TFTC: A Bitcoin Podcast - #542: The Bitcoin Treasure Strategy Is A Game Changer with Dylan LeClair

Episode Date: October 2, 2024

Marty sits down with Dylan LeClair to discuss the effectiveness MicroStrategy's bitcoin treasury model. Dylan on Twitter: https://x.com/DylanLeClair_ 0:00 - Intro 1:19 - Price cycles and election outcomes 6:49 - Rate cut 10:27 - Unchained 11:12 - China 14:49 - Leveraging for more bitcoin 22:06 - First mover advantage 29:23 - Gradually, Then Suddenly & Zaprite 31:00 - How cash flow affects the strategy 33:47 - Impact on price 39:30 - MetaPlanet's journey 46:33 - Importance of timing 54:28 - Shareholder obligation 1:01:26 - Yuppie elites 1:05:49 - Bitcoin ETF options 1:16:57 - Bitcoin's come further than Crypto 1:26:10- Hot takes Shoutout to our sponsors: River https://river.com/tftc Unchained https://unchained.com/concierge/ Zaprite https://zaprite.com/tftc Gradually, Then Suddenly https://thesaifhouse.com/gradually Join the TFTC Movement: Main YT Channel https://www.youtube.com/c/TFTC21/videos Clips YT Channel https://www.youtube.com/channel/UCUQcW3jxfQfEUS8kqR5pJtQ Website https://tftc.io/ Twitter https://twitter.com/tftc21 Instagram https://www.instagram.com/tftc.io/ Nostr https://primal.net/tftc Follow Marty Bent: Twitter https://twitter.com/martybent Nostr https://primal.net/martybent Newsletter https://tftc.io/martys-bent/ Podcast https://www.tftc.io/tag/podcasts/

Just an example of MicroStrategy, it was a billion dollar business with 500 million cash. They started in August 11th, 2020, four years and a month after they started. They have $16 billion of Bitcoin and like $4 or $5 billion of debt. Who has an S&P 500? I've performed that name since that date. No one. I realized that everything in the world is trending to zero against Bitcoin on a longer timeframe.

BlackRock, right? We've stacked 360,000 Bitcoin. They've stacked a micro strategy and a half in, you know, the span of nine months or so. They've quite literally said, you know, we want to help, you know, pump Bitcoin to pay off the pay off the debt. Right. Which is obviously a bit hyperbolic. You've had a dynamic where money has become freer than free. If you talk about a Fed just gone nuts, all the central banks going nuts. so it's all acting like safe haven i believe that in a world where central bankers are tripping over

themselves to devalue their currency bitcoin wins in the world of fiat currencies bitcoin is the victor i mean that's part of the bull case for bitcoin if you're not paying attention you probably should be probably should be dylan mcclare hot off a trip to japan back stateside how you doing or you look happy you look refreshed i'm doing great yeah happy to be here happy to be back in the states although i did have some fun um over in the east but uh yeah feeling refreshed excited for what's to come um bullish getting back in the saddle right as we're approaching 65 000 yeah it's been uh it's been a you know choppy six six months but good i think i needed it um I was, I was feeling a bit of FOMO on, uh, you know,

how things were looking in early March. Um, obviously, obviously up only is fun, but, uh, you know, a good time to stack and, um, you know, get prepared for what's to come. Yeah. It's, it's funny how having been in this for 11 years, the cycles, particularly the psychological cycles around price, just repeat and repeat and repeat or rhyme and rhyme and rhyme. However you want to say, cause you had the summer of chop consolidation. which is healthy uh i think it was hit all-time highs before the having cool down for six months

it's good consolidation a tighter spring to to coil off of and i i guess with that like from your perspective where do you think we are in this cycle heading into the end of q3 um entering q4 post-halving election season. And it's definitely a different dynamic from a fundamental perspective this time around as it pertains to Bitcoin and the demand drivers and liquidity avenues that can come into the asset. Yeah, I mean, I think, you know, in a long view,

regardless of who wins some money material, at least for Bitcoin's sake, um you know i think the the biggest thing on on trump uh this summer was you know just the rhetoric rhetoric alone sort of accelerates the timeline um shifts the overton window gets every nation state to um you know to to look twice um and and you know everybody's talked about that ad nauseum um but i think trump obviously there's a whole bunch of catalysts uh you know six six weeks out from the election. He would obviously be good for it. But I don't think, you know, if Kamala is in office, it's a similar story, just a bit of a different flavor.

So, yeah, I'm feeling super bullish. The fiscal situation is obviously irreparable. You know, both sides are going to run historic deficits in peacetime, hopefully peacetime. But that's where we are right now. And they're still doing it. So, So, yeah, I mean, I think there's just this realization, you know, I mean, it's the stuff it's a bit surreal to see the stuff that, you know, the crazy conspiracy theorist Bitcoiner side of the world has been saying for years, you know, being being said on a daily basis from, you know, the high wigs of finance like BlackRock. Right. Who have stacked like three hundred sixty thousand Bitcoin. They've stacked a micro strategy and a half in the span of nine months or so. And obviously, it's not one entity, it's other people's funds. But, you know, that's this Bitcoin has reached a point of not no return.

I think, you know, maybe you could argue and I would say you could really argue that that was a long time ago, the, you know, threshold or point of no return. But, you know, there's a lot of debate in circles of what would a Harris administration be bad for crypto or, you know, what would Trump mean? And I think either way, Bitcoin is as clear in a way distinguished itself. You know, it's obviously above any of that, you know, SEC security talk and whatnot. So I think either way, right, they realize that, like, if Trump wins, it's obviously much more stated in the policy. They're talking about the Trifin Dilemma and the dollar strength and re-onshoring. And they've quite literally said, you know, we want to help, you know, pump Bitcoin to pay off the debt, right, which is obviously a bit hyperbolic. But, you know, that that sort of speaks about their broader policy ambitions and what Bitcoin can serve as sort of an escape valve.

And then, you know, the Harris administration, I think, you know, Bitcoin as this, you know, this non-sovereign avenue for for capital flight, for, you know, aversion from financial repression and, you know, deficit spending in a different way. It's it's it's sort of inevitable. And the story is just very strong. And, you know, it's a blessing. We're still at prices we saw three years ago. So yeah, I think you touched on it perfectly in regards to the upcoming presidential election. The two paths we can come go down on the fiscal side, obviously Trump more favorable from a tax perspective, maybe not so much from tariffs perspective. of kamala harris talking about unrealized cap gains tax raising the actual caps gains tax and doing some inflationary policy making some inflationary policy decisions particularly giving people 25 000 to buy a house a small business or startup tax credits that's on the

fiscal side but regardless of who gets in what path they decide to take uh they still have to deal with the monetary sovereign debt crisis that is materializing um globally right now and obviously you were in tokyo when it happened but last week we had uh drone pal lower rates by 50 bps a bit more than people were expecting in your perspective what what does that 50-bit rate cut signal to you i mean i think one of the interesting things is that the long end is since he's done that right um so i you know i think um if you look at the past rate cut cycles that first rate cut is the you know first sign of weakness um it's been talked about for a while um the the recession you know bear case of which you know i i was talking about in 22 23 admittedly

like every every bear um and and you know the there's been there's been people doomers that have said, you know, this is, this is the GFC since the GFC every year. And those people have been, you know, perma wrong and made no money. And so the bear case and the recession case has been, I think just because of the oddity of this cycle was pushed back, you know, all the excess cash and stimulus and the fact that like, you know, spot inflation, if you will, was eight, 9% in 22 and was, you know, even on the, even on the disinflationary period in 23 and throughout 24, you know, the kind of the monetary policy tightness, if you will, wasn't really felt because, you know, real interest rates, if you will, weren't all that restrictive.

