TFTC: A Bitcoin Podcast - #664: MicroStrategy's Perpetual Preferred Strategy Explained with Jeff Walton

Episode Date: September 24, 2025

Marty sits down with Jeff Walton to discuss his transition from reinsurance to Bitcoin treasury strategies at Strive, their cashless acquisition of Semler Scientific, and how companies are revolutionizing corporate finance by building Bitcoin war chests through innovative capital market structures. Jeff on Twitter: https://x.com/PunterJeff Strive: https://strive.com/ STACK SATS hat: https://tftcmerch.io/ Our newsletter: https://www.tftc.io/bitcoin-brief/ TFTC Elite (Ad-free & Discord): https://www.tftc.io/#/portal/signup/ Discord: https://discord.gg/VJ2dABShBz Opportunity Cost Extension: https://www.opportunitycost.app/ Shoutout to our sponsors: Bitkey https://bit.ly/TFTCBitkey20 Unchained https://unchained.com/tftc/ Obscura https://obscura.net/ SLNT https://slnt.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/ Newsletter tftc.io/bitcoin-brief/ 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 if you talk about a fed just gone nuts all 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. Jeff Walton, welcome back to the show. Thank you. Happy to be here. A lot has changed since the last time you were here. It was eight months ago. And I believe, if I recall correctly, you were telling me off air that you were about to leave your reinsurance business to jump full,

full speed ahead into the Bitcoin world, to the Bitcoin treasury world. um it's apropos that we're meeting here september 23rd yesterday september 22nd you tweeted out eight months ago i was selling reinsurance this weekend the entire strive team worked tirelessly worked tirelessly to acquire a company that holds 5021 bitcoin in a cashless transaction that will be in m&a case studies for years to come the world is changing fast you can just do things you're doing things i'm doing let's talk about uh the journey from january 29th when we published the last recording of us meeting to discuss Bitcoin treasury strategies. And today a lot has changed for you personally. Yeah, a lot has changed for me personally. Yeah, I was

previously selling reinsurance. So I was a reinsurance broker selling insurance to insurance companies, which a lot of people think this is an insurance role, but it was really a capital markets role. I was effectively selling volatility of insurance company balance sheets to hedge funds and capital providers across the globe. So there was a very clear opportunity and synergy for me to focus on what was happening in the Bitcoin ecosystem in the Bitcoin world, because it's effectively capital markets, transactions, working with investors, creating structured products, volatility tranches, thinking about risk and risk profiles from a probabilistic framework. Literally, every single thing that I was doing in the reinsurance world was applicable to the what what was happening here in the Bitcoin world.

It's very funny when I when I left my job in reinsurance, I told them I wasn't doing anything, just taking a break. And they're like, what are you talking about? What do you mean? What do you mean you're not doing anything? I'm like, I'm focused on Bitcoin. I don't know. I don't know what yet. I don't know what I'm going to do, but I need to spend my time and energy in this

area to figure out what's, what's next for me. So yeah, it was a bit of a confusion that they were bewildered. Let's just say they were bewildered when I, when I told them I was entering this space. And so fast forward to where we are today. Uh, I was exploring different opportunities in the market and just continuing to have conversations, going to different events, in conversations with Matt and the Strive team. They had added me to the independent board to help grow their future Bitcoin treasury company. This was last May when they announced the reverse merger transaction that they were entering in. And after further conversations, there became a very clear opportunity for me to work in a role at Strive and have some synergy

and be able to spend my energy in an appropriate place. So I had a ton of conversations with them, their team and Matt and understanding like, what is this opportunity here? And is this where I want to hitch myself to this horse? And ultimately, this was exactly what I was looking to do is I wanted to work within a company and buy as much Bitcoin as humanly possible. structure capital markets transactions, work with investors, continue with education within

the marketplace, think about risk and structured credit and finance and volatility. And this became a very apparent win for me personally. And the alternative is, you know, thinking about trying to go do some of this stuff on your own. And the reality of building a Bitcoin treasury is really difficult and you need a strong team. Like for example, we just went through this M&A transaction and folks were working all day, every day, overnight. And we've got a team of, I don't know, 10, 12 people that were touching different pieces of this. And that's really hard to build from scratch. And joining a company that was already focused in putting energy in this direction was really the lowest hanging fruit like the best the best place to park my time and

energy yeah again it's uh it's been fun watching um from the sidelines you've been doing this and i think you're following your dreams to be a little corny but really going after something that that you're passionate about and so i love to see people doing things that they're passionate about and i think the last time we spoke obviously the conversation was focused heavily on strategy I believe they just launched Strike, that preferred offering. And obviously, since then, they've issued more preferreds. And we can get into that. But I think really jumping off the conversation as it pertains to treasury companies, I think

one of the topics that we discussed in January is like, who is going to win in this market? What is just going to be strategy is going to be winner take all? Are people just going to copycat? which strategy is done and see some success or is there going to need to be a diversity of companies deploying different strategies as it comes to acquiring bitcoin it looks like what you guys are doing at strive is definitely differentiated and i think this agreement to acquire similar is an example of that so i think jumping into how you guys at strive view building a treasury how that compares to strategy and other treasury companies out there

