TFTC: A Bitcoin Podcast - #570: Bitcoin's Path Is More Bullish Than Ever with Nik Bhatia

Episode Date: January 3, 2025

Marty sits down with Nik Bhatia to discuss his upcoming book and bitcoin's unprecedented setup in the macro environment. Nik on Twitter: https://x.com/timevalueofbtc Bitcoin Age: https://www.amazon.com/dp/B0DQK2RQ5J Bitcoin Layer video: https://www.youtube.com/watch?v=NDAFY8rx-Kg 0:00 - Intro 0:36 - Strategic reserve 8:45 - Does bitcoin threaten the dollar? 12:51 - Bitcoin began more open than the internet did 16:40 - Unchained 17:41 - Strengthening America 21:31 - MSTR, buying bitcoin with new money 35:18 - - Zaprite & Sote 36:51 The investor-initiated chain 44:31 - How sustainable is the bond strategy? 52:31 - Bitcoin inside of sovereign bond structure 57:10 - Critics don’t see the wider context 1:03:31 - Bitcoin is the best survival tool Shoutout to our sponsors: Unchained https://unchained.com/tftc/ Fold https://foldapp.com/marty Zaprite https://zaprite.com/tftc Salt of the Earth https://drinksote.com/tftc 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/

You've had a dynamic where money's become freer than free. When 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. Thank you for taking some time during the holiday season to do this.

I texted you last week after watching an incredible YouTube video that you put out. And you were gracious enough to join me on Festivus to have a discussion about it. Anything for a friend, Marty. Great to see you, man. Great to see you, too. And also, congrats on the new book launch, The Bitcoin Age, number one on Amazon and money in, what is it, money in economics? Yes, thank you, Marty. It's called Bitcoin Age.

It will be out in February 2025, although I'll put an asterisk on there because on January 20th or 21st, we might be getting some material news regarding Bitcoin. And so I am keeping that asterisk there in case I have to write a few extra pages, which I, to be honest, I am planning to do so. So we'll see. So you're bullish on the strategic Bitcoin reserve? I am. My position on it has evolved a little bit, but I am. And I would say now that it is my base case, I'm over 50% mentally, you know, on that one. So we'll see.

What I mean, maybe let's start there. I mean, the video that I watched reached out about has to do with micro strategy, their utilization of the convertible debt market and how the repo market is affecting inflows into Bitcoin. But before we get to that, how how profound would a strategic Bitcoin reserve by the U.S. government be in your mind? It would be very profound. It would be probably the largest news event in Bitcoin's history from the government perspective. Obviously, we have other events in Bitcoin's history that probably matter more for the growth of the network. But, you know, thinking about long-term adoption and the hesitancy of so many people around the world, both in the United States and outside to say, I'm not going to buy Bitcoin. I'm not going to use it because I think one day the U.S. government will ban it, make it illegal. The biggest misunderstanding, I believe, in the

outside world is that Bitcoin challenges the dollar to the point where it threatens to kill it. but that is it's not it's not a full picture and if the u.s dollar and the united states wants to survive very long term it's beneficial for the u.s to be involved in bitcoin not necessarily buy it but not to make it illegal to be a leader to be the home of as it already is the home of the first publicly traded company to enter the Nasdaq 100. Obviously, these are American companies, but the Coinbase being launched on the New York Stock Exchange, the ETFs, Fidelity and BlackRock, these are both American companies. The US is already the home for Bitcoin in theory. So this just takes it to the next level and it permanently eliminates this idea that the US

government is coming for Bitcoin, which I think is a fallacy. I believe that's a fallacy for a long time. It's been really encouraging to see how the incoming Trump administration, Trump generally has been posturing around this. Like you said, it's our market to lose at this point. The individuals in the United States hold the most Bitcoin. The companies that have been started here are arguably the most successful in the world. And I think it's pretty, pretty massive too. And whether or not they decide to go out and execute on the plan that Cynthia Lummis has put in place, for example, I think that would be interesting. I think there's ways in which the U.S. government would have to be strategic about acquiring a strategic reserve.

They decided to go out in the market and actually acquire Bitcoin with a stated goal of reaching a certain target, whether that's a million Bitcoin or something else. But I just think having worked in the industry the last four years with the Biden administration, I think the proverbial weight that's going to be lifted off the shoulders of everybody working on Bitcoin is going to be so immense. And it already has been. It already has been. You feel that. There's an energy in the industry. But I want to express my low IQ take on why I believe the SBR is going to happen. this is not a this is not a thorough analysis this particular take that i have which is that trump is a maverick let's just call let's just say that as a mild word we know he the guy is very unique okay one of the things that he does is he says wild shit all the time okay another thing that he does because we have four years of his presidency is he actually goes out and does a lot of the things that he says he's going to do so he campaigned on a strategic bitcoin well he

campaigned on a pro-bitcoin administration he came to nashville and he spoke then as he was reaching the point of being elected he credited some of the bitcoin people with giving him a boost let's we don't have to say we we gave him the biggest boost or the smallest boost give me one second my amazing wife is bringing me coffee thank you baby and then he campaigned on the fact that he is going to put in a strategic bitcoin reserve toward the end. Then he got elected with winning the popular vote and winning seven out of seven swing states. Then he says, I'm going to do something very good for the Bitcoin people after he got elected. So my low take is that he got elected on a Bitcoin agenda. And then once