And so now, you know, I mean, I don't think they get their 2% inflation and it definitely doesn't stay there, you know, especially with, you know, the next two administrations. But that 50 bps cut, I think there's a bit of structural weakness, you know, first kind of cracks in the labor market. And, you know, the middle and lower class are starting to feel a pinch. I don't think they let they as when either administration let it get too hairy. But, you know, I think they've because of how slow they they the Fed was in the response to, you know, the inflation inflationary wave, I think by by like intent, I think they wanted to kind of let inflation rip and erode some of the debt. And because of, you know, political reasons and

because of the size of just the deficits that were run, that didn't happen, you know, despite the once in a 50 year inflation wave, you know, debt, the GDP didn't meaningfully go any lower. They responded late, raised, you know, had the fastest rate cycle in history. And I think, you know, probably held it a bit too long to try to, I mean, to stamp out that sort of inflationary impulse out of the consumer and out of the, you know, the US markets, global markets and so now they're you know not chasing right but i i think there's a good chance that what's the market price again i haven't checked the last week or so but like another 100 basis points of cuts um or maybe 50 through the year end and then um some more in 25 right so

right this is this is uh indicative of where we are um we can't really handle um meaningfully restrictive policy for a long time, especially at these debt levels. So, you know, a 50 base point cut, and then we have, you know, sort of a weak or a strong labor print that caught people off surprise. And now China is just dumping stimulus into the system. And, you know, in a global liquidity perspective, it's all interconnected, right? So that kind of spills into other markets, maybe to the angst of Xi Jinping. But yeah, it's an interesting spot. Gold hitting new all-time highs every day. You know, these are, these are, these are definitely warning signs. This rep was also brought to you by our good friends at Unchained. Unchained is building a

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coming out with extremely pumping a lot of liquidity into the market. And that was, China's always been perplexing to me. You never know what to believe in terms of what's coming out of China. It seems like they have been going through a massive real estate crisis there, which a lot of the Chinese citizens' savings is tied up in. And you have the Kyle Bass side of the equation, which is China's going down. We got a short, the Hong Kong dollar.

and in the yuan and then you have uh the other side of the the um the story where people putting out the other side of the story which is like people don't understand china they're fine but then you see something like this this week where they essentially came out uh lowered rates opened up the pboc window to hedge funds to buy equities uh they've made it illegal to short equities within the country and so if you're looking at it as an outside observer just looking at those policy decisions it's like it doesn't seem like everything's all right there and with that in mind if china is actually going into uh a a looser monetary policy injecting liquidity into the system do you think a lot of that will flow into bitcoin or will they be successful in sort of

cattle herding that into their equities markets or real estate markets whatever Yeah, I mean, I think definitely, you know, a certain extent of it will. You know, China's sort of, I mean, it's kind of this black box. It's a bit opaque. I don't pretend to, you know, be an expert in Chinese affairs. But, you know, I think that the doomers of China are a bit overstated. And I also think the people that are, you know, maybe like, you know, the dalliers of the world that say china is the next world reserve currency and great power and all that you know

china has as you just said you know all all a bunch of their own problems right you know from from the debt levels and that the massive real estate bubble that's that's you know definitively unwinding um you know the demographics um so i do think china obviously is a great power and from a geopolitical perspective is the in is definitely um you know the probably the number definitely the number one adversary to the U.S. from a geopolitical perspective. But at the same time, you know, as an investor, you know, I don't think you can really trust much from China, right? I don't think, you know, similar to like, you know, in Russia, right, where you could be looking at the P.E. multiple of Russian equities and, you know, trying to,

you know, make some fundamental case and then all of a sudden it's a zero, it's a donut. I think Bill Miller said that earlier today or maybe the past couple of days, right, in terms of investing in the Chinese market. So, I mean, from the stimulus perspective, right, or from a liquidity flows could be a good, you know, a good buy the dip opportunity. But in terms of a long term sort of, you know, capital play, I wouldn't say I wouldn't want to touch anywhere near China in terms of, you know, protecting or storing my wealth. And I think a lot of a lot of people, a lot of Chinese are also thinking the same thing. It's like you want to get money out of the system. You want to get money into Western markets or Japan or Bitcoin or really anything outside of the hands of the CCP. Yeah, I think that's a great example of liquidity flows that are somewhat unknown as it pertains to Bitcoin. And this is why I wanted to bring you on, because I think, as I alluded to earlier, over the last year, or we could say four years since MicroStrategy launched their Bitcoin treasury strategy, you're beginning to see a trend develop, particularly in public equity markets of companies leveraging debt and equity markets to raise capital to buy Bitcoin, to put it on the balance sheet.

obviously you're involved with meta planet in japan which has begun the strategy earlier this year and had massive success and i think this is an example of a demand driver for bitcoin that is more predictable and could be a consistent demand driver moving forward and so since you're on the front lines of this particular treasury management strategy and public public equities as it pertains to bitcoin like how do you see this playing out how has it played out up to this point and how do you see it playing out moving forward do you think this trend is going to continue to accelerate um as it has obviously pre-recording you mentioned the memo that we released at cathedral a couple of weeks ago basically signaling a similar intention um and to me

it just makes sense particularly if the fed's cutting rates uh you have this geopolitical uncertainty growing around the world like if you're a publicly traded company with access to these capital markets you should be getting as much exposure to bitcoin as possible yep 100 i think you know there's a few data points in cathedra's note that were particularly interesting to me um you know it was that uh one of them was that you know out of 10 public miners i think nine of them have and i forget the time frame but the last few years are have despite you know aggregate bitcoin increasing and all the like um the bitcoin per share count is lower right um mining is a brutal business obviously and anybody that's uh you know in

the field you you know you you understand that you have to understand that otherwise you know you're going to get you're going to get slaughtered um the difficulty adjustment is uh you know one of the most brutally competitive if not the most brutally competitive uh you know um forcing functions in all of industry, maybe ever. And so I think, you know, when I think of MicroStrategy and you've watched the story unfold for four years, you know, there's a software company that's had, you know, 10 years of accumulated earnings. They had $500 million cash and were looking for a diversifier, sought out all of the, you know, commodities and equity securities and bonds and decided to, you know, buy Bitcoin as a hedge. That strategy hedge turned

out into an all-out blitz game plan of, you know, equity dilution, issuing debt, buying more Bitcoin. And I think the thing that's not very well understood is the volatility side of the story. You know, Bitcoin's volatility is often, you know, it's from the naysayers, the critics, the Wall Street types has been, you know, the volatility is the number one reason to avoid it. And that's what it sold. It's too risky. But from from the corporate treasury side, you know, if you're familiar and you've watched MicroStrategy for these these three, four years, really like post, you know, like six months after their start, when they started issuing converts, they issued a zero percent convertible note in 2021. And that was when I first went, oh, OK, wow, like this after digging into the mechanics, you know, a bit new to the to that sort of world for me and realizing, you know, that that embedded call option that the convertible note security had that they could issue it at zero stack Bitcoin six, seven years down the line and repay it. And they would, you know, if Bitcoin rose, say, you know, 40% or more, particularly their common stock did, then they wouldn't even repay it in Bitcoin. They would repay it in shares, in shares that they issued from their treasury.

And so this strategy, you know, what's not understood is this strategy is accretive if you're trading one-to-one price to book. If you have a billion dollars of Bitcoin in the balance sheet and your market cap is a billion dollars and you have no enterprise value or no premium to your Bitcoin holdings, That strategy is, by definition, when that conversion premium is higher than the current price, is accretive on a Bitcoin per share basis. Never mind if you have any sort of premium on your stock or enterprise value. So this idea of monetizing volatility, Bitcoin's volatility can not only be something to embrace, but it's something to be leveraged. um you can you can leverage your common stock and quite literally leverage the bitcoin on your balance sheet crank the volatility and be able to access uh capital markets um basically the biggest capital market in the world uh that has zero access to bitcoin right the the thing that

you know someone someone like myself would didn't understand four years ago as i was buying bitcoin on cash app uh was that the biggest pools of capital in the world can't access uh they can't access Bitcoin in the fixed income market. So nevermind that even equity markets, right? You're kind of siloed by your investment mandate or whatever it may be to the point where you can't download an app and stack sats like an individual can. And obviously, Bitcoin got this far through the first 10 years, 15 years with basically individuals leading the charge, right? And so So this year in 24, well, really MicroStrategy in 2020, but in 2024, with kind of the institutional green light from the ETFs, I think the idea of the corporate treasury strategy, you know, from a dabbling perspective, like, you know, put 5-10% of your assets into it, which we saw through the last four years.