And I guess diving into the similar deal specifically to to sort of highlight how you guys may be different differentiated. Yeah, let's let's set the landscape a little bit. There are in the United States, there are four thousand eight hundred banks. There are four thousand nine hundred credit unions. There are five thousand eight hundred insurance companies. just just to put that into perspective so right now we've got what in the u.s uh maybe a hundred companies that have put bitcoin on their balance sheet publicly and you know maybe it's maybe it's double triple that uh privately but um in terms of where this can potentially go i think there's a significant room there's significant room for many publicly traded companies to hold bitcoin on the balance sheet and then offer uh securities that are

providing lower volatility or reduced volatility Bitcoin-like exposure with different kickers, right? You could think of similar being Bitcoin exposure with a healthcare kicker, or you could think of other different companies that have different operating businesses providing a little bit of a different risk profile and a different flavor of Bitcoin-correlated equity. Ultimately, my perspective is every single company on the planet will eventually be holding Bitcoin on their balance sheet. So they will all have Bitcoin exposure here in the future, particularly when you think about the architecture of the equity market and the risk profile of

existing equities. Most existing equities are leveraged to their future cash flows. So an unknown future cash flow. And you think about Bitcoin treasury companies and they're leveraged to money that they already have, and the future return profile of the money and asset that they already own. So they're fundamentally two different risk profiles and different risk metrics against the existing equity market and what's happening with Bitcoin treasury companies. So where we're at today, I think, is incredibly early days. And I think the goal is to acquire a Bitcoin war chest as big as possible. We're in the digital capital gold rush.

And us at Strive, we're aiming to be the meta planet of the United States with a clean balance offering uh what is an equity in an amplified equity product today and in in the future a perpetual preferred equity providing you know two bitcoin back bitcoin back credit and amplified bitcoin so that is our goal and i think there's significant opportunity to grow uh drastically in that space yeah and so one thing that i've seen over the last 24 hours since the announcement of the semler deal is sort of the structure of the deal the fact that this was cashless all stock deal um where that's what's being negotiated um how is this different than what somebody like strategy has done we saw naka um uh by by a big chunk of meta planet the company just

mentioned as well um but it seems like you guys by acquiring uh semler and their treasury by extension not only that their operating business how how does that compare and why did you guys decide to go down this route specifically yeah so so thinking to the to the base of how our incentive structure is structured corporately our incentives are to increase bitcoin per share and this transaction is accretive in bitcoin per share terms so there was you know 40 hours plus and five different brains working on the art and science of the deal behind the scenes that understood the accretion potential of the Bitcoin per share. But I think there's significant synergy and opportunity moving forward here as well. There's this

construct of the increased credit quality from the two entities combining that I think is incredibly interesting. You almost achieve this 1 plus 1 equals 2.1 sort of credit quality. So Semmler's already got a $100 million convertible bond. We have intentions to issue of perpetual preferred security into the future. And if you look at the Bitcoin rating, effectively the collateralization rating of the two entities combined, you see that the collateralization rating actually improves by over 200% on the convertible bond when you combine the two entities in the Bitcoin-backed balance sheet. And your ability to issue larger forms of perpetual preferred securities, it increases drastically as well.

And you think about how the marketplace works and the equity market works. If you're looking to access different pools of capital, certain pools of capital have limited thresholds on investments that they will take based on the size of your company. So to the extent you could take one company, you've got a limited number of capital that can come in the door. And if you've got two combined companies coming into one, you now get access to pools of capital that are interested in buying equities and different types of preferred securities because of that increased credit quality, effectively the size of your company and the balance sheet of your company. So I think significant synergies there. And then the health care side of things, if you do a little bit of research, our largest shareholder is Vivek Ramaswamy, and he's got a significant background in health care and biotech. And preventative health care is a major theme in this Make America Healthy Again movement.

I think there's significant opportunity to clean up the existing operating business and provide a little bit of a cherry on top in terms of valuation accretion by leveraging existing expertise, Ben Pham, our CEO, Matt Cole, and Vivek into spinning that into a value accreting transaction on the back end too. so we think there's significant opportunity in this entire transaction yeah that's the um because i don't want to beat around the bush the paper bitcoin summer there's been a lot of uh there's been a lot of blowback on bitcoin treasury companies specifically this summer was not incredible from a performance perspective for many companies deploying a bitcoin treasury strategy But I think it's a bit too early to put a nail in the coffin or even determine whether or not these are successful or not. What would you say to the naysayers that would say that these strategies, whether it's strategy, strive, NACA, what's happening over in London, Metaplanet, they say it's too good to be true. you can't just you can't just acquire bitcoin and expect good things to happen yeah it's equivalent

to saying you know i bought bitcoin at a hundred dollars in 2011 and then it goes down to three dollars and it's dead and what i'm trying to emphasize is this is very early days of these things and it's so funny like the people the the people that are the loudest maybe the bitcoiners uh they take a four-year perspective when holding bitcoin like i buy every single day i dca and i i've got to hold it for four years if you're not holding it for four years what do you what are you doing and now that then they look at the equity market and think it's this like overnight get rich uh scenario maybe maybe that's non-bitcoiners that are thinking this is a an overnight get rich quick kind of scenario but i don't see why you wouldn't be taking the very

same perspective that you would with holding the underlying Bitcoin of, uh, holding for a four, like a long-term four-year horizon. You think about the incentive structure of these companies is to increase Bitcoin per share. And if you're aligned with that narrative and that story, then you, you'd think that taking a longer term perspective and longer term timeline, uh, would be the most appropriate framework to take care. So I think this is such early days at the end of the day, the companies that hold Bitcoin on their balance sheet hold real money. And you can do things with that real money. Now, might some of these companies be hamstringed at certain points in time, and not be able to do anything? Sure. But that's okay. Like you could sit on your hands