he got elected, he said he was going to do it. So I believe he is going to do it. That's the whole take. He has shown that we had Steve Myron on. He just got announced as the head of Trump's Council of Economic Advisors. And we asked him, what is Trump going to be doing on Bitcoin? And he said, it's part of his recipe for the success of the country. He has determined, or his people, his sons, his advisors have determined that Bitcoin is a part of making America great again. He's decided it. His whole team agrees with him. So they are going to do something for Bitcoin. Now, do I think they should or do I think they will purchase a million extra Bitcoin? I don't know. And I don't have the strongest take on that, that they should be buying. But should they be

strategically embracing bitcoin keeping it in the treasury and having pro bitcoin policies undisputedly yes and they will make executive action i believe in the first few days to progress toward that i don't know if they're gonna buy bitcoin and it's i just think it's too early to say well over the weekend there was um nick carter put out a piece explaining why he doesn't think the strategic bitcoin reserve is advantageous for the united states particularly if it wants to maintain dollar dominance in the u.s curious if you read that your thoughts on that and whether or not bitcoin could actually help the treasury in this debt situation that we've yeah that's a

good question no i didn't read nick's piece um and here's here's what i'll say bitcoin from the united states perspective does not threaten the dollar today i just i don't don't see, I see Bitcoin today advancing the dollar. So I'm a price guy, as you know. I'm watching the charts since Trump has been elected. The dollar has gone straight up. Bitcoin has gone straight up. That's all the information I need, Marty. Like, I don't try to overcomplicate game theory 10 years into the future. I'll let other people do that. I'm looking at the United States putting in policies going forward over the next few years that bring capital to the United States of America, hence the dollar going up. The euro is crumbling.

The Canadian dollar is crumbling. The Aussie dollar is crumbling. The Chinese one is pushing up against, and by up, I mean dollar strength. Chinese one pair is pushing up against its all time highs, meaning the all time weakest level, the Chinese one. So if you look at other currencies, they are performing very poorly versus the dollar in the MAGA era, which we're only six weeks into now. So I see the dollar continuing to attract capital from other places around the world. That strengthens the dollar. Then I see Americans purchasing Bitcoin, starting Bitcoin companies, and that will attract what? More capital to the United States and strengthen the dollar. So in the short to medium term, I see the dollar and Bitcoin performing

very well together very well now if the u.s wants to prevent bitcoin adoption to protect the u.s dollar reserve currency over the long term i just i think that's short-sighted because somebody else is going to win and if someone else is going to win the capital flight and attract bitcoin to their country, the U.S. dollar will fall because of capital flight. Cap prices are all about flow. That is the only thing that drives price. Flow can be described as liquidity. It can be described as credit creation. All these things that we're going to talk about today. Flow is the only thing that matters. So if you put good policies in the United States, money will flow here. and one of those good policies can be pro-bitcoin policy in which money still flows here you want

to talk about 10 20 years down the line when bitcoin starts to replace fiat which it probably does the further we get into the future you know somebody else is going to give you that better answer like let me give you my 20-year vision and i'm going to do some of it in my book but what i'm not going to do is speculate about the entire death of fiat we'll sprinkle it in there because in a in a hundred years in a completely digital society i don't see government currencies having a place but that might be beyond my my ability to project yeah i completely agree i think bitstein put it perfectly i think seven years ago now at this point bitcoin is a game and the only winning move is to play and to think that the u.s government should

sit on the sidelines because of some perceived fear that an endorsement of bitcoin an allocation to bitcoin within the treasury would significantly hinder the dollar's dominance is just short-sighted i think you gotta and i want to tell people that in my book bitcoin age i have a fantastic story of how the united states government helped found the internet we got to tcpip which is a protocol that everybody can use and that led to the open internet but tci tcpip was five years after the first universities had started to connect via the arpanet which was a defense department project. They brought in people from the Rand Corporation, from MIT, from Lincoln Labs. Lincoln Labs was the think tank arm of MIT. They brought in people from SRI, which was the Stanford

Research Lab. And it was the defense department, a few top universities, basically Stanford, UCLA, usc berkeley mit and and uc santa barbara and they linked them all and it was a government not mandated but a government directed project that we need to find a way to communicate and guess what they were still a hundred percent reliant on at&t who had a monopoly on long distance phone telephone communication so the internet today being this big open internet that we think it didn't start as an open internet bitcoin is a very unique project that it actually started open then after 15 years the u.s government realizes oh this is actually an open project that is very similar to the one we started in the 60s

that was closed but ended up being open. And by the way, one of the most important parts of that story is that a few years after TCPIP launched and started to be used by the universities and these research students, guess who said we are going to transfer our entire network onto tcpip arpa so the defense department actually adopted the open standard after creating the prototype closed standard several years before so the united states being not only pro-internet but actually founded the internet is the legacy that we should be using for context for Bitcoin adoption. And I'm not

talking about the US going out and buying a million Bitcoin. That's the next level. It's something that we'll see next year, right? We'll see if that's something that they're going to do, and we can talk about that then. But the pro-Bitcoin policy, taking some of those coins and putting them in the treasury's custody. These are very important things that have a tremendous historical context. This rep was brought to you by our great friends at Unchained. As Bitcoin's role in the global financial landscape evolves, understanding its potential impact on your wealth becomes increasingly crucial. Whether we see measured adoption or accelerated hyper Bitcoinization, being prepared for various scenarios can make the difference between

