm
going to pay fifty You're going to pay five hundred
million dollars in underwriting fees. Or do I just want
to issue the billion dollars once for the next hundred
years and was not paid the next fifty percent in fees?
And of course the problem is not just the fees.
The problem is the risk because if you get to

(51:28):
a refinance point and there's a financial crisis or bank crisis,
in the window to refinance bonds closes and now you
have to actually sell some of the underlying assets. So
you know what, speaking of the raw Child's, if you
read the history of the raw Childs, they were very
famous for selling consoles which were British government sovereign debt

(51:54):
issued you know, from like seventeen sixty on, you know,
for a hundred years, and they paid three to five percent.
They were perpetual that never came to par value one
hundred pounds. So if you think about what that is,
that's actually just what stride is or strife. It's you know,

(52:16):
what we did is just copied British sovereign debt from
two hundred years ago. And it's a very humbling to
notice that the world went backwards. In my opinion, one
hundred dollars pounds one hundred dollars par value in pounds
that pays five percent forever. A perpetual instrument is a

(52:37):
better way for the government of the UK to raise capital.
It's a better instrument for an investor to hold. It
would adjust the par value, adjust up above par or
the principle adjust the above part or below part, depending upon
the risk of the nation and the prevailing you know,
interest rate environment. You never have to refinance it. What

(53:00):
happened between then and now, we forgot We swapped that
for issuing five year notes, three year notes, one year notes,
three month notes, and in the preferred market we issue
retail preferreds baby preferred to the part value twenty five
dollars or institutional part value one thousand dollars. I mean,

(53:22):
is it not obvious to a schoolboy that one hundred
is a better part value than twenty five? Yeah, on
one thousand, And isn't it obvious that having a perpetual
thing that never comes due is a lot more elegant
way to raise capital than having nineteen different You literally,
if you look at US government debt, right, you have

(53:44):
stuff coming due in March, in September, in April. Like
you've converted a simple idea into twenty five or fifty
different tranches of individual securities that have to be continually
joggled and traded. Yeah, you made it an accounting nightmare.
You've made it a tax nightmare. You've made it a

(54:06):
trading nightmare. What about that is better than the way
that the British did it during the Napoleonic Wars.

Speaker 2 (54:14):
Yeah, you know, sometimes we have to relearn those lessons.
Speaking of relearning those lessons, you've been moving fast than
you've been pioneering this whole industry obviously, and so sort
of micro strategy which used the convertible debt now strategy
which is maybe the two point zero version, using the
ATM and prefs, You've rolled out four prefs you called
stretch like the iPhone moment it had this huge splash

(54:36):
you were over subscribed I think two point six billion
in the IPO something like that. Now, looking backwards, is
stretched the perfect instrument? Or really do we need all
those different instruments for all the different people? And more specifically,
my question is if you were starting over, would you
skip ahead to like a stretch and maybe strike? Being
convertible isn't the best instrument anymore? Real estate or bitcoin

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Speaker 1 (56:02):
I think we have provided the entire market with a roadmap.
With all those instruments, they can see how you can
see how they all trade. You can see the the
way the volatility profiles come off them, like, for example,
the senior credit instrument STRISS is traded to a ten bowl.

(56:23):
Stretch traded about a ten ball. The junior instrument is
more like a twenty bowl. Strike is more like a
twenty seven ball, the equity is more like a fifty
bowl or something. So you can actually see that. You
can see the demand in each one of them. You
can see the liquidity profile. They all do serve different

(56:43):
investor bases, so I don't regret having any of them
out there. We will let the market decide what their
appetite is. For each of the four. I would say,
you know, in terms of plan, what we know is
we won't focus on convertible bonds or eight bonds, junk bonds,
unsecured bonds. We won't do that. We will gradually equitize

(57:06):
our convertible bonds as they come do and then, uh,
if I were giving advice to a new digital asset company,
a new bitcoin treasury company, if you will, I would say,
you want to raise as much capital as you can,
You want to buy as much bitcoin as you can.
You don't really want to have senior debt. You don't

(57:28):
want to have debt that has a lean on the bitcoin.
You know, you in the ideal world, you might do
a convertible bond, but you don't. But it's not clear
to me that you should. If someone wanted to buy
a convertible bond from you while you're private, if they
showed up with two hundred million cash and said, i'll

(57:50):
give you two hundred million dollars in you and I
don't want the equity, but I want to bond with
conversion right and a thirty five percent premium, I might
take that money. That's not really reasonable. Having said that,
if you're already trading in the aftermarket, the reason to
do a convertible bond is you want to raise a

(58:12):
lot of capital in a hurry. But the way you're
going to raise the capital is the person that buys
the bond is going to sell that much of your
equity in four hours. So if you sell a two
hundred million dollars bond, you're probably gonna create one hundred
and fifty million dollars of selling pressure on the equity
that day. And then the question you'd have to ask

(58:33):
yourself is whyannt you to sell the equity yourself? Right?
And so a lot of five people that have the
convertible bond, they don't have an ATM, so if you don't,
if you're crippled because you don't have an ATM, the
convertible bond is the de facto. You know, try party ATM,
but you pay a price. Right, you might as well

(58:54):
just dump two hundred million dollars of your own stock
on the market, not owe anybody. The stock will take it.
Going to do it anyway, the stock will take a hit.
But if you do the convert the stock will take
a hit, but you'll still owe the money. You see,
So I think that you could potentially skip that stage,
and then you know, if you take if you take

(59:16):
the perfect structure. Here, here's here's an ideal structure. You
raise a billion dollars, you buy bitcoin, and then you
go to the market and you sell two hundred million
dollars worth of treasury preferred credit instruments treasury preferred stock
like stretch like if you just wanted as simple as possible.
The equity is high ball, high performance, high risk, and

(59:42):
the credit is lowball.

Speaker 2 (59:45):
So you have tools and the preferred.

Speaker 1 (59:49):
Yeah, right, And the leverage for the equity comes from
the preferred and the collateral right, And you know, for
the preferred comes from the equity sale and from the
bitcoin capital and then sell the equity to pay the
divenot on the preferred.

Speaker 2 (01:00:06):
Yeah, so that might be the best kind of combination
to come out with.

Speaker 1 (01:00:10):
You could very well build one hundred million dollar company
from scratch with one credit instrument. Just yeah. So if
you were to say, you know, what would I do? Yeah,
I would distill kerosene, Like, is that a big enough market? Yeah,
it's thirty trillion dollars in the US, it's seven trillion

(01:00:32):
dollars in Japan. Must be fifteen trillion dollars. Right, Basically,
ask yourself what is the sum of bank deposits, money
market accounts, treasury preferred repo, short duration treasury credit instruments,
and then you're given capital market. I would just uh,
what is the word? Like, skip all the intermediary steps

(01:00:54):
and go direct to the answer.

