The Pomp Podcast - The Future of Bitcoin Treasury Companies | Phong Le & David Bailey

Starting point is 00:00:00 This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales. Using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business. The result? Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. Back in the day, we used to have 50% drawdowns in the price of Bitcoin in six hours. Okay, it's like a whole nother world of crazy. The key thing is survival.

Starting point is 00:00:40 And that was the eureka moment where we said, if you want to match something like Bitcoin, which has long duration, high volatility, we need to provide to the market a short duration, low volatility product. That's what STRC is. When would you guys sell the Bitcoin if ever? I think when people look at strategy, they would say you guys are the pioneer of putting Bitcoin on the balance sheet of publicly traded company. And I think early on, the pitch was we're going to accretively acquire more Bitcoin. You guys have gone through, I think, a very positive evolution in terms of how do you get more capital to buy more Bitcoin? And so how

Starting point is 00:01:15 do you describe today, maybe the strategy complex and the way that you guys are approaching this accretive acquisition of Bitcoin? Thanks for having us. Thanks, everyone, for joining. Um, three phases of the company 2020, we took $600 million or so invested in Bitcoin. And I would call that a Bitcoin holding company. And that's pretty much what we did. Not much different than an iBit today. We just bought and held Bitcoin. Second phase really started beginning of 2021 is we decided to lever up and we became a Bitcoin treasury company. And the leverage was primarily through convertible notes. We dabbled a little bit in some secured loans. We even dabbled in a Bitcoin back loan with Silvergate, but primarily raised at this point in time about

Starting point is 00:02:08 $12 billion in convertible notes. 0% interest on average, up 50%. Pretty successful. Those who who work in the convertible complex realize that it's about 50 dudes with like PhDs or Harvard MBAs who sit across the table. They buy your converts, they short your stock. It's over the counter, which means that a retail investor can't buy a convertible note. And it's sort of a quick dopamine hit and we're able to buy a lot of Bitcoin. But at some point in time, you have maturity risk, right? You're going to have the convertible notes come due. Not bad for an early Bitcoin treasury company or somebody who's just getting into the space, who's trying to raise funds to buy Bitcoin. But for what we're trying to build wasn't long-term the right move. Phase

Starting point is 00:03:03 three last year was digital credit, became a Bitcoin credit company. And what we did is we raised about $7 billion of perpetual preferreds. And those who invest in preferreds, it's a pretty small space. Primarily, banks provide preferreds. People call them hybrids between equity and debt, but it's really an equity instrument, meaning we don't have to pay it back ever because it's perpetual in nature. And it trades on the NASDAQ. So, STRC trades $150 million a day. And that was the eureka moment where we said, if you want to match something like Bitcoin, which has long duration, high volatility, we need to provide to the market a short duration, low volatility product. That's what STRC is. That was phase three.

Starting point is 00:03:54 Learned along the way, a lot of invention along the way. But, you know, Michael said it stretches our iPhone moment. It's paying out today is trading at like ninety nine spot seven zero. Strive has done something with their SADA product. This is the future. This is the future for people who don't want the volatility of Bitcoin, but they want access to the underlying returns. They buy Stretch. I met somebody out there.

Starting point is 00:04:18 They're buying the product. So constant innovation and Stretch is going to be the big thing. Describe just real quick on this digital credit with Stretch. People will see the yield number. It's much higher than Treasuries, etc. Maybe unpack a little bit of the plumbing in terms of how are you guys paying that yield? And then certain investors buy Bitcoin versus buy Stretch. And how you guys think about maybe the two different cohorts of who are buying these different assets?