But also, from the, okay, I realize that everything in the world is trending to zero against Bitcoin on a longer timeframe. I have common stock equity that I can, let's informally say, print. Why wouldn't I dilute to increase my Bitcoin per share? And so that's, you know, again, this is a concept that is completely antithetical to everything that you've ever learned in corporate finance or that you will learn. Dilution is something to be avoided at all costs. A majority of executives and, you know, high paid, high flying CEOs and CFOs decide to borrow as much as they can to buy back their stock. the opposite of dilution. And so what MicroStrategy did and the Bitcoin playbook has showed is it completely flips it on its head. And so I think that leveraging Bitcoin's volatility in particular to stack is one of the most interesting concepts for me, because I think it's just scratching the surface on this whole corporate framework. And I think there's a good chance 10, 20 years down the line that there's not just case studies about this, but it's replicated

tens, hundreds of times over. Now, you honed in on something really important there, which is the inverse of the playbook in public equity markets as it's been deployed, particularly over the last few decades which is these companies have a lot of cash they want to increase their share price and so they've just been doing buybacks taking more shares off the market um in this i think that's what trips a lot of people up who are familiar with the buyback to increase your your share price is the dilutive nature of either purely raising equity or doing these converts um and adding more shares i think it's counterintuitive to most investors out there it's like how could you actually be creative um if you're issuing more shares and i think that

is the unlock that michael saylor and micro strategy brought to the market and what you are doing meta planet what we're doing at cathedral many others are starting to do is is realizing that um there's a new way to do it if you use bitcoin and uh take advantage of the volatility the correct way um and on that note like how big is the arbitrage opportunity like how or another way to put it like how much of an advantage the first movers of the strategy have against the rest of the market moving forward in your opinion yeah i mean i mean just an example of MicroStrategy. It was a billion dollar business with 500 million cash. Four years later, they started in August 11th, 2020. It's four years and a month after they started.

They have $16 billion of Bitcoin and $4 or $5 billion of debt at a blended interest rate of 80 basis points, termed out three, four years on average. Who has that borrow rate in corporate finance? No one. And who has an S&P 500? I've performed that name since that date. No one. 500 S&P 500 companies have underperformed this crazy madman strategy that's super volatile and risky. Right. And, and again, the volatility paradoxically is the reason it's successful. It's not, it's not, you know, that it's just luck and people will attribute it to, oh, luck, you know, the market went up. Right. I mean, MicroStrategy would have gone up, you know, because they bought Bitcoin and the software business is producing, you know, 20, 50 million

bucks a year, whatever the figures are. But going on the offensive, and this is the, this is the, When you talk about that flip or think about that flip, right, it's a lot of this stuff, whether it's convertible notes or at the market equity facilities or in the example of MetaPlanet, you know, doing a stock acquisition rights issue, a free rights issue at a discount to the current market price. These are things that are traditionally very, very defensive, right? It's we have to consolidate debt or we're going to dilute our shareholders because we need to pay down the senior bond. So we're going to do a convert. And, you know, the stock on on the announcement of this falls 10 percent because, you know, people people want to own the business. They don't want to get diluted out. Right. In the case of the Bitcoin strategy, you know, particularly if, you know, it's through the course of doing this, you've communicated to your shareholders. You've said, you know, this is what we're going to do. And this is the goal.

The shareholders want one thing. They want Bitcoin. And so the creative dilution, you know, sort of offensive, not defensive, offensive, convertible notes as an offensive tool, right tissue as an offensive tool. This like this is this is the flip. And I think that's the reason you've seen, you know, this micro strategy story. Never mind that the percentage share increase. The more impressive thing is the market cap, the market cap going from one and a half billion to, you know, 30 billion and change fully diluted, right? That's like even a crazier story. And so, you know, I still think, you know, I was a bit naive in 2020 and 2021 saying, you know, there's going to be 100 companies that do this, you know, this year, next year, you know, kind of not understanding how slow and methodical and almost bureaucratic Many of the world's boards move in the, you know, the kind of the equity world.

But I think there's, you know, an increasing amount like Eric Semler is a great example. Right. He's just a really smart guy, has, you know, kind of been in the financial world, understands the mechanics of things. Semler Scientific is a medical medical device manufacturer. Right. And they're like, yeah, we're going to stack Bitcoin. And they have over a thousand Bitcoin. Right. Right. And they have, you know, had the S1 and have a shelf offering and ATM and all of this. Right. So they're they're early in the in the kind of the playbook here as well. So, yeah, I mean, I think that every market is going to, you know, has going to have names and have have equities that figure this out. Some will be far more aggressive than others by the very nature of of the business.

Right. So, I mean, MetaPlanet and we've been open about this was, you know, a commercial real estate entity that completely restructured a forcible restructure due to COVID. And, you know, the government basically shutting everything down and small businesses got help. But if you're a public equity, you're kind of left out to dry. You're too big. And so the kind of the small micro cap equities were kind of left to hang out to dry. So they sold 29 of the 30 hotels and had a bunch of tax losses and were looking for the next strategy. And as it turns out, Tokyo had zero Bitcoin proxies and an unfavorable tax rate for crypto at 55% or up to 55% relative to 20% for listed securities. So it just made sense from that angle to go basically to go full 120% pedal to the metal. But, you know, if you're a conglomerate business, right, it's obviously you're not going to all of a sudden pivot to say we will we will dilute our common stock to infinity to stack Bitcoin.

I think it's a it's a slower transition, but that's OK. You know, we don't need we don't need 100 Michael Saylors, but, you know, I think there will eventually be a thousand, you know, squares or, you know, just just companies with a business model that realize that they want to DCA a bit every day. And so I think that's where we're headed. But I do think that the bigger this story becomes, the more and more it will just become blatantly obvious. And, you know, just due to the inherent volatility and uncertainty and free market kind of nature of Bitcoin, the cost of capital for entities that are executing this strategy will be the lowest in the world. Yeah. dot com slash gradually use the promo code tftc for five dollars off at checkout buy it now freaks the price of bitcoin is going up you need to understand it this is the best zero to one primer this rip was also brought to you by good friends at zap right if you're a bitcoiner and run a business or an independent contractor you should be accepting bitcoin as payment if not you then

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future invest in yourself bitcoin payments with zap right go to zap right.com slash tftc to get 40 off their annual subscription zap right.com slash tftc 40 off and then to that point like in your mind how important is it to have a cash flowing operating business below this strategy or what does having an operating cash flowing business allow you to do or not allow you to do in terms of trying to deploy this strategy? I mean, yeah, it's obviously, I mean, that's, you know, pretty basic, basic, you know, equity market valuation sort of stuff. You never mind the multiple that comes with that, right? Which is, which is a key that enterprise value that, you know, intrinsic value, if you will, is key to being able to do a lot of these things.

like, like dilution, um, and just, you know, just from a stacking, stacking sats, you know, framework. Right. Um, so I think that's, that's very key. Um, but at the same time, I think that, you know, if you looked at like the, the Russell 2000, or you look to the NASDAQ, um, I mean, what, what amount of the Russell or even just the, you know, the, the total U S equity market, um, has a robust cash flowing business. Um, how many of, how much, how much of the NASDAQ is, is like, you know, 2021 tech darlings that were in the ARK Invest portfolio that still have a, you know, a $2 to $5 billion market cap, you know, based on the value of the, you know, the value, the intangibles of their software or the network effect, right? You know, and so like,

could an Uber or a Roku or a Zoom or a, you know, could a DoorDash do this? Yeah, I mean, absolutely. Are these conglomerate cashflow titans? No, they're not. And so I think that's while it is, it is, you know, of utmost importance on a long timeframe. I, you know, there's at this point, especially with all the AI stuff going on right now, there's, there's some, there's such a, you know, intangible, like, I think that the amount of intangible assets as a percent of the market cap, I saw this, I don't know, six months ago, is the highest it's ever been. And it makes sense right because we're in this kind of like network internet age digital age um you know maybe someone like buffett would say it's all fluff and that's and that's fair enough um but

to that end if that's the case um and you you know the majority of your enterprise value is kind of this intangible network effect that investors are valuing um i mean it's a rational decision to to you know to dilute um quote unquote dilute and and get some of that uh treasury into into you know cold hard bitcoin um that that's not going anywhere that's not going to to fade because of a competing network effect or a dwindling moat right yep and now that the strategy has been validated that's the other thing like micro strategy has done it for a full cycle i think um the thought that 100 companies would do it right away i think i had the same thought i was like oh as soon as they're doing this like somebody's be like oh we should do it too but

i think you needed that four years three and a half four years uh of validation before you see more people getting comfortable with the strategy uh just generally and we're at that point and it's obvious that more companies are becoming comfortable with this and deploying it and with that in mind like what does this mean for like the price of bitcoin moving forward because you have these new entities that are coming and taking supply off the market and holding it for the long term and they have access to capital markets to keep rinsing and repeating this until until it's completely arped out and i don't think that that time is anywhere near today and it completely changes the dynamic of demand drivers for bitcoin and then you couple in the

etfs with this sovereign nations like the kingdom of baton with this like what is the landscape of like demand drivers for bitcoin how does that affect price moving forward and liquidity moving forward liquidity of um like the float of bitcoin on the market in your opinion yeah i mean i think at this point it's um you know the yes and uh you know kind of wall street and and that those investor types in endowments and and whatnot are are a bigger driver than than the corporates um but to that end the uh you know compared to an etf compared to you know just spot spot bitcoin that you know like a mass mutual would buy which made made waves in 2020 and these guys that you know have massive massive amounts of assets under management cash