merely participating and truly optimizing your position. This is important, freaks. This is why Unchained developed the Bitcoin Calculator, a sophisticated modeling tool that helps you visualize and prepare for multiple Bitcoin futures. Beyond traditional retirement planning, it offers deep insights into how different adoption scenarios could transform your wealth trajectory. What sets this tool apart is the integration with the Unchained IRA, the only solution that combines the tax advantages of a retirement account with the security of self-custody in any future state maintaining direct control of your keys remains fundamental to your bitcoin strategy go explore the potential futures at unchained.com slash tftc

bitcoin is going up make sure you're protecting it the right way make sure you have a good partner that is unchained go to unchained.com slash tftc so freaks this is a read you don't want to skip everyone knows about fold you know about fold it's the app where you can earn the most bitcoin rewards for everyday purchases. But here's the kicker. Fold now lets you double stack rewards with gift cards. Use your credit or debit card to buy gift cards and earn both credit card rewards and sats from groceries at Instacart or Kroger to home upgrades at Lowe's or Home Depot. Maybe you want to get takeout. You like Uber Eats and DoorDash. Maybe you want to go on a trip. You're using Airbnb or Southwest and everything else on Amazon. Fold gift cards help you grow your stack

with every purchase if you're not shopping with fold gift cards you're leaving sats on the table it's as simple as that don't leave sats on the table go sign up for the fold app new users get a 20 000 sat welcome bonus with their first gift card purchase don't leave sats on the table i'm gonna stress that go sign up now at fold app.com slash marty and in the context of america broadly too i think i've been having conversations around this i think the american empire it's almost 250 years old at this point that's something bitcoiners talk a lot about is like the history of empires where it's roman empire byzantine empire empires throughout history that have risen and fallen and i do think maybe i'm a bit naive but bitcoin provides us

the opportunity, if we execute on it appropriately, to extend the dominance of the United States as this experiment in political science with the republic. I think it's an opportunity to revive life into a country that many would argue, at least from a political standpoint and Even an economic standpoint is sort of stumbling right now. And I think Bitcoin, Satoshi launched it almost 16 years ago at this point, provides us with that opportunity to see something that we can rally around and provide new economic value and productivity to the country moving forward. And if we can lead and really set us apart over the next few decades, a century, two

centuries, who knows? And there's no doubt in my mind that Donald Trump understands this and his advisors understand this. It is a part of their plan. We had Trump's new chief economic advisor on the Bitcoin layer a couple weeks ago, and he said i believe they're going to do this because it's part of that growth plan we have to figure out a way to revive the economy in the united states that has been globalized i mean that's what the whole politics is about today is that you you outsource the manufacturing

you destroy your your industrial base and in that way the global economy might be better off for it but the domestic economy and the people themselves are not necessarily better off for it and the politics then goes toward national polit nationalist politics and that's what the people have voted for this time. And in that vote, they hope for domestic forward policies. And this is one of them. The reason it's one of them, it's not random. He campaigned on it. He went to Nashville. Barron is like, Dad, you got to do this. And you know what Donald Trump said to Barron? okay son i will do it and he's credited baron with the rogan thing and later on we will understand more and more that he's gonna credit baron with the bitcoin thing he's got youth in

his ear this is a good thing because the country needs they need a plan for the future they need a plan for young people. Yeah, that has been, I think, comparing this campaign with the 2015 campaign and the 2016, the 2020 administration. It seems like he's learned a lot of lessons having been around the block once and this time around really leaned into his family, his young sons to to help advise him and instead of getting co-opted by by the blob if you will so i'm incredibly optimistic and the crazy thing about it is this is just one bullish factor in the bitcoin backdrop right now i mean i reached out to you because it seems like your base case for bitcoin's potential meteoric rise has changed as you came to understand the micro strategy

utilization of the convertible debt market better and better and particularly how repo markets play into that and credit creation the creation of new dollars to buy bitcoin uh has added a whole new variable to the flows that can come into bitcoin and i think would be really interesting if we just dove into this you did a 45 minute video on the bitcoin layer that we'll link to in the show notes that everybody should go read but i think for excuse me go watch but for anybody who hasn't watched that what was the unlock for you and what are the dynamics at play here in terms of how micro strategy has or tapped into this market and is i don't want to say weaponize it but utilizing it to produce an incredible amount of flow into the bitcoin

network that's the key word is flow so let's let's go back you know six seven eight years to my original bitcoin thesis about why why me and my family and friends should belong this asset for the long term okay the the thesis was that bitcoin is you know at the time let's just call it a hundred billion market cap. So, uh, you know, 10 or 20 X ago, right? So about a $5,000 Bitcoin price. And I'm looking at this hundred billion number and I'm looking at another number and that number is about 500 trillion. Okay. And the 500 trillion comes from, let's just say 100 stocks, 100 bonds, and 300 in property. Okay, so that's a very crude initial assessment of like this one pile of wealth, 500 trillion, existing wealth, by the way, existing assets.

