The Pomp Podcast - #1522 Tim, Dan, Ben, Jeff | Could Microstrategy’s Bitcoin Strategy Blow Up?

Episode Date: April 4, 2025

Tim Kotzman is the host of the Bitcoin Treasuries Podcast. Dan Hillery is an analyst and trader. Ben Workman is the Founder of NumerisX. Jeff Walton is the Founder of $MSTR True North. In this conversation we talk about Microstrategy's bitcoin strategy, potential risks, options market, metrics to keep an eye on, why bitcoin companies stocks trade at a premium, and what could be the next phase of the bitcoin treasury strategy? =======================Core is the leading Bitcoin scaling solution, enabling you to lock in yield by locking up your Bitcoin. Simply lock it on the Bitcoin blockchain to secure the Core network, and get rewards. No bridging. No lending. Just holding. Still your keys. Still your coins. Now your yield. Start at stake.coredao.org/pomp.=======================BitcoinOS is bringing Bitcoin into a new era. For the first time, Bitcoiners can access real DeFi across the entire crypto ecosystem, powered by revolutionary zero-knowledge technology. No more trusting sketchy bridges or giving up security. BitcoinOS reunites all of crypto around the chain where it all began. Follow BitcoinOS on twitter @BTC_OS and Be early to Bitcoin again.=======================Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/=======================View 10k+ open startup jobs:⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

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That's what everyone wants to know, right? Obviously, it's been working. all of these bitcoin uh treasury strategies what is the scenario where it doesn't work what is the doomsday scenario what do you guys see as the biggest risk or the biggest threat i think you obviously see strategy metaplanet similar working you see some of the others kind of it's so early but they're kind of so i think it's just too early and if somebody collateralizes their bitcoin if they take on too much leverage. I just think that that's what I see. Yeah, it's going to be if companies really try to compete aggressively on the leverage side of the house. What you watch

with what strategy has been doing and with what the other ones that have entered have done is they've kept really strong control over their leverage ratios. So you've never really see them get into this scenario where they're overly leveraged in a risky position. And a lot of people think about liquidation points when it comes to companies like strategy, but because this is non-recourse debt, those aren't really a thing. So everyone's looking for what's the Bitcoin price where this all falls apart. It really doesn't exist right now. Describe why having non-recourse debt is so important for an asset underlying that is so volatile. Yeah. And this one was really important to me. My early career was in commercial banking during

the financial crisis and I was in the troubled loans group. I was doing all the credit underwriting there. So the first thing I saw when they first did have secured debt was that made me really nervous because it can take some of your own destiny out of your hands. And particularly when you're tying your company to a really volatile asset like Bitcoin, if you've got loan to value or you've got debt service coverage covenants in that loan, you can get into a point where if Bitcoin becomes volatile enough and you get into one of these major drawdowns, it could cause a liquidation just on the value of the asset decreasing. So getting into non-recourse where you don't have any ties to a loan to value really frees you up and takes a lot of that risk

out of the equation. You guys got anything to add? I think something with Bitcoin would have to break in order for, you know, these, at least strategy with how they're managing their asset and their risk profile of their company. I think it would have to be something with Bitcoin would have to break. All right. What happens if they sell, right? All these companies are built on the idea that they're never going to sell their Bitcoin. What happens if MetaPlanet goes out and Simon tomorrow says, I want to, or I have to sell if I have a convert and everyone says, Hey, look, I want to actually get paid back versus convert the into equity. Does that break this kind of like soft, you know, kind of pact that people have with their shareholders. And all of a sudden that

leads to a different behavior change? I think there's two scenarios. You saw back at the beginning where a seller actually sold some for tax loss harvesting something at the end of the year, but he also bought a bunch at the same time. And there was a little bit of noise, but it was largely like, yeah, that makes sense. But if a company actually sells, then they're done as far as the strategy and people rallying around them. Yeah. This is a strategy that's built on trust, right? You're telling the market what you're going to do. You're telling your shareholders what you're going to do and that they want to see you do it. So if you're going to pivot like that and you're going to sell out of your Bitcoin, one, you've got to be ready to explain why your