Wisconsin pension, right? Like, these guys have unlimited cash. But on a longer timeframe, right, kind of going back to the point I made, you know, five minutes ago, you know, this, the elephant in the room is in, you know, we've talked about this back and forth, you've had a million guests on your show, that always that bring amazing insight that come and talk about how, you know, bloated and, and screwed that these fixed income markets are. And so, So, you know, the vampire attack on fixed income, you know, from a pure play expression is, you know, these these corporate convertible notes that are proxies for Bitcoin. There's nothing actually like it. There's not there's no there. That's why, you know, every single round MicroStrategy does is oversubscribed every single one, because there is, you know, I think a lot a lot of these these investors, these bond investors are looking.

I mean, they're just plugging in Black and Scholes model. They're saying, okay, the volatility is 100, 120, and it's 40% out of the money for five years. And, you know, what's the value of this? It's just, you know, they're just plugging in inputs and getting an output. But to a certain extent are, you know, probably have a burner on Bitcoin Twitter and are saying, okay, well, you know, there's not anything else in the world I can get, you know, I can get exposure to, right? So, yeah, I'll take down some convertible notes, like who would buy this zero percent bond? Are they stupid? And, you know, that's what that's what even I said that in 2020, I was like, or 2021, like these these morons, you know, and as it turns out, the MicroStrategy zero coupon convertible note was was up 300 percent from par while while the U.S. treasury market bled uh 30 40 percent right like it was it was up 300 from par not from like depressed bankruptcy values from the you know from the hundred dollar you know par value it was it was up 300 250 300 percent um and they redeemed it um as it was in the money so like that that sort of asymmetry doesn't exist in fixed income fixed income investors are happy to clip coupons And they just don't want to lose money. So, you know, if Bitcoin is to become $100 trillion, you're going to see spotty ETF flows, you're going to see individual investors, you're going to see private, you know, private treasuries. You're also going to see massive, massive, massive, you know, speculative attack doesn't sound so warming and welcoming. But maybe a currency arbitrage, elongated currency arbitrage with this volatility sprinkled in from convertible notes or many other things a corporate treasury can do.

And so that can't be priced in because just the lending itself creates fiat money supply. This is how currency gets lent into existence. So if you have not one one corporate treasurer doing this, but you have, you know, if you have 50 doing this with real size, which is which isn't where we are. I think, you know, the only other company that's that's done a big convert to, you know, to a similar extent as Marathon. And they obviously have their mining business. And that was cool to see. And they have quite a stack. You know, I think that they have twenty six thousand Bitcoin these days. But, you know, I think, again, the mining business is a bit challenging. um so i think once you see a you know wave of of real corporates around them around the world

um you know through this cycle and start to to take on some pretty meaningful size um then that's that's where the story gets you know gets interesting well that's why i think the meta planet story is very interesting it's because of how quickly you guys have been able to scale this strategy up over the course of six to eight months so let's paint the picture for anybody out there who's thinking about deploying this strategy and just walk through how you guys have scaled this since march of this year march or april this year uh yeah april um well yeah so it was uh it was basically a decision um to i was talking to to the team um a bit early on but didn't join until the beginning of may um but in april april 8th they uh announced the bitcoin

treasury pivot um you know it's kind of a brief brief reason why weakening yen macro situation bitcoin is stored value you know kind of the whole nine yards um bought bought the first hundred bitcoin um the strategy is still very small but i think we're going to scale it pretty quickly um about the first hundred bitcoin on the exercise of outstanding warrants um kind of stock acquisition rights um that were transferred to a strategic set of investors um the next uh hundred or so bitcoin was um was debt uh previously no debt against the company was uh 50 basis point debt against the the hotel um which they which they had um have um which is you know kind of the i guess uh incumbent uh core business um and uh there was some more exercise

warrants to stack again um and then i think the most interesting thing was on on august 6th um the stock ran, it ran a lot. Um, it was trending kind of on, on Yahoo finance, Japan, uh, which is like the kind of the stock twits Reddit. Uh, it's like they kind of the, the, the, one of the larger stock forums for Japan, it was trending as, as the number one stock on, on Yahoo finance, Japan for, for a few weeks. Um, and, and, you know, got, got a bit extended. Um, and on August 6th, uh, the same day as the, you know, coincidentally on the same day as the, the yen plosion, we announced, a 10 billion yen, so like $70 million stock acquisition rights issue. Meaning the stock was at, I think like 650 yen. And we announced that we were, and this isn't a technical corporate

speak, but I think this is the most apt analogy, that we were basically airdropping a free in the money call option to every shareholder. So it was August 6th, we said through any shareholder on the record date of September 5th, we'll have the opportunity to buy shares at $5.55 from September 5th through October 15th. Basically, a free in the money two and a half month call option. The stock on the announcement of 100% dilution at a discount, the efficient market hypothesis would say the stock would have gapped between the current market price and where that that rights issue price was to to counter the dilution um what actually happened was the the two days following the announcement and this is again this is august 6th so the vix was 66 and

bitcoin went to 49k um uh the next two days of trading were were there was no trading it was limit up pre-market for the entire day um and this and the the doc 3x um and it's you know since fallen a bit but it's doubled from the from the time of announcement um so we're now at a thousand yen for the past couple of weeks. Um, and the rights, the rights exercise period is, is thoroughly underway. Um, so, uh, I think, you know, if not for certain, but, um, it looks like coming out on the other side of this issue, um, we'll have, uh, 12, 12 billion yen of Bitcoin or so, um, in, in six months from starting at a 4 billion yen market cap. Um, and so it's the early stages. You know, I think we'll, you know, hopefully have a four digit Bitcoin, get over

a thousand Bitcoin on the other side of this. And then, you know, that we have a nice equity base to work from and can keep the strategy going. So, you know, again, that whole rights issue, dilution, dilution at a discount, like this is all counter to everything that you would learn. But, you know, we were kind of thinking about, you know, the reflexivity of this. And so the day after the rights issue we announced, there was, you know, it was a short, it was a six-month billion yen loan to buy more Bitcoin. And the reasoning is, among other things, that we wanted to crank the volatility further of when we're just thinking about our balance sheet volatility and common stock volatility. because the more the vol, the more valuable theoretically those three-month options become on the most volatile stock in Japan. And so, yeah, I think it's worked well so far,

early days and very small. So the micro strategy comparisons are humbling, but I would say that it's definitely not the same scale of a business or treasury, obviously. But the playbook is is is a similar um and it's that you know we we openly stated that the day i joined two days after we put published a two-page white paper in in japan through the tokyo stock exchange and and basically in it um said you know the you know the bank of japan and and the japanese government have have basically backed themselves into a corner there's no way out except uh except massive debasement. As such, we've adopted this strategy. This isn't a digital asset strategy. It's not a crypto strategy. It's a Bitcoin strategy. Here are the reasons why Bitcoin is different.