Not all of it monetized because the 300 trillion in property, a lot of that has never changed hands, you know in theory stayed within families for for centuries so we got about 500 trillion in assets and we got this 100 billion dollar digital gold asset and gold at the time was about 10 trillion it's closer to 20 trillion now inflation and so i'm thinking about 100 billion bitcoin and 10 trillion gold. And I'm thinking, Bitcoin can easily get to $500,000 per Bitcoin and 10 trillion market cap, because it's better than gold. We know this. I mean, that's not a new theory, thesis. Bitcoin is much better than gold. From a global reserve asset perspective, it's digital, instantly verifiable. So 500,000 is a lock, basically. I told my friends and family,

I wrote it in layered money. There's actually a sentence and toward the end that says, and we should expect that Bitcoin one day will cross gold in total market value. So, you know, 2021, I published that Bitcoin would be going to 500k and beyond. So getting to 100k shouldn't be that dramatic or surprising. And it wasn't, right? I mean, if we're expecting these higher prices, $1 million, $2 million, even $500,000, getting to $100,000 isn't a big deal. But when we got to $100,000 and we got to $2 trillion, I'm thinking about, okay, what is next for Bitcoin? It got to $2 trillion quite easily from $100 billion. And it's probably going to 10 trillion now quite easily right it's going to a million dollars quite easily which would be about

20 trillion or 21 trillion because that's only 10x away right 5 to 10x away bitcoin does 5 to 10x every few years anyway so we're already we're already there we're bumping up against a million at 100k but the thought exercise came in that okay how do we get there now how do we get to a million what's going to drive it? Is it the 500 trillion rotation where people sell stocks and they sell bonds and they sell their apartment buildings and then they buy Bitcoin? Or is something else happening? And I realized that something else was happening. And Michael Saylor is not selling assets to buy Bitcoin. Not only is he not selling assets to buy Bitcoin,

his investors that are buying his convertible bonds are not necessarily selling other assets to buy those bonds. How? Because if you're a bond investor, and I worked at two bond shops, one of them had about $4 billion under management, the other had over $100 billion under management. at the hundred billion uh firm i personally was responsible for the execution trading of about 20 billion of those securities so we had a lot of treasuries and those were all in my book i didn't make all the decisions i made some of them but i was in charge of trading so i had to know everything about the market as i was trading these bonds some of my treasuries that were on my book the credit guys would say hey sell sell five-year treasuries i need to buy this five-year apple bond

and i need cash so i said okay so i sell my treasuries he buys the apple bond and in a couple days the money comes in for my sale and it goes out to to apple basically and apple gets the money And where did it come from? It came from an existing pile of money that in which I own US treasuries. But what if I shouted back to Rob, hey, Rob, I don't have any fives. You're just going to have to buy it. I'll sell treasury futures on the other side. So you don't take on double duration, right? Because each bond has duration risk. So I'll sell treasury futures. You buy the Apple bond. You don't have risk. But then Rob says, well, how am I going to finance it? Where's the money? And I tell Rob, call Morgan Stanley and ask them to finance your bond.

So he calls Morgan Stanley and Morgan Stanley says, we'll lend you 80% of the money or 70% of the money at SOFR plus 50 basis points. And Rob looks at the screen and he says, okay, done. So now, Morgan Stanley has just created 70% of the new purchase from ThinAir. Now, where does Morgan Stanley get the money? Well, Morgan Stanley repo desk underwrites that collateralized loan because they've taken the microstrategy bond as collateral. They've issued money. Where do they get the money?

It's basically the daisy chain of banking liabilities from their parent bank. and their parent bank doesn't necessarily have to mark that extension of the balance sheet until month end, but their desks are managing how much liability expansion is happening. And then at the end of the month, they try to true it up to make sure that it looks good for the books, the window dressing that we hear about. And at the end of the month, they have expanded their balance sheet by x amount and some of that x a proportion of it is due to an expansion of repo financing therefore my entire point about this next wave of bitcoin price increase is that it is due not 100 to a rotation this was the big word that we would all use for years that the bond market

is 100 trillion guys some of that money is going to get into bitcoin but you're assuming that they're going to sell the bonds but that's not how these bond managers do things yes they sell some bonds to buy new bonds but bond funds finance positions with repo they borrow money to buy new bonds. And that's how they leverage. So they're over 100% in their AUM in securities holdings. And if you have 150% long bonds, that means you have a negative 50% role. It's a financing role. It's a borrow. The 50% over 100 comes from the borrow. And that borrow doesn't come from somebody else's borrow. It comes from credit extension. Go back to your basics on how a bank extends a loan. Balance sheet A is a hundred assets and a hundred liabilities and balance

sheet B next month or next day is 200 and 200 because there's a new 100 loan and new 100 deposits. That is an expansion of the monetary system, the financial system. And my whole thesis here is that Bitcoin getting to 20 trillion is not going to happen because there's several trillion of bonds being sold and then buying Bitcoin or bonds being sold and giving it to sailor so that he can buy Bitcoin. It's going to be people basically just call it a new company, a new company with a lot of cash flow. So a lot of credit worthiness. Let's just say Nvidia. Nvidia goes to their, let's just say they go to the capital market and say, we want Bitcoin as a strategic reserve now. We want it as a corporate balance sheet item. And NVIDIA says, by the way,

Marty, do you know how much cash NVIDIA has on their balance sheet? I have no idea. By the way, this $20 billion that we have in cash on our balance sheet, just making up the number, we're not going to use any of that. We don't want to use our cash. and so the market says well how about you issue a bond and nvidia says great idea because the carry meaning the interest expense will be five percent and our expected bitcoin return will be 30 percent per annum and so that is a return on investment invested capital that we embrace so let's make that decision. It goes to the market. It issues bonds. The market buys the bonds, finances them through additional repo financing. If you don't want to think about repo, just think of it as

credit. It's just a credit line. So investors say, hey, can I have a credit line? They go to Citi and they say, hey, NVIDIA just issued some new bonds. I want to buy them. Will you lend me money? and Citi says, okay, here's a new loan for a hundred million dollars. The bond fund takes the hundred million and buys NVIDIA bonds. There's no repo there. Just another random bank that lent you money. Now you have a loan to Citi. You have to pay interest expense on that. You have a long asset Bitcoin and the long asset Bitcoin is a hundred percent leverage because you borrowed the money from Citi. And is Citi's balance sheet larger today than it was yesterday? Yes. So where did the money come from for new Bitcoin demand? It came from thin air. It came from nowhere.