thesis has changed. Are you all of a sudden bullish on the U.S. dollar and you think monetary debasement is going to stop? I mean, you're going to have to communicate that. And I think a lot of these companies now, they're viewing this a different way because it's this long term accumulation of capital. And capital brings optionality down the road. And so selling it would seem very counterintuitive to positioning your stuff strategically amongst any of your peer groups. This could be one of the best competitive advantages you could build up against your competitors. It's going to give you in five, 10 years, a massive war chest on your balance sheet. And with the amount of products coming to the market where you're going to be

able to actually tap into the value of that Bitcoin without selling the Bitcoin, it puts you in the ultimate position of optionality for your company. And I think that's a position that companies should really want to hold on to. Dan, you are a nightmare for certain people in this room because you basically said that you were trading options on the hyper-volatile strategy stock. So there's people in this room that are like, oh my God, that guy scares me. What's going on with the options market of these companies? Sure. I think it's really interesting for equity like Semler as well. If you saw the most recent convertible debt offering, they have a capped call provision on that convertible debt. So if the stock price runs up way past the strike of that

convertible note, then Semler's dilution is effectively capped because of the functionality of the options market, right? So they waited until the options market came online to go out and do this convertible offering. And now they have hedging mechanisms effectively in the options market to create shareholder value. So I think aside from me trading the options, it gives companies a lot of different ways to play the market. What's the most interesting thing that you've picked up in the options market? There's always little edges that people start to unpack. What's one that gives people an idea of how this is trading maybe differently than other options? Sure. At the beginning, when I started trading it, there was a lot of mispricing around the

volatility increasing of the underlying Bitcoin and MicroStrategy as the price went up. And that's not typical of traditional equities. So for those buying long calls or leaps, betting on outsized moves to the upside, we got quite lucky and fortunate as the prices kind of mooned during those euphoric times. Free alpha for all of you. All right. Who wants to take MTSU, I think is the ticker. That's the 2X strategy ETF, right? MSTU. MSTU. I almost got it right. All right. That's down a lot, obviously. With the introduction of these kind of levered plays on top of what are really essentially levered plays on top of Bitcoin,

how does that change the market dynamic? And does that capital flow into the 2X levered, or I'm sure people are trying to do 3X or 4X or 5X levered. Does that take away from the underlying stock as well? It certainly draws capital into those products that probably belonged in the stock. I've never been a big proponent of the 2x because I look at a company like MicroStrategy that essentially has had themselves in like a one and a half times leverage to Bitcoin position. And you got to ask yourself in your investing life, how much leverage do you really need? Right. Like this is more leverage than anything you've got. It's got more volatility than anything else you can trade in the market. I mean, we all love volatility up here. It's kind

of the game that we play, but you do have to ask yourself at a certain point, do I want to introduce additional risk into that investment? Do I want to take on things like NAV decay out of some of those holdings? And the answer for most people should probably be no. They're great trading instruments. If you're a really sophisticated trader and you really believe you have an edge to time the market, those people love it. It's the people that decide that they're going to hold a 2x leveraged position here for a long-term hold. That shows a fundamental misunderstanding of how the product works. And a lot of those people are probably very upset at the moment. Jeff, when you look at all the different metrics, there's some that I would consider

traditional financial metrics like revenue, EBITDA, multiples, whatever. Then there are things that, you know, Bitcoiners are great at inventing shit, right? And so we invented all kinds of things like BTC gain and all these things, right? What do you, when you wake up in the morning, what do you go check first for each one of these companies that you feel like is the best signal as to how is the business doing outside of just the stock price? Oh, that's a that's a difficult question, because for me, I'm thinking so long term, I think this is going to be the largest. Oh, come on. Just tell us what metrics you check. When I think about the conversation around MNAV, which is a common conversation, you brought it up in past.