And how do we plan to utilize this information? Well, we're going to issue stock as much as we can to buy Bitcoin and issue debt as much as we can to buy Bitcoin. And I think in the Japanese conservative, uh, corporate culture, it was a bit of a shock and awe to come out in, you know, publish it in English and Japanese, you know, like basically through the equivalent of like an SEC disclosure and come out and say these things. Um, but you know, it's obvious that the market has, uh, responded positively. And, um, you know, for, for a company that was, you know, sort of dead in the water, um, the last, you know, month or so of trading or, or, you know, 20 million dollars a day of of uh of trading for for the stock so um you know it's it's revitalized

and um you know the number of shareholders have have uh you know i think 20 20 x or 15 x um in in the span of six months so yeah it's um it's exciting i think you know japan is it's uh it's a perfect market um you know and uh the fact that there is no bitcoin exposure anywhere in tokyo is is you know sort of supercharged our our story and how does this strategy evolve as the price of bitcoin goes up like uh is it like if we're looking forward and like how do you or how are you approaching like strategically accessing these capital markets as the price of bitcoin we get 1x above the previous all-time high to 3x do you sort of scale back and how important is the timing of the

deployment the raising and the deployment of capital i mean it's very important um i think you know it's you're you're playing two markets um you're playing you know as a corporate treasurer um you're playing not only the bitcoin market but you're also playing you know there's this arb of of the value of your your enterprise uh versus you know the amount of bitcoin you hold um and so you know there's a certain there's a certain point where like if you're if you're trading under the value of your bitcoin holdings you wouldn't you wouldn't necessarily want it to loot to buy bitcoin um because that's not accretive on a bitcoin per share basis um but there's obviously you know the in the opposite sense um for instance like it in in

2023 microstrategy wasn't trading really there wasn't a meaningful premium to the amount of bitcoin uh they held versus the premium um to their market cap right as it is today at like a 2x it wasn't a 2x in 23 it was like closer to 1x um and but through 2023 you know through six, seven months of chop around 30,000. MicroStrategy hit the tape three, four, five times maybe, I think maybe three or four with $500 million clips of at the market equity facility dilution. And so even at a one-to-one ratio to Bitcoin, market cap to Bitcoin, no premium to NAV as some people say. From a solvency basis, from your solvency ratios are improving. If you have any debt, you know, against your balance sheet and you're diluting

at one-to-one, nevermind it being, you know, creative on a Bitcoin per share basis, but you're becoming more well-capitalized, right? So I think we're thinking about this as we want to own as much Bitcoin as we can. If the price goes parabolic to six figures or high six figures in a short amount of time, you know, there's a time and a place for debt. There's a time and a place for everything, but we'll, you know, kind of alter our framework. But I think that, you know, the most interesting thing is you can, you know, basically short sell your own stock volatility through, through warrants, out the money warrants, through converts, through, you know, equity plus warrant structures, right? There's, there's all sorts of things you can do, nevermind the straight

dilution. And I think, you know, also, well, I wouldn't, I wouldn't say this is a necessarily adoption strategy for everybody. For MetaPlanet, in this subscription rights issue, the stock exchange kept coming back to us and saying, okay, well, you're raising all this money to buy Bitcoin. How does Bitcoin improve the prospect of your earnings? Why is Bitcoin good for your business? Can you please explain this? And so it was a great opportunity for us to very transparently in a 30-page disclosure, explain all the things that we can do with Bitcoin. We can use it as collateral. We could, in theory, use it for a mechanism for trade. We could, in theory, go out in the kind of early nascent derivative markets. And if Bitcoin is trading at a 30, 40 percent spread in futures, we could kind of do some sort of long spot short futures and capture a 30, 40 percent premium if we thought the market was a bit frothy. right and obviously there's counterparty risk there that's not the core of any strategy is uh

punting derivatives around um but in the in the concept of bitcoin's volatility um and bitcoin's kind of monetization and all the leverage that gets baked into the later later phases of a bull market um this is all something as a treasury that that we would you know we would be looking at right so um you know if you're thinking about deploying capital um you could especially if the market was frothy, you could buy Bitcoin and sell with maybe 10% of your capital. You could sell far out of the money call options. And if your treasury goes up, if the treasury or Bitcoin goes up to that figure and 10% of your stack has to be sold, but 90% of your stack triples again, that's great. And if it doesn't, then you have more cash to stack. Or if you're going to buy

bitcoin anyway um and you want to uh you know get paid get paid to stack a little bit more you can sell putts um right so you're selling putts is essentially a binding limit order and you get a premium to do that you get a premium to buy the dip for a future commitment to buy the dip um so there's all these things that i think um while you know you traditionally wouldn't think of these as corporate treasury strategies um for a company that's you know nascent into its bitcoin strategy you know, if you have a strong core business, you know, it may, may not, you know, some of these things may not be as attractive for you. But from a, from a, you know, if you think from a treasurer perspective for a company that, you know, like doesn't have the, a conglomerate cash

flowing business like MetaPlanet, these are all things that we said openly in the, in the disclosure that we would, we would evaluate, right. And, and all of it is aimed in the sense of accreting Bitcoin per share and benefiting shareholders on a Bitcoin per share basis. So, you know, that's kind of how we think about it. It's hard to, it's extremely hard to say, okay, here's what we're going to do in six months. We have no idea because it's, you know,

kind of what the market gives us. But I mean, the long-term plan is simple. It's, we had a call or not a call, a meeting with a pretty, you know, a pretty serious, um, you know, institution, um, a couple of weeks back. And, uh, you know, one of the questions was, so what's, you know, what's the exit plan? Um, what is, what is your price target? Um, and, uh, you know, it was this, in this institution, um, you know, wasn't a, you know, it's kind of a Bitcoin native. Um, it was, uh, you know, recommendation. We had an intro

and set up a meeting with them. And so they, they were familiar vaguely with the story and the corporate playbook concept but it was it was more like okay so this is a means to an end what's the end and and we were like that there is no end um you know ultimately if if we you know come to a point where we can deploy the the bitcoin capital and return and get bitcoin nominated returns um you know whether that's an acquisition or whatever it may be we'll look at that but at this point we don't see a better we don't see a better place to you know store our capital and our shareholders capital so um yeah it's it's uh it's certainly interesting you know kind of from from speaking about it uh from the outside to kind of get a glance um and see how the how the sausage is made

um but it's it's um it's been a lot of fun yeah it's been a lot of fun to watch and the creativity of which you're bringing to the strategy of metaplanet and others are beginning to deploy that's a cathedral as well i think is an unlock that is going to be massively beneficial like taking these facilities that as you described earlier were typically defensive mechanisms for for companies that over burden debt obligations whatever it may be and actually turning that into a positive catalyst to increase sats per share and shareholder value overall is one of the most exciting things going on in equities markets around the world right now and that unlocks too and if you think about it it's actually i would argue like it's a moral imperative if you truly

view yourself as fiduciary of your shareholder capital and you're stuck between a rock and a hard place of trying to run a business and looking at what's going on in the world of sovereign debt and money printing like you have to think creatively and the fact that you guys have unlocked this creative thinking and are showing the way for others is i think going to be massively beneficial for the companies that have boards that are also thinking creatively and actually take action and at the end of the day we'll look back four or five ten years from now and the companies that thought creatively and access these facilities and leverage them to deploy this strategy their shareholders are going to be very happy and their capital is going to be preserved

And that's the most important thing if you're on the board of a publicly traded company is is preserving and growing shareholder capital. Absolutely. I think, you know, it's interesting, Marty, because, you know, we were in our Bitcoin echo chamber and we you know, it's consensus that all of this makes sense, obviously. and, you know, kind of seeing it from the inside and then going and then talking with, you know, investors or, you know, IR meetings or whatever, or just taking prospective calls. You know, it's clear that there's, and I've said this in, I think maybe a podcast or two,

and I've said this a bunch in person, whenever someone, we kind of have this conversation between friends or just catching up, But there's like two spheres of understanding in this corporate strategy. You're not two, but there's kind of too many buckets I put people in. There's the people that really, really deeply understand the Bitcoin story, super bullish on it, get the long-term thesis. Even if you just think it's digital gold, you know, you're kind of in that bucket. It's valuable.