And that's credit. That's balance sheet expansion. And that is what I believe drives Bitcoin going forward, not some grand rotation. That's an obsolete narrative. It doesn't mean that you and I are taking some earnings that some company paid us and taking that money and buying Bitcoin, that's existing money. That will continue to happen for sure. But you have this entirely new segment of demand that is credit expansion to buy Bitcoin. And that's what takes Bitcoin to a million dollars and beyond, and quite easily, because everybody who has Bitcoin that will sell it, I believe, then the money that comes to buy will be new money from the financial system. This rip was also brought to you by good friends at Zaprite. If you're a Bitcoiner and run a

business or an independent contractor, you should be accepting Bitcoin as payment. If not you, than who if we believe that fiat is systemically fragile and is a risk the rails that that currency runs on are risk as well you need to begin accepting bitcoin as soon as possible invest in the future of your business create a redundant rail by accepting bitcoin as payment using zap rate and reduce risk for your business i've done this for my business here at tftc we use zap rate it allows you to easily create invoices payment links or connect e-commerce stores connect your wallets or custodial accounts and be set up in minutes. We can also connect our bank accounts, our Stripe accounts, our Square accounts to accept fiat as well. The time is now, freaks.

The fiat system is fragile. Invest in the infrastructure that de-risks the future. Invest in yourself. Bitcoin payments with ZapRite. Go to zaprite.com slash TFTC to get $40 off their annual subscription. Zaprite.com slash TFTC, $40 off. This rip was also brought to you by our good friends at Salt of the Earth. You got to be hydrating, freaks. And while you're hydrating, got to be getting your electrolytes. This is the best electrolytes mix that I've ever come into contact with. Pink Himalayan salt with calcium, magnesium, potassium, sodium, no sugar. It tastes incredible. My favorite is the orange and the pink lemonade. Go to drinksote.com. That's drinksote.com. Use the code TFTC when you make your purchase and you'll get 15% off. I'm

telling you, get on it, freaks. You're going to love this stuff. Another fascinating aspect to this is if you've listened to sailor in his presentations within the last year specifically it seems like it seems like the credit funds came to him recognizing the volatility of micro strategy stock and sort of if i understand correctly listening to the presentations and sort of made him aware like hey us bond investors as convertible note investors really like the volatility in your stock maybe this is how you should go about your accumulation strategy and that correct me if i'm wrong but that that order of operations of how micro strategies bitcoin accumulation strategy has evolved over the last four years is fascinating because it's

almost like the traditional bond shops recognize the opportunity to get a higher return on their debt exposure via these convertible notes and have planted the seed, which I think is extremely bullish because it's not Bitcoiners going out and pitching this strategy to this type of investor. It's this type of investor who really understands the market, particularly for debt, better than anybody in the world,

recognizing this opportunity and bringing it to market. And if these bonds keep performing the way in which they have over the last few years, you can imagine that demand for this type of product isn't going to be driven by the Bitcoin companies that want to acquire the strategic reserve. But it's going to be the other way around. These bond investors who want a higher return on their credit portfolios. Let me tell you how it works. we're looking at now i'm back on the on the desk and you know my portfolio manager says hey can you can you uh run a report and tell me run a holdings report and give me our allocations across the account and i'll give the allocations i'll be like we got 25 treasuries 50 credit and 25

percent and structured. And the portfolio manager says, hey, 25 percent in treasuries is too high. That means we're not taking enough credit risk. You need to rotate some of that. You need to get it down to 20 percent. OK, so that means I have to sell 5 percent of my treasuries and buy some credit with it. Well. Then I go to the 50 percent credit allocation and then my credit portfolio manager says, Hey, can you give me a sector breakdown? And I said, you're, you know, 5% energy, 10% transportation, blah, blah, blah. And they said, Hey, there's not enough technology exposure in there. So what can you do about that? And, you know, I called, I called my credit desk and the credit guys say, you know, there's not a lot of Apple bonds in the 10 year part of the

curve that's available. So then, then you'll say, well, let me call them. And I'm giving you an example of Apple just because they're recognizable company, but this, this is actually what happens with medium-sized companies like MicroStrategy. So let's pick a smaller company actually. Um, so let's go with, um, let's go with a smaller company that is, or let's go with Broadcom. Broadcom is a company that just crossed 1 trillion in market cap. So it's an enormous company. Broadcom is a chip manufacturer.