and focus on your operating business. And as long as you are managing the volatility and the structure and the risk of your balance sheet, you can just weigh things out or look at strategic opportunities to hitch your wagon to some other Bitcoin treasury company via MA transaction to get on a different path and a different trajectory. So I think there's significant optionality here. And even looking at Semler and where they were a year and a half ago before they started their Bitcoin journey, they were a self-proclaimed zombie company. And then they started buying Bitcoin and ended up accumulating over $500 million of Bitcoin. And that provided them significant optionality to operate, not only operate their business, but focus on other

accretion, other ways to provide value. And it provided them effectively downside protection on their balance sheet because they would be interesting to any bitcoin accumulation company so yeah this i think that the market is evolving drastically and it's going to take time it's going to take time to explain the risk profile it's going to take time for the market to understand the risk profile it's going to take time for these things to mature aside from strategy most of these are under $2 billion companies or $3 billion companies. What other $3 billion company do people have significant interest in the equity market? We're talking lowest 1,000 companies in the Russell 2000 in the United States. These are small, tiny market cap companies with a lot of

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I keep my phone in it when I want to unplug and make sure I'm not being tracked by big tech and potentially the government easy in and out they've also got a wallet that i've been using as my daily driver i was using ridge wallet for a while for the rfid blockers that is very thick and was big and hefty in the pocket now i have the silent card holder which acts as a wallet essentially they've got these great sleeves for hardware wall protection if you want to make sure that you're not leaking any of those signals nfc the cues nfc compatible don't want to leak it just want to be double sure protected from emfs put it in the bag go to silent or excuse me slnt.com slash tftc to get 15 off any and all the products on their store important to note silent is also

a company with a bitcoin treasury they accept bitcoin for payment so if you're on a bitcoin standard and you're looking for military grade faraday protection for your everyday life go to slnt.com slash tftc you'll get 15 off there are obviously people on the sidelines commenting on this it's not bitcoin just buy spot bitcoin which i wholly believe buy spot bitcoin but i think strategy has proven that me too by the way yeah there's definitely appetite for bitcoin exposure via these equities and preferreds and i think that's probably where the signal lies in this whole discussion is what are the allocators saying about this? What is their interest doing as more of these offerings are coming to the market? Is it increasing? Is it waning? What have you seen

in terms of institutional appetite for more of these offerings? Yeah, I think on the equity side, I think there's obviously some hesitancy. There's a lot of shiny things in the market right now. You've got companies, a lot of AI buzz in the marketplace. So I think a lot of capital is flying over that direction. So I know that the equity side has tightened a little bit. But on the debt side, there's multiple different types of debt. So there's convertible bonds. I think that market is wide open for business and additional capital is interested in issuing

and providing convertible bonds. That being said, the terms are tighter than they have been historically. And I think they're particularly tighter than anything that strategy, uh, can demand or get in the marketplace. So it's just something to be aware of that the terms associated with convertible debt are, are worth a review. And in the, uh, perpetual preferred equity space, there's, there's opportunity for a second mover here.

And I think there, there's significant interest in this type of instrument provided to the market. and um yeah i'll leave it at that i think there's enough interest for additional ipos in this space and one interesting thing that i've just kind of heard through the grapevine is a majority maybe not a majority but a rough percentage of the participants in the perpetual preferred IPOs that strategy has done is they haven't necessarily been interested in the risk profile of the product themselves. They've just been interested in the arbitrage of the repricing event. So you can almost think of like every single one of these IPOs having their own

merger arbitrage capital that's coming in the door to buy these at a discount and sell them at par. And so the question then becomes, who's the buyer on the other side? Is it retail? Are fixed income capital managers buying these products? Or is it retail investors looking to bolster returns in their retirement portfolios? Or, you know, what exactly is that? And I think that's evolving. And the reality is these securities are so new. They're only six months old, seven months old. It's going to take so much time to explain the risk profile and what these can do. What are the benefits?

How do I rate these? What's the credit quality? What are the risks, et cetera? Yeah, that makes sense. and turning conversely to the uh the effect companies like strive strategy knock a meta plan to have on bitcoin i think it's something we've talked about before and something that many people are believing is that like if you have a critical mass of companies going out there attempting to acquire as much bitcoin as possible on their

balance sheets it's going to have an effect on the bitcoin price in the long term and going back to what we said earlier i think people have looked at bitcoin price action uh through the summer leading into fall and to many it's been been a bit lackluster despite the fact that we're up almost 100 year on year um and there are many people saying there's a paper bitcoin summer like these companies are buying bitcoin and the price isn't going up so there's got to be some price suppression somewhere um i don't know i i don't think i buy that i really like james checks analysis is on chain data i think it's been pretty clear that there have been a number of whales that have been selling into the bitcoin price running up to 124 000 and that's to be

expected people made billions of dollars and they want to secure their financial future and fiat that's their own decision they can do that and i think we just have to be um sort of agnostic market observers and just recognize that this is happening but i think long term i mean i was in nashville i was telling you before we hit record at the imagine if conference i was speaking with andrew hones from battery finance talking about private market structure credit and this forward duration curve that can be built out um if these products hit critical mass you'll know that there's a certain amount of bitcoin locked up for certain periods of time and i'd like to believe and i think it makes sense to me fundamentally that this will have a positive

effect on price yeah you think about the the behavioral aspect here if you've got an individual that sold 80 000 coins right um that those coins are moving from weak hands to strong hands in these companies that are holding bitcoin as permanent capital like what we're trying to do and what strategy is doing is build a corporation that can last a century and how do you do that you hold capital that can last a century and and taking intelligent leverage against that capital to continue to add those assets over time it's effectively a long-term carry trade or a swap of usd for bitcoin like exposure so um i i'm very very bullish on that future of these companies helping to improve the overall long-term bitcoin price i think the reality this the sad reality

is that it's going to take a long time for more of the general population to buy bitcoin itself like the the hard commodity and i think we're bumping up against like critical mass of people that want to buy the hard commodity so because there's this educational component there's this need component there's this educational component that makes bitcoin unattractive and then you also got nominal bias so i think that from the psychological perspective uh we may we may be bumping up against some caps there but where you can bring this capital in the door is through these alternative like instruments that are provided to people in ways that they typically hold their assets. So I don't know, there's probably 75% of Americans in the US, maybe like