You own some. Um, and maybe in that bucket as well as like, you, you understand the creative dilution idea, you understand, um, you know, or, you know, you've seen sailor, you understand micro strategies, valuable, you you've punted some stock in your 401k or whatever. There's, there's the other side of the, the, you know, kind of the spheres of, of understanding, um, which is like, I would say the traditional investor, or maybe like the wall street types, right. the, the, the classical institutional investor, um, of which, you know, have, have had some

conversation with, and, and, you know, these are the types that, you know, you could put a convertible bond term sheet in front of them, or you could put a warrant structure in front of them and they would understand it and they would understand how to value it. And you would say, you know, okay, well, you know, this, this warrant is four years and it's, it's, uh, 50% out of the money and, you know, the dilution impact will be this and I plug it into black controls and I'll value it. And that's easy. They can whip up a spreadsheet, no problem. They did their years of investment banking at Goldman or whatever. But the overlap of those two, like the Venn diagram of those two circles is remarkably small. And I don't say that to kind

of sound like cool or like, oh, we're in our in-group. It's more so that I kind of naively assumed that that it would be a much much bigger group um that that was like oh yeah got it um dilution to stack makes sense um or like oh these this you know this warrant uh structure it's not a bad thing it's a good thing you're bringing in capital to buy more bitcoin um like the the dilution as a offensive tool and not a not a defensive tool um all those concepts um it's it is just like to double down it's so radical um that i think that despite it being blatantly obvious to you know um our small corner of the internet and the people that we kind of talk to on on twitter and um you know kind of these investor circles it's it's not widely understood

at all um and i kind of you know coming into this naively sort of thought um that that you know i would come into these meetings and and it would be like an instant click uh gotcha you know from people that are that are pretty sharp you know like high iq make a ton of money super wealthy um you know have made their career um they're living and you know investing and it's it's you know many people haven't even heard of like the best performing equity in the world microstrategy maybe they vaguely heard about it but they don't know any of the details they don't know how it's done they think you know they they we you know we have a meeting with them we say say, look, we're so far this year, we'll see how it plays out. But we're the second best

performing stock in Tokyo this year out of 4,000 public companies. This is our idea. This is our plan. Volumes have 20x. There's obviously a ton of support. Here's our pitch or here's the playbook. What do you think? And the response is like, it's like an aversion. It's almost like a distaste It's like, what? You know, that's pretty, that's pretty crazy. And so, you know, for me, it's like, it's, it's honestly, it's been amazing experience, because I realized that, you know, what, what's kind of internally, like, it's FOMO of like, oh, gosh, the world is figuring this out. And it's, it's happening all at once. The reality is, I mean, the world is figuring it out, but the process is much slower. And it's, there's still a ton of opportunity, right? i think that's the blessing of it is that if everybody had figured this out and we were you know at escape you know the event horizon was you know was here we've approached it already um then you know that opportunity wouldn't wouldn't present itself but the reality is it's actually it's it's going to take a little bit more time um things move slow in this in this sort of rigid

corporate governance world. And, you know, the early movers, even four years post MSTR, you know, post the sailors proclamation and orange pill, you know, it's still very early in this story. So that's, I think, you know, for the cathedrals of the world, you know, that, you know, have had a business pivot realize whether, you know, it's a Bitcoin miner or, or, you know, a similar scientific, you know, realizing that this is the best way that we can store shareholder value for the long term. You know, it's a blessing in disguise, frankly, that it's still this early and that Bitcoin is still at 60,000. And that, you know, the number of companies on Bitcoin treasuries.net is, you know, still able to be seen in one page view, right? yeah and your conversations uh with the bankers who have somewhat of a natural aversion to the

strategy just reminds me of jesse meyer's yuppie elite archetype like there's definitely a lot of that going on in these rooms talking with these investment banks who are like this is this is crazy and they think it's crazy because like we didn't think of this like there's no way these radical bitcoiners are getting this creative and utilizing these mechanisms to stack bitcoin and grow shareholder value like no there's no way it can be true it's got to be um some sort of grift but if you run the numbers and you understand again if you're in the middle of that venn diagram somebody understands bitcoin and public equity markets like i'm pretty confident saying it is the wisest strategy that you could be running right now again with the backdrop of

the sovereign debt crisis that's growing and the money printer that seems like it's going to turn back on globally as we head into 2025 yep and uh you know just a just a funny point on that is um yesterday i uh saw on twitter i someone someone said uh there was a tweet it was like meta planet 2.0 or whatever and and i i was like huh and i i looked and um a japanese corporate had uh purchased 1.5 billion of crypto and i said huh and i read the disclosure and um you know some people were excited about the additional adoption and there was um you know the firm purchased a billion yen of bitcoin uh 200 uh 200 million of or i might mess up the numbers but 200 million of ethereum uh 200 million of solana and 100 million of of avax um avalanche um and so

I think it's interesting. Best of luck to them. We've attempted to be radically transparent with everything and scream from the mountaintops. Obviously, Sailor has been doing that to a much, much bigger funnel or audience for four years. um but despite all that i think it's it's going to take some time um the siren signal of crypto is still uh you know still going to be pulling people in and um you know there's there's going to be a lot of fiat shenanigans uh with this you know through this um until we get to the other side too so yeah it's uh it's a fun time though it's uh i mean certainly um couldn't have have predicted uh a lot of this but um i mean i wouldn't i wouldn't change anything no it's fun are you having fun yeah yeah for sure um i mean it's it does feel a bit like um you know i think we'll i think we'll look back in 20 years and this is true for a lot of the you know the

kind of early bitcoin uh adoption but um it's still it's a good sign to me that it's still such a uh you know faded uh never like never mind the corporate story right just just the the thesis in general um right like you know yeah what's his name bill maher or whatever come out yeah the dirty secret about bitcoin it's using a lot of energy it's like all right the dirty secret um i mean numbers was way wrong but like it's still uh i saw a poll and it was um what what matters to to young male voters um and it was like the economy at 70 percent and you know blah blah blah blah and then it was what what least what's the the you know the least important thing and i mean one it was cool to see bitcoin or crypto on the list because four years ago it wouldn't have been

uh but it was uh it was the the last thing on their list slated list of options of which i don't know how much there was um but it was like 13 percent um of male voters um said crypto which is an okay number, decent. And like 19% said trans rights. And so, you know, that aside, I think it's, for me, that was just another additional data point of like, okay, this is, it's very fringe. It's this, there's still a big information asymmetry. And, you know, that's all the more bullish for anybody that, you know, can kind of comprehend it all enact on it action take action freaks um shifting gears a little bit because it's big in the news this week the options on the bitcoin etfs what does that do for the market

yeah i mean there was a i think jeff i forget his last name from bitwise had a nice uh nice write-up on it talking about all the all the option greeks and whatnot you know i don't think alpha yeah man a charm whatever you know i you know i i i am a math guy myself so i like getting into the weeds on you know derivatives and understanding the mechanics of things but you know i think for the the big um the big takeaway or um the interesting thing is that bitcoin is you know the the biggest knack on it is like oh it's you know it doesn't produce cash flow and it's just this intangible thing it's this petrochia store in your you know underneath your your bed or in your basement bunker um and you know while you know some and there's maybe

merit to it that you know cold storage i mean there is merit to it that cold storage bitcoin trumps all um the reality is like this was always the path and it is going to become um financialized in a way and you know these these big institutional owners will own a big chunk of the supply and so you know that these options this option chain rolling out is going to uh you know bitcoin is going to be a core asset held and it's also going to be a portfolio and in all of these you know pensions endowments uh you know institutional funds passive flows as an income generating asset um and and how is that possible and it's because you know you're gonna have uh covered call and etfs and you're gonna have you know rebalancing etfs that sell puts

and buy calls and and all these sort of interesting mechanics right where like for instance mstr is micro strategy msty is unaffiliated uh micro strategy doesn't have anything to do with it but it's uh it's there's an etf issue we're called yield max and they have you know nvidia and tesla and apple and you know all these different stocks that they hold and then they they hold that uh those shares in etf and they sell calls and so it obviously doesn't you know it doesn't capture the upside because it caps your upside by selling by selling a call um but during any sort of chop during any sort of uh consolidation or periods or the market goes down um the these etfs um these you know these income strategies greatly outperform the native asset so it is it's just sort of

transmutes the asset um and obviously you know like the pitch for bitcoin isn't that it generates income but for instance this msty etf um you i mean you technically can't annualize uh these quote unquote dividends, because it's not a fixed coupon, like a, like a dividend or a bond. But, you know, the, the dividend yield quote unquote per se on MSTY is like 80 or a hundred percent, right? Because it's so volatile that the, that these call premiums, these, these right tails that you're selling by, by selling calls, you know, chopping off that, that, that, you know, right tail risk per se is super valuable. That premium you collect is really valuable um and so you know with with the options chain rolling out i think the big takeaway for me