Starting point is 00:04:49 Yeah, so those who want to buy Bitcoin, they want, first of all, I'd recommend long duration investors, right? Like if you're buying Bitcoin to get the immediate pump and you want to sell it in two weeks, look, you can be a gambler. you could be a trader, whatever it is you want to be. I wouldn't recommend that. If you want to buy Bitcoin, you have to have long duration, call it four or five years. It's a 40 ARR product that has 40 vol, right? If you want amplified Bitcoin, then you might buy our common MSTR, right? Which is now an 80 ARR, 80 vol or something in that range product. That's cool, right? Like if Bitcoin's not enough for you, you might buy our common equity. Great. If you want something that steps down but gives the return profile of Bitcoin, right? Everybody loves Bitcoin in this room,

Starting point is 00:05:37 I assume, right? But you're not up for that level of AR and vol. Then you buy Stretch. So what is Stretch? You go on to the NASDAQ, you're on a Robinhood or whatever it is, Charles Schwab or Fidelity, and you can buy STRC. It's a perpetual preferred. The way the plumbing works is we pay 11%. Now it's 11.25% cash, monthly returns, tax deferred if you never sell the underlying, right? It's 5x over collateralized by Bitcoin. There's no product out there like that, right? What's the equivalent if you want something paying income on a monthly basis, dividends on a monthly basis? Well, you can buy a money market. You might want to dabble in corporate bonds, long duration treasuries, but you're talking about 3%, 4%, 5%. There's nothing

Starting point is 00:06:25 like that. You want to get up to like 11% returns. You buy a preferred for a Greek bank. You might get 11% returns, but it's not 5x over collateralized. How do we pay the dividend? We pay the dividend by issuing MSTR equity at a premium to net asset value, which is accretive to our common shareholders. You're like, well, you do that already to buy Bitcoin. Yes, that's true. But if we do that to pay dividends on a product that has a billion dollars and we pay 10% dividends, actually more accretive to everybody. That's how we create amplification. I know it it's a little finance-y, wonky, but this is Bitcoin Investor Week. You're all investors. It's good that you understand the underlying product you're buying. But there's nothing

Starting point is 00:07:09 like that out there. Really, there's nothing. And when we IPO'd this last year's stretch, it was $2.5 billion, largest IPO of the year at that point in time. And we went through, Morgan Stanley was the lead left. They distributed $250 million of this to their wealth management channel. Morgan Stanley is the largest warehouse wealth manager in terms of assets of anybody out there. So it's a legitimate, exciting product. David, I think that your career is very simultaneous to Bitcoin, right? If you think that first time you and I met, you had the Bitcoin conference, and you and I probably looked alike. We both had on t-shirts,

Starting point is 00:07:52 we were running around having a blast. Now we're sitting up here with suits and ties on. And I think Bitcoin is kind of graduated or grown up through the last, you know, 10, 15 years. Talk a little bit about, you know, you, I think, really have a great pulse on the hardcore Bitcoiner that has been coming to the Bitcoin conference year after year after year. you today have a public company as well and so there's kind of this uh some would say paradox i would say you know complementary component of there are still those hardcore bitcoiners that are there that maybe not even like the wall street stuff right but obviously there are plenty of people who work inside of these organizations whether it's me you fong etc go and talk to these funds and it's like i always tell a story i got on a call one time on a zoom call and the analyst had a Bitcoin, you know, Zoom background. I was like, I got it. So talk about maybe, you know,

Starting point is 00:08:44 Bitcoin's kind of graduation to the stage that it's at today and how you've kind of navigated this as an entrepreneur. You know, it's interesting. It's changed a lot. And, you know, even in the past couple of years, the new investors that are coming in are primarily coming in through the TradFi system and rails. And they know a lot less about Bitcoin, the technology the network etc which that there is i do have a little bit of concern maybe about how successful uh wall street has been at taking those flows and kind of uh putting it in its own box uh you know for me i i agree with you i mean it's it is a little bit of a juxtaposition from you know uh 2012 down with the banks to running a public company you know when i've when i've

Starting point is 00:09:35 looked back over time, though, like the underlying driving passion of the entrepreneurs that were building Bitcoin was about making Bitcoin real. And, you know, there was no reality where making Bitcoin real meant that companies and corporations wouldn't own Bitcoin. Like if Bitcoin is going to become real, all parts of the economy, all economic actors have to be brought into the ecosystem into the Bitcoin financial system. And so, you know, Nakamoto, ProCap, it's really about taking Bitcoin to the market and kind of forcing the TradFi world to acknowledge and embrace and trade with or against or whatever. It's just like, you cannot like us, but you can't really ignore us. And, you know, Bitcoin just keeps leveling up through that that process. So right

Starting point is 00:10:31 now, it's public companies, but maybe four years from now, we'll be launching our own countries and, you know, competing on that scale. So, yeah. Fong, one of the things that people have been very interested in is monetary policy, just in the economy in general. I do think that there has been a connection between monetary policy and Bitcoin over the years. But I do think it is a little weird right now, We're cutting rates into high GDP growth, stocks hitting all-time highs, Bitcoin going down. How much do you guys pay attention to maybe what a macro investor would be paying attention to versus from the outside, people are just like, they're crazy. They just buy Bitcoin every week.