Broadcom is a big tapper of the debt market. They, they, they come and they borrow these huge amounts of money from the debt market. So if I'm lacking technology exposure and we look at the line items and I'm lacking some Broadcom tickers in my portfolio, my credit guy will actually call Barclays, who he knows runs the deals for Broadcom. And you'll say, hey, Barclays, get Broadcom to do an issuance and make sure that they issue a five-year, a seven-year, and a 10-year because we want all three of those tenors because we need credit spread duration across the portfolio. We have too much concentrated in five. We need a little bit five, seven, and ten. So my credit guy calls Barclays. Barclays calls the CFO of Broadcom and says, the market is ready. Well, actually Barclays starts

calling. They call PIMCO. They call WAMCO. They say, hey, if we brought 15 billion in Broadcom bonds, would you be a buyer? Would you be a buyer of fives? Would you be a buyer of sevens, tens, twenties, thirties? Would you buy forties? They're thinking about a 40 year. PIMCO says, wave it in. We'll buy a 40. We'll buy every tenner. So Barclays calls Broadcom back and says, hey, the market is ready. We think you could come with 10 billion. You could probably hit them with 15 billion. But as long as you do it in every tenner that they want, and we'll help you structure the deal. A few days later, Broadcom comes. They issue 15 billion of bonds. Every bond manager gets called from Barclays. They put in their orders. They put in 25 billion of orders.

everybody only gets half the bonds they wanted and broadcom is like licking their chops because in three months or six months they can do it all again and so what i'm what i'm telling you is confirming what you're saying micro strategy bonds have an attractive risk profile so the bond managers are looking at the returns of their competitors that bought the early ones and they're saying, we need to chase that. Call our dealer, tell them to call MicroStrategy and tell them to issue. We'll take down 100% of the deal. Well, the dealer says, that's not going to be healthy for the bond issue. So we're actually going to call a lot of your competitors and see if they want in too. And they call everybody. Everyone says, yes,

they pencil in their orders. And it's called like a soft order. And so the dealer knows exactly how much demand is going to come. So they're not surprised when they bring the bond and the bond gets the orders because why? They've already taken the orders. And so the bond managers driving the bus here and saying we want those returns is not something i saw coming i didn't see that coming and it doesn't mean that i it actually means that i wasn't bullish enough on bitcoin and that's what i had been struggling with over the last few years i mean sorry few weeks because i have always been very bullish on bitcoin but to realize that i wasn't because I actually missed a fundamental that has to do with my industry and the bond market.

It's been a trip. It's been something that I've embraced. And I just want to be honest and transparent with people that, hey, when I told you that Bitcoin was likely to go to $500,000 in my book in 2021, that was not bullish enough, that I could have said more. But at the time, that's what I said. So we'll say more in the next book. Hard to believe that you weren't bullish enough considering how bullish you have been since 2021, probably earlier. But back on this, I don't want to call it a hack, but this opportunity that bond investors are taking advantage of via microstrategy, using NVIDIA as an example earlier, how sustainable do you think a strategy like this is moving forward? Is it specific to MicroStrategy?

Will anybody have similar success? Are there different ways in which this will manifest across different companies and different sectors, different market caps? I guess the simple question is, how long can this strategy run? And is it as long as Bitcoin adoption continues to increase and maintain the pace that it has for the first 16 years? is this a strategy that is that is very sustainable moving forward well i don't know what i what i still believe is that bitcoin is probably headed for another overdone price move and then correction so that's still my base case is that we're still going to cycle up and cycle down and so perhaps as we get into the other side of the cycle, call it 2026 or I don't know. But then you might see

a change in the way that they're issued because flow is what matters, right? And so if interest rates get hiked or there's some liquidity contraction and the first few bonds stop getting issued. Then prices go down. Then the flow is out. Then actually people are selling the bonds and you can't fight flow. So that's the way I'm thinking about is that flow will continue until something makes the flow stop and then the price goes down and then the flow reverses. So I think something like that will probably happen again. And it'll be interesting to see how the corporate Bitcoin bond market operates in a bear market. You know, Saylor was buying during the bear market, but he was issuing equity to do it, right? I mean, mostly. He was

issuing notes as well. But the energy and the phone calls from the bond managers to the dealers probably wasn't there. We'll have to see. I do think that this speculative attack type of issuance and purchase is going to be replicated in the sovereign market so we might see countries in the middle east eastern europe asia latin america issue sovereign bonds in part to build a strategic bitcoin reserve and that is something that the trump move will the the trump strategic bitcoin reserve is going to trigger more strategic bitcoin reserves and i believe that those countries that are going to be triggered into doing this are going to say hey let's just tap the bond market

and nothing gets repoed more easily than a sovereign bond even em bonds they get they get repoed the haircuts are expensive the rates are expensive expensive but the borrow is provided because those euro dollar banks love i mean so em bonds emerging market sovereign bonds are for the most part, issued in the Eurodollar market. It's the Euro bond market. It is a London issue. So when I would buy bonds, when I buy treasuries from Citi or from Merrill, and I get delivery of my bonds, my bonds come from the DTC account of Merrill's New York desk. And I know that because I do all the, I mean, seeing the settlements, you know what DTC account it's coming from, and you send the ticket to your ops guys,

you know everything, where the money is going. When you participate in an SSA deal, which stands for Supras, Sovereigns, and Agencies, this is like when World Bank issues bonds under the IBRD ticker, or when the European Investment Bank, EIB, issues bonds, or AFDB, African Development Bank. Or what about the country of Indonesia?