Speaker 2 (01:00:55):
Yeah.

Speaker 1 (01:00:56):
In my opinion is uh kerosene is the answer, or
in this case, treasury credit. A bitcoin treasury company is
in the unique position to create treasury credit, digital credit,
digital treasury credit. And people are gonna they're going to

(01:01:17):
endlessly torture you and say, well, why should the equity
trade at a premium? And the answer is because an operating
company can create digital credit, an ETF cannot, and like,
well why would I all? I like, well, I whant
I just buy the bitcoin? It's like, well, I'm not
selling to the big to people that want bitcoin. I'm
selling to people that want ten percent bank accounts. Do

(01:01:39):
you do you have a bank account the year is
ten percent?

Speaker 2 (01:01:42):
No? What I want want?

Speaker 1 (01:01:43):
Yeah? Yeah, well once just buy bitcoin instead. But but
and that basically tears apart in the argument of the
short sellers, Like the reason that people aren't going to
buy bitcoin is they don't want bitcoin. What they want
is a bank account that's high yield. And in Switzerland
they want ten percent, not zero percent. In Japan they

(01:02:04):
want eight percent, not five you know nothing. In Europe
they don't. They want more than nothing. Right, So the
beauty of just focusing upon that mark is it's such
a simple story. It's like, I have a company, we
own bitcoin, it's digital capital. We use it to back
digital credit. We're selling a creditement or what does it do? Oh,

(01:02:26):
it pays you five percent more than your bank account.
Do you want it? Of course I want it? Right,
So what's the objection? The only objection is it is
the principal value stable, How volatile is the principle? How
risky is it if it's If it's under collateralized and volatile,
you're not going to sell that much of it. If

(01:02:48):
it's over collateralized and stable and theory, you're going to
sell quite a lot, right, And just that simple. The
largest IPO of the year this year, And you know,
as states is stretch is our IPO. You're asking why
because it's the simplest, most obvious thing. I'm going to
give you ten percent?

Speaker 2 (01:03:09):
Yeah, the biggest tam ten percent.

Speaker 1 (01:03:12):
You know, strip away the risk and the volatility. Yeah,
And like, I don't know what will happen in the future,
but I'll just park my money there until I figure
out where what gives me better than ten percent. That's
the idea. And it's a very simple idea and you
can test it. Just go walk down the street and
ask one hundred people. Would you like a stable investment

(01:03:33):
that yielded ten percent, you know, tax deferred? Yeah, and like,
of course I would. And it's a question that do
I trust you? Do I trust bitcoin? So you reduce
the entire thing down to is bitcoin? Am I trusting Bitcoin?
Is the basis? You know, and do I trust the company?

(01:03:54):
And it's kind of like, Hey, I have this penthouse apartment,
you know, in an island city and it's beautiful and
it's free. Do you want it? And the question is, well,
is the only going to sink underneath the ocean? Do
I want to live there? That's bitcoin? Is the granite solid?

Speaker 2 (01:04:11):
Yeah?

Speaker 1 (01:04:11):
And then oh yeah, who built the building? And then
do the elevators work?

Speaker 2 (01:04:15):
And do I trust them?

Speaker 1 (01:04:16):
Yeah? Do I trust?

Speaker 2 (01:04:17):
You know?

Speaker 1 (01:04:17):
Do I trust the neighborhood? So if I get comfortable
with the company and get trump comfortable with the locale,
but of course I want it, it's better than my
current situation. So it's a very straightforward, constructive thing to
focus on.

Speaker 2 (01:04:33):
The trust piece was the one I was thinking about
if maybe the stretch one takes more trust, and so
a strike or strife might be a little bit less trust.
So maybe as a new company, easier to roll out
because they're a little bit more senior in the stack,
build some track record and then roll out the stretch.

Speaker 1 (01:04:48):
I don't think. So, to tell you the truth, I've
thought about it a lot. I mean to be honest,
we did strike because it was the first thing we
thought to do, and it felt like a perpetual convertible bond,
and we were bootstrapping it with existing convertible debt investors
and existing equity investors, you know, and we didn't really

(01:05:11):
have a big base of retail or fixed income investors.
That's where we did it. It was a gateway product, yeah,
and it's got a role. But and then we did
Strife because it was the next obvious thing we thought
of we needed a perpetual instrument, and we didn't. It
didn't occurt us we could do anything variable. So we
did the perpetual ten percent because that's what we could sell.

(01:05:32):
And then after we did it, we did Stride because
we thought, well, if we strip away the cumulative rights,
then this instrument potentially gives us unlimited leverage risk free,
like we could in theory sell one hundred billion dollars
of it with no credit risk. So, you know, why not.

(01:05:54):
And because we'd already sold Strife, and Strife and Strike
were already successful, they already traded above par, it wasn't
a hard thing to sell the identical instrument at a
thirty percent discount through the thing that people already owned.
You see. Yeah, we did stretch because we ran into
a bunch of other headaches trying to trying to globalize

(01:06:16):
the first three. It's just the lawyers are slow, the
regulators are slow. I thought, what can I do in
the US market, which is not going to cannibalize those
I thought, well, I'm on the fart of the yield curve.
Let's go to the short end end of the yeld curve, right,
the short end of the duration curve. So we kind
of stumbled on it accidentally, and then as we iterated

(01:06:38):
through it, we realized that it really was, you know,
a better product, and that's what people really wanted. So
a lot of people that were buying the other instruments,
they were buying the high yield, but they were getting
the duration not because they wanted it. They wanted like,
do you want the twelve percent with the risk that
the principal will move up and down? You just want

(01:06:59):
twelve percent?

Speaker 2 (01:07:00):
Right?

Speaker 1 (01:07:00):
I just want the twelve percent, right to say. So,
they were buying it, but.

Speaker 2 (01:07:04):
They were stomach in the volatility because they wanted the yield.

Speaker 1 (01:07:07):
Yeah, yeah, you took the delta, you took the vall
because you wanted the yield. So with stretch, we stripped away,
the delta stripped away, they'll the vall kept the yield. Yeah,
and so I think that it's a simpler product. It's
you know, look, it's a bank account. If you put
in ninety nine dollars and ninety nine cents, you'll get

(01:07:30):
back down to the last penny. With a money market,
you know, you expect to get back down to like
one significant digit past the decimal point of something very close.
May not be the last penny, but it's you know,
plus or minus, you know, a small rounding error with
a product that's a preferred stock, that's trading. You know,

(01:07:50):
you're not looking to get to the sixth significant digit
or the third decimal point, but you want to be
plus or minus you know, ten, twenty, thirty, fifty basis points. Yeah,
you don't want to be varying by one or two percent.
You want to be varying by fractions of a percent.
And what you offer in return is, okay, I'll give

(01:08:11):
you five percent more yield, and that is just slightly more.
It's it's more flexible than a money market. And you
got to go into that. It's not a money market.
You got to go into it with your eyes open
that money markets are trying not to break the buck,
you know, at all. But on the other hand, you're

(01:08:33):
targeting something to pay double.