aside from like you know zero day option zero day till expiration options being at you know a new uh frontier casino outside of perpetual swaps um is that there's going to be a whole bunch of structured products that come alive um from this um you know particularly from the income generation side you're gonna have buy the dip etfs that sell calls and do all this stuff and so um i think it'll be interesting. I'm excited to see what comes of it. And I think that, you know, at the top of the market, this cycle, wherever that is, whenever that is, last cycle, the top, you know, was signified by, you know, GBTC premium carry trades and futures basis carry trades and all these yield shops. And I think it'll be it's going to be different. And, you know, these this

infrastructure and these institutional investors are much, much more serious. But nevertheless, less. I mean, we've seen throughout the history of financial markets in just the last 20 or 30 years, you've seen the NASDAQ bubble, you've seen the real estate bubble, you've seen the everything bubble at 21. I think these ETF options are going to, at first, maybe there's suppression or there's volatility suppression. And wherever we peak, there's going to be you know the most degenerate form of speculative fervor um you know in this in this market and i don't think that's good or bad i think that just is that just that's just the reality of markets um and you know derivatives on a long time frame are net neutral and you know on a shorter time

frame are going to you know drive a lot of these swings um but you know bitcoin's a super unique asset right like if you look at every other asset putts are much more expensive than than calls right um you know if you want to buy if you want to buy uh sap 500 puts 20 below the market versus 20 calls and 20 above um you know the volatility the volatility that's implied for these sort of options on the downside for for equities for stocks for the sap index is is much much more pricey puts are more expensive than calls um but that's not the case for bitcoin um often you know right now, for three, six months out, calls have a premium. It's the only asset that can get, you know, cut in half by 50% or 60%, no problem. But also it can, you know, it can triple in a

year. And so this sort of options, you know, the volatility smile and, you know, this sort of like underbelly of the derivative market for Bitcoin options is unlike anything that, you know, wall street scene right like when's the last time the vix has blown out you know and the the vix has has gone from 20 to 40 in a day and equities have gone up right do you if you remember in october of 2023 i think it was like when he broke 30k and then all of a sudden we were at 40k overnight and it was kind of in the midst of like black rocky tf rumors and whatnot but if you remember that day and you look at some of these volatility indexes um indices bviv you can just look it up on trading view is a volmex implied volatility index they basically take the vix which is the s&p implied

volatility index and they just map the same equation um onto the 24 7 365 bitcoin market so it's a one month bitcoin implied vol and as bitcoin went from 30 to 40k in this you know 24 hours or whatever it was the massive move after a huge a huge year of just nothing chop implied volatility exploded in Bitcoin. And like that, again, that does not happen in these legacy markets. So I think you're going to see a lot of shenanigans and whatnot, but at some point to both, you know, on both sides, but definitely at one point to the upside in a massive way, you know,

people that are, you know, quote unquote, shorting volatility are going to be blown out. Um, and so that's, I think it's just interesting to think about. And, um, you know, a lot of these, uh, these wall street guys, um, you know, are, are going to enter an arena that, uh, is a, is an open and free market. And it's, uh, it's not something that, uh, you can say about, about equities or bonds, um, for the last couple of decades. yeah i worry for our for our wall street friends i think we're gonna apply um some fiat thinking to these strategies and get completely blown out yep yeah penny's in front of a steamroller you know um and i think that's what happened last october right is is uh you had someone that was you know selling calls selling calls sorting volatility sorting volatility um which is what they do with vix right there's all these there's all these fixed uh you know structured products in in the

legacy markets that are essentially through one way or another you can you can qualify them as a short vol short volatility right and so these are you know kind of predictable incomes and and they you know don't they they only lose money and they lose a lot of money during you know tail risk events whether that be you know tail risk in wall street usually means left tail risk you know the the market pukes, the market goes down 20%, 30%, you know, things blow up. Bitcoin has a right tail that is, you know, I mean, essentially, I would say it's unquantifiable, right? And so that's where it gets very interesting, especially when you kind of bake in the game theory and all of the, you know, kind of the tangibles that we know and talk about and the understanding and,

you know, these massive pools of capital that are just plugging in and the corporate strategy and the state of the fiat markets right so you know how do you how do you model the bitcoin's distribution um because you know with that s&p 500 you could say well you know the index is earning this and you know once it gets to a pe of you know why then you shouldn't you shouldn't own it or you should sell it and so there's like naturally there's kind of a a barrier and that barrier gets raised every year because of debasement and you know i do you know in theory growth economic growth um but with bitcoin like that there is no fair value model you know there is no there is no dcf model there's no intrinsic value and and the fundamentals strengthen as the

price goes up um in the minds of everybody and just you know mechanically with hash rate the difficulty adjustment and liquidity and the whole nine yards so so when you you know kind of layer on these these uh you know derivatives which in theory tame the market but actually um you know sort of kind of lead to temporary distortions that often blow up i think it gets it gets super interesting so i think you know the the etf options were always inevitable um i think they tried to drag their feet on it for a while but um you know it's going to entrench itself and uh ultimately i think you know my kind of general thesis or model mental model is that you know the deeper bitcoin entrenches itself into the into the fiat system uh the better and

And, you know, many, you know, maybe an anarchist type or, you know, you know, anti-establishment anarcho-Bitcoiner would disagree. And that's fair. That's fair enough. But ultimately, Bitcoin, you know, Trojan horses itself to $100 trillion by becoming, you know, part of this too-big-to-fail liquidity complex. And that's not true at $500 billion or a trillion. But, you know, you start getting, you get to $5 or $10 trillion and Bitcoin has a 60% drawdown. and, you know, there's, there's issues. Right. And so that's where, you know, that's where this becomes somewhat of a self-fulfilling prophecy, um, in terms of, you know, the fiat, the fiat system and it's, it's kind of, uh, um, interplay with it. So, yeah, I think that, you know, this

is just kind of another step, uh, step in the path, step down the road. Um, that was always inevitable, but it's just kind of another data point that we have that, uh, that it's happening. yeah it is happening i mean i've said this many times since the conference in nashville it is crazy just to take a step back and take a retrospective look on how far the industry has come over the last five years i'm nashville 2024 compared to bitcoin conference 2019 in san francisco in a parking garage i think it i think that's something that a lot of bitcoiners i don't say they take for granted but being in the weeds day in and day out year in and year out um i don't think many people recognize just how far we've come in a relatively short amount of time and

the reason you bring up that retrospective analysis of how far we come is because you play that forward another five years i don't think even bitcoiners can fathom just how far the industry will go and how embedded bitcoin will be in the system and outside of the system as well yep and it's uh i i think you couldn't you couldn't contrast that any further from the state of of the crypto complex right which is is i mean it's constantly undergoing uh you know this kind of uh pivot identity crisis um but you know ethbtc and and the uh you know the perpetual L one competitor or layer two scaling solution that also has its own coin kind of thing. Like the fact that there's, you know,

sort of uncertainty on the, you know, how these are all classified as quasi securities. Like it's, it's I I've seen, it's, it's always interesting to see sort of a, especially on the timeline, like the sort of existential questioning of like, so I've been at, you know, it's like what, you know, they're talking about some, you know, meme coin pump and dump or whatever. And someone will go, some .eth handle will say, what are we even building anyway? And everybody, you know, either is in agreement or is, you know, chanting the, you know, the kind of the talking points.

But I never see actually, or very rarely we'll see someone that's deep into the Bitcoin world say, well, have we made any progress in five years? I've never seen that talk point once, actually, versus, you know, the people championing, you know, the multi-polar, multi-coin thesis constantly are questioning, well, what's the point of all this again? Like, we just built the 10th Rube Goldberg casino and, you know, it's just value extraction and, you know, people, you know, it's all a joke. Like, what are we building here? And I would say, you know, that's a great question. Um, and so, yeah, I think, you know, it's, it's, uh, it's more abundantly clear for the conversations that I have that, um, although it's not consensus, um, the Bitcoin maximalist sort of, uh, worldview, um, is, is coming around.