Starting point is 00:11:09 They don't give a shit what's going on with their policy. You know, what's cool about Bitcoin is it converges old strategy, microstrategy, which is a software company, and new strategy, which is much more interested in Bitcoin as a long term store of value. And Bitcoin has this sort of it plays two roles. It's a long term store of value, which is very impacted by monetary policy. And in the short term, it trades like a speculative tech stock, right, which MicroStrategy has been in the past. So, you know, when you see software companies go down, Bitcoin goes down. When you see expansionary monetary policy, maybe Bitcoin goes up. All that said, we don't sit around and stare at economic indicators.

Starting point is 00:12:00 we stare at ratios that determine if we issue equity or we issues uh preferreds like is it accretive that's it that's basically what we look at and like every second of every day we're staring at that but uh you know it's it's like a whirlwind trying to figure out what our government let alone all the other governments around the world are doing on monetary policy so no we were like that's long term short term it's really just about how our stock trades versus how bitcoin trades the maybe trillion dollar question when would you guys sell the bitcoin if ever we're not selling our bitcoin um we i thought you were gonna say that we we've stated that there are circumstances you know if bitcoin trades down to eight thousand bucks uh for five

Starting point is 00:12:54 years straight we might need to sell our bitcoin but i don't think anyone thinks you know people ask this question i was on fox news yesterday mike was on cnbc this morning and they're they're all like what happens if bitcoin goes down 90 for five years and they like when they interview tim cook they're what happens if apple stock goes down 90 and sits there for five years they never ask that question so i find it there's still a lot of people out there antagonistic and they want to know, what's the situation in which you'll sell Bitcoin? It's like, what's the situation that Apple is going to sell to Google, right? Who asked that question, right? Not that I mind you asking that question because you're well-educated, but that is the question people ask. Today's episode

Starting point is 00:13:38 is brought to you by Bitcoin IRA. Are you a crypto investor with a retirement account, but don't have any crypto in that retirement account? Then listen up. This message is for you. Bitcoin IRA is revolutionizing the way Americans save for retirement. They're helping smart investors diversify their savings with access to over 80 cryptocurrencies with world-class customer service military-grade encryption and a vertically integrated licensed trust company it's no wonder more than 200 000 americans trust bitcoin ira to secure their financial future getting started is quick and easy it takes just three minutes to open an account once you're set up their team of ira specialists will reach out to guide you through every step of the process whether you're transferring

Starting point is 00:14:16 an IRA from Legacy Bank, rolling over an old 401k, or starting fresh with new contribution, the Bitcoin IRA team is here to help you access real crypto in your retirement account. And here's the best part. As a Pomp podcast listener, you can earn up to $1,000 in rewards. All you have to do is add funds to your account. Search for Bitcoin IRA in the App Store or visit bitcoinira.com slash Pomp, and you can join 200,000 Americans on their journey to upgrade their retirement. That's BitcoinIRA.com to upgrade your retirement today. Solana or XRP in layers as it reclaims all-time highs? If so, ArchPublic is built for you. Are you worried about doing it alone? No problem. ArchPublic provides everyone, yes, everyone,

Starting point is 00:15:26 with hands-on, dedicated support from their concierge team to help implement the strategy that you choose. As a preferred trading partner of Coinbase, Kraken, Robinhood, and Gemini, ArchPublic offers a proven track record of security and performance so that you can trade with confidence. Sign up today at archpublic.com and start your automated trading strategy for free. No catch, no hidden fees, just smarter trading. Your crypto, your exchange, your profits, ArchPublic. Go to archpublic.com and tell them I sent you. David, you had a very big hand in orange pilling President Trump and I think a lot of the administration. It is pretty interesting that it is not just one person i think almost every cabinet member at some point disclosed