60, probably hold equities. So now if you can provide them a high yield savings account in equity format, with a dollar sign ticker in front of it, that becomes incredibly attractive. If you're able to, you know, move in and out of this capital quickly in just a brokerage portfolio that you check every day that becomes incredibly attractive so i think that um that's effectively what these bitcoin treasury companies are doing are are providing these products in locations that people typically interact in and i think that market is enormous well yeah on that note i think it's important to dive into what those products are competing with from a risk profile perspective from a return profile perspective like what are products like strategy strike strife stride

stretch uh asst now i've got xxi coming to market like what are these providing to that large pool of capital that is for better or worse there's condition to access capital markets via via accounts like this yeah this and this has evolved tremendously since last time we talked i think uh last time we talked they just announced strike i think an hour before we hopped on so we were like diving through it uh in real time well what's incredibly interesting here so let's just focus on strategy, right? They've got five instruments, they've got four perpetual preferred equities, and then they've got MSTR, which is the equity. So you can think of MSTR as amplified Bitcoin. These other perpetual preferred instruments, they sit senior in the

capital structure of MSTR. So in the event of a bankruptcy or liquidation, the seniority in the capital structure gets paid out first, if there's any money left, and then all equity holders get paid out last. So the real novel thing that strategy has done here is that they have monetized and collateralized the positioning within the capital stack into different risk return trotches that are appealing to different capital pools. So this is a monumental idea. It's never really been done before or it's never been done on a uh offensive perspective before typically in the past perpetual preferred equity has been a defensive move and this is an offensive move by strategy and the if you think about let's say uh let's focus on strf the most senior one first so strf

pays $10 perpetual dividend into perpetuity, $10 per share, priced at $100 par. Currently, it's trading at $110. So it's about a 9.5%, all right, about a 9% interest rate on STRF. And what that provides is seniority in the capital structure. I believe STRF is around eight times over collateralized. So they have eight times more assets than they have on the balance sheet than they have notional liability for STRF. So their ability to pay off just the interest alone is drastic. I think they could pay over 100 years of STRF dividends if they were to rely on just the, um, just the existing capital structure alone to pay off dividends into the future. Um, so the, the other strategy instruments are different flavors in different risk profiles

and different, um, different tranches. So you think about the second one and I won't go through all of them, but I'll focus on SDRC because I think this is the most unique. There was the most amount of demand and interest in the equity in the market for this is STRC. So STRC is a effectively like a high yield savings account. And it provides it provides the goal of STRC is to provide stable principal value and provide a dividend each month to people that are holding this particular instrument. So that's what I mean, is it's supposed to be an alternative to a high yield savings account, you park your dollars there, you get paid a dividend each month. And strategy has the unique ability to peg that instrument into a target zone to keep it stable.

So if the price goes above $101, they have the ability to ATM, effectively issue more shares to the market to bring it back down to 100. and, and, or drop the interest rate. And if the price is below a hundred and where it's at today, 97, they have the ability to increase the interest rate, uh, to boost the effective price up to a hundred. So there, they have, uh, mechanisms in place to keep the principle stable while keep, while being able to, uh, get that dividend into perpetuity. Go ahead. Well, I was going to say, I think stretch is really fascinating too, because you see like a free market response to Fed-Treasury dynamics here.

Yeah, you see a free market response to Fed-Treasury dynamics and the relative risk is an interesting dynamic. So you look at, you think about risk profile, these different instruments, and you start to ask, what is the risk? So there's two questions. What is the risk and how do the dividends get paid? Those are the two big ones that the market has been particularly interested in. And the risk is Bitcoin risk, volatility risk.

So the risk is the price of Bitcoin falls 80%, 90% and stays there for an extended period of time, four, eight years. And then strategy wouldn't have the ability to pay out dividends into the future. If that were the case, anybody that's listening to this podcast is interested in Bitcoin would likely have bigger issues, bigger, bigger issues at play. And so that's that's kind of the risk profile. And it's this evolution of risk that I think is particularly interesting. You're not you're not taking on physical risk. you're taking on adoption and volatility risk of a new technology that's already a $2.5 trillion

asset and thinking about, okay, what is my probability that the price falls 80%? What's the company's ability to pay off the dividend in that particular point in time? So there's a mathematical formula that can be calculated 24-7, 365, which makes these products incredibly unique. Whereas typical fixed income instruments in the fixed income market rely on quarterly earnings reports to understand what the risk profile is. So that makes these instruments illiquid. Now you have this new digitally Bitcoin backed credit instrument that where you can calculate the credit 24 seven 365. And there's no physical risk. And the yield is significantly higher than anything else in the fixed income market. It's easy to see very quickly the

discrepancy in the risk return metrics between the physical world and the digital world. And the digital world is providing a significantly better product to the marketplace than the physical risk world. So freaks, this rip of TFTC was brought to you by our good friends at BitKey. BitKey makes Bitcoin easy to use and hard to lose. It is a hardware wallet that natively embeds into a two or three multi-sig. You have one key on the hardware wallet, one key on your mobile device and Block stores a key in the cloud for you. This is an incredible hardware device for your friends and family, or maybe yourself who have Bitcoin on exchanges and have for a long time, but haven't taken a step to self-custody because they're worried about the complications