Speaker 2 (01:08:36):
Yeah, the yield is going to make up for that volatil.

Speaker 1 (01:08:39):
You know, we're giving you a competitive money market to
pace double that will get of his attention. That's a
simple discussion. Also, I mean, the truth of the matter
is it's easier to judge whether it's successful or not.
For example, you know, stretches March from ninety up to
ninety seven and some chain now and you know the

(01:09:02):
target is one hundred, and when it gets to one hundred,
you know, if it were to jerk up to one
oh five or down to ninety five, you know it's
not working. But if you look at strike or you
look at strife, those things could trade if the interest
rates fall one hundred basis points, strife could trade up
ten or twenty percent. And that's not because it's failing, right,

(01:09:26):
you know. And if you know, when Jerome Palell gives
a speech and says, you know, I don't I don't
really think we're going to lower instrates as fast. You know,
So strife trades down three four five dollars ten it
could trade quite a bit because of what Jerome Powell said.
That's not a failure of our instrument, you see, but

(01:09:46):
you understand how much more complicated it is to explain
that strife reacted rationally to the forward yield curve expectations, right,
whereas with Stretch, I don't have to With Stretch, everybody
knows the mission. It's like we're pegging it to be
between ninety nine and one o one, Like we're targeting
for ninety nine to one oh one. And the way

(01:10:07):
you'll know that it's in the range is what it's
between ninety nine and one oh one, right, And when
you canted, like my goal for strife is I want
to see a trade to one fifty or two hundred, Right,
you can imagine a world where strife is way over collateralize.
The risk cre rate in the US is two percent.
We have a three hundred basis point credit spread. Strife

(01:10:29):
trades with an effective yield to five percent, which means
it should trade it two hundred. You see, that's success
for that, but you understand how much more complicated that is,
because what if it gets a two hundred, Well, we're
going to be paying an effective yield to five percent.
We'll be selling at a two hundred. But now what
happens if you buy it at two hundred and interest
rates get jacked two percent of the trades down to

(01:10:50):
one sixty. Did it work Yeah? Exactly as designed? Is
some is a retiree going to be irate? Yeah? Like, waitmen,
I got five percent more, three percent more, but it
traded down twenty percent or something, and that's not what
I signed up for. So you understand that looks scary.
Those long duration, high delta, high high duration, high delta

(01:11:14):
instruments look scary. They're very exciting for people that are
professional investors. But we're we talked about the iPhone moment.
I mean, it's iPhone is kind of maybe not even
the perfect metaphor. I mean, the perfect metaphor is a
comfortable retirement. It's like you pick up the phone and
call your dad and you say, hey, Dad, you know

(01:11:35):
you have some capital and your four to one k.
You put it in a stretch. It was paying you
thirty two thousand a year. You put in a stretches
going to pay you one hundred and twenty five thousand
a year. What's the risk? Okay, there's no risk. I
mean there's risk, you know of a security. But the
point is, you know, it looks like it's eight x
over collateralized or five x over collateralized, which is more

(01:11:56):
than investment grade companies offer you. Right, So it's great
comparable risk if you believe in bitcoin. If you hate bitcoin, dad,
don't take it. But if you think the bitcoin is okay,
I can jack your retirement income from thirty thousand to
one hundred and twenty thousand. If you do this, well,
what do I have to do?

Speaker 2 (01:12:13):
Nothing is buy it in your equity a brokerids account.

Speaker 1 (01:12:17):
You know, like a lot of eighty year olds don't
use an iPhone, A lot of senior citizens have a
hard time using technology. No one has a hard time
collecting a pension. So what we're really talking about is
creating a living stipend or creating an annuity or a pension.
And so what's the offers like happily ever after to

(01:12:40):
It's social security. That's the products for how many people?
Like a billion? Like everybody? Right, it's it's basically social
security and living happily ever after for a billion people.
What do I got to do? All you got to
do is just A, understand bitcoin, trust it, and then
b you've got to trust the company or the security

(01:13:02):
that you're buying. But once you get over those two,
those two barriers, what do you get. It's like how
many people would like their salary to go from thirty
thousand to one hundred thousand dollars a year?

Speaker 2 (01:13:12):
Everyone?

Speaker 1 (01:13:14):
So you understand why I would say that's the simplest
product to sell. Yeah, because it's like the other ones
lead you down a path of explaining conversion rights in
delta and duration, interest rate risk, and it's just you know,
and the like and what happens if the central bankers
say this and do that and you make get this boost,
but you might not get that, and it's a lot

(01:13:35):
more complicated. And if you create something which is simple,
that means you'll sell ten to one hundred times and
much of it, right, But if it's a hundred times
as much you sold, it's gonna be a hundred times
of liquid. If it's liquid, it means you get in
and you get out, right. So what we're trying to
do is and that means there's less volatility. So at
the end of the day, the simple universal product that

(01:13:56):
everybody needs that's the most liquid with the highest day
you whim you see. My criticism of the preferred stock
market and the corporate bond market is is they were
never trying to create good credit. It was always crippled credit.
It's like, why doesn't a big bank have one hundred

(01:14:17):
billion dollars worth of a single preferred instrument with a
four letter ticker that trades five billion a day with
a bit ass spread of a penny. Because because they
never really wanted to create a good credit instrument, they
they created, you know, ninety seven tranches of rolling debt issuances.

(01:14:38):
It's it's an it's a traditional market and insider game
they play with themselves. There is a set of traditional investors,
and a set of traditional bankers, and a set of
traditional issuers, and a set of a traditional mode and
they're all basically they're going through this hyper inefficient process. Yes,

(01:15:01):
whereas when we created these instruments like stretch, you know,
ask me what I want. I want to sell fifty
billion dollars of it? I want I want fifty billion
with two billion three but I want it to be
the largest, you know, outstanding preferred stock issued in the
history of the world. And already these four credit instruments,
they're already the most liquid preferred stocks of the century. Yeah,

(01:15:25):
and that's in the first few months of their life.
Imagine what happens three to five years from now after
we've actually sold via the ATM every single month for
the next thirty six months.