What about Saudi? Where do they issue their bonds? Out of the London desk. So when I have to send funds and get bonds, I have to actually check that my wire is going to London. and my bonds are coming from london so the the point here is that when the em desks so like let's say the goldman desk in london when they run a bond deal and they call everyone and say hey you know are you going to participate in this in in this indonesian sovereign bond what does the manager say yes but you have to finance me the position or else i'm not going to do it i don't have the cash but i'll take it if you do if you do good financing and what does that mean repo so the repo market is central to domestic bond issuance

international bond issuance and specifically london euro dollar euro bond issuance that is and that repo financing is done in the euro dollar market so we can't even measure it and that by the way is why libor used to exist is because they would need to have a rate to center their balance sheet around in the international market so that's why they use LIBOR, L in LIBOR for London. It's a London rate. Now they use SOFR worldwide because the financial system discovered that... Anyway, we don't have to get into the death of LIBOR today. But to answer your question, sovereign debt issuance for strategic Bitcoin reserve of purchases financed by the London Euro dollar repo market

is something that I did not see coming. And I couldn't have seen it coming where the politics was 12 months ago in the United States. But we had the shift. I guess the shift was always there, Marty. I mean, if we think about the conversations that you and I have had over the last four years, we've visited in Texas together,

The understanding that the politics is shifting towards where it did in November, we understood that, but to still say that this is my base case, that Trump gets elected, puts in a strategic reserve, and then random sovereigns are issuing bonds to stockpile their own Bitcoin, all getting financed in the repo market, I just didn't see it coming. There's no shame in admitting that this type of action which could take bitcoin to several million dollars was not in my wheelhouse a year ago it just wasn't and in terms of sovereigns issuing debt to buy bitcoin i mean i think that was that's core to many people's cases that would put forth that acquiring a strategic reserve

would set off some chaos in treasury markets because you're almost explicitly saying, I want to hold this asset in Bitcoin as a reserve asset over these government bonds, over these treasuries would incite the collapse in confidence in treasury government bond markets overall. And so when it comes to issuing bonds to acquire Bitcoin, this has been floated around by Luke Roman, Preston Pish, and others over the last six months since the fervor around Trump's campaign began to pick up and people became more confident that he would likely win the presidency again. Do you think with these bond issuances to acquire Bitcoin, there needs to be a component of the bond that actually has Bitcoin in it as well? So you raise cash for a 10-year,

30-year bond you take 10 of it hold it in bitcoin within the bond structure and then share with the bitcoin appreciation when that bond eventually comes to term something like that necessary or completely so i think that sailor is doing that he's he's trying to get that emotion with his convertibles uh give the people the upside right because it's in the name you get to convert so then you get to participate from the common side and that's my understanding of his converts and the upside that he's giving his investors because he is focusing on the common shareholder and he said that in the last few weeks he's kind of hammered the table there that we're focusing on the shareholder so

So I'm not, so it would be, I think it would be a good thing for a sovereign to issue that type of debt structure. I think it would attract, I think it would attract capital. I think it would work, but I don't think they need to at the beginning. I honestly think they could say in the prospectus, we plan to take 10% of these proceeds and put it in a strategic Bitcoin reserve. And that would be enough to get the demand because embedded in that sentence is the understanding that if the bond is heading for default, the strategic Bitcoin reserve can be liquidated in order to satisfy the debt holders. That's potentially embedded in that type of language. So from a bond desk perspective, unique structures that don't fit in with the

typical operational cash flow of a semi-annual coupon paying bond, it's not fun for a bond manager to get involved in that type of thing. They literally have to reinvent some of their operations to make sure that they can even account for their performance. Because if you have 10% upside on a on a bond or you have 10 of the bitcoin uh your holdings let's try this again let's say you own a bond and 10 of that bond has a variable price due to a bitcoin component your entire risk system isn't set up to model that security it's set up to model duration, convexity, coupon, and yield and spread like the basic bond thing. So my initial reaction would be, I don't think bond funds are going to want a totally unique

structure right off the bat. But do I think it's a bad idea? No, I think it's a good idea. It might happen in the future, but I don't think unique structures are essential to get this bitcoin sovereign market going um we'll have to wait and see the first country to try it out but i i anticipate more just they'll have some language in the prospectus that said some of these funds are going to go to bitcoin purchases that we plan to hold for the long term strategically something like that that's that's i i think I'm trying to tame my bullishness here because when the critics, whether it's a micro strategy or the US government positioning that they are going to go out and acquire a strategic Bitcoin reserve, lambast the strategies, they're almost looking myopically at, I mean, we're seeing it obviously with Jason Calacanis and others on Fintwit who are saying that micro strategy is completely levered. they're going to blow up. And it's obvious to me that they don't understand what's happening

with the converts specifically. I think they're all neglecting to acknowledge the fact that a lot of the debt that's been acquired by MicroStrategy has already converted to equity. And if Bitcoin goes up and MicroStrategy's share price goes up, the debt that they still hold will likely convert to equity as well, sort of de-levering them in the process of their stock price going up. uh and they're all looking at it myopically like a micro strategy can't do this forever like they can't push the the price of bitcoin up and then similarly with sovereign nations the united states like if the government does this they're they're looking at it singularly not factoring in all the other demand sources for bitcoin which are individual businesses we're beginning to see

Bitcoin veer its way into private credit markets with commercial real estate being underwritten and duly collateralizing commercial real estate debt with the properties and Bitcoin. And that's one thing I think a lot of people are missing when they're critiquing these individual strategies is that they're looking at them biopically and completely neglecting all the other demand forces that are drawing flows toward Bitcoin. And I think that is a grave mistake for many, because at this point in Bitcoin's life cycle, 16 years in, it is a brand name. I think unless you're living under a rock, it is hard to admit that Bitcoin is most likely not going to die. It's been up and down so many times and it simply hasn't died.