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higher floors. He'll show why extended periods of chop consolidation are just time pain as heavy distributions of coins are absorbed by the market. Bitcoin has crossed the Rubicon into being a true institutional great asset. This session is designed to help you understand what that means for this bull run and beyond. Register now for early access to a new on-chain metrics report from check on chain at unchained.com slash tftc funny is there a lot of people that would deride the treasury play and i'll admit i've been critical of it i don't think to the point of i think it's completely stupid but i worry that they're uh the the long tail of copycats are gonna have a hard time i think i've been pretty clear i think there's gonna be a parade of

distribution of those who succeed and succeed massively and those who sort of taper along and And get acquired. Maybe, yeah, and get acquired, ultimately. But to your point about Bitcoin being introduced into these unique capital structures that were once being used as defensive measures, but are now being used as offensive measures. The idea of Bitcoin trading 24-7, 365 being the most liquid market in the world because it is always open. um i think that value prop and that feature of bitcoin shines very bright in these examples you don't have to you don't have to wait for cordly financials you don't have to assume what's going to happen you can just look at the look at the market look at the price look

at the depth of the order book look at the ledger see blocks coming in and understand what's happening at any given point in time yeah uh there's there's just so many fascinating things about this. And maybe I'll give like a little like history background. One of the reasons that the reinsurance market exists today is because the insurance companies hold assets relative to future liabilities. And if there is a catastrophic event that happens, the insurance companies don't want to liquidate their illiquid assets to pay off the claims. So they buy reinsurance from reinsurance counterparties across the globe to reduce the volatility. And so they don't have this liquidity shock of having to go liquidate a bunch of, you know, corporate bonds,

they're paying 7%. And there's no buyer on the other side of them. So that's why the reinsurance market exists. And now, if you understand this framework of how this is evolving, if this marketplace 10Xs, if the perpetual preferred marketplace 10Xs, 20Xs, and they have, you know, credit ratings on these instruments moving forward in the future, the reliance of these insurance companies on liquidity in those, you know, in those catastrophic events, that changes, that entire equation changes. And there should be a premium on these highly liquid digital credit instruments as opposed to, you know, having a higher, higher cost. So I personally think that there's going to be a repricing of physical risk relative to digital risk at some point in the future.

It's going to take probably a decade, but the entire financial world, as we know, it can be recalculated and restructured with these different instruments in different ways. So that's incredibly appealing to me. And then the other really unique nuance with how strategy is paying these dividends, which has been a big controversy into the future, is their operating business makes a little bit of money, but the operating business doesn't cover the entirety of the dividend liability moving into the future. So you've got multiple ways that you could go pay the dividends. One, you can raise capital via the ATM. So if there's premium in your equity, you can go issue

shares to the market and use that those premium dollars to pay the dividend. Just to put it in perspective, I think strategies annual dividend liabilities around $600 million. Just a couple weeks ago, they raised $500 million in a week on their MSTR stock. So their ability to raise capital in mstr atm is is very high and if you think about these the structure and the dynamic of this is you're bringing in this capital today to buy bitcoin and you you incur the dilution over time via the mstr atm whereas the alternative forms of debt in the market like a convertible bond. If you issue a convertible bond, the convertible bond holder is shorting your stock by 70% of the notional value on day one. So you actually incur the dilution on day one.

So when you think about the form of leverage and the behavior of the holder, the perpetual preferred equities are far more effective form of leverage, and that should compound to the MSTR equity product over time, as the excess return and the excess risk of these perpetual preferred instruments is returned and delivered to the MSTR shareholder. So it provides more amplified Bitcoin exposure to the MSTR shareholder. So that's one way they could pay the dividends into the future. The other way is other capital markets activity. so these these companies because they hold so much capital you have the effective ability to go refinance at any point in time and so you can go if they ever needed to let's just say the price

of bitcoin fell 50 and mstr starts trading at a discount to nav they still they still have an incredibly good credit profile so they would be able to go issue convertible bond if they needed to, to go pay off the dividend for the next four years and withstand, you know, any market volatility into the future. Alternatively, one of the real big unlocks with these perpetual preferred equities is that they put ATMs on top of them as well. So what they created is effectively a refinancing mechanism that can refinance daily. And you can bring that capital in the door daily.

which is monumental. Historically, if you wanted to go refinance any of your debt, you would need to put together a presentation, get your credit profile, think about pro forma financials, go take it around the market, go run to New York, run to Bermuda, run to all these different capital places and find somebody that's willing to give you good terms. And now, you know, and you can tap your cost of debt capital daily if you like the terms and that's not priced in yet i don't think people quite recognize how how powerful that is and i think that will just continue to grow so this is something they just baked into the design of the product and the perspectives that yeah they baked it in so they have the ability to issue more shares of any of

these instruments at any point in time um if if they like the if they like the terms of these instruments um so that that's the again to the uniqueness of the liquidity profile the interest of people that are trading these instruments in different ways or identifying risk arbitrage across different risk markets and i think that the the way this world evolves like this this world is getting more digital that is that is a that's just a fact and i think these typical fixed income instruments are very illiquid because they're not like digitally traded they're over the counter uh and i think that will start to change and evolve um as capital structures of corporations evolve over time uh because nobody's going to want to buy jet blue corporate debt junk