Um, and I, I would say that, um, you know, the crypto, the, the multi-coin crypto polarity thesis is, uh, as, as incoherent as it's ever been. It's, uh, it's in a bad state. we're going to pull up a tweet right now because i was looking at the timeline last night and this is how lost the the crypto complex is somebody literally seriously uh put forth the idea for uh it's always sunny in philadelphia patty's bucks uh as a cryptocurrency like not i didn't say patty's bucks explicitly but i want to open a bar that's members only you stay crypto as your membership fee the yield goes to the bar you drink for free and you remember for as long as your

stake is above a given threshold it's like yeah i mean at that point why not just create your own bar coin right that's what they're doing yeah it's like they can't they still can't connect like double coincidence of ones like yes you can have your your bar coin if you want but your distributor does not give a fuck about that like you need to go buy beer and alcohol for your customers and they're not going to want your patty's pub cock buck it's like unironically putting the paddies pub cash out there i was like holy shit i did see that tweet um i mean to a certain extent it's almost i i could almost and i say appreciate uh generously but i could almost appreciate the the solana uh meme coin uh mania as uh compared to you know the eth uh

the eth uh you know we're gonna we're gonna build a world you know computer you know uh ultrasound money like the the salon of meme coin uh shill fest while you know extremely dgen and obviously zero sum negative sum um was at least more you know more honest in the sense of like oh dude it's all vaporware like it's just you know this is just like the swan song of of of the fiat you know uh the the fiat complex like just you know gamble like just just gamble man just spin the slots like what do you have to lose versus like you know with with the eth wave of 2021 that cycle it was like no no this this defi protocol has earnings and you can put an earnings yield and the legacy institutional investors are coming you know and we need a token because of uh reasons um

And so, you know, it's almost like it's kind of funny seeing the splintering of consensus there because, you know, literally and figuratively, because it was always all vapor, right? You know, all the tokenomics and everything else, it's all trending lower and it's all going to trend to its, you know, marginal production costs, which for basically all of these things is zero. Um, and so, you know, dwindling, dwindling, uh, liquidity, dwindling attention, um, you know, this, like you, basically these are all kind of, they all have their, their, if at all, they have their, their day in the sun and then it's, uh, you know, kind of a fade into irrelevance.

And so, you know, there's obviously a fair amount of people that, that, uh, make it out and then they do their value extraction and go on, uh, with life. But, you know, for, for basically everybody else, it's, um, it's a net loss. And so I think, you know, for better or worse, a lot of those people find Bitcoin. But unfortunately, some of them get scorned. So and a bit jaded from it all. But, yeah, I will be interesting to see how it plays out. I think, you know, the another point on the Trump thing is that he's I mean, he's a bit of a wild card.

I think everybody knows that it's always been you take you take the good with the bad with him. And he's obviously, you know, the rhetoric for Bitcoin has been astounding and great. But I think we do have to recognize, you know, a Trump administration would essentially, it would be open season for everything under the sun. Evident by the fact that his protégés are, you know, launching a shitcoin. So, you know, take it for what it's worth. um but you know that's uh either way i think that'll be an interesting timeline agreed and i agree i do appreciate the transparency of the salon of meme coin we're just like we're d gens i much prefer that to the virtue signaling larping of the

ethereum crew will not participate don't think it's going to benefit most people in the long run there will be some that make a lot of money but most people will lose money um and on that to another interesting another thing i'm paying attention to this cycle particularly is the liquidity flows into broader crypto due to the fact that most people entering the market these days are coming through the etfs and historically you've come through bitcoin on an exchange and then send it to an altcoin exchange and convert it there and the etfs don't really create that possibility does that create a sort of curbing of the the crypto bubble this time around don't know Yep. I think so. I think, I mean, you know, the ETF flows for ETH have been, I think, non-existent, maybe even net negative. And so, yeah, I mean, it's clear that Bitcoin is, from an institutional framework, it's much more of a consensus than anything crypto.

And, you know, the mechanics of those rails, like the bleed that, you know, comes from the Bitcoin appreciation into all these altcoins that everybody seems to just be banking on as if it's a, you know, it's an absolute certainty. You know, I don't think it comes or, you know, maybe it comes, but in a different flavor. So, yeah, I think, you know, that's, it's interesting to watch. I mean, I don't have any, I don't have any skin in the game with any crypto, thankfully. But yeah, I know a lot of people that are doing some soul searching. So we'll see how it plays out. Find your souls, freaks. All right, last question.

I don't know if you know this, but we've started a new last question segment on the show. What is a bold prediction or idea that you have for the Bitcoin industry that you think most people would disagree with? Well, that's a good one. I think, what do I think? do you ever answer these do you have do you can i can i cop out and ask you first redirect it back uh yeah now no i've got to think about them but the bold idea or prediction

i think most people disagree with i don't know if most people would disagree with this but i i don't think we necessarily need parker i know parker would disagree with us but um i don't think we need like the medium of exchange like paying buying things with bitcoin as quickly as people like to think it's great like and i'm somebody uses bitcoin spends bitcoin when i can buy things with bitcoin i do it but i don't think it's necessary um for bitcoin's long-term success at this point in time yeah that's that's a great one um i think i i uh i mean i agree there for sure um but let me think of let me think of my own um i mean this is vague but i i in 2020 i would have said um you know just the world view uh had a lot to learn of of course as i still do

today as everyone does but um i would have said that you know the the dollar collapse uh and you know the fiat complex collapse was was imminent um and now i think that the dollar can persist um and i i have no incentive to say this or whatnot um you know someone like a sailor says this and people are like oh he's a spook or you know blah blah but i i think that honestly the dollar um can stay around a lot longer than people believe um even amidst you know uh a large inflation burst um it's sort of almost like a derivative of your response but um you know even with a massive devaluation of of the yen and the euro i'd say the euro is a little bit different But the dollar in particular, I think Bitcoin can be $100 trillion and people could still, you know, $100 trillion are equivalent thereof in value and people could still be, you know, transacting in dollars.

And, you know, whether globally or not or whether it's enforced at the point of a gun is another story. But, you know, in that sense, I think it's sort of an agreement with your point in that the store of value and the, you know, the asset case is, and I think it's evidenced like in Japan, where there's, you know, I was talking to a lot of people and they were talking about, we were looking at places that accepted Bitcoin and there were so few. And in Japan, unlike in the U.S. where there's just like three or four, you go to, there's like a little card when you go and check out and it's like all the different pay services. And there's like Apple Pay, MasterCard, and Visa. And then there's like 20 companies I've never heard of in Japan that are like payment service providers or whatever.

And all of them seemingly, I mean, I didn't see all of them, but they're all instantaneous, right? And, you know, there's not a tax liability or whatever it may be. um so you know i would say it's a different case for all the third world uh currencies i would say it's a different or developing market i would say it's a different case for even like the euro which is attempting to kind of artificially keep this currency block together and it's a you know uh this bureaucratic monstrosity but so for something like the dollar right i i think that um you know bitcoin there's you know the the kind of the the trump vance ticket and uh you know the the

backing of the Peter Thiel types, their vision of this. And people like Mark Goodwin and the Bitcoin dollar thesis take a more, I wouldn't want to say jaded or adversarial view because I think Mark and Whitney Webb produce amazing research. And I agree with a lot of it. But I think that That kind of thesis of, you know, Bitcoin as this release valve mechanism to appreciate and to kind of absorb all the excess monetary premium and currency debasement as the dollar remains this kind of this medium of exchange, that thesis can be directionally correct. And I would say three, four, you know, three, four years ago, I would have, you know, been in large disagreement there. But, you know, that's sort of the timeline of, you know, when the last dollar is transacted. You know, there's liabilities that go out for, you know, 20, 30 years. And so whether we make it that long or not, you know, it's not my place to stay.

But all that said, I would be surprised if we're talking in 10 years and, you know, the dollar still isn't being issued by Congress. How much that dollar purchases is a different story entirely. But I think that this game can persist for a long, long time, despite Bitcoin, you know, appreciating by an order of magnitude, two orders of magnitude. And so, yeah, I think that's something I would say that I even maybe would disagree with myself a few years back. Yeah, that was a good one. I sprung that on you. I got to start sending these questions to the guests before the show, Logan. But thank you for...

Thank you for... answering uh on your toes like you mentioned dylan thank you so much for joining us it's been too long we got to do this more often um like i said i'm like a proud older bitcoin statesman watching you do uh what you've done particularly this year with meta planet i think what you're doing is extremely exciting extremely creative and it's making definitely making ways people are paying attention um even if it's a small circle uh of us bitcoiners who intersect with public markets uh and it's going to have a profound impact on on the way people operate within public markets so it's really cool to see you're crushing it and um keep crushing it dude

appreciate it marty it's been a it's been an honor to come on um hat tip to you and the guys at cathedra as well um on the same team here um and uh yeah we will uh we'll definitely do this again sometime all right that's all we got today freaks peace and love the key