It's only gone up and to the right over time. And that is one thing as we head into 2025 that I really want to articulate to people out there who are critiquing these individual strategies and looking at them in an isolated fashion is the demand drivers toward Bitcoin are so multifaceted at this point in Bitcoin's life that if anyone were to sort of slow down, whether it's micro strategy convertible notes or governments acquiring bitcoin there's still a number of other demand factors that that cannot be ignored and it is just insane to watch it all play out in real time right now yeah and i'll give you i'll give you one more bullish uh scenario in the bond market as well but i can already tell marty that if there's a hill that you're going to die on it's going to be the i only look at the 200 week moving average price of bitcoin hill um because when you think about up and to the right people they they have a tough time

understanding that with the observed volatility they can't get past the swings um the scenario i wanted to walk you through is let's say let's say saudi gets involved in a strategic bitcoin reserve right and they come and we get a ksa bond that hits the market in the Eurodollar market. KSA being Kingdom of Saudi Arabia is the ticker that they issue under. So let's say we get a KSA bond and you get a big bond manager that comes in

and buys the bond because they like their return profile. They don't borrow from the repo market to buy the bond. They just, let's say they sell treasuries and buy KSA. A couple of weeks later, the bond is performing well. It's in the money. It's trading at $102 price. The bond manager goes to their broker and they say, hey, we'd like to borrow some money against this KSA bond. Broker says, okay, we'll finance you 70%. So they wire, let's say you bought 100 million of bonds. Now you're a bond manager, you have 100

million of KSA bonds and then you pledge them as collateral and you borrow 70 million. So now you have the economic ownership of 100 million bonds and you have 70 million in cash. You also have an interest payment, right, on the 70 million borrow, but you have 70 million cash. Now, let's say this fund, it's not a bond fund, it's like a multi-asset, it's like a macro fund. Let's say that macro fund says, hey, we actually now have a strategy of buying sovereign bonds and then using repo financing to buy Bitcoin to leverage our position. So now you are buying bonds that are explicitly meant to go purchase Bitcoin. So, you know, this KSA bond, they're going to take the proceeds and buy Bitcoin. Then the bond manager takes the bond, puts it on collateral. And the dealer,

by the way, likes the bond because the bond is good collateral. First of all, it's a KSA bond. Second of all, it's got some Bitcoin behind it. Okay. So the dealer lends 70 million to the macro fund. The macro fund says, let's put that extra cash in Bitcoin and basically have a sovereign bond Bitcoin overlay strategy. It's so bullish, Marty. There's so much money that can just be created now that bitcoin is in the bond market did did did i really expect my worlds would collide like this where in 2024 i would be breaking down this bitcoin sovereign bond overlay on marty bet no i i didn't i didn't think that i would be and do you think we'll wrap it up with this I've got to jump here, hop on a call, but I think just to end it up, do you think these

bond investors see this as a way to catch up, outperform the benchmark? And obviously, since COVID or a couple of years after COVID, bond markets have been significantly hindered. The returns are not as great as they have been historically. Do you think they're viewing this as a way to close the gap in some of the shortfalls on returns? There's two parts to your question. I'll make it quick. Number one, the bond market in general is in trouble because we're in a more inflationary era. So the asset class itself is not the best asset class to own. With that being said, the bond managers themselves are focused on survival. They're just focused on beating the benchmark and not getting fired. Because if they get fired,

their competitor takes the money whether it's an equity manager or another bond manager they're just trying to not get fired so they're trying to make sure that their returns are good that's it it's pretty simple and that's it's funny because we've been talking about bitcoin fix the money fix the world i can help recapitalize all these markets and create somewhat of a safe landing a soft landing a bridge from this inherently fragile fiat debt system to a new era, which Bitcoin is a reserve asset. And as you said, you never thought your worlds would glide this way. But it seems like the market is naturally coming to this conclusion and leveraging Bitcoin

to do this, whether it's whether they explicitly understand that they're helping themselves manufacture a soft landing or just taking advantage of a potential return profile that that has been introduced because of Bitcoin and these debt markets that have emerged. It's just fascinating that it seems like it's happening in real time. Absolutely. It's going really quickly and Bitcoin is a volatile asset class. So, you know, as we get more bullish and more bullish, Bitcoin is sure to make us look like idiots and have a big crash, you know to get all the the recent people that adopted you know shaken out forever and they get

scared so bitcoin is one of those things where it's always trying to make a fool of us so we have to do our best to stay humble and not try to make too many predictions but it's hard to contain the bullishness for sure yeah well i appreciate you doing this uh during a holiday week and if you're listening to this, go pre-order Bitcoin Age. You can find it on Amazon. We'll link to the book in the show notes. And I'm sure this is the first of many discussions we'll have around this topic because I think it's going to evolve pretty quickly. And there will be ways in which companies, sovereign nations, individuals even leverage some of these debt markets to acquire more Bitcoin that that will materialize in the years to come.

And so, Nick, really appreciate you doing this and can't wait to do it again. My pleasure, Marty. Appreciate you. All right. Peace and love, freaks.