corporate debt at seven percent interest when they could buy 10x over collateralized perpetual preferred uh highly liquid uh bitcoin backed digital security from strategy uh that's paying more it's more liquid it's less risky more collateralized no risk of future cash flow you know like the just the entire risk profile is completely just in every every single aspect you look at it is way better yeah that makes a lot of sense and again it drives back to one of the core value props that bitcoiners have been talking about for well over a decade almost two decades now bitcoin is this neutral uncorrelated asset that's not beholden to the whims of corporate boardrooms and management decisions and it may short term be affected by

broader market movements but over the long term it's proven to be uncorrelated and if you have this neutral scarce digital asset it makes sense that you would want to design and construct products around it financialized products around it and i think it scares a lot of bitcoiners like oh, the suit's taking over Bitcoin, but I think I like to flip the framing. It's like, no, actually, Bitcoin's taking over financial infrastructure, which is a good thing. We're beginning to recap the whole financial system with Bitcoin, which is something that you should want.

This is what living on a Bitcoin standard looks like. Yeah, and Sandler said this really well the other day at the Unconference. He said, well, Bitcoin fixed the money, and you can't just sit on Twitter and tweet about this and fix the rest of the world. You need to fix the capital markets. You need to fix the credit markets. You need to fix the insurance markets. You need to fix every single aspect of finance in different ways.

You need to reconstruct the entire world of the capital market in order for this to infiltrate. Like, this can't not happen. If you want Bitcoin to be successful, this can't not happen. It needs to be pervasive and everywhere. in all capital markets and i think a lot of people really miss miss that sup freaks guess what we launched a browser extension it's called opportunity cost and it helps you see the true cost of everything in bitcoin convert prices to bitcoin as you browse the web opportunity cost automatically displays fiat prices in bitcoin or sats helping

you think in a bitcoin standard it works on amazon zillow x your bank account quickbooks so you can convert everything to Bitcoin. It's really cool. It's also 100% open source, MIT license. We don't collect any data. All of the conversions happen in your browser, on your local device. It's a great way to recalibrate your life

and begin thinking in sats. Go check it out at opportunitycost.app. That's opportunitycost.app. Not only that, I think, and I was definitely guilty of this, especially in my early days of Bitcoin where I thought the financial system was going to collapse. We've got to go to Bitcoin.

We'll let everything collapse and we'll build back up. But I think, and I said this on stage with Andrew, in Nashville on Saturday, I've been saying it a lot. I think the meme of the soft landing that was put out there by Janet Yellen and others during the Biden administration and at the Fed, um particularly talking about how we're going to sort of manufacture a smooth landing of the economy after all the stimulus that was injected into the economy post-covid i don't think that the fed the treasury sort of have the ability to do that um certainly not without bitcoin and

this is the way i view the bitcoinization of finances you have the free market sort of creating the soft landing by refining and recapitalizing the system of better collateral Yeah. And that, that better collateral will just infiltrate everywhere because you can't not, you can't not hold these things. And, uh, I think that will, that's going to play out over time. So I was talking about this a little bit earlier. You've got all of these folks that manage fixed income portfolios for retirees or pension funds or whatever. And let's just say they do things the traditional way and they make their, you know, five and a half percent interest annually. and then their competitor across the street has fully adopted the Bitcoin-backed credit treasury model, and they provide seven points of return annually and outperform the other fixed income instruments by 150 bps, capital will move to where it's treated best. And so that capital

will then move to the better capital manager that's leaning into these new types of products and there's a like understanding the risk risk return profile there that the crazy part is that that new investment manager that's adopting bitcoin back credit and outperforming the existing fixed income money market manager is probably doing so with significantly less risk as well and uh if you think about the scale of uh the entire capital world the fixed income market is one of the biggest pools it's a 300 trillion dollar pool of capital you think of the equity market's about 130 trillion you think about the money market it's i don't know 22 22 trillion something like that. And so if you want to make the biggest splash in Bitcoin, you disrupt the

fixed income market. And these products that are hitting the market now are disrupting the fixed income market. And as they start to bounce around different parts of the fixed income world, they're going to make more noise and more noise and more noise, more adoption. And that will be probably a similar adoption curve to uh to bitcoin where you see it just like slowly like gradually then suddenly sort of thing whereas just a few people have these in their portfolios and five years from now probably 10x maybe 20x and then 10 years from now it's probably 100x yeah that dives into a good question which i mean i won't say i'm asking good questions here but uh At what point do you think companies that aren't Bitcoin-focused – the thing that really gets me going is operating businesses that really get this and go to execute on it.

And I think we had a good example of this with Figma's IPO. Obviously, their S1 had disclosed their financials. We came to find out that they had $70 million of iBit exposure, I believe, and the intent to buy $30 million more of spot Bitcoin. To me, that was an incredible validation signal. you have this darling in silicon valley that is a really incredible product used by millions of people that people love and the um the sort of leadership there decided to build a bitcoin treasury i believe it was more than 10 of their um of their cash and cash equivalents was in bitcoin which is incredible to see and what i'm curious to see is at what point do companies that

nobody would suspect that really aren't bitcoin first and um led by bitcoiners and are thinking about this treasury strategy and really going after it um aggressively sort of from a bitcoin perspective but at what point do we begin to see the figmas of the world um begin to leverage these type of of credit instruments and utilize capital markets in this way do we see it and if we do what does that mean for for the normalization of this yeah the great part is they don't have to if they have good they have a good operating business and they are adopting a treasury strategy and keeping bitcoin you're you're de-risking your balance sheet uh you're storing your energy in a commodity that can withstand the the new digital future and not not losing

uh purchasing power of your stored stored treasury and i think this is uh this this kind of comes down to these weird incentive structures in the existing equity market uh to your to your question i think those companies will see it as opportunity that they need to take advantage of i'm sure people will approach companies like figma that are holding Bitcoin on their balance sheet and say, hey, look, you could go raise X amount of capital and go 10X your operating business if you go issue the security and you've got the security of your balance sheet to cover it, that there will be pitches to those companies that just make so much sense that they cannot do it.