Speaker 2 (01:15:38):
Yeah. The difference is, as you said, for like Boeing,
they're taking debt to build their product, and so a
bank or Boeing, they're not trying to make the credit.
It's not the product, it's not attractive. Whereas you want
to sell the credit as the products. You're trying to
make it to reach the biggest addressable market. And if
you look at in the developed world, we have two
to fifty million retirees, right and they all want the

(01:15:58):
yield with no volatilities. The tam that told just what
market is massive. As you've explained, the profit margin for
you to create that product is also big. It's simple.
The market's big.

Speaker 1 (01:16:08):
You see what breaks people's brains though, because they think
of credit issuance as a mean to the end, and
the end is tax arbitrage. At Apple, it's it's it's uh,
you know, leveraging him. Microsoft stock Right, if you look

(01:16:30):
at all the big well run companies in the world,
they're solving a tax issue, a shareholder related they're trying
to improve the quality of their equity or their EPs performance,
or they're or they're building airplanes, or they're building buildings,
or they're developing skyscrapers. Right, it's it's a means to
the end. Or it's like the bank is, they're not

(01:16:51):
bragging about issuing the world's greatest preferred stock. They did
it because they have to for like tier one capital,
mezzanine capital allocations so that they can make commercial loans
so that they can do something else. Right, So what
we stumbled upon in the bitcoin treasury business is we
just realized that if you were the first well run

(01:17:15):
company that actually thought of credit as the product, then
the killer application of bitcoin and the killer application of
capital is to issue credit. And the killer application of
bitcoin is to issue digital credit. And now, if you
look at the at these things that were languishing, any

(01:17:37):
public company in the US can issue a preferred stock.
Most just choose not to. When's the last time you
bought a preferred stock from Microsoft? Microsoft, in theory could
give you a ten percent yielding preferred stock. But could
you imagine discussing that or pitching it to the CFO.
They're like, are you out of your mind? Why would
we do that? Right? And so most companies in the

(01:17:59):
un less they could have, but it was never really
I mean, it was never strategic to them. The ATM
was developed I think by Michael Milken many many years ago,
the at the market shelf registration. But you know, if
you were to go to Microsoft or Apple or Google
or Amazon or Meta and say, hey, what do you

(01:18:21):
guys think about selling your own equity, They're like, are
you out of your mind? We buy our equity the money. Yeah,
we have no use of the money. We don't have
the use of capital. Okay, well you could issue credit
instruments at the market. Well, we don't want to issue
credit instruments. And so what we did is we took
existing ATM, applied it to a preferred stock, paired it

(01:18:46):
with a radical different view toward treasury capital. We inverted
the company, inverted the balance sheet, inverted the business model. Right,
we're selling that's literally what we do. We credit is
the product we created, We engineer the product, right, then

(01:19:09):
we issue the product. We use the proceeds to build
the capital structure, which then thereby boosts the performance of
the equity. Right, the elegance of it, it really is
a symmetric thing of beauty. We're selling US dollar yield

(01:19:29):
us D yield to create BTC yield. That's the swap. Right.
The equity investors value the company based on BTC yield,
the appretion of bitpoint per share. Credit investors value the
credit the credit security based upon us D yield. And

(01:19:51):
so just swapping a FIAT yield, a y in a euro,
a US dollar yield for a BTC yield with the
bitcoin as the collateral on the middle is the business,
you know, And and the skeptics and the cynics they
choose to be strategically ignorant. And it's like like a hater,

(01:20:14):
I don't want to understand the business because I might
have to agree with you. So if I've already decided
I hate you, I don't want you to explain why
what you're doing is going to save the world or
help anybody, or help the shareholders. I just don't want
to know. I'm going to choose to stick my head
in the sand and be ignorant. But if you're more

(01:20:36):
open minded about the entire thing, and you just embrace
the idea that this is a new kind of company,
a new It's not a bank because it doesn't it's
not regulated, doesn't take consumer and commercial deposits. It's not
that kind of bank. It is a financial kind of company, right,

(01:20:58):
and it's a new form of company. They're a bank,
they're insurance companies, you know, et cetera. So, a treasury
company is a company that issues securities in order to
acquire capital. Now a commodity really you're issuing securities to
buy a commodity. And if you pick a commodity that

(01:21:19):
happen to be scarce, you create a very powerful feedback loop. Right,
work through your mind. If I if I do this
on bitcoin going at fifty percent a year, I can
easily pay ten percent capture the forty percent spread. That
is an amplifier.

Speaker 2 (01:21:35):
Yeah.

Speaker 1 (01:21:36):
If I issued the credit to buy soybeans, Yeah, without
the keg gar or natural gas or crude oil or
some other you know commodity that returned three five percent
anything less than the cost of the credit, then I've
run the feedback loop. In the opposite direction. I'm destroying
capital as fast as I can. The business is not

(01:22:00):
really much more complicated than that. It's just no one's
ever seen it before, which is why people just have
a hard time getting their head around it.

Speaker 2 (01:22:08):
And if they don't believe in bitcoin. Now you've talked
about the different preferreds and how even just one could work,
and it gives you leverage. And in the in the
last quarterly report, which are brilliant by the way you're
changing industry with that. It's great. You showed several slides
of this Bitcoin factor, which is like this amplification of bitcoin,
and so by doing the preferge, you're adding the leverage

(01:22:28):
which then over time you use a ten year window,
you can give you a bitcoin factor of two point
eight to five six whatever. Does that number sort of
relate into this m NAB number over a long period
of time and sort of justify or show why that
m NAB number should be greater than two or three
or four.

Speaker 1 (01:22:47):
Yeah. So if you think about think about the value
of the equity over and above net asset value. If
the company did nothing, if it just bought bitcoin and
held bitcoin forever, it starts to look like an ETF.
Probably a trades around NAB The way that a company

(01:23:09):
generates a premium to NAB is primarily through credit amplification.
So if a company can generate, say thirty percent leverage,
then it's going to create an amplifier because you can
see systemically, I issue a billion dollars of a preferred
stock paying ten percent, I buy a billion of bitcoin. Right,

(01:23:33):
if I own a billion dollars a bitcoin already and
I was able to do that trade, I'd have two
billion dollars a bitcoin, no additional common stock outstanding, you know,
so you end up with fifty percent leverage on that.
So you start to generate amplification. Now we have models

(01:23:53):
to calculate how accretive that is, how does that contribute
to bitcoin per share? And it turns out that it's
more accreative. But this won't come as a surprise. It's
more accreative if the cost of capital falls. For example,
raising the ten billion at five percent instead of ten
percent is more accreative, right raising it at one percent.

(01:24:16):
Imagine borrowing a billion dollars at one percent and buying
bitcoin that returns fifty five percent. You're capturing fifty four
percent spread, right, So the spread that you're capturing as
the function of you're cost to capital. So the lower
the cost of capital, the more the amplication. The higher
the leverage, the more the amplification, the faster. If you

(01:24:39):
did all that the bitcoin went up zero percent a year,
it's not terribly You don't get a lot of good amplification. Right.
So it bitcoin goes out fifty percent a year, right,
that's more amplification. So the rate of growth of bitcoin,
the ar bitcoin plus the leverage, plus the cost of capital,
all those are primary factors that drive the amplification. That

(01:25:02):
is a rule of thumb. You know, we kind of
calculated that. You know, assuming bitcoin appreciates thirty percent a
year and we get thirty percent leverage, then we should
be able to get a three x BTC factor, or
we can accumulate three times more bitcoin per share over
a ten year timeframe. So you could imagine an m
non floor of three, right, makes sense? Or you know,

(01:25:25):
how what do you do in percentage? Or you do
that a factor and you know, for when you're evaluating
a company, the question is how high can they take
the leverage? How much is it going to cost them?
There as second order effects like credit risk. Right, So
I'm describing perpetual instrument never comes to there is no
credit risk there. But if you were, if you were
achieving that leverage with a six month loan, yeah right,

(01:25:51):
you can go on an exchange and you can actually
crank up the leverage to three or four or five.
But the duration is instant, right, you get forced liquidated overnight.
When we're managing the business, we're constructing credit amplification in
the most intelligent way. And of course, in my opinion,
the least risky, most intelligent way to create credit amplification

(01:26:14):
is through publicly issue preferred stocks that are perpetual. Right,
for the obvious reason, you never refinance them. The principle
doesn't come due, and so the risk on the principle
is the minimus. And then the dividends you know, are
are subject to the approval of the board of directors,
and the company can suspend the dividend or delay it
for a time under financial duress, and so the coupon

(01:26:39):
risk is dominimous as well as the principal risk. The
opposite extreme is a one year senior loan pledge the
coladal of bitcoin, pay off the principle in one year
and pay interest every month as a coupon, missed the
interest in a month, you're in default, missed the principal
delay it you're in default, missed the principle, you're in default,

(01:27:02):
and the claudal gets ripped away and the entire company collapses. Right,
So intelligent leverage unintelligent risky leverage. Right, you want to
go for one not the other.

Speaker 2 (01:27:14):
So you think it sets in that example. And as
you said, there's three different factors in there, but that's
sort of that. In that example, that set an m
NAB number about a three times. When you look at
other hat asset heavy companies banking, insurance, oil, they kind
of trade in that one to two times. But do
you think, because this is not oil as an asset,
that's got this fifty times or call it a thirty

(01:27:35):
times kagar over this long period of time.

Speaker 1 (01:27:39):
I would stop there and I would say m NAB
is just price to book value. Okay, Well, run banks
traded a price to balk north of two, but what
is Microsoft's price to book value? It's like twenty ten.
So a lot of companies traded a price to book five, six, seven, eight, ten, right,

(01:28:01):
Like they have very productive capital, right, they have huge
leverage on it. Right, So an m NAB of three
is just a price to book of three, So you know,
how do you get there? There? It's it's simple to
figure out how you get there. For example, if you
have ten billion dollars a bitcoin and you sell ten

(01:28:25):
billion dollars worth of Stride s TRD, you would have
a leverage factor of fifty percent no credit risk. Yeah, right, right,
so you'd sell another five dolling of Stride right if
you can sell it? Right? This all comes down to
not should you? Can you?

Speaker 2 (01:28:47):
Can you? Right?

Speaker 1 (01:28:48):
Not should you? And if you do, you will get there?
Right if in that particular case, it all comes down
to what kind of credit can you issue and under
what terms and how rapidly?

Speaker 2 (01:29:01):
So at fifty percent leverage with no credit risk, I mean,
then there's the five times right.

Speaker 1 (01:29:05):
Yeah, you could get to it and have a five,
or you could be priced a book at five. But
ask you off the question, how do banks get to
a price to book more than one? Leverage?

Speaker 2 (01:29:15):
Right?

Speaker 1 (01:29:16):
Why do preferred stocks exist at all? So banks can
generate leverage on the common yeah? Right? And so everything
I'm describing is it's not we didn't invent that, Yeah,
there's five thousand banks in the country right now. There
are twenty five thousand banks one hundred years ago, thousands
and thousands of banks, and you know, all sorts of
finance companies. They generate intelligent leverage using various various tiers

(01:29:41):
of equity, capital, mezzanine equity, preferred equity, senior, preferred, junior, preferred,
little bit of debt, and then they got common equity.
And the question is, so why, I mean, why does
your favorite bank have to issue anything at all? They're
the bank. And the answer is because they're actually creating
a luck. What are you on the They're generating leverage

(01:30:02):
on the common that's all. I mean, JP Morgan, all
these they could basically pay off all their debt if
they wanted. But the point is they're they're trying to
create leverage on the common to give the common stock value.
So the only difference is they're not really strategic about

(01:30:23):
their They're not trying to make their credit instruments the
best in the world and brag about it, make them
homo genius and transparent.

Speaker 2 (01:30:30):
We are, right right, Yeah, they're trying to set the
terms for them. You're trying to set the terms for
the customer. So it's like a different difference. Yeah, different
there part of there you talk about the common I
remember in Prague you talked about you give a vivid
example how how MSTR trades as volatilated bitcoin and everybody
wants it to trade volatileated bitcoin. And you gave this

(01:30:52):
example that if God came and spoke to you tonight
and told you the market was going to crash tomorrow,
and you woke up and headed your position in the
market crash, but Microsoft didn't go down, be great, And
you said, no, that wouldn't because the market expects us
to move with bitcoin. And I think you were trying
to explain to us during that during that is that
sort of when the company is lean and sort of
strips down, it can trade volatility to bitcoin. And so

(01:31:15):
I'm curious your take on sort of then having like
that pure play company versus a company that's like a
big underlying business that has a bitcoin treasury, and how
that then maybe maybe potentially takes that common away from
really being used like in the ATM, sort of almost
neutralizes that part of the tool.

Speaker 1 (01:31:34):
Yeah, so you can have an operating company h that
has cash flows that uses bitcoin as a treasury asset,
if it's a retailer, if it's a utley company, a
power company and water company, of you know, fill in
the blank software company. The world's every one of the
mag seven companies. The world's full of companies that have

(01:31:57):
good businesses to generate cash flows, but they have a
defective treasury strategy. All of those companies have a treasury
which is not schinerating shareholder value. Right, if you take
a billion dollars and you buy money markets with it,
the yeld two percent are three percent after tax, and

(01:32:20):
if the S and P is generating fourteen percent, then
you've underperformed the cost to capital by eleven percent. Therefore,
your treasury is a cost center, not a profit center
for the shareholders. And so what happens is it shribles
up the company, basically decapitalizes the balance sheet, and they
give all the money away. And that it just describes

(01:32:43):
in a nutshell, every well run company in the United States,
right except Berkshire, Hathway, everyonewhere else, like all the MAGS seven.
What they do is they defund the treasury. So if
you're one of those companies, you could just place money
markets with well, you could replace it with bitcoin instead,

(01:33:06):
and bitcoin is fifty percent, or let's say a reasonable
twenty year forecast is thirty percent. If you're a believer,
twenty percent of you're an investor, ten percent of your
a skeptic. Right, But whether it's ten or twenty or
thirty percent, they're all better than two percent or three percent,
which is the status quo. Right, So if you're in

(01:33:31):
the twenty or thirty percent camp, it outperforms the hurdle rate,
which is the S and P index. And so at
that point, the treasury in the balance sheet becomes profit center,
which means that you would stop paying dividends, you would
stop doing buybacks, you would roll it into bitcoin, and
the company's market cap would grow faster and the stock

(01:33:51):
would grow faster. Right, So that's whay to create sheeriolder value.
You won't be better than us, you won't be better
than a pure play try company, but you'll be better
than your peers. Right, Like, if if you're a native
business or your organic business is growing ten percent, you
will go thirteen. Right. If every other retailer is losing money,

(01:34:14):
you'll make money. Right. What we've done is created a
pure treasury company. So risk, our risk free rate, our
HERD rate is thirty percent. That's what I expect at
a bitcoin over the next twenty years, twenty nine percent
of let's call it thirty percent round up. So my

(01:34:36):
benchmark rate is thirty percent. If I put leverage on it,
I should be we'll grow fifty or forty. I don't
think there's any any non financial company. There's no there's
no physical company that's going to actually appreciate at that
rate because you can't do it with real estate or
oil or natural gas. The investment cycles are too slow,

(01:34:58):
you know, the develop cycles are too slow, the risks
are too ineff of ball, et cetera. So I would say,
across thousands of companies, every company ought to recapitalize their
balance sheet on bitcoin because that will cause them to
grow fifty percent faster than their peers or than they

(01:35:18):
would otherwise. They'll just be better and the compounds. Yeah,
so a billion dollar company will be worth ten billion
dollars instead of two billion dollars in a decade. Okay,
if they were a pure play, they might go from
a billion dollars to one hundred billion. They won't do that,
but that's not their bogie, And the truth is they

(01:35:39):
probably can't get political consensus to change their retail or
to sell the retail business and become a pure financial company.
That's probably not going to happen. So I just think
it's not a bad idea, but your expectations ought to
be adjusted based upon the enterprise value mix, right Yeah.

(01:36:00):
Like if Microsoft bought one hundred million dollars a bitcoin tomorrow,
ninety eight percent of the enterprise value would still be
index to the software business, right yeah. If they bought
a trillion dollars a bitcoin tomorrow, they still be seventy
five percent indexed to the software business. So you can't
get to one hundred percent digital exposure unless you actually

(01:36:24):
start with a clean balance sheet.

Speaker 2 (01:36:26):
And starting with a clean balancee So it seems like
for the new crop of companies that are starting up
in micro strategy, when you raise the convertible debt, then
you had the debt to cover. So then there was
a lot of questions in the industry about how you
cover the debt with the underlining business model. But in
sort of the strategy two point zero version skipt that
if you could just go raise a billion dollars of
bitcoin and start issuing preferred SR doing.

Speaker 1 (01:36:46):
It again, I'd raise a billion dollars, I'd take the
thing public, and then I'd sell one hundred million, two
hundred million, three hundred million worth of preferred stock as
soon as possible yep. And then I'd rock back and
forth between levering delevering the thing, and I would grow
it with the minimum most elegant set of credit instruments. Well,

(01:37:06):
if you look at expansions for US right now, stretch
seems like the killer product in the US. Maybe we
do the same thing in yen or euros or Canadian
or pounds, right, But otherwise there's nothing else that's all
that exciting, right, I mean, and even those things are
much less exciting than just growing the business in the
US by a factor of one hundred.

Speaker 2 (01:37:27):
Yeah. So speaking of that, then in New York you
had talked about the potential to have a thousand of
these companies. Yeah, when you think about if it's just
as simple as just selling that one product, can there
be a thousand companies selling that one product? Or is
it that there's going to be a thousand companies each
doing their own variations. Some are like more like insurance companies.

(01:37:47):
Some of the more like banks is we have ten
major banks, there's a lot of products. There's thousands of
regional banks. There's like ten major banks.

Speaker 1 (01:37:53):
Yeah, so I think there's huge amount of How many
insurance companies are there in the world, a lot. How
many life insurance companies are there in the world that's
sell essentially the same exact product, right, like more than
a dozen.

Speaker 2 (01:38:08):
And they're completely different than banks.

Speaker 1 (01:38:10):
Yeah. How many car insurance companies? Right? How many dn
O insurance? How many reinsurance companies?

Speaker 2 (01:38:16):
Like?

Speaker 1 (01:38:17):
So off the top of my head. Products the obvious
ones yourself, treasury credit in every country in the world, Brazil, Argentina. Look,
you won't be better than a US company, but you
will be better than every Argentine company, right the Brazil
you know, Brazilian treasury company. It won't be as good

(01:38:38):
as the US one, but it will be better than
every country in Brazil. And by the way, in that
way it may become better because if you're this, if
you're the most compelling, fastest growing company in Brazil, then
aren't you going to slurp up all the equity capital
and all the credit capital in the entire country?

Speaker 2 (01:38:57):
Right?

Speaker 1 (01:38:59):
Which is, which is interesting. So you can do this.
There's place to create a treasury company in Switzerland, the
twenty sixth country is it twenty six or twenty seven
countries in the Eurozone, they're all different. There's a German one,
a French one, a Swedish one, in Norwegian one. You

(01:39:21):
can do you know, Netherlands, Belgium, UK, Ireland, Spain, Portugal, Italy, right,
you know, and then Japan, Korea, China, China, Kingdom of
Saudi Arabia, India, Australia, Canada, Mexico. Okay, So there you

(01:39:47):
could just be the first provider of digital credit, right,
and maybe you sell kerosene, you sell stretch, but then
maybe you also sell long duration credit or convertible credit
or whatever. But then let's I've I've broken it down geographically,
but then let's come back to the US and break
it down by industry sector. Right, you could be the

(01:40:07):
one that specializes in insurance or feeding the insurance company.
Or you could create a credit product that's like a
reinsurance product. Right, you could you could create various credit
products that are tailored to the life insurance, the annuities
that you know, every other type of insurance, you know,

(01:40:28):
flood casualty, property insurance businesses. There are a lot of
buyers in the market, fixed income buyers. They just will
not buy prefers no matter what. They'll want to buy bonds. Okay,
So I don't want to sell them because it doesn't
make sense for me. But if you were saying, Mike,
I got ten billion dollars, I want to compete with you,

(01:40:49):
and I want to grow just fast or what it
should I pick up, I'm like, man, I'm not going
to do ten year bonds. Why don't you just do
what I did, but raise ten billion dollars and issue
a billion dollars a bar. It'll do one for four
A offerings. Not compete with me. By the way, the
market loves them. Yeah, start to do basically over the

(01:41:09):
counter institutional bond offerings. And the debate is do you
sell five year instruments. I'm gonna sell five year secured
bonds and I'm gonna roll them every quarter, or I'm
gonna say, you know, you could go and do the
convertible bond market if you want, or you could do unsecured,
or you could do secure. I'm like, Mike, I found
like the biggest insurance company in the US. They don't

(01:41:29):
want to prefer, they don't want the converts, but they
would take senior debt as long as it's they've got
a claim on the capitol for up to twenty percent
of the capital structure or whatever. Yeah, and they have
one hundred billion dollars they'll give me. Do you want it?
I'm like, I don't want it right now. It confuses
my story, confuses my investors. It puts credit risk senior

(01:41:54):
to all my other instruments, and that kind of is
not good for my capital structure. But should you take it? Absolutely?
You could probably take one hundred billion dollars. There's probably
a one hundred billion dollars senior debt thing, one hundred
billion dollars of junk unsecure. There's one hundred billion dollars
or fifty billion to take out of the convert market.
You could probably write all sorts of custom instruments for

(01:42:15):
the annuity industry, the insurance industry, and guess what, none
of that's going to be interesting to the Japanese insurance companies.
They're going to want different. So when you say what
are all the products, I think the products are if
there's three hundred trillion dollars of credit instruments. I think
the products are every possible currency every by the way,

(01:42:38):
we can say euro, but you know, French bonds and
euros aren't the same as German bonds and euros, right,
So it's like every type of currency, every jurisdiction, every
type of credits, every flavor of credit. You know, we
issued a lot of things that you know. And then

(01:42:59):
every districtribution channel do you go public on that exchange?
Do you do direct institutional sales? It's not clear to me.
For example, we couldn't do something where we just like
roll ten year bonds and you know, it's like, how
do you handle the credit risk? Well, just every year
we'll refinance ten percent of them, will never have more
than ten percent, or maybe I'll just refinancing them every quarter.

(01:43:21):
I'll never have more than two percent two and a
half percent. So there there are other credit products that
can be created. There are other buyers, they're investors, right,
But then again there's also corporations that would bypass, so
like the pension funds and the insurance companies would get

(01:43:43):
you could go direct to them and open up a pipe,
and then there are all the bond traders and the
pimcos and the vanguards and the fidelities of the world,
and indirectly the pension funds and the endowments are behind them,
right yeah, so you know, you might be able to
create the perfect product for an endowment. It's like, well,

(01:44:05):
we like bitcoin, but we don't want we can't stomach
the volatility. Can you just give me a ten percent guarantee?
And then and then there's issue of liquidity, like, well,
we would give you ten billion dollars, but we need
the right to redeem five hundred million in any given
quarter direct from you. Like I wouldn't do that deal
like for my company because it's complicating for me. But

(01:44:30):
you might do that deal if the choice was have
one hundred million dollar company and agree to create five
hundred million dollars in cash on hand or not, right right, yeah,
And but we haven't explored that. But but there's a
lot of there's a lot of you could create a
quasi money market instrument where you are actually you know,
Alix kept five percent of all the capital available for

(01:44:52):
ready redemption on a daily basis, and then you you
know how funds they'll create gated redemption windows, Like you're
invested with me for seven years, but once a quarter
you have a one day when you can give me
redemt you can call, you could put you could put
call options and put rights or redemption rights into a
preferred stock. I haven't you could. It's a different product,

(01:45:19):
you No, some people like polyester, some people like lycra Yeah,
you know, nylon. Yeah, right there, there's a lot of
things you can do with carbon, hydrogen and oxygen.

Speaker 2 (01:45:32):
Yeah, and not everyone's going to want to do all
those things. In the US, we have almost five thousand
ETFs that are each just a little flavor of something, right,
thousands of bonds and a lot of.

Speaker 1 (01:45:42):
Us question of what can you market? More like, what
can you sell? And what I think there is there'll
be a Cambrian explosion in digital credit issuers and there's
all you know, You're like, well, isn't that a lot
of stuff? Well have you ever studied the mortgage backed
security industry? You know, I mean thinks people created. Yeah,
I mean there's hundreds of thousands of credit instruments, maybe

(01:46:06):
millions of credit instruments, and you know, start to go
online and figure out every possible twist and turn of
every credit instrument. The average person can't even name the
top five categories or top ten categories. So there's an
industry there. The beauty is, the beauty is, there's a

(01:46:30):
there's a methodology or a distribution channel to figure out
whether your idea is a good one. Like you create
a security and you go and you offer it, and
it's a two day road show or a one day
road show, and the investors are either going to buy
two hundred and fifty million dollars of it in one
day or they're going to tell you we don't want
any of it. It's very So you can create billion

(01:46:52):
dollar product lines in a conversation with the investors in
a one forty four a offering. How many consumer products
that are a billion dollars can you create in two
days where you know for certainty it's going to work. Yeah,
So I think that the capital markets are primed for

(01:47:15):
innovative digital credit issues to go and create a dozen different, interesting,
compelling things. You might not come up with the thing
they want, but you won't spend more than a few
days finding out. And you know, in the real estate business,
people create a billion dollar building and no one's to

(01:47:36):
lease it and it takes five years and they lose
a billion dollars. Yeah, that's never going to happen with
the digital credit instrument.

Speaker 2 (01:47:44):
Yeah, you can essentially sell it before you build it.