It's you compare it to other equities that are trading in the market and there's no you can't compare it to Google or JP Morgan or Berkshire Hathaway. like it it strategy fits in its own bucket in its own realm and you start to think about what they can do with these assets and the balance sheet strength is is power right like that's monetary power they what other company has 35 billion dollars of unencumbered capital on their balance sheet that they could do something with and that's you know when i look and rationalize the price of other equities you look at p ratios you look at mnav you look at asset to liability leverage ratios all of these things and the only homogenous comparison tool is market cap and so i've posted daily for the last 260 days in a row of micro strategies market cap because it's

the only comparable tool when you're you know looking at other companies that it can trade around so like the mag 7 for example they're in their league of their own but they're all fundamentally different business models use finance differently, right? Like they use debt and leverage differently. They are built of different revenue streams. So then you start to think about the architecture of the market as opposed to these fake metrics that TradFi tends to lean on. So I think that one of the big questions people have is around this, what most people are calling a premium to NAV. I tend to think of it more as like a BTC gain multiple, but can somebody up here smarter than me explain what is going on with

why these stocks trade at a higher valuation than just the Bitcoin that sits on their balance sheet? Yeah, I'll take it. So in my opinion, the architecture of the equity market is one of the primary reasons that these stocks trade at a premium to their equity value, right? This isn't a holding company, right? They're an operating company that can do things with that capital. And that's the primary distinction. And like I said earlier, like how many other companies have $35 billion of unencumbered capital, which is now collateral on their balance sheet, which they can earn additional Bitcoin in the future.

iBit isn't earning you additional Bitcoin in the future. And we've only scratched the surface. A lot of people think that the capital is running dry. We've only scratched the surface of strategy being able to leverage their balance sheet as collateral to raise additional capital. And to add to that, I'd beg the question, so how productive is the Bitcoin collateral on the balance sheet? And much like a different company, you'd value them at a very high multiple to their net asset value because their assets are productive. I don't think we've seen the full extent to how productive BTC can be on the balance sheet, right?

We've seen some of the BTC yield as a function of convertible notes, but we haven't seen any sort of lending, any sort of ideas that we don't even know yet. So I think that's really where the multiple is kind of mispriced. There's another thing that I think a lot of people overlook when you look at the strategy, and I think it's something that makes it really attractive to a wide range of companies. And that's if you look at a corporation, it's got to be in this living state of transformation all the time, right? If your company stops innovating and you stop pushing the envelope, you start to die off. And once that growth goes away, the market will take that out of your equity as well.

For a lot of companies that are finding themselves in that position right now, this type of a strategy essentially gives them the chance to buy time while doing something innovative. If you're looking for what that next evolution of your business model is going to be, but you've got a strong core business that you've spent decades building that's throwing off good cash flow, this is a perfect match for you because it becomes that active accumulation of capital that's building your war chest for when you see that next opportunity and you'll find a way to integrate that into the future of business. So it buys you that time to really continue to transform yourself. And I think that's really important for a lot of companies to consider. I want each one of you to answer this very quickly. What is the company that you want to see do this next? We saw Strive Asset Management recently come out and write a letter to GameStop,

tell them to do it. Ethan Peck is probably here somewhere. He's the guy who went to Amazon and Microsoft and all them and said, Hey, you guys should buy this. Who do you each think is kind of a prime target given everything you guys understand about the strategy to go ahead and do this next? I think it's GameStop. And I think it's because being a Bitcoin equity meme stock could be the most positive thing. They already have the community. And I mean, if I was Ryan, I'd be waiting to kind of almost enter a momentum trade, even though I'm going to hold forever and then be on CNBC and say, oh, our stock price went up in a quarter or whatever, and just like bomb out that eight billion dollars. So GameStop was a great answer. I think Eric made

a really good pitch for Zoom as well. I think this fits where they're at very well. What I'm actually looking for, though, is the next evolution of it. I want to see a growth company actually adopt this. And I would really like to see a growth company that ties into Bitcoin as a part of the core business, because I think there's this overlooked component that could be used where using the Bitcoin treasury vertical could really become a force multiplier for driving business into the other side and actually growing your core business as well. So now the market has to digest a growth company that's also actively working the balance sheet to accumulate capital. And I think that makes a really interesting value proposition. Jeff? Yeah, I completely agree with that. And I

think there's been some other companies that have risen very drastically over the past decade where this could be an opportunity when they've seen their stock fall. One of the companies I'm most excited about that has potential to do this is Nike, in my opinion. Just do it. They've been innovative their entire lifespan. And I think this is a really good opportunity to take a chance. Yeah. And my pick would be a company like Robinhood, a financial services company that somehow could integrate the Bitcoin treasury strategy into their financial services platform and potentially enable that Bitcoin to be more productive than just sitting in a creating value. Now, one of the things that none of you said was Tesla, which has Bitcoin on their balance sheet,