Starting point is 00:16:12 either they liked bitcoin they owned bitcoin etc talk about you know that process and the importance of the administration being so supportive of uh of bitcoin well first off i would say going back to the question about um you know how has the industry changed over time it's like uh we we hate politicians we hate we hate the political system that's the whole point of bitcoin is disrupted and here we are you know deal making with um political parties you know i think it's the same answer of of the drumbeat of bitcoin becoming real all political parties will eventually have to integrate bitcoin into it in the same way that being the party that stands against the internet is just not a viable position like if you have the position where the

Starting point is 00:16:59 anti-internet party you're not going to get elected and so over time all the parties will embrace Bitcoin in their own way and integrate it into their platform. You know, one of the things that's really surprised me through this process is really, maybe it shouldn't have, but how influential specifically President Trump is and United States policy as a whole is on the world. And, you know, when the president first embraced Bitcoin and, you know, we host conferences, we have one coming up in Vegas, which by the way, all of y'all should go to if you're not planning to go to it subtle subtle shill but we what an entrepreneur we host a conference in hong kong we host one in abu dhabi we host one in amsterdam and so i actually get a nice flavor of

Starting point is 00:17:46 perspectives from around the global community and you know i kind of thought maybe when trump got on the bitcoin train it'd be like a flash and then it would kind of fade out but as i've talked to people it's actually it's like it's building a slow momentum like the gears of policy you know just move slower. And so I would say there's actually more excitement about Trump and what he's going to do now when I go internationally than there was even a year ago. I think, though, one thing we can't get carried away with, and I am deeply loyal to the president for everything he's done for our industry, for everything he's done for Ross Ulbrich, for a lot of causes that he's championed for us that's the first politician that's ever you know championed our our worldview

Starting point is 00:18:32 but at the end of the day you know liking bitcoin is not enough like people i keep reading this commentary like oh well you know all the regulatory barriers have been swept away you know there's nothing preventing uh bitcoin from you know uh reaching a million dollars of bitcoin well just because you like bitcoin doesn't mean that you've invested the political capital necessary for things to happen and so you know we're sitting here a year later the strategic bitcoin reserve was signed into an executive order you know last i've checked we still don't even know how much bitcoin we have exactly and so unless you're willing to bring to bear the political capital necessary to mobilize the all the different gears of government necessary to move the ball

Starting point is 00:19:17 forward then at the end of the day it's like you can like bitcoin you cannot like bitcoin you're going to get the same outcome achieved. So I think the Trump administration was a very important first step. But, you know, there is so much further for us to go and not just in talk, but in actual delivery and substance. And so I'm bullish, I think, on what we can accomplish in this administration. But if we really want the progress to continue, we need more people to own Bitcoin every year. We need more voters to own Bitcoin every year. And then it's just an inevitability whether it's four years from now or 10 years from now or 20 years from now we will get to the point where we actually have a government that is conducive to the rules we need for bitcoin

Starting point is 00:20:00 to be successful and bitcoin let me pause there bitcoin will be successful with or without the government so it's not like that we need the government to cater to us for bitcoin to be successful the government's realizing it's in their own best interest to work with us and so that's really what we want is a is a willing dance partner on the other side to make rational sound policy decisions that's in the United States' strategic interest. Fong, you guys are the pioneer of this, you know, put Bitcoin on the balance sheet. There's a lot of people who followed. Good or bad, and I think maybe what is unique is that I see you, Michael, many other people at Strategy continue to be supporters and even to a degree

Starting point is 00:20:41 bring awareness to a lot of these other folks. Why do you guys do that? I think a lot of people would say, hey, they're competition, and you could easily just ignore them and try to go and take the whole market? I think it's very early for Bitcoin. And I'm not talking about strategy or Bitcoin treasury companies. I'm meeting with friends, family, and telling everybody you can about Bitcoin. I know you guys are too. So I'll start with that. It's still very much an education process that needs to occur. The great thing I love about Bitcoin, