August 14, 2025 • 44 mins
Jeff Park is a leading voice in macro investing and Head of Alpha Strategy at Bitwise Asset Management, where he explores how Bitcoin is transforming corporate finance. With a background spanning traditional finance and crypto innovation, Jeff brings deep insight into how Bitcoin is shifting capital markets, corporate treasuries, and the very nature of investing. In this episode, we dive into the rise of Bitcoin treasury strategies—and how they’re reshaping the financial landscape. Jeff unpacks the difference between companies simply holding Bitcoin and those architecting their business models around it. We explore why MicroStrategy’s playbook is being cloned globally, how financial engineering is creating new asset classes, and the role of volatility and transparency in modern capital structures. We also cover the evolution of Bitcoin-backed institutional lending, the tension between legacy credit systems and decentralized finance, and how new investors are aligning with Bitcoin-native values like sovereignty and transparency. Whether you're a macro investor, a Bitcoin believer, or just curious about the future of corporate finance, this conversation is a must-listen.
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Episode Transcript
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Speaker 1 (00:00):
The game of investing has changed ever since my career
started in two thousand and eight posted global financial crisis.
The world has changed where fundamental principles are becoming less important.
Many people kind of joke about whether bitcoin will ever
be not correlated to equities.
Speaker 2 (00:14):
I put it the other way around.
Speaker 1 (00:16):
I think, actually it's equities that's becoming more correlated with
bitcoin because equities is also becoming this place to store
your wealth to find the fastest escape velocity to the
fiscal dominance that we.
Speaker 2 (00:27):
Are experiencing across the world.
Speaker 1 (00:28):
People are immensely focused on bitcoin treasury companies right now
at the equity level. But the other big trend that
I'm seeing and Canter I believe, also recently announced that
they are going big in a way to provide institutional
lending that is backed by bitcoin.
Speaker 3 (00:41):
So then what you're saying is that investor sort of
needs to believe in the long term vision of Bitcoin's.
Speaker 2 (00:49):
All right, Jeff, thanks so much for joining me today.
Let's talk about the hottest.
Speaker 3 (00:53):
Thing going in the bitcoin space right now, which is
the bitcoin treasury strategy companies. At least it seems like it.
It's like all the excitement in the air right now.
Speaker 1 (01:02):
Yeah, Yeah, I can't get enough of it. There's one
popping up every day.
Speaker 2 (01:05):
Let's just break it down first.
Speaker 3 (01:07):
So is there a difference or how would you say
the difference is between a bitcoin treasury strategy company versus
a company putting bitcoin on the balance sheet.
Speaker 1 (01:15):
Yeah, I think there are some philosophical differences as to
at least how the market is interpreting today. One might
say coin Based, for example, is a bitcoin treasury company
because they own bitcoin as part of their business, and
we have bitwise also as a private company, have a
bitcoin on our balance sheet. But what I think the
market has at this point defined to be an authentic
(01:37):
bitcoin treasury company is building a business around financializing bitcoin
specifically for an opportunity set that takes an arbitrage for
what corporates can do that individuals like you and I cannot.
Speaker 3 (01:51):
Access, okay, which is what like the financial markets bringing
that in.
Speaker 1 (01:56):
Yeah, the capital markets is deep, as you know in
the US. It is the dominant future of what I
think makes us exceptional. And the reality is if you
can access different components of the capital markets, including credit derivatives,
other forms of leverage, there's different capital efficient ways to
have bitcoin exposure and risk that you and I simply
can't really replicate.
Speaker 3 (02:17):
Okay, so that's the financial engineering side of it, if
you will. So the other side of where they're just
putting bitcoin on their treasury or the balance sheet, that's
not really talking about and just real quickly though, so
you would say, I mean, obviously, big companies like an
Apple for example, that's in on billion, hundreds of billions
of cash, if they were to put ten percent of
that into bitcoin, it's good for bitcoin, but it doesn't
(02:37):
really change their business model.
Speaker 1 (02:39):
Yeah, this is kind of the dilemma, if you will,
which is so many of our big enterprises are really
built specifically to avoid volatility in many ways. If you
think about what the CFOs and the board of directors
that these companies would preach, they're talking about wanting to
expand multiples in ways the volatile as a component can
(03:01):
be minimized.
Speaker 2 (03:02):
Right.
Speaker 1 (03:02):
It's very rare for Wall Street CFOs to embrace volatility
as a feature of something they're trying to engineer as
part of the stock of anything. They're trying to repress it.
And so the challenge is if you bring bitcoin onto
your balance sheet, it does bring volatility as we've now
seen it with micro Strategy and others, and most corporate
CFOs are not trained to embrace that as an opportunity.
(03:25):
They think of that more as a cost of capital
decay that otherwise their own investors may not appreciate, which is,
you know, the fundamental challenge with companies like Microsoft, where
there's a clear underwriting framework for how to think about
that valuation metric, and you don't really want to rock
that boat too hard by bringing some exogenous factors, especially
(03:45):
if that exogerenest factor is something that Microsoft can't control,
and of course Microsoft cannot control bitcoins price.
Speaker 3 (03:51):
Is it also because you know, the market cap of
their company trillion dollars, two trillion dollars is so big
that even if they were to put ten twenty percent
of their balance sheet into bitcoin, maybe it doesn't move
it enough.
Speaker 1 (04:02):
It's a little bit of, I think, both economic and
a cultural gap.
Speaker 2 (04:08):
The cultural gap, I think is actually.
Speaker 1 (04:09):
More important, which is that there's a little bit of
what I call the asymmetric downside to adoption for companies
like the Mac seven right, which is, there aren't many
companies who are willing to tolerate that risk as an
upside capture when they're underwriting the whole business to be
tangibly valued in a different format. And so you actually
(04:29):
in that fashion is what I call typically short to put,
you have a lot of downside, potentially unlimited downside, and
very little upside capture, right and so I think that
cultural gap is a big part of it. The other thing, though,
that will change over time, and I do think companies
will wake up to this as other bitcoin treasure companies
adopt these standards, is there is a generational trend that
(04:51):
is happening with young people growing up and young people
voting with their capital to buy stocks they like right
Game Step being a great example of that evolution that
we saw in twenty twenty and beyond. So I think
there will come a moment when these companies realize that
having bitcoin on their balance sheet, despite maybe the little
bit of the loss with the incumbent investors today, the
(05:13):
upside of new investors that are excited by saying, oh,
I'm aligned with this company's eat those in values because
they believe what I believe, which is bitcoin is the future.
That can also I think be a huge tailwind and
we're kind of living I think moments of these inflections,
because right now it's the very nacent companies that are
adopting it. But once they show the path, then I
(05:34):
think you'll start to see kind of the level ups
of other companies that are more mid tier going into it.
And of course the very last will be the most
to lose the incumbent types.
Speaker 3 (05:44):
Not that this really applies to the treasure strategies, but
maybe a little bit. But here we're at the Bickcoin
conference and just this morning, the i think it was
the president of the Steak and Shake was up up
there talking on the stage and you were talking about
how they started accepting bitcoin and the uptick in business
they've got from that. Right to your point, people being
aligned ideologically with where they want to spend their money
(06:04):
sort of makes sense. Maybe a company like Apple, maybe
it repels as many people as the tracks or something
like that.
Speaker 2 (06:10):
It's it's a little bit different.
Speaker 3 (06:11):
But so then those businesses have their own finance, their
own business model. But then it seems like we see
other companies you mentioned game Stop who sort of have
like a dead business, a failing business. Maybe it's still
some revenue, some money on the balance sheet and they're
not sure what's next for them, and maybe this is
like a pretty good option for them. Are those the
companies you see that are sort of like righte for.
Speaker 2 (06:30):
This, Yeah, I think so. I think that's right.
Speaker 1 (06:35):
What we're seeing is a slow evolution of what people
will imagine the dynam is in behind this bitcoin treasury
companies to be right in the sense at the very beginning,
we started with strategy, which essentially is nothing but at
this point a bitcoin holding company with some financialization features.
And then I think what you're now going to see
is game stop. Even though it is a secularly challenged business,
(06:58):
it is a real business, is real cash flow, and
it's a consumer facing business actually unlike micro strategy, which
is B to B and so the wave of companies
that have a consumer facing aspect to which they can
onboard new customers by leveraging bitcoin as part of their
value alignment, I think.
Speaker 2 (07:17):
Is what we're going to start seeing.
Speaker 1 (07:18):
I would almost echo that the excitement people have seen
around Nakamoto, the other bitcoin treasury company that was announced recently,
is similar, which is that that's actually a real operating business.
That's why we're here. The Bitcoin conference generates revenue. Imagine
aligning the revenue opportunity of a bitcoin centric and adjacent
company with the ability to add leverage to the bitcoin
(07:41):
treasury strategy. That's a one plus one dynamic for which
I think it's potentially greater than two, and we have
not yet seen it. So I think what we're going
to see is different kinds of consumer facing bitcoin centric
companies also adopt the treasury strategy because that then diagram
is actually pretty pretty powerful and overlap.
Speaker 3 (08:01):
So then when I look at Strategy formerly micro Strategy,
their stock, the mstr sort of seems to be the product, right,
their stock is the product. Now they have Strike and Stripe,
so now they have like three financial products out there,
and so when I look at these, it's like, well,
I guess they're financial engineering a new product with a
new asset. But I guess maybe what you're saying is
(08:22):
there is probably even more synergy when you can actually
combine an actual business with that strategy, so not just
releasing the financial product, but then having some underlying business
that creates cash FLOWSTA and continue to multiply that.
Speaker 2 (08:35):
Yeah, yeah, that's right.
Speaker 1 (08:36):
I think strategy is so unique because the product, as
you said up perfectly is the stock and what is
the stock. It's the most liquid trading stock in the
capital markets, it has the deepest options market. It has
a lot of other financially engineered products that have come
online in the back of the stock yield strategies that
(08:57):
are engaged in cover cost selling, including bitwise having launched
them recently, as well as these two X celebrity tfs
and vice versa. So strategy for sure is the underlying
engine for a lot of the opportunities that are coming
a line in the capital markets through bitcoin. But that
is in itself a pretty unique advantage for being early
(09:19):
for saleor to have a mass that critical scale. The
next companies that come online, if you're going to compete
within the same jurisdiction, we'll have to think a little
bit differently. I do think there will be a strategy
clone per global jurisdictions everywhere in the world where there
is a deep capital markets of investors looking for bitcoin
exposure in a regulated way that they understand through securities law.
(09:42):
But within the US markets, for example, you're going to
have different kinds of companies come to the opportunity set
and they're going to approach it a little bit differently.
Speaker 3 (09:52):
So then we have like Metaplant in Japan, so they're
sort of following just a micro strategy.
Speaker 2 (09:55):
Playbook put in a different capital market.
Speaker 3 (09:57):
Yeah, and so we could probably run that, and I
think actually Nakamoto has been publicly vocal about wanting to
do that in niche market. So we know there's some
popping up down in Brazil. We'll be hearing some about
India here pretty soon, and so different capital markets, but
in sort of the North American market, then they need
to have different spins on them, sort of to what
Knacomoto is doing by wrapping this business in or maybe
(10:18):
can't or cantor was the equity partners sort of probably
looks like some maybe financial products in there.
Speaker 2 (10:24):
Yeah, something like that. Yeah, yeah, yeah, that's right.
Speaker 1 (10:26):
And I think ultimately the line will start blurring where
people are going to think of bitcoin as an asset
that is beating the cost of capital that they could
potentially reinvest into the ROE. So what I mean by
this is if you have a real business and you
have the opportunity to say, hey, actually if I sell
my bitcoin to take those cash proceeds reinvest in my business,
(10:49):
that's going to drive a higher ROE, then potentially the
price of bitcoin in itself. You could imagine people making
those capital allocation strategies on a pretty dynamic level. Some
would argue it'd be hard to op perform bitcoin anyway,
so that Roe calculation would have to be pretty pretty
specific for that value proposition. But I think if the
(11:11):
companies are built on the backbone of bitcoin, where their
revenue is directly related to bitcoin price, you could imagine
that being actually fairly correlated, and you could imagine there
is a higher ROE to invest in the equity of
the business by actually selling some bitcoin, which actually historically
has never been done before, right strategy never.
Speaker 2 (11:29):
Is selling the bitcoin to buy the stock back.
Speaker 1 (11:32):
Not even necessarily to buy the stockback because that's a
kind of a dividend to existing investors, but I mean
even to the idea of like using that to reinvest
in the business itself in an operating level to drive
higher ROE. Got it.
Speaker 3 (11:47):
Yeah, yeah, selln the bitcoin to invest in the business
and the business creates more income which than buy is
market Yeah, yeah, yeah, exactly. I think that's maybe what
sort of CP's been talking about. So now we have
it seems like, I mean, doesn't seem like there are
all these new terms and terminologies and waste and measure
these You mentioned financial metrics before, so the BPS, the torque, the.
Speaker 2 (12:10):
M now, etc.
Speaker 3 (12:11):
Right, So, like, what is the problem that traditional investors
have looking at these new companies and trying to understand them.
Speaker 2 (12:18):
Yeah, great question.
Speaker 1 (12:22):
The most significant trouble that traditional investors have is they
have never understood financial accounting with the denomination of accounting
being bitcoin based. So a lot of these metrics are
being reported in ways to retrain investors' minds to consider
(12:43):
the foundation of the base layer for your economic calculation
to be bitcoin itself. So everything you mentioned bitcoin for sure, bitcoin.
You know, this is this idea of accruing more bitcoin
at a level in which that rate of acceleration is
additive regardless of what the price of bitcoin itself is,
because your unit account is bitcoin.
Speaker 2 (13:01):
That's a pretty challenging.
Speaker 1 (13:02):
Thing because most companies are actually still traded on the
dollar basis, and investors think about their returns on a
dollar basis.
Speaker 2 (13:10):
So that's the first part. The second part is before
you move to the second part.
Speaker 3 (13:14):
So then what you're saying is that investor sort of
needs to believe in the long term vision of bitcoin. Yeah,
because if they're going to be on a bitcoin unit
account as opposed to a dollar then sort of regardless
of what the US dollar valuation of the stock is,
as long as the bitcoin is accumulating, then they should
be okay with that, right, And so if they don't
believe in that long term vision.
Speaker 2 (13:35):
Then it's hard to get by in that.
Speaker 1 (13:36):
That's right, especially if you're a long only investor and
not running a market neutral strategy. In the back of it,
it's actually critical that investors understand this is a bet.
Speaker 2 (13:44):
On bitcoin ultimately. Yes. Yes.
Speaker 1 (13:47):
And the second part that I think traditional investors struggle
with is that there is a classical training of how
to imagine what the capital structure should look like of
a normal operating company, which is that at the top
there as senior secured creditors. Maybe then you'll have senior
unsecured creditors, then you'll have junior, you'll have converts, you'll
(14:07):
have preferred equity, you'll have stock, and actually, very at
the very top, you might even have you know, customer
vendor claims things like that, which actually are the first
to be paid in the event of a bankruptcy. So
there's actually a way that traditional investors think about the
distribution of value in which different liabilities attached to the
assets with a priority waterfall. Okay, what we're seeing with
(14:30):
these bitcoin treasury companies is flipping that model upside down.
And that's actually what I think Sailor has been doing
in a way that has never been done before, which
is introducing these ideas of having different kinds of leans
towards that waterfall, but not necessarily having a packaged.
Speaker 2 (14:48):
In the way traditional investors would expect.
Speaker 1 (14:49):
For example, if you're a fixed and come investor, generally,
what you want to think is you want to turn
out your yields, so you want to know how much
you get paid over a duration, so you want a
maturity date. And then two, you want the ability to
have some kind of covenant or collateral to be able
to attach to the acid in the event that you
feel that gives you more protection than the juniorized equity. Right,
(15:11):
preferred equity as sale has issued have almost none of
those features. Right, it doesn't have an exploration date. They
are actually perpetual instruments that pay cash coupon. And then
it doesn't even have actually the ability to collateralize the
asset directly, even though you're slightly more senior than the equity.
And these are considered at this level fixed income instruments,
unconventional as it may be, and that is actually something
(15:33):
traditional investors have a very hard time wrapping the head around.
Is it rated by Moodies?
Speaker 2 (15:37):
No? Oh, then how do I assess it? You know,
does it have a term?
Speaker 1 (15:41):
You know, what's the actual corporate credits spread looking like
versus Gouvey's And you can't do those calculations easily with
these bitcoin backed bonds and companies.
Speaker 3 (15:50):
What about also when you think about the growth of
these companies to your point sort of being on a
bitcoin standard, you have to believe in sort of that
long term vision. But when you're trying to think of
you know, I have a venture fund, and so we
think about what will the market size be.
Speaker 2 (16:02):
In five or ten years and what percentage of that
market can we capture.
Speaker 3 (16:05):
So then we have to sort of think like, Okay,
if this company's going to grow its revenue, its profits,
what markets are going into and then how big will
the bitcoin valuation of the balance sheet but also the
size of that market be in the future. To try
to think about it somehow like that, trying to sort
of future cast the price.
Speaker 1 (16:21):
Yeah, yeah, I think that's a great question. It goes
back to something we started our conversation with, which is
what is the endgame for these bitcoin treasury companies?
Speaker 2 (16:28):
Right?
Speaker 1 (16:28):
And so for company again like Sailor and twenty one Capital,
the financialization, right, the hyper bitcoinization.
Speaker 2 (16:35):
If you will, is in itself the theme.
Speaker 1 (16:38):
But not everyone can do it, and there is going
to be a long tail of other companies that are
adopting the bitcoin standard, but their value propositions is going
to look different. And I think ultimately this is what
it's going to come down to. I think, as I
have seen the universe of companies who have bought piccorn
the balance sheet at a global level, there are some
common traits that exist within the corporate capital structure and
(16:58):
the executive team behind these f words. One is they
tend to be founder led companies because you actually can't
do this very easily without the social capital of having
been the founder of the entity to which you can
convince your board. And the second thing is these are
pretty radical individuals that are visionaries at some level about
(17:19):
wanting to see what the future might look different, and
so I think ultimate trend people will see is just
the same way that internet companies was not a thing
in nineteen ninety nine and beyond those who were able
to kind of still sniff around that opportunity in that moment,
despite the drawdown, we're the ones that would emerge and
(17:40):
be incredibly successful in the future. Right, So it's not
even about the bitcoin price anymore. At that point, you're
kind of betting on the human capital of people who
understand something very deeply about a technological breakthrough that's going
to create value for the equity in almost entirely different ways.
And so the thing that we're really excited about a
bit why, which is why we launched O and B,
(18:02):
which is our ETF that tracks on a rules based
companies that have more than one thousand bitcoin on their
balance sheet, is because it gives you a chance to
invest on a diversified basis a variety of these leaders.
Speaker 3 (18:15):
So for companies that have more than a thousand big
one on their balance sheet, then they get included into
this the ATF fasket.
Speaker 2 (18:21):
Yeah.
Speaker 1 (18:21):
Yeah, So we have an index and it is the
bit Wise Bitcoin Corporate Standard Index, for which the methodology
is that we actually market kept weight their exposure based
on bitcoin holdings at a certain level.
Speaker 2 (18:36):
Whether it's on the balance sheet or it's a treasury strategy, either.
Speaker 3 (18:39):
Way, either way, Yeah, yeah, that must be crushing it
right now.
Speaker 2 (18:45):
It's very popular.
Speaker 1 (18:46):
It's very popular because I think for the theme of
what we're living in today, it is absolutely sensical that
you might want to have that kind of exposure. But
the other reason is, look, you and I we spend
our time professionally looking at these crypto markets twenty four
to seven, but a vast majority, vast majority of financial
advisors and high networks and retail investors they don't spend
(19:07):
that much time looking at crypto and so when you
look at the long tail of the thirty plus companies
that could exist in this index, they don't know ninety
percent of it, right, And you actually want exposure in
these smaller companies because it is the smaller companies that
actually have the chance to outperform the most based on
the capital denomination of the microcaps.
Speaker 2 (19:25):
Yeah, so you know, we're seeing.
Speaker 3 (19:30):
To your point that you have the index the top
thirty companies is about where the thousand mark is.
Speaker 2 (19:34):
I guess right, thousand Bitcoin Bitcoin.
Speaker 3 (19:36):
Yeah, a lot thirty companies, But it seems like, you know,
the last couple of weeks, there's been a lot of
announcements coming out. You know, obviously the Knakamoto, Kindly Nakamoto,
the CEP, et cetera. Some of the guys here at Utxosys,
they're looking at like a dozen a day of new
ones popping up. So one thing that we're hearing quite
a bit is is it getting too overinflated? Is there
a bubble coming in? Something like that? To me, it
(19:58):
seems way too early to be called in that. But
what would you say.
Speaker 1 (20:02):
I think there is a lot of exuberance, and with exuberance,
of course, comes to notion of their potentially being a bubble.
And I think investors should definitely be careful in wanting
to approach this market with some discipline and financial principles
that are able to justify their investing strategies and efforts.
At the same time, something I've spoken about prolifically is the.
Speaker 2 (20:28):
Game of investing has changed.
Speaker 1 (20:29):
Actually, you know, I grew up kind of being taught
the intelligent investor Benjamin Grand model, Buffet model. But actually
I would say ever since my career started in two
thousand and eight posted global financial crisis. The world has
changed where those fundamental principles are becoming less important, and
(20:50):
we're actually living in.
Speaker 2 (20:51):
A world where the.
Speaker 1 (20:52):
Sovereign flows, the corporate flows, like these cross border flows
across the monetary order being rapidly changing, are almost the
dominant driver.
Speaker 2 (21:04):
Right. You saw it with QI, you saw it with COVID.
Speaker 1 (21:07):
A lot of the things that are happening is not
really anymore related to the fundamental earnings power or the
growth of these individual securities. If anything, equities have become
an indexed basket to battle inflation. So many people kind
of joke about, you know, whether bitcoin will ever be
(21:28):
not correlated to equities.
Speaker 2 (21:29):
I put it the other way around.
Speaker 1 (21:31):
I think, actually it's equities that's becoming more correlated with bitcoin,
because equities is also becoming this place to store your
wealth to find the fastest escape velocity to the fiscal
dominance that we are experiencing across the world. And so
from that perspective, the opportunity to invest early in those
moments and trend and momentum is a skill, and I
(21:53):
think young people are not necessarily blind to those having
been the more interesting ways to to participate in the
financial opportunity. So I try to be very level headed
about sharing that it does require some discipline. But at
the same time, you'd also be incorrect if you're spewing
(22:14):
that these companies are worthless because the DCF model dosn'
support X, y Z, when in fact there's other kind
of things that are driving the markets and ways that
I think some retail investors are very clever about.
Speaker 3 (22:25):
Yeah, I would say, to the point of it being
a bubble. At the same time too, it's like how
much of the ecosystem does X even represent? And Bigcoe
represent of that? And then child your companies even of that,
and so while it seems like the echo chamber is allowed,
at the same time it's like relatively small.
Speaker 2 (22:42):
But I'm curious.
Speaker 3 (22:44):
So if micro strategy of MSCR is the product, and
then strike and strife are the products, and then each
one of these companies is sort of a new product,
if you will, Right, So they have some little differences
in the underlying business model and the difference in there's
treasure strategy, but then at the end of the day,
they're like financial the chicker basically is the product, right,
(23:04):
So then how many financial products can we have in
the market, Like if I almost look at them, almost
like I don't want to say an ETF, but you
know it's a new financial product.
Speaker 2 (23:13):
Like how many of those can the market? There? Totally?
Speaker 1 (23:15):
Totally, And this goes back to what the bubble we're
talking about actually is. I would say the bubble is
actually the hyper financialization of the capital markets in itself. Right, consider,
for example, that some of the most successful ETFs that
are coming to market these days are in conduits, investing
conduits to make all kinds of different bets that historically
(23:38):
have no correlation to that idea of a diversified basket
two x celebrity tfs, right, Actually, one of the most
high performing ETF I think the one that was the
highest performing ATF that actually beat bitcoins priced last year
was the Nvidia.
Speaker 2 (23:52):
Two x celebritytf Yeah, it makes sense.
Speaker 1 (23:55):
And so that hyper financialization in itself is in it
is a reflection of kind of the state of our
society today, whether you like it or not.
Speaker 2 (24:04):
I mean, we're in Vegas, just walk out, that's exactly right.
Speaker 1 (24:08):
And I mean think about zero day experty options as well.
Those things have become popularized last year, and I believe
at last summer the zero day expery options for both
the SMP and AS that now account for more than
fifty percent of the options volume in total. Imagine that
people are now treading zero day expery options and there's
(24:28):
now conversations in DC to permit singlely options that are
going to have Monday experis, Wednesday experts and Friday expertis.
Speaker 2 (24:38):
Some would say, wow, isn't that a little too much?
Like why do we.
Speaker 1 (24:40):
Need such specificity about managing risk at this level? But
if you are arguing about that, you're already lost. That's
where the world is going. And so in a way,
strategy and these companies that are financializing the product as
the stock, it's not new in the sense that those
signs have already been present for a long time in
(25:02):
where the capital markets.
Speaker 2 (25:03):
Is evolving into It just happens.
Speaker 1 (25:05):
So that bitcoin is the best asset to do this
because one it's extremely volatile, which is very good for
hyper financialization, and two, the belief that bitcoin can also
be pristine collateral, unlike stocks themselves, lend you the ability
to imagine it like a credit asset, and credit assets
generally are not very volatile. So bitcoin gets the opportunity
(25:27):
to live in both worlds where you imagine it's pristine collateral,
but I'm also going to give you a heck of
a volatility for you to optimize around your beforeier construction.
Speaker 3 (25:36):
So would you say that we have the first new
financial asset in whatever five hundred years, and when we
try to understand those things as humans, we compare them
so it's sort of like this, it's sort of like this,
sort of like this, but it's actually something completely different.
And then that gives us a new set of building
blocks to build things that we haven't imagined before. And
so we're maybe just barely scratching the surface of what
we could do with an asset like this.
Speaker 2 (25:57):
Exactly right.
Speaker 1 (25:59):
I think challenge that investors have faced so far is
because bitcoin is so volatile, and because it's also technically
a very unproductive asset today in the sense that it
doesn't really generate yield, it's actually not participating in the
actual growth economy in a tangible contribution. There hasn't been
(26:20):
an ability to imagine credit provisioning for bitcoin in a
sound way, and so I think, as we all know,
the credit markets actually the fuel that drives a lot
of the opportunities, especially when it comes to securitization models
and long term investors that are insurance companies who want
(26:43):
something more stable to earn off of something like bitcoin,
and we haven't seen those opportunities yet. And the challenge
is there's really two credit models that are groomed within
the traditional finance industry. One is the Moody's SMP version
based on the strength of the operating company, So if
(27:03):
the operating company has cash flows that is underwriteable, you
can assign some kind of credit rating to that according
to their capitalization. The other model is the asset backed model,
which is the business of actually taking a bunch of
different collaterals that are asset backed and securitizing it in
the ways you can give ratings based on the structure
and the soundness of that structure in itself, which now
(27:26):
we're talking about collateralized asset lending, and to date we
haven't seen a lot of collateralized lending on bitcoin assets
come to market in a very institutional way. But I
think that's the other big trend that is happening. People
are immensely focused on bitcoin treasury companies right now, at
the equity level. But the other big trend that I'm
seeing and Canter I believe, also recently announced that they
(27:47):
are going big in a way to provide institutional lending
that is backed by bitcoin. That is the other big
tam that is going to be unlocked by bitcoin.
Speaker 2 (27:57):
Let's stick into that a little bit.
Speaker 3 (27:58):
So it was actually, I think last year at this
conference a two billion dollar line bitcoin credit line, and
I think it.
Speaker 2 (28:05):
Was too sort of unlost started unlocking.
Speaker 3 (28:07):
Some of this bitcoin liquidity that's in these corporate balance sheets.
Speaker 2 (28:12):
But I mean, bitcoin lending is nothing new. We have
plenty of companies that are loaning against bitcoin.
Speaker 3 (28:17):
Are you talking about it more from like pairing it
with other like loan products like real estate products, auto products,
things like that, or like how are you seeing that that, Pam.
Speaker 2 (28:25):
Yeah, great question. Yeah.
Speaker 1 (28:26):
Historically, the problem and the challenges with bitcoin in the
credit market has been that there really aren't many borrowers
looking for termed exposure to borrow the bitcoin or even
barrow dollars against it with termed.
Speaker 2 (28:40):
Exposure that's the collateralized it. Yeah.
Speaker 1 (28:42):
Yeah, yeah, because you know, take for example, the housing market.
The reason the mortgage market works is because people are
committing to borrow for thirty years in a fixed basis.
Of course there's refine and prepaid you can go forward with,
but the contract is long dated. Historically, the folks who
have been engage in these markets were not long term borrowers.
(29:03):
They tend to be market makers or traders who are
kind of coming for the fast moving opportunity set of arbitraging,
the inefficient yield ecosystem that can exist in DeFi and
potentially translated to the centralized finance system as well.
Speaker 2 (29:18):
And so.
Speaker 1 (29:20):
The only way to change the credit market is you
have to create a real demand function for long tenored borrowing.
And I think at some level that's a calculation on
an LTV basis as to how much you're willing to
take the possibility of default and impairment risk that institutions
are very good at underwriting these things for so, I
(29:43):
think the unlock you will come to see is that
hopefully there will be people that are borrowing with more
termed exposure than kind of the overnight or the spot
market in which you can't actually build a yield curve
on the back of bitcoin. So once you have a
yield curve on the back of bitcoin. I think that's
when you're going to see a lot of more interesting things.
Speaker 3 (30:04):
I guess the problem would be because of the volatility
and not knowing where that appreciation is going to go
over the next term whatever three, five, ten, twenty years.
Then it's probably hard to set that interest rate without
knowing what that appreciation rate will be because I guess
number one and then number two, like typically we want
to borrow in FIAT because it's appreciating asset versus borrowing
(30:25):
and appreciating assets.
Speaker 2 (30:26):
I think are those two challenges that you would see
in that.
Speaker 1 (30:29):
Yeah, I think that is at the core the problem,
which is credit is generally not provisioned for very volatile assets.
And this is also I think the opportunity with DeFi,
which is that part of why credit underwriting is so
challenging for volatile assets is because it's historically been challenging
(30:50):
to liquidate those in ways to imagine avoidance of impairment, right,
you don't have real time visibility into the underlying performance
metrics of these receivables or these corporates. So if you
think about like student loan securitization or credit card receivable securitization,
it's on a lagging basis. You get to see the
(31:11):
underperformance of some of these loans, but the reporting is
delayed and it's not very accurate, and it can be fudged,
and there's a lot of things you have to build.
Then a risk premium for the beauty of bitcoin is
actually you don't any of that. It's very transparent with
the prices, it's actually very easy to take ownership of
the collateral if you're structuring it the right way on
a custodial basis. And for all those reasons, you can
(31:35):
imagine despite the volatility, the ability to actually seize liquidation
in a way to avoid impairment as the lender in
itself is the unique feature too. People just haven't been
able to price that yet because we haven't been able
to bring those forthcoming abilities of DeFi for risk management purposes.
(31:58):
So people would say, yes, the volatility is higher, but
maybe it's offset by the fact that I can liquidate
this thing much more easily, much more transparently, without having
to enter into some kind of tri party agreement with
a creditor that I don't know. No, you're facing a
smart contract. Those kinds of things I think will be
unlocks we just haven't seen yet.
Speaker 3 (32:17):
Yeah, yeah, it's gonna It's going to evolve pretty rapidly.
Speaker 2 (32:21):
So now we have these treasury companies.
Speaker 3 (32:23):
Going to go back to that topic something again your
fund bit. Why is you're tracking that as we talked about,
we have all these new companies that are popping in
and we're seeing them pop you know, three hundred percent,
five hundred percent, one thousand percent like relatively quickly. Like
I said, talk of the bubble and whatnot, a lot
of people think that sort of the fact you mentioned Benjaminraham,
sort of like a warm buffet quote, right, the rising
(32:43):
tide lifts all boats and when it when it goes out,
you seuse for me naked. So back to Bickuin's volatility
for your cycles maybe whatever that is a lot of
people are afraid of what may happen, you know, in
a big woing pullback, and how many of these companies
will be exposed.
Speaker 2 (32:57):
It seems like strategy. I mean, there was.
Speaker 3 (32:59):
Plenty calling for them they're going to be liquidated, Michael
Sims be forced to sell. Of course that wasn't the case,
but a lot of these newer ones maybe won't be
as safe. So what are you looking at in regards
to like risk management and potential dangers.
Speaker 2 (33:13):
Yeah, great question.
Speaker 1 (33:16):
You're absolutely correct that generally.
Speaker 2 (33:20):
We live in a world where the.
Speaker 1 (33:21):
Worst things you could ever imagine, we'll probably at some
level be abused by somebody. So you always have to
have that doubt in the back of your mind that
even though you want to avoid it, someone's going to
do it, and you have to prepare for that moment.
And that's kind of the entropy of the capital markets anyway.
This isn't even like a crypto specific thing. It just happens.
So when you have a creative financial market like the
(33:42):
United States promoting a lot of these virtues.
Speaker 2 (33:45):
So the thing that I would highlight is really the long.
Speaker 1 (33:51):
Term winner of these treasury companies are going to essentially
be able to garner investors who are a bitcoin aligned.
So I think it's going to be more critical, more
important than ever that the bitcoin treasure companies are able
to honor the things that bitcoiners really care about, which
is security and transparency. And then the third thing, which
(34:15):
I think is the most important thing, sovereignty. And we're
going to see a wave of companies that may not
recognize these features and may in fact abuse it. And
so from that perspective, I think just understanding what bitcoin
represents to us in ways that corporates can also adopt
it with similar alignment will be a pretty easy limits
test to understand how you want to navigate that journey security,
(34:39):
for example, being a situation where Hoddle being the driver
of how investors invest. You don't really want to invest
in a bitcoin treasure company that is engaging in re hypothication, right.
You don't want to have the situation where their creditors
do actually have leans against the bitcoin asset and can
liquidate you.
Speaker 2 (34:56):
That's not what Hoddle is about. So that's not going
to fly. Transparen parncy.
Speaker 1 (35:01):
There's been a lot of conversations about whether proof of
reserves should be brought upon for treasury companies, as it
has been brought on for exchanges as well, And there's
nuances to this conversation, which is that on the pro side,
there is something virtuous about what bitcoin unlocks in the
ability for us to have life transparency into holdings. But
these are also securities, right. These are not actually non
(35:24):
custodial wallets you and I have. These are securities, which
means there's a lot of other liabilities even away from
the proof of reserves that can exist in the corporate
structure that has nothing to do with crypto.
Speaker 3 (35:35):
That could impair those even if we saw the accidens
there that they could be impaired.
Speaker 1 (35:38):
By just the same way that the centralized exchanges would
show proof of reserve. But you knew that it meant
nothing two years ago because you don't know what's on
the other side of the liabilities, and so it's actually
not that useful.
Speaker 2 (35:50):
But I think big coinners really.
Speaker 1 (35:52):
Care about this, which is that whole motto of you know,
trust but verify, and you're going to see more companies
I think, innovate upon this custodial model as well to
show some level of transparency, and we're going to keep
pushing the curve on what's possible. They're mindful, of course,
of the securities law, for which there's unique challenges that
(36:15):
also come through the audit and the financial filings, the
tenk k's, the ten queues, etc.
Speaker 2 (36:21):
And the sovereignty thing.
Speaker 1 (36:22):
I think is really important because people really want to
know that when they buy a stock that you're buying
the stock and support of the management team who is
supporting bitcoin and not necessarily for another purpose. And I
think there's going to be more conversations around what exactly
how are you supporting bitcoin? You know, what kind of
(36:43):
contributions are you making to the community at large, whether
it's the developers or whether it's some kind of nonprofit
endeavors that are going on to help the ecosystem of
new entrepreneurs. But these things are going to become, I think,
a little bit more value aligned, the same way like
ESG investors were driven by values, right you bought companies
who bought into this estreet construct because it reflected what
(37:03):
you believed in promoting good environment, social governance factors. And
I think the same will be true, which is when
you say you're a bitcoin treasury, how are you promoting
bitcoin in the space.
Speaker 3 (37:15):
And so we need to make sure that the team
is aligned a founder and the board because otherwise they
could sell or liquidate early.
Speaker 2 (37:24):
Need to make sure that the investor base is also.
Speaker 3 (37:26):
Aligned with the founder and the board and they have
that long term vision. If you get too many short
term thinkers and traders in there, then that could wreck things.
Speaker 2 (37:34):
And then maybe the third thing though.
Speaker 3 (37:35):
That I'm sort of thinking about, is like, if they're
leveraging up and they're taking on debt to do these things,
you know, potential term lengths of the debt, you know,
things like that that can cause a problem. So if
you know it came to as a recourse loan, it
came to you know, in a downturn of the market cycle,
something like that, do you look at look at look
(37:55):
at those factors.
Speaker 2 (37:56):
Yeah.
Speaker 1 (37:56):
Absolutely, I think that's why Sailor was brilliant when he
was able to finances capital structure. Once upon a time
in history. You may know he did have recourse loans
and those were removed in honor of now having convertible
bonds which have no claim and then the preferred equity
securities which have zero claim.
Speaker 2 (38:12):
And so.
Speaker 1 (38:14):
Those are the alignment features that are now coming online
that maybe people didn't perceive to be important.
Speaker 2 (38:19):
For five years ago.
Speaker 1 (38:21):
So I think the conversation is constantly changing, and we
have to also be mindful that bitcoiners are not the
easiest people to navigate.
Speaker 2 (38:30):
They have a lot of views, and.
Speaker 1 (38:31):
Sometimes their views are also very pure in ways where
they don't like the idea of hyper financializing bitcoin in itself.
I remember when the options market opened up for the
ETF in December last year, that a lot of bitcoin
investors were very anti options. Basically thought it was paper
(38:52):
bitcoin synthetic in ways that it wouldn't reflect true scarcity
in the ways.
Speaker 2 (38:57):
That is part of the narrative.
Speaker 1 (39:00):
But I think over time they've come to realize, actually,
there's a world in which options market is additive to
bitcoin's price discovery, which we all know is higher, and
those things can also accelerate demand for a new kind
of investors that historically would never have touched bitcoin. For instance,
these convert buyers that are buying micro Strategy bonds.
Speaker 2 (39:20):
They're not interested in bitcoin.
Speaker 1 (39:22):
They're not buying convertible bonds on micro Strategy because they're
Bitcoin maxis. They're buying it because they see the tremendous
yield opportunity to harvest the volatility in a way that
the convertible market permits by having the ability to trade
the GAMA exposure on the calls and find that to
be a valuable endeavor. And those investors would never have
(39:43):
come online to buy billions of dollars of the paper
where they're willing to then dilute and convert themselves into
micro Strategy in their version to a profit, but actually
the greatest profit opportunity was bitcoiners, because the only reason
micro Strategy went up in value is presumably because bitcoin
did as well.
Speaker 3 (40:01):
Right, Yeah, And there's so many more questions I'd love
to dig into. Run out of time though, but I'd
love to find out more about, you know, sort of
the credit thing you talked about potentially the opportunity to
tam of putting that.
Speaker 2 (40:14):
Bitcoin back out there some sort of flatteralized debt.
Speaker 3 (40:16):
I know, in the bit wise folder that was being
passed around yesterday at the event, I talked about ways
to earn yield on bitcoint and how you might see
that as a growing space sort of in this DeFi space.
Speaker 2 (40:25):
But then that also then sort of maybe leads back
into the qualification conversations.
Speaker 3 (40:29):
So anyway, there's a lot we could dig into in
regards to that, but are out of time, so let's
just end it with them. Where do you see this space,
the bitcoin treasury space in five years thirty.
Speaker 1 (40:41):
I think it's a big market, and I think it's
going to be one in which it'll fundamentally alter the
fabric of retail investing.
Speaker 2 (40:52):
And Institute Investing.
Speaker 1 (40:54):
Think about Coinbase having entered the S and P five
hundred micro strategy, having entered NASDAC, it means by definition,
at this point, every American owns crypto. And there's something
profound there, which is that no matter your view, your politics,
whether you like it or you dislike it, or whether
you believe it or you don't believe it, it doesn't matter.
It's in your portfolio. And I think Bitcoin Treasury Companies
(41:16):
is inevitable. In the same way that these two new
entrants made a dent into your index exposure. We're just
going to see a lot more people have bitcoin as
a component of their cultural alignment as a business model,
and so I think the conversation is changing when I
think about the investment leadership of an asset management firm
like bitwise and others. It's now past the stage of
(41:38):
preaching why bitcoin is important. That was very useful for
over ten years when people were skeptical. But we are
now here at a moment where bitcoin's gone pretty mainstream.
We have jadad vance coming here we speak tomorrow. We
have Senator Loomis talking about the Strategic Reserve Bill. It
is no longer controversial to really think about bitcoin as
(41:59):
an asset. The next wave of investment leadership will come
from those who are able to financialize that even beyond
the data exposure to more alpha centric opportunities. As you've said,
how do you generate yield on bitcoin? How do you
participate in the credit market on bitcoin? How do I
thoughtfully execute cover call strategies on bitcoin? How do I
(42:20):
participate in the layer two ecosystem like Babylon and Core
and earn unchain opportunities that enhance the security model for
the Bitcoin network. Those things are all going to actually
be the next wave of ideological upgrades, and I'm just
super excited to be a part of that conversation on
behalf of bitwise, but of course also here with you
(42:41):
and the Bitcoin conference.
Speaker 3 (42:43):
Yeah, anything about bitwise you want to tell us about
or just go check it out?
Speaker 2 (42:47):
Yeah, no, come check us.
Speaker 1 (42:49):
That we've been around for now eight years, which in
itself in crypto, as you might know, is a long time.
And I think the one thing I'm really proud of
bitwise for is we have always always put the importance
of a duce of your duty at the top of
navigating this journey. So our largest index fund, which is
(43:10):
the Bitwise ten index fund publicly traded own's top ten
market exploded exposure and the way you construct those can
also include difficult exposures like FTT or Luna, and I'm
very proud that we historically have avoided all of those
things on behalf of our investors because we care very
(43:30):
deeply about stewarding the crypto ecosystem and the way that
we believe it should go. And so I know it's
easy to talk about the financial opportunities a lot, and
that's certainly what gets me out of bed as a
trader myself, but it's really important to keep in mind
we're all in this not just for the profit opportunity,
but we have to care and nurture the actual stewardship
of where the business of the crypto industry will go.
(43:52):
And that's actually what's going to be leaving a mark
on the history of our participation here.
Speaker 2 (43:57):
Awesome, all right, thanks so much, thanks for having me
The game of investing has changed ever since my career
started in two thousand and eight posted global financial crisis.
The world has changed where fundamental principles are becoming less important.
Many people kind of joke about whether bitcoin will ever
be not correlated to equities.
Speaker 2 (00:14):
I put it the other way around.
Speaker 1 (00:16):
I think, actually it's equities that's becoming more correlated with
bitcoin because equities is also becoming this place to store
your wealth to find the fastest escape velocity to the
fiscal dominance that we.
Speaker 2 (00:27):
Are experiencing across the world.
Speaker 1 (00:28):
People are immensely focused on bitcoin treasury companies right now
at the equity level. But the other big trend that
I'm seeing and Canter I believe, also recently announced that
they are going big in a way to provide institutional
lending that is backed by bitcoin.
Speaker 3 (00:41):
So then what you're saying is that investor sort of
needs to believe in the long term vision of Bitcoin's.
Speaker 2 (00:49):
All right, Jeff, thanks so much for joining me today.
Let's talk about the hottest.
Speaker 3 (00:53):
Thing going in the bitcoin space right now, which is
the bitcoin treasury strategy companies. At least it seems like it.
It's like all the excitement in the air right now.
Speaker 1 (01:02):
Yeah, Yeah, I can't get enough of it. There's one
popping up every day.
Speaker 2 (01:05):
Let's just break it down first.
Speaker 3 (01:07):
So is there a difference or how would you say
the difference is between a bitcoin treasury strategy company versus
a company putting bitcoin on the balance sheet.
Speaker 1 (01:15):
Yeah, I think there are some philosophical differences as to
at least how the market is interpreting today. One might
say coin Based, for example, is a bitcoin treasury company
because they own bitcoin as part of their business, and
we have bitwise also as a private company, have a
bitcoin on our balance sheet. But what I think the
market has at this point defined to be an authentic
(01:37):
bitcoin treasury company is building a business around financializing bitcoin
specifically for an opportunity set that takes an arbitrage for
what corporates can do that individuals like you and I cannot.
Speaker 3 (01:51):
Access, okay, which is what like the financial markets bringing
that in.
Speaker 1 (01:56):
Yeah, the capital markets is deep, as you know in
the US. It is the dominant future of what I
think makes us exceptional. And the reality is if you
can access different components of the capital markets, including credit derivatives,
other forms of leverage, there's different capital efficient ways to
have bitcoin exposure and risk that you and I simply
can't really replicate.
Speaker 3 (02:17):
Okay, so that's the financial engineering side of it, if
you will. So the other side of where they're just
putting bitcoin on their treasury or the balance sheet, that's
not really talking about and just real quickly though, so
you would say, I mean, obviously, big companies like an
Apple for example, that's in on billion, hundreds of billions
of cash, if they were to put ten percent of
that into bitcoin, it's good for bitcoin, but it doesn't
(02:37):
really change their business model.
Speaker 1 (02:39):
Yeah, this is kind of the dilemma, if you will,
which is so many of our big enterprises are really
built specifically to avoid volatility in many ways. If you
think about what the CFOs and the board of directors
that these companies would preach, they're talking about wanting to
expand multiples in ways the volatile as a component can
(03:01):
be minimized.
Speaker 2 (03:02):
Right.
Speaker 1 (03:02):
It's very rare for Wall Street CFOs to embrace volatility
as a feature of something they're trying to engineer as
part of the stock of anything. They're trying to repress it.
And so the challenge is if you bring bitcoin onto
your balance sheet, it does bring volatility as we've now
seen it with micro Strategy and others, and most corporate
CFOs are not trained to embrace that as an opportunity.
(03:25):
They think of that more as a cost of capital
decay that otherwise their own investors may not appreciate, which is,
you know, the fundamental challenge with companies like Microsoft, where
there's a clear underwriting framework for how to think about
that valuation metric, and you don't really want to rock
that boat too hard by bringing some exogenous factors, especially
(03:45):
if that exogerenest factor is something that Microsoft can't control,
and of course Microsoft cannot control bitcoins price.
Speaker 3 (03:51):
Is it also because you know, the market cap of
their company trillion dollars, two trillion dollars is so big
that even if they were to put ten twenty percent
of their balance sheet into bitcoin, maybe it doesn't move
it enough.
Speaker 1 (04:02):
It's a little bit of, I think, both economic and
a cultural gap.
Speaker 2 (04:08):
The cultural gap, I think is actually.
Speaker 1 (04:09):
More important, which is that there's a little bit of
what I call the asymmetric downside to adoption for companies
like the Mac seven right, which is, there aren't many
companies who are willing to tolerate that risk as an
upside capture when they're underwriting the whole business to be
tangibly valued in a different format. And so you actually
(04:29):
in that fashion is what I call typically short to put,
you have a lot of downside, potentially unlimited downside, and
very little upside capture, right and so I think that
cultural gap is a big part of it. The other thing, though,
that will change over time, and I do think companies
will wake up to this as other bitcoin treasure companies
adopt these standards, is there is a generational trend that
(04:51):
is happening with young people growing up and young people
voting with their capital to buy stocks they like right
Game Step being a great example of that evolution that
we saw in twenty twenty and beyond. So I think
there will come a moment when these companies realize that
having bitcoin on their balance sheet, despite maybe the little
bit of the loss with the incumbent investors today, the
(05:13):
upside of new investors that are excited by saying, oh,
I'm aligned with this company's eat those in values because
they believe what I believe, which is bitcoin is the future.
That can also I think be a huge tailwind and
we're kind of living I think moments of these inflections,
because right now it's the very nacent companies that are
adopting it. But once they show the path, then I
(05:34):
think you'll start to see kind of the level ups
of other companies that are more mid tier going into it.
And of course the very last will be the most
to lose the incumbent types.
Speaker 3 (05:44):
Not that this really applies to the treasure strategies, but
maybe a little bit. But here we're at the Bickcoin
conference and just this morning, the i think it was
the president of the Steak and Shake was up up
there talking on the stage and you were talking about
how they started accepting bitcoin and the uptick in business
they've got from that. Right to your point, people being
aligned ideologically with where they want to spend their money
(06:04):
sort of makes sense. Maybe a company like Apple, maybe
it repels as many people as the tracks or something
like that.
Speaker 2 (06:10):
It's it's a little bit different.
Speaker 3 (06:11):
But so then those businesses have their own finance, their
own business model. But then it seems like we see
other companies you mentioned game Stop who sort of have
like a dead business, a failing business. Maybe it's still
some revenue, some money on the balance sheet and they're
not sure what's next for them, and maybe this is
like a pretty good option for them. Are those the
companies you see that are sort of like righte for.
Speaker 2 (06:30):
This, Yeah, I think so. I think that's right.
Speaker 1 (06:35):
What we're seeing is a slow evolution of what people
will imagine the dynam is in behind this bitcoin treasury
companies to be right in the sense at the very beginning,
we started with strategy, which essentially is nothing but at
this point a bitcoin holding company with some financialization features.
And then I think what you're now going to see
is game stop. Even though it is a secularly challenged business,
(06:58):
it is a real business, is real cash flow, and
it's a consumer facing business actually unlike micro strategy, which
is B to B and so the wave of companies
that have a consumer facing aspect to which they can
onboard new customers by leveraging bitcoin as part of their
value alignment, I think.
Speaker 2 (07:17):
Is what we're going to start seeing.
Speaker 1 (07:18):
I would almost echo that the excitement people have seen
around Nakamoto, the other bitcoin treasury company that was announced recently,
is similar, which is that that's actually a real operating business.
That's why we're here. The Bitcoin conference generates revenue. Imagine
aligning the revenue opportunity of a bitcoin centric and adjacent
company with the ability to add leverage to the bitcoin
(07:41):
treasury strategy. That's a one plus one dynamic for which
I think it's potentially greater than two, and we have
not yet seen it. So I think what we're going
to see is different kinds of consumer facing bitcoin centric
companies also adopt the treasury strategy because that then diagram
is actually pretty pretty powerful and overlap.
Speaker 3 (08:01):
So then when I look at Strategy formerly micro Strategy,
their stock, the mstr sort of seems to be the product, right,
their stock is the product. Now they have Strike and Stripe,
so now they have like three financial products out there,
and so when I look at these, it's like, well,
I guess they're financial engineering a new product with a
new asset. But I guess maybe what you're saying is
(08:22):
there is probably even more synergy when you can actually
combine an actual business with that strategy, so not just
releasing the financial product, but then having some underlying business
that creates cash FLOWSTA and continue to multiply that.
Speaker 2 (08:35):
Yeah, yeah, that's right.
Speaker 1 (08:36):
I think strategy is so unique because the product, as
you said up perfectly is the stock and what is
the stock. It's the most liquid trading stock in the
capital markets, it has the deepest options market. It has
a lot of other financially engineered products that have come
online in the back of the stock yield strategies that
(08:57):
are engaged in cover cost selling, including bitwise having launched
them recently, as well as these two X celebrity tfs
and vice versa. So strategy for sure is the underlying
engine for a lot of the opportunities that are coming
a line in the capital markets through bitcoin. But that
is in itself a pretty unique advantage for being early
(09:19):
for saleor to have a mass that critical scale. The
next companies that come online, if you're going to compete
within the same jurisdiction, we'll have to think a little
bit differently. I do think there will be a strategy
clone per global jurisdictions everywhere in the world where there
is a deep capital markets of investors looking for bitcoin
exposure in a regulated way that they understand through securities law.
(09:42):
But within the US markets, for example, you're going to
have different kinds of companies come to the opportunity set
and they're going to approach it a little bit differently.
Speaker 3 (09:52):
So then we have like Metaplant in Japan, so they're
sort of following just a micro strategy.
Speaker 2 (09:55):
Playbook put in a different capital market.
Speaker 3 (09:57):
Yeah, and so we could probably run that, and I
think actually Nakamoto has been publicly vocal about wanting to
do that in niche market. So we know there's some
popping up down in Brazil. We'll be hearing some about
India here pretty soon, and so different capital markets, but
in sort of the North American market, then they need
to have different spins on them, sort of to what
Knacomoto is doing by wrapping this business in or maybe
(10:18):
can't or cantor was the equity partners sort of probably
looks like some maybe financial products in there.
Speaker 2 (10:24):
Yeah, something like that. Yeah, yeah, yeah, that's right.
Speaker 1 (10:26):
And I think ultimately the line will start blurring where
people are going to think of bitcoin as an asset
that is beating the cost of capital that they could
potentially reinvest into the ROE. So what I mean by
this is if you have a real business and you
have the opportunity to say, hey, actually if I sell
my bitcoin to take those cash proceeds reinvest in my business,
(10:49):
that's going to drive a higher ROE, then potentially the
price of bitcoin in itself. You could imagine people making
those capital allocation strategies on a pretty dynamic level. Some
would argue it'd be hard to op perform bitcoin anyway,
so that Roe calculation would have to be pretty pretty
specific for that value proposition. But I think if the
(11:11):
companies are built on the backbone of bitcoin, where their
revenue is directly related to bitcoin price, you could imagine
that being actually fairly correlated, and you could imagine there
is a higher ROE to invest in the equity of
the business by actually selling some bitcoin, which actually historically
has never been done before, right strategy never.
Speaker 2 (11:29):
Is selling the bitcoin to buy the stock back.
Speaker 1 (11:32):
Not even necessarily to buy the stockback because that's a
kind of a dividend to existing investors, but I mean
even to the idea of like using that to reinvest
in the business itself in an operating level to drive
higher ROE. Got it.
Speaker 3 (11:47):
Yeah, yeah, selln the bitcoin to invest in the business
and the business creates more income which than buy is
market Yeah, yeah, yeah, exactly. I think that's maybe what
sort of CP's been talking about. So now we have
it seems like, I mean, doesn't seem like there are
all these new terms and terminologies and waste and measure
these You mentioned financial metrics before, so the BPS, the torque, the.
Speaker 2 (12:10):
M now, etc.
Speaker 3 (12:11):
Right, So, like, what is the problem that traditional investors
have looking at these new companies and trying to understand them.
Speaker 2 (12:18):
Yeah, great question.
Speaker 1 (12:22):
The most significant trouble that traditional investors have is they
have never understood financial accounting with the denomination of accounting
being bitcoin based. So a lot of these metrics are
being reported in ways to retrain investors' minds to consider
(12:43):
the foundation of the base layer for your economic calculation
to be bitcoin itself. So everything you mentioned bitcoin for sure, bitcoin.
You know, this is this idea of accruing more bitcoin
at a level in which that rate of acceleration is
additive regardless of what the price of bitcoin itself is,
because your unit account is bitcoin.
Speaker 2 (13:01):
That's a pretty challenging.
Speaker 1 (13:02):
Thing because most companies are actually still traded on the
dollar basis, and investors think about their returns on a
dollar basis.
Speaker 2 (13:10):
So that's the first part. The second part is before
you move to the second part.
Speaker 3 (13:14):
So then what you're saying is that investor sort of
needs to believe in the long term vision of bitcoin. Yeah,
because if they're going to be on a bitcoin unit
account as opposed to a dollar then sort of regardless
of what the US dollar valuation of the stock is,
as long as the bitcoin is accumulating, then they should
be okay with that, right, And so if they don't
believe in that long term vision.
Speaker 2 (13:35):
Then it's hard to get by in that.
Speaker 1 (13:36):
That's right, especially if you're a long only investor and
not running a market neutral strategy. In the back of it,
it's actually critical that investors understand this is a bet.
Speaker 2 (13:44):
On bitcoin ultimately. Yes. Yes.
Speaker 1 (13:47):
And the second part that I think traditional investors struggle
with is that there is a classical training of how
to imagine what the capital structure should look like of
a normal operating company, which is that at the top
there as senior secured creditors. Maybe then you'll have senior
unsecured creditors, then you'll have junior, you'll have converts, you'll
(14:07):
have preferred equity, you'll have stock, and actually, very at
the very top, you might even have you know, customer
vendor claims things like that, which actually are the first
to be paid in the event of a bankruptcy. So
there's actually a way that traditional investors think about the
distribution of value in which different liabilities attached to the
assets with a priority waterfall. Okay, what we're seeing with
(14:30):
these bitcoin treasury companies is flipping that model upside down.
And that's actually what I think Sailor has been doing
in a way that has never been done before, which
is introducing these ideas of having different kinds of leans
towards that waterfall, but not necessarily having a packaged.
Speaker 2 (14:48):
In the way traditional investors would expect.
Speaker 1 (14:49):
For example, if you're a fixed and come investor, generally,
what you want to think is you want to turn
out your yields, so you want to know how much
you get paid over a duration, so you want a
maturity date. And then two, you want the ability to
have some kind of covenant or collateral to be able
to attach to the acid in the event that you
feel that gives you more protection than the juniorized equity. Right,
(15:11):
preferred equity as sale has issued have almost none of
those features. Right, it doesn't have an exploration date. They
are actually perpetual instruments that pay cash coupon. And then
it doesn't even have actually the ability to collateralize the
asset directly, even though you're slightly more senior than the equity.
And these are considered at this level fixed income instruments,
unconventional as it may be, and that is actually something
(15:33):
traditional investors have a very hard time wrapping the head around.
Is it rated by Moodies?
Speaker 2 (15:37):
No? Oh, then how do I assess it? You know,
does it have a term?
Speaker 1 (15:41):
You know, what's the actual corporate credits spread looking like
versus Gouvey's And you can't do those calculations easily with
these bitcoin backed bonds and companies.
Speaker 3 (15:50):
What about also when you think about the growth of
these companies to your point sort of being on a
bitcoin standard, you have to believe in sort of that
long term vision. But when you're trying to think of
you know, I have a venture fund, and so we
think about what will the market size be.
Speaker 2 (16:02):
In five or ten years and what percentage of that
market can we capture.
Speaker 3 (16:05):
So then we have to sort of think like, Okay,
if this company's going to grow its revenue, its profits,
what markets are going into and then how big will
the bitcoin valuation of the balance sheet but also the
size of that market be in the future. To try
to think about it somehow like that, trying to sort
of future cast the price.
Speaker 1 (16:21):
Yeah, yeah, I think that's a great question. It goes
back to something we started our conversation with, which is
what is the endgame for these bitcoin treasury companies?
Speaker 2 (16:28):
Right?
Speaker 1 (16:28):
And so for company again like Sailor and twenty one Capital,
the financialization, right, the hyper bitcoinization.
Speaker 2 (16:35):
If you will, is in itself the theme.
Speaker 1 (16:38):
But not everyone can do it, and there is going
to be a long tail of other companies that are
adopting the bitcoin standard, but their value propositions is going
to look different. And I think ultimately this is what
it's going to come down to. I think, as I
have seen the universe of companies who have bought piccorn
the balance sheet at a global level, there are some
common traits that exist within the corporate capital structure and
(16:58):
the executive team behind these f words. One is they
tend to be founder led companies because you actually can't
do this very easily without the social capital of having
been the founder of the entity to which you can
convince your board. And the second thing is these are
pretty radical individuals that are visionaries at some level about
(17:19):
wanting to see what the future might look different, and
so I think ultimate trend people will see is just
the same way that internet companies was not a thing
in nineteen ninety nine and beyond those who were able
to kind of still sniff around that opportunity in that moment,
despite the drawdown, we're the ones that would emerge and
(17:40):
be incredibly successful in the future. Right, So it's not
even about the bitcoin price anymore. At that point, you're
kind of betting on the human capital of people who
understand something very deeply about a technological breakthrough that's going
to create value for the equity in almost entirely different ways.
And so the thing that we're really excited about a
bit why, which is why we launched O and B,
(18:02):
which is our ETF that tracks on a rules based
companies that have more than one thousand bitcoin on their
balance sheet, is because it gives you a chance to
invest on a diversified basis a variety of these leaders.
Speaker 3 (18:15):
So for companies that have more than a thousand big
one on their balance sheet, then they get included into
this the ATF fasket.
Speaker 2 (18:21):
Yeah.
Speaker 1 (18:21):
Yeah, So we have an index and it is the
bit Wise Bitcoin Corporate Standard Index, for which the methodology
is that we actually market kept weight their exposure based
on bitcoin holdings at a certain level.
Speaker 2 (18:36):
Whether it's on the balance sheet or it's a treasury strategy, either.
Speaker 3 (18:39):
Way, either way, Yeah, yeah, that must be crushing it
right now.
Speaker 2 (18:45):
It's very popular.
Speaker 1 (18:46):
It's very popular because I think for the theme of
what we're living in today, it is absolutely sensical that
you might want to have that kind of exposure. But
the other reason is, look, you and I we spend
our time professionally looking at these crypto markets twenty four
to seven, but a vast majority, vast majority of financial
advisors and high networks and retail investors they don't spend
(19:07):
that much time looking at crypto and so when you
look at the long tail of the thirty plus companies
that could exist in this index, they don't know ninety
percent of it, right, And you actually want exposure in
these smaller companies because it is the smaller companies that
actually have the chance to outperform the most based on
the capital denomination of the microcaps.
Speaker 2 (19:25):
Yeah, so you know, we're seeing.
Speaker 3 (19:30):
To your point that you have the index the top
thirty companies is about where the thousand mark is.
Speaker 2 (19:34):
I guess right, thousand Bitcoin Bitcoin.
Speaker 3 (19:36):
Yeah, a lot thirty companies, But it seems like, you know,
the last couple of weeks, there's been a lot of
announcements coming out. You know, obviously the Knakamoto, Kindly Nakamoto,
the CEP, et cetera. Some of the guys here at Utxosys,
they're looking at like a dozen a day of new
ones popping up. So one thing that we're hearing quite
a bit is is it getting too overinflated? Is there
a bubble coming in? Something like that? To me, it
(19:58):
seems way too early to be called in that. But
what would you say.
Speaker 1 (20:02):
I think there is a lot of exuberance, and with exuberance,
of course, comes to notion of their potentially being a bubble.
And I think investors should definitely be careful in wanting
to approach this market with some discipline and financial principles
that are able to justify their investing strategies and efforts.
At the same time, something I've spoken about prolifically is the.
Speaker 2 (20:28):
Game of investing has changed.
Speaker 1 (20:29):
Actually, you know, I grew up kind of being taught
the intelligent investor Benjamin Grand model, Buffet model. But actually
I would say ever since my career started in two
thousand and eight posted global financial crisis. The world has
changed where those fundamental principles are becoming less important, and
(20:50):
we're actually living in.
Speaker 2 (20:51):
A world where the.
Speaker 1 (20:52):
Sovereign flows, the corporate flows, like these cross border flows
across the monetary order being rapidly changing, are almost the
dominant driver.
Speaker 2 (21:04):
Right. You saw it with QI, you saw it with COVID.
Speaker 1 (21:07):
A lot of the things that are happening is not
really anymore related to the fundamental earnings power or the
growth of these individual securities. If anything, equities have become
an indexed basket to battle inflation. So many people kind
of joke about, you know, whether bitcoin will ever be
(21:28):
not correlated to equities.
Speaker 2 (21:29):
I put it the other way around.
Speaker 1 (21:31):
I think, actually it's equities that's becoming more correlated with bitcoin,
because equities is also becoming this place to store your
wealth to find the fastest escape velocity to the fiscal
dominance that we are experiencing across the world. And so
from that perspective, the opportunity to invest early in those
moments and trend and momentum is a skill, and I
(21:53):
think young people are not necessarily blind to those having
been the more interesting ways to to participate in the
financial opportunity. So I try to be very level headed
about sharing that it does require some discipline. But at
the same time, you'd also be incorrect if you're spewing
(22:14):
that these companies are worthless because the DCF model dosn'
support X, y Z, when in fact there's other kind
of things that are driving the markets and ways that
I think some retail investors are very clever about.
Speaker 3 (22:25):
Yeah, I would say, to the point of it being
a bubble. At the same time too, it's like how
much of the ecosystem does X even represent? And Bigcoe
represent of that? And then child your companies even of that,
and so while it seems like the echo chamber is allowed,
at the same time it's like relatively small.
Speaker 2 (22:42):
But I'm curious.
Speaker 3 (22:44):
So if micro strategy of MSCR is the product, and
then strike and strife are the products, and then each
one of these companies is sort of a new product,
if you will, Right, So they have some little differences
in the underlying business model and the difference in there's
treasure strategy, but then at the end of the day,
they're like financial the chicker basically is the product, right,
(23:04):
So then how many financial products can we have in
the market, Like if I almost look at them, almost
like I don't want to say an ETF, but you
know it's a new financial product.
Speaker 2 (23:13):
Like how many of those can the market? There? Totally?
Speaker 1 (23:15):
Totally, And this goes back to what the bubble we're
talking about actually is. I would say the bubble is
actually the hyper financialization of the capital markets in itself. Right, consider,
for example, that some of the most successful ETFs that
are coming to market these days are in conduits, investing
conduits to make all kinds of different bets that historically
(23:38):
have no correlation to that idea of a diversified basket
two x celebrity tfs, right, Actually, one of the most
high performing ETF I think the one that was the
highest performing ATF that actually beat bitcoins priced last year
was the Nvidia.
Speaker 2 (23:52):
Two x celebritytf Yeah, it makes sense.
Speaker 1 (23:55):
And so that hyper financialization in itself is in it
is a reflection of kind of the state of our
society today, whether you like it or not.
Speaker 2 (24:04):
I mean, we're in Vegas, just walk out, that's exactly right.
Speaker 1 (24:08):
And I mean think about zero day experty options as well.
Those things have become popularized last year, and I believe
at last summer the zero day expery options for both
the SMP and AS that now account for more than
fifty percent of the options volume in total. Imagine that
people are now treading zero day expery options and there's
(24:28):
now conversations in DC to permit singlely options that are
going to have Monday experis, Wednesday experts and Friday expertis.
Speaker 2 (24:38):
Some would say, wow, isn't that a little too much?
Like why do we.
Speaker 1 (24:40):
Need such specificity about managing risk at this level? But
if you are arguing about that, you're already lost. That's
where the world is going. And so in a way,
strategy and these companies that are financializing the product as
the stock, it's not new in the sense that those
signs have already been present for a long time in
(25:02):
where the capital markets.
Speaker 2 (25:03):
Is evolving into It just happens.
Speaker 1 (25:05):
So that bitcoin is the best asset to do this
because one it's extremely volatile, which is very good for
hyper financialization, and two, the belief that bitcoin can also
be pristine collateral, unlike stocks themselves, lend you the ability
to imagine it like a credit asset, and credit assets
generally are not very volatile. So bitcoin gets the opportunity
(25:27):
to live in both worlds where you imagine it's pristine collateral,
but I'm also going to give you a heck of
a volatility for you to optimize around your beforeier construction.
Speaker 3 (25:36):
So would you say that we have the first new
financial asset in whatever five hundred years, and when we
try to understand those things as humans, we compare them
so it's sort of like this, it's sort of like this,
sort of like this, but it's actually something completely different.
And then that gives us a new set of building
blocks to build things that we haven't imagined before. And
so we're maybe just barely scratching the surface of what
we could do with an asset like this.
Speaker 2 (25:57):
Exactly right.
Speaker 1 (25:59):
I think challenge that investors have faced so far is
because bitcoin is so volatile, and because it's also technically
a very unproductive asset today in the sense that it
doesn't really generate yield, it's actually not participating in the
actual growth economy in a tangible contribution. There hasn't been
(26:20):
an ability to imagine credit provisioning for bitcoin in a
sound way, and so I think, as we all know,
the credit markets actually the fuel that drives a lot
of the opportunities, especially when it comes to securitization models
and long term investors that are insurance companies who want
(26:43):
something more stable to earn off of something like bitcoin,
and we haven't seen those opportunities yet. And the challenge
is there's really two credit models that are groomed within
the traditional finance industry. One is the Moody's SMP version
based on the strength of the operating company, So if
(27:03):
the operating company has cash flows that is underwriteable, you
can assign some kind of credit rating to that according
to their capitalization. The other model is the asset backed model,
which is the business of actually taking a bunch of
different collaterals that are asset backed and securitizing it in
the ways you can give ratings based on the structure
and the soundness of that structure in itself, which now
(27:26):
we're talking about collateralized asset lending, and to date we
haven't seen a lot of collateralized lending on bitcoin assets
come to market in a very institutional way. But I
think that's the other big trend that is happening. People
are immensely focused on bitcoin treasury companies right now, at
the equity level. But the other big trend that I'm
seeing and Canter I believe, also recently announced that they
(27:47):
are going big in a way to provide institutional lending
that is backed by bitcoin. That is the other big
tam that is going to be unlocked by bitcoin.
Speaker 2 (27:57):
Let's stick into that a little bit.
Speaker 3 (27:58):
So it was actually, I think last year at this
conference a two billion dollar line bitcoin credit line, and
I think it.
Speaker 2 (28:05):
Was too sort of unlost started unlocking.
Speaker 3 (28:07):
Some of this bitcoin liquidity that's in these corporate balance sheets.
Speaker 2 (28:12):
But I mean, bitcoin lending is nothing new. We have
plenty of companies that are loaning against bitcoin.
Speaker 3 (28:17):
Are you talking about it more from like pairing it
with other like loan products like real estate products, auto products,
things like that, or like how are you seeing that that, Pam.
Speaker 2 (28:25):
Yeah, great question. Yeah.
Speaker 1 (28:26):
Historically, the problem and the challenges with bitcoin in the
credit market has been that there really aren't many borrowers
looking for termed exposure to borrow the bitcoin or even
barrow dollars against it with termed.
Speaker 2 (28:40):
Exposure that's the collateralized it. Yeah.
Speaker 1 (28:42):
Yeah, yeah, because you know, take for example, the housing market.
The reason the mortgage market works is because people are
committing to borrow for thirty years in a fixed basis.
Of course there's refine and prepaid you can go forward with,
but the contract is long dated. Historically, the folks who
have been engage in these markets were not long term borrowers.
(29:03):
They tend to be market makers or traders who are
kind of coming for the fast moving opportunity set of arbitraging,
the inefficient yield ecosystem that can exist in DeFi and
potentially translated to the centralized finance system as well.
Speaker 2 (29:18):
And so.
Speaker 1 (29:20):
The only way to change the credit market is you
have to create a real demand function for long tenored borrowing.
And I think at some level that's a calculation on
an LTV basis as to how much you're willing to
take the possibility of default and impairment risk that institutions
are very good at underwriting these things for so, I
(29:43):
think the unlock you will come to see is that
hopefully there will be people that are borrowing with more
termed exposure than kind of the overnight or the spot
market in which you can't actually build a yield curve
on the back of bitcoin. So once you have a
yield curve on the back of bitcoin. I think that's
when you're going to see a lot of more interesting things.
Speaker 3 (30:04):
I guess the problem would be because of the volatility
and not knowing where that appreciation is going to go
over the next term whatever three, five, ten, twenty years.
Then it's probably hard to set that interest rate without
knowing what that appreciation rate will be because I guess
number one and then number two, like typically we want
to borrow in FIAT because it's appreciating asset versus borrowing
(30:25):
and appreciating assets.
Speaker 2 (30:26):
I think are those two challenges that you would see
in that.
Speaker 1 (30:29):
Yeah, I think that is at the core the problem,
which is credit is generally not provisioned for very volatile assets.
And this is also I think the opportunity with DeFi,
which is that part of why credit underwriting is so
challenging for volatile assets is because it's historically been challenging
(30:50):
to liquidate those in ways to imagine avoidance of impairment, right,
you don't have real time visibility into the underlying performance
metrics of these receivables or these corporates. So if you
think about like student loan securitization or credit card receivable securitization,
it's on a lagging basis. You get to see the
(31:11):
underperformance of some of these loans, but the reporting is
delayed and it's not very accurate, and it can be fudged,
and there's a lot of things you have to build.
Then a risk premium for the beauty of bitcoin is
actually you don't any of that. It's very transparent with
the prices, it's actually very easy to take ownership of
the collateral if you're structuring it the right way on
a custodial basis. And for all those reasons, you can
(31:35):
imagine despite the volatility, the ability to actually seize liquidation
in a way to avoid impairment as the lender in
itself is the unique feature too. People just haven't been
able to price that yet because we haven't been able
to bring those forthcoming abilities of DeFi for risk management purposes.
(31:58):
So people would say, yes, the volatility is higher, but
maybe it's offset by the fact that I can liquidate
this thing much more easily, much more transparently, without having
to enter into some kind of tri party agreement with
a creditor that I don't know. No, you're facing a
smart contract. Those kinds of things I think will be
unlocks we just haven't seen yet.
Speaker 3 (32:17):
Yeah, yeah, it's gonna It's going to evolve pretty rapidly.
Speaker 2 (32:21):
So now we have these treasury companies.
Speaker 3 (32:23):
Going to go back to that topic something again your
fund bit. Why is you're tracking that as we talked about,
we have all these new companies that are popping in
and we're seeing them pop you know, three hundred percent,
five hundred percent, one thousand percent like relatively quickly. Like
I said, talk of the bubble and whatnot, a lot
of people think that sort of the fact you mentioned Benjaminraham,
sort of like a warm buffet quote, right, the rising
(32:43):
tide lifts all boats and when it when it goes out,
you seuse for me naked. So back to Bickuin's volatility
for your cycles maybe whatever that is a lot of
people are afraid of what may happen, you know, in
a big woing pullback, and how many of these companies
will be exposed.
Speaker 2 (32:57):
It seems like strategy. I mean, there was.
Speaker 3 (32:59):
Plenty calling for them they're going to be liquidated, Michael
Sims be forced to sell. Of course that wasn't the case,
but a lot of these newer ones maybe won't be
as safe. So what are you looking at in regards
to like risk management and potential dangers.
Speaker 2 (33:13):
Yeah, great question.
Speaker 1 (33:16):
You're absolutely correct that generally.
Speaker 2 (33:20):
We live in a world where the.
Speaker 1 (33:21):
Worst things you could ever imagine, we'll probably at some
level be abused by somebody. So you always have to
have that doubt in the back of your mind that
even though you want to avoid it, someone's going to
do it, and you have to prepare for that moment.
And that's kind of the entropy of the capital markets anyway.
This isn't even like a crypto specific thing. It just happens.
So when you have a creative financial market like the
(33:42):
United States promoting a lot of these virtues.
Speaker 2 (33:45):
So the thing that I would highlight is really the long.
Speaker 1 (33:51):
Term winner of these treasury companies are going to essentially
be able to garner investors who are a bitcoin aligned.
So I think it's going to be more critical, more
important than ever that the bitcoin treasure companies are able
to honor the things that bitcoiners really care about, which
is security and transparency. And then the third thing, which
(34:15):
I think is the most important thing, sovereignty. And we're
going to see a wave of companies that may not
recognize these features and may in fact abuse it. And
so from that perspective, I think just understanding what bitcoin
represents to us in ways that corporates can also adopt
it with similar alignment will be a pretty easy limits
test to understand how you want to navigate that journey security,
(34:39):
for example, being a situation where Hoddle being the driver
of how investors invest. You don't really want to invest
in a bitcoin treasure company that is engaging in re hypothication, right.
You don't want to have the situation where their creditors
do actually have leans against the bitcoin asset and can
liquidate you.
Speaker 2 (34:56):
That's not what Hoddle is about. So that's not going
to fly. Transparen parncy.
Speaker 1 (35:01):
There's been a lot of conversations about whether proof of
reserves should be brought upon for treasury companies, as it
has been brought on for exchanges as well, And there's
nuances to this conversation, which is that on the pro side,
there is something virtuous about what bitcoin unlocks in the
ability for us to have life transparency into holdings. But
these are also securities, right. These are not actually non
(35:24):
custodial wallets you and I have. These are securities, which
means there's a lot of other liabilities even away from
the proof of reserves that can exist in the corporate
structure that has nothing to do with crypto.
Speaker 3 (35:35):
That could impair those even if we saw the accidens
there that they could be impaired.
Speaker 1 (35:38):
By just the same way that the centralized exchanges would
show proof of reserve. But you knew that it meant
nothing two years ago because you don't know what's on
the other side of the liabilities, and so it's actually
not that useful.
Speaker 2 (35:50):
But I think big coinners really.
Speaker 1 (35:52):
Care about this, which is that whole motto of you know,
trust but verify, and you're going to see more companies
I think, innovate upon this custodial model as well to
show some level of transparency, and we're going to keep
pushing the curve on what's possible. They're mindful, of course,
of the securities law, for which there's unique challenges that
(36:15):
also come through the audit and the financial filings, the
tenk k's, the ten queues, etc.
Speaker 2 (36:21):
And the sovereignty thing.
Speaker 1 (36:22):
I think is really important because people really want to
know that when they buy a stock that you're buying
the stock and support of the management team who is
supporting bitcoin and not necessarily for another purpose. And I
think there's going to be more conversations around what exactly
how are you supporting bitcoin? You know, what kind of
(36:43):
contributions are you making to the community at large, whether
it's the developers or whether it's some kind of nonprofit
endeavors that are going on to help the ecosystem of
new entrepreneurs. But these things are going to become, I think,
a little bit more value aligned, the same way like
ESG investors were driven by values, right you bought companies
who bought into this estreet construct because it reflected what
(37:03):
you believed in promoting good environment, social governance factors. And
I think the same will be true, which is when
you say you're a bitcoin treasury, how are you promoting
bitcoin in the space.
Speaker 3 (37:15):
And so we need to make sure that the team
is aligned a founder and the board because otherwise they
could sell or liquidate early.
Speaker 2 (37:24):
Need to make sure that the investor base is also.
Speaker 3 (37:26):
Aligned with the founder and the board and they have
that long term vision. If you get too many short
term thinkers and traders in there, then that could wreck things.
Speaker 2 (37:34):
And then maybe the third thing though.
Speaker 3 (37:35):
That I'm sort of thinking about, is like, if they're
leveraging up and they're taking on debt to do these things,
you know, potential term lengths of the debt, you know,
things like that that can cause a problem. So if
you know it came to as a recourse loan, it
came to you know, in a downturn of the market cycle,
something like that, do you look at look at look
(37:55):
at those factors.
Speaker 2 (37:56):
Yeah.
Speaker 1 (37:56):
Absolutely, I think that's why Sailor was brilliant when he
was able to finances capital structure. Once upon a time
in history. You may know he did have recourse loans
and those were removed in honor of now having convertible
bonds which have no claim and then the preferred equity
securities which have zero claim.
Speaker 2 (38:12):
And so.
Speaker 1 (38:14):
Those are the alignment features that are now coming online
that maybe people didn't perceive to be important.
Speaker 2 (38:19):
For five years ago.
Speaker 1 (38:21):
So I think the conversation is constantly changing, and we
have to also be mindful that bitcoiners are not the
easiest people to navigate.
Speaker 2 (38:30):
They have a lot of views, and.
Speaker 1 (38:31):
Sometimes their views are also very pure in ways where
they don't like the idea of hyper financializing bitcoin in itself.
I remember when the options market opened up for the
ETF in December last year, that a lot of bitcoin
investors were very anti options. Basically thought it was paper
(38:52):
bitcoin synthetic in ways that it wouldn't reflect true scarcity
in the ways.
Speaker 2 (38:57):
That is part of the narrative.
Speaker 1 (39:00):
But I think over time they've come to realize, actually,
there's a world in which options market is additive to
bitcoin's price discovery, which we all know is higher, and
those things can also accelerate demand for a new kind
of investors that historically would never have touched bitcoin. For instance,
these convert buyers that are buying micro Strategy bonds.
Speaker 2 (39:20):
They're not interested in bitcoin.
Speaker 1 (39:22):
They're not buying convertible bonds on micro Strategy because they're
Bitcoin maxis. They're buying it because they see the tremendous
yield opportunity to harvest the volatility in a way that
the convertible market permits by having the ability to trade
the GAMA exposure on the calls and find that to
be a valuable endeavor. And those investors would never have
(39:43):
come online to buy billions of dollars of the paper
where they're willing to then dilute and convert themselves into
micro Strategy in their version to a profit, but actually
the greatest profit opportunity was bitcoiners, because the only reason
micro Strategy went up in value is presumably because bitcoin
did as well.
Speaker 3 (40:01):
Right, Yeah, And there's so many more questions I'd love
to dig into. Run out of time though, but I'd
love to find out more about, you know, sort of
the credit thing you talked about potentially the opportunity to
tam of putting that.
Speaker 2 (40:14):
Bitcoin back out there some sort of flatteralized debt.
Speaker 3 (40:16):
I know, in the bit wise folder that was being
passed around yesterday at the event, I talked about ways
to earn yield on bitcoint and how you might see
that as a growing space sort of in this DeFi space.
Speaker 2 (40:25):
But then that also then sort of maybe leads back
into the qualification conversations.
Speaker 3 (40:29):
So anyway, there's a lot we could dig into in
regards to that, but are out of time, so let's
just end it with them. Where do you see this space,
the bitcoin treasury space in five years thirty.
Speaker 1 (40:41):
I think it's a big market, and I think it's
going to be one in which it'll fundamentally alter the
fabric of retail investing.
Speaker 2 (40:52):
And Institute Investing.
Speaker 1 (40:54):
Think about Coinbase having entered the S and P five
hundred micro strategy, having entered NASDAC, it means by definition,
at this point, every American owns crypto. And there's something
profound there, which is that no matter your view, your politics,
whether you like it or you dislike it, or whether
you believe it or you don't believe it, it doesn't matter.
It's in your portfolio. And I think Bitcoin Treasury Companies
(41:16):
is inevitable. In the same way that these two new
entrants made a dent into your index exposure. We're just
going to see a lot more people have bitcoin as
a component of their cultural alignment as a business model,
and so I think the conversation is changing when I
think about the investment leadership of an asset management firm
like bitwise and others. It's now past the stage of
(41:38):
preaching why bitcoin is important. That was very useful for
over ten years when people were skeptical. But we are
now here at a moment where bitcoin's gone pretty mainstream.
We have jadad vance coming here we speak tomorrow. We
have Senator Loomis talking about the Strategic Reserve Bill. It
is no longer controversial to really think about bitcoin as
(41:59):
an asset. The next wave of investment leadership will come
from those who are able to financialize that even beyond
the data exposure to more alpha centric opportunities. As you've said,
how do you generate yield on bitcoin? How do you
participate in the credit market on bitcoin? How do I
thoughtfully execute cover call strategies on bitcoin? How do I
(42:20):
participate in the layer two ecosystem like Babylon and Core
and earn unchain opportunities that enhance the security model for
the Bitcoin network. Those things are all going to actually
be the next wave of ideological upgrades, and I'm just
super excited to be a part of that conversation on
behalf of bitwise, but of course also here with you
(42:41):
and the Bitcoin conference.
Speaker 3 (42:43):
Yeah, anything about bitwise you want to tell us about
or just go check it out?
Speaker 2 (42:47):
Yeah, no, come check us.
Speaker 1 (42:49):
That we've been around for now eight years, which in
itself in crypto, as you might know, is a long time.
And I think the one thing I'm really proud of
bitwise for is we have always always put the importance
of a duce of your duty at the top of
navigating this journey. So our largest index fund, which is
(43:10):
the Bitwise ten index fund publicly traded own's top ten
market exploded exposure and the way you construct those can
also include difficult exposures like FTT or Luna, and I'm
very proud that we historically have avoided all of those
things on behalf of our investors because we care very
(43:30):
deeply about stewarding the crypto ecosystem and the way that
we believe it should go. And so I know it's
easy to talk about the financial opportunities a lot, and
that's certainly what gets me out of bed as a
trader myself, but it's really important to keep in mind
we're all in this not just for the profit opportunity,
but we have to care and nurture the actual stewardship
of where the business of the crypto industry will go.
(43:52):
And that's actually what's going to be leaving a mark
on the history of our participation here.
Speaker 2 (43:57):
Awesome, all right, thanks so much, thanks for having me
Host
Mark Moss
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