but they only bought one time and I think they sold a little bit and it kind of stopped. And so does that mean that actually the strategy is not the buying of the Bitcoin? It is the continuous buying of Bitcoin. And the continuous part may be even more important than the one time buy. Well, I think that there's a model that fits most companies, right? So everyone who's holding a treasury and if you're holding any portion of that in U.S. dollars, you should be considering Bitcoin on the balance sheet, whether you're buying it as an insurance policy or whether you're really getting rid of all of your cash and

saying our treasury sits in Bitcoin. We really believe this is the best hedge against monetary debasement. That's great. And we should champion all of those approaches. The leveraged approach, I think, takes a unique type of company because it doesn't fit as well in companies that are highly capital intensive. If you have constant investment needs and you don't generate enough cash flow on your own to fill those, you take away some of that accretive nature of what they're doing with these leveraged strategies. So I don't think that the leveraged approach is a fit for everybody, but I think that the treasury approach has application to every company that's out there. And if you start as a treasury company, let's say you start at 1%, it's naturally going to

become a greater portion and every company will eventually become a Bitcoin treasury company at some point. I mean, there's no reason not to. The risk return metrics on the Efficient Frontier improve the return and reduce the risk of your entire portfolio dan you mentioned earlier lending the bitcoin on the balance sheet usually bitcoin and lending those two things don't mix well with the people on the internet do you all think that lending yield generation option selling you know we can go through all these different things that people could do with their bitcoin is that kind of the next phase of this it's not just hey how do we use the traditional financial products to raise capital to go buy bitcoin but then what do we do with the bitcoin itself and do you guys have

thoughts of what is going to be inbounds or out of bounds for these companies yeah to jeff's point i would say it's about it's about whether or not that bitcoin's productive and i think there's a huge frontier of making that bitcoin on the balance sheet productive whether that be just barring against the bitcoin to acquire um you know an additional company or to make some sort of strategic acquisition yeah this topic of collateral is is the most exciting to me right bitcoin is a pristine asset it is the most pristine asset the world's ever seen and now you've got companies that are holding it in droves. And when you think about the future productivity here, it may look different than lending. Yes, lending is going to exist, but the

future of collateralized finance is going to explode. So just to give some perspective, I'm a past reinsurance broker. I used to sell reinsurance to insurance companies. And the collateralized reinsurance market grew from $30 billion in 2015 to about $100 billion in 2025. That could go from $100 to $200 and $50 billion of it could come from BTC treasury companies. So if you're holding Bitcoin, you can price long tail liabilities better than anybody else in the market. And there's, you know, in fiat terms, there's nobody else that's going to be able to price that risk better than you. And there's going to be a lot of opportunities in that landscape, likely in the insurance world. Can I make a pitch to you guys?

I think you should change your names. True North is a good one. We're just volatility bros because you guys love volatility. We're in. We were shaken when they changed the name. If they changed the ticker, we were out of business. We were going to have to reinvent ourselves. I mean, if you really think about what you guys are talking about, you're buying a stock that has volatility on top of one of the most volatile assets. And then we're talking about lending on top of that. There's obviously all these derivatives and stuff. And so is that just a function of like, that's where finance is going in general and you guys are out in front of it? Or do you think that this will remain a corner of finance and we won't see the constant chasing

of the volatility that you guys are very comfortable with? I think as far as products, services, lending, insurance, you're going to see all of that. But one thing that I think you'll see in the future is you'll see companies on a Bitcoin standard, not just with their treasury, but with their operations. And I don't think you've seen that with a public equity yet. You've seen Saylor talk about it as far as his mindset, as far as the Bitcoin CAGR being the hurdle rate. You've seen early riders being a Bitcoin-dominated venture fund. But you haven't seen an equity company come out and say, and you probably won't until the CAGR goes down, like, hey, we're going to judge the hurdle rate for, should we be in this business line

operationally against Bitcoin. Amazing. Everyone, Tim, Jeff, Ben, Dan, thank you guys so much.