So I'm incredibly bullish for what that looks like. But one unique incentive structure that I'm seeing in the equity world, I truly believe that risk is mispriced globally across equities and fixed income. And when you look at these companies' balance sheets, well, their operating businesses are leveraged to future risk. so uh you look at a company like nvidia with a four trillion dollar valuation only holds 54 billion dollars of capital in the balance sheet so that's a that's a significant risk gap between the amount of actual capital that the company holds relative to this reliance on future cash flows and that's uh there's a significant list of risks that can disrupt those future cash flows And I think that the market in general is mispricing that risk of future cash flows relative to actual capital stored and the value stored on the balance sheet.

And I think there could be a really big concern, particularly in frothy markets with high P.E. ratios and high price to book ratios on these tech companies where there's a blow off top and the equities see a correction and they don't have strong enough balance sheets to ever regain that position, that position of strength that they were previously in. and i think that risk is probably mispriced uh globally yeah it's something i've been discussing on this show last few weeks specifically is i don't think people are looking at forward-looking pe ratios approaching and in some cases surpassing dot-com era levels and i don't think they're taking the risk seriously and just looking uh just google finance they have their beta i guess they've implemented uh gemini so i can ask a question now as of september 23rd 2025 the trailing pe ratio from nvidia is 50.95 almost 51 which is pretty high and then people are complaining about mnavs of bitcoin treasury companies being one and a half yeah it's like

it's like what what you're it's trading at 50 times so how far how forward looking is that right I mean, the company has value, right? I don't know what their revenue is, like $100 billion a year, which is huge. But one of the unique reasons that these companies are valued so high is because they're doing these stock buybacks as well. So they'll take that excess cash and do a stock buyback. And what they're indicating at that point in time is, I have no better place to put this cash, so I'll buy the stock back.

And, and alternatively, they could be buying Bitcoin, which is a effectively buying Bitcoin and de-risking their future balance sheet with something that has significant growth potential and can provide long term longevity for the company. So it's, I think, a dynamic that will be really hard to break because all of these institutional holders of these equity instruments, even the design of the passive market structure, is going to be difficult to get anybody to tell them to not do share buybacks. So I think this movement from these smaller companies that are adopting Bitcoin treasury companies is kind of what needs to happen here, because the incentives are not aligned for a hundred billion dollar plus company to not do a share, not do a stock buyback and buy Bitcoin instead. So I really think this this shift of capital is happening over the long term. yeah and just i mean when you when you talk about stock buybacks in my mind the i don't want to say worse but i mean the most aggressive company to be buying back their stock is apple and just did a quick search uh estimates range according to google finance llm uh between 604 and 704 billion in the last 10 years and i think it's like going back to bitcoin in 2016

obviously it would have been patently absurd for apple to do it in 2016 at the time but in retrospect would have been a great decision but imagine if they were able to put 70 of a trillion dollars in a bitcoin between yeah you used when you reframe your entire world from a bitcoin lens these numbers look absurd and the uh one thing that i've been looking at recently and we're kind of building out a little bit of a technical perspective on is go look at earnings of all of these companies priced in Bitcoin at the point in time where they release their earnings. So if you look at earnings priced in fiat, everything's going up to the right. But if you look at historical earnings priced in Bitcoin at that point in time,

there's actually a lot of volatility and all of them are going down into the right. so it's the same concept of like looking at a price of a home over time in price and bitcoin do the same with quarterly earnings of corporate balance sheets and you're like wow there's actually a lot of volatility here and they're all going down for the most part you know except the your your leaders in ai like nvidia and a couple others but i guarantee you could go look at 99 of equities in the market and if you were to price their earnings in bitcoin they're all going down to the right. That's an interesting perspective to take. One other thing on the buybacks. Chevron 2021 did a $70 billion buyback. I was doing some analysis on this. If they would

have spent 25% of that on Bitcoin, the value of the Bitcoin today would be worth more than their market cap today that's insane yeah so it's uh when you start to do the math on some of these it looks uh pretty blatantly obvious yeah well that's um that's why we launched the opportunity costs uh browser extensions to help people recognize this this sort of bitcoin depreciation in their everyday lives in the fiat the basement but i i think from a medic from a memetic perspective and from a marketing perspective of something over the last year, I think particularly in the realm of Bitcoin treasury companies and strategy, most importantly, really beginning to drive that home Bitcoin per share. And I think pricing earnings reports in Bitcoin and tracking

that over time is going to be incredibly memetically powerful to really drive home to people like you are actually not doing as well as you think you are. It's so funny. You look at a company like CrowdStrike. CrowdStrike, I don't know what their market cap is today, but it's around $110 billion. Over the last 21 quarters, they've technically, in Bitcoin terms, they've lost 18,000 Bitcoin. In that same time horizon, Strategy has acquired and accumulated 638,000 Bitcoin. Strategy's priced at $94 billion market cap. CrowdStrike's priced at $110 billion market cap, and crowd strikes in the S&P 500, and strategies not in the S&P 500. And you start to look at that. And again, my brain goes to risk is mispriced globally, right? These are