Speaker 1 (01:47:48):
Like we're literally building it in real time, right mark,
Like we're open for business every day with four credit ATMs.
If someone hit the bid and wanted to buy five
hundred million dollars in a minute, we build a building
in a minute. Yeah, in sixty seconds, trade is done,

(01:48:08):
cash changes hands, we create the collateral, we bought the
bitcoin underlying that day. Sometimes we're literally selling fifty million
an hour or one hundred million an hour and buying
one hundred million dollars a bitcoin the same hour. Like
we could do a billion dollars of capital raising in

(01:48:31):
a day, and we might have twenty million of exposure
at four pm, and by five or six pm, we're
fully done. The investment cycle is one thousand times faster
than technology, real estate, oil and gas, anything else you've

(01:48:51):
ever seen before in your life. And maybe the more
profound idea is think about all these other credit instruments.
You know, what's backing corporate credit, what's backing mortgage credit,
what's backing bank credit, what's backing all the you know
all these things. If you saw a billion dollars of
mortgage backed securities, who's going to build a billion dollars

(01:49:11):
worth of real estate that someone wants to rent? And
how long will that take? So this is a profound
new idea and and that's why those digital credit issuers
can grow so fast.

Speaker 2 (01:49:26):
Man, you've explained it so well. I'm gonna I'm going
to wrap it up with this last question here since
we're here in Washington, DC and the nation's capital at
the at the keynote you justcabed earlier. I love the
way that you closed it down. It was like this
empowering message of sort of telling people like this amazing
opportunity that we have right now. The winds have shifted,
like now is the time for those that want to

(01:49:47):
embrace digital intelligence and digital capital. That's kind of how
you said it in New York. You had said, I
want to push back on the fix the money, fixed
the world narrative, and because it was like, in order
to succeed, we have to fix the equity and fix
the funds and fix the mak. So we need to
go build the world that we want, And so I'm
just curious, while we're here in DC, think about bitcoin policy,

(01:50:08):
how do you think we should be sort of fixing
that in this political environment more of like a constitutionalist
we're sort of trying to get them to sort of
pass laws that sort of protect us, or we are
we pushing for regulations that give us clarity and direction.

Speaker 1 (01:50:24):
Well, I think the good news is bitcoin has already
got the best regulatory treatment of any digital asset in
the world and has rights. It's globally recognized as a
digital commodity and property, even in China. In China where
crypto trading is illegal, where crypto mining is illegal, bitcoin
mining is illegal, bitcoin holding is not illegal, and bitcoin

(01:50:49):
is represented is recognized by the courts as digital property,
as property you can own it. So we're already starting
with a good place. If your business model is digital credit,
we've already got pretty well developed credit laws. The US
has the most advanced rules. So if you're a US
company you could get There are a thousand ideas I

(01:51:11):
just gave you who knows how many different ones. There's
a thousand things you could do starting with bitcoin in
a public created company. Right now, you don't need any
regulatory changes, You don't need any new laws. You can
go at it if you're a bitcoin treasury company outside
the you and it's look that the Swiss are a
bit behind on some things. The Europeans are slightly behind.

(01:51:32):
They're slower on ATMs, the Swiss are slower on preferred stocks.
The Japanese are a bit slower on this and that.
So you have to go and lobby those regulators and
those politicians to upgrade and update their exchanges, their rigs.
Sometimes the tax code is prejudicial, you know, like in Japan,

(01:51:52):
the taxes on bitcoin we're much higher than the taxes
on equity. So any company has a responsibility for advocacy
on behalf of its investors, you know, and on behalf
of its constituents. We think about what's good for the
credit buyers, and we think about what's good for the
equity holders. Right, we think about what's good for the

(01:52:14):
world and what's good for the United States, and we
only advocate for things that are good for everybody. Right.
The thing is, there are no losers here except the
twentieth century antiquated oligopoly that is selling inferior credit instruments.

(01:52:35):
So it's like you just invented the car, and there
are a lot of horse and buggy manufacturers that are
going to be out of a job, and if you
feel sorry for them, no one's getting cars. And we've
got the atomic powered, flying faster than light hover car.
And yeah, there's a lot of people selling antiquated, crappy

(01:52:56):
vehicles and no one's going to want to buy them anymore.
But that's technology. The human race has got to move forward.
So if you're offering digital credit, digital capital, digital equity,
it's a better thing, and ultimately you're feeding the four
hundred million companies. Look every for every company that can't

(01:53:19):
sell a crappy credit instrument, their treasurer can buy our
credit instrument and get triple or quadruple and maybe that'll
save the company. Right. So, yeah, there's technology that's putting
you out of business all the time, and then there's
a new technology that will make you a fortune and
put you in business. If you're a critical, skeptical cur mudgeon,

(01:53:41):
you just focus on the negativity, and you're just a
negative on everything. I hate that, I hate that that's bad,
I hate that. I don't want to change. And if
you're constructive and shareful. If you're an optimist, you're like, well,
I won't be you know, my a trac take collection
isn't that valuable anymore. But I do have unlimited free
streaming music. Yeah, you know, And I guess you know.

(01:54:03):
I lost a little money invested in whatever record stores,
but I also bought some applestock and made a fortune. Right,
And I would say, all these corporate operators, their job is,
you know, look at the you know, anticipate the future,
look at the past, move forward. Do it in the

(01:54:26):
most graceful, sibyl, responsible, you know, elegant fashion. You can. Right,
the world isn't the way it was one hundred years ago.
It won't be this way a hundred years from now.
That's the human condition. If there were, if there wasn't
work to do to move us from the past of

(01:54:46):
the future, you wouldn't have a job. There'd be no
reason to get up in the morning. There'd be nothing
to get excited about. Right, you're irrelevant. And I got
to tell you. You don't want to wake up one
day and think I'm irrelevant. Nobody needs me, no one
will care. And the way we did it for the

(01:55:07):
past one hundred years is probably just the way we
should do it forever.

Speaker 2 (01:55:11):
Yeah, that's not a way to succeed. We want to grow.
We want to challenge ourselves and learn. All right, Well,
I think we covered everything. Thanks so much, And I
want to say I kind of said it in New York,
but I just want to say thank you for all
the education that you put in the space. I mean,
you're tiresly going on everybody's show speaking around. I know
you're in DC speaking so and the education piece is massive,

(01:55:32):
So thank you for that. I mean it's made a
big difference, but also blazing the trail for what's what
we can do with these credit instruments and these treasury companies,
not just so other companies like ourselves can fall in
the footsteps, but all these pensioners that need it right,
And so I'm sort of taking bitcoin to the biggest
group of people that need it the most but probably
won't use it, and now they can have it. So

(01:55:53):
I want to say thank you anything that you want
to call out attention to for you to shut it down.

Speaker 1 (01:55:57):
Well, thanks for hosting me, and I'm happy to be
on the journe I need with you.

Speaker 2 (01:56:00):
Yeah, all right, thank you

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