fundamentally different risk return metric products that just the market just broadly doesn't understand. No, not at all. I mean, on that point, that was one question I wanted to make sure we cover and obviously it's top of mind for a lot of people strategies lack of inclusion in the S&P 500 I guess what is the justification for them to be in it and why haven't they they joined the S&P 500 yet yeah I'm not I'm not surprised the companies typically when they some companies when they first get qualified they do get added but it's some of the more controversial companies have, it's been a couple of quarters before they've gotten added to the S&P 500. You go back, look historically, like Tesla, I think they first qualified after Q2 in 2020. They didn't get

included in Q4. So it was, they got skipped by a quarter. Some other companies looking at like Applovin and Robinhood were not included in the S&P 500 for various different reasons. And I think ultimately it comes down to the fact that there's a committee, there's people that have to make a decision on to on to whether or not a company gets included or not, which is so funny and ironic for the S&P 500, right? Like the S&P 500 is supposed to be a passive index. And then you have people that are actively making decisions about what goes in and out of the index. And there, if you look, it's interesting to compare the performance of like the Bloomberg 500 relative to the S&P 500, which doesn't have this active committee component.

And the performance is interesting. And I think that's also why we've seen a significant increase in the index funds like QQQ getting a lot more popularity and growing in popularity because there are technical considerations on whether a company could get in or not and no committee. so it removes this element of uh lack of uh just understanding what's happening in the market right it's it's more of does this company qualify yes it's in as opposed to um does this committee that has an average age of 60 understand what's happening in the digital market and how quickly things are moving and evolving and adopt and advancing into the future so um yeah it's just

it's it's unique i do think they will be included you've already got two companies in the s&p 500 that hold bitcoin on their balance sheet so i know it's not that just the bitcoin they're not going to not include tesla i'm not going to not include coinbase or uh even block oh so blocks so there are three and so yeah i think it's just a matter of time and there will be uh dozens i think within you know four eight years yeah and what and i think we talked about this in january when we last met but like just to reiterate what does getting included in the s&p mean i mean you mentioned it's a passive index but that does unlock significant amounts of passive flows for for companies that are included correct yeah yeah that let's see

I will caveat this with everybody is front running everybody all of the time. So in terms of whether or not these passive flows that come into any one of these individual equities, you have no idea when it's actually coming in the door. But structurally, I think this is a very important consideration for a multitude of reasons for a company like Strategy, because the architecture of these funds, as the market cap of these funds increase, if you subscribe to Bitcoin is going up as the market cap goes up relative to the underlying Bitcoin holdings, the amount of passive flows that are coming in the door on that particular instrument, don't increase linearly, they increase exponentially. And so that results

in more reflexive positivity of capital that's coming in the door, it enforces the premium on the underlying equity and continues to push it higher, although there is reflexivity in the opposite direction as well. So there's a multitude of different factors at play here. And the other component is, as that balance sheet grows, as the market cap grows, so does the credit quality. And I think being included in the S&P 500 is a bit of a trophy to put on your wall, and also helps with communication with credit agencies with the S&P being one of the largest credit rating agencies in the market. So if you're included in the S&P 500, then you start to need to look at what are the ratings of the perpetual preferred equities of this company that's

included in the S&P 500 that helps in conversations with Moody's and Fitch on the instruments. You've got a significantly larger capital base. The committee has approved you as a company to be included in this index so i think the narrative and the story the story goes a really long way um on top of the forecasted cash flows that would be coming in the door yeah wild times yeah when we met in january you called it the most hated rally the most hated trade uh strategy specifically but now the the market for bitcoin treasury companies has expanded do you do you still hold that belief that it is the most hated trade out there yeah i i do this is uh this is so hated because people don't understand uh so many people

don't understand bitcoin in the traditional financial world and but they understand leverage finance and then so many of the bitcoiners don't understand uh they don't understand leverage finance so you've got these two worlds that are kind of colliding and the you've got everybody outside of the Bitcoin ecosystem that's looking at everything they've already known. And you're trying to turn their world upside down. And they can't even conceptualize why a company that's accreting value consistently should trade at a premium to the underlying holdings on their balance sheet. Then you look at the risk profile of everything else out in the market. None of this makes any sense. And it's the reason I think it will be the most hated rally. I think that the

next decade of these will be the most hated rally is because you're literally turning everybody's world upside down and reshaping it. And these companies aren't going to stop. Strategy is not going to stop. We're not going to stop. There are going to be dozens of other companies that are doing this, and they're not going to stop. And the this is why I say risk is mispriced globally is I think there will be a risk repricing over time, that is just going to confuse so many people and require accelerated educational periods for different corners of the marketplace to understand this. And they're going to hate it at first. And then they're going to, you know, think about it and then start to understand it. And that's just going to take a really long period of time.

Yeah. Rebuilding the world around Bitcoin freaks. It's been hated at first. It's been hated for 16 years. And now the Bitcoinization of finance is upon us. And Jeff, you're at the forefront again. Congrats on all the success you've had this year. Your life has changed drastically since we last met in January. Like I said, it's been fun to watch. So I thank you for taking some time out of what I'm sure is an incredibly busy week for you to come discuss this with us.

You should look at my calendar tomorrow. I think I've got 12 calls tomorrow. It's pretty crazy. It's back to back to back to back. A lot of things cooking. All right. Well, make sure you get some good sleep tonight, and hopefully we can do this again at some point next year.

Peace and love, freaks. Thank you for listening to this episode of TFTC. If you've made it this far, I imagine you got some value out of the episode. If so, please share it far and wide with your friends and family. We're looking to get the word out there. Also, wherever you're listening, whether that's youtube apple spotify make sure you like and subscribe to the show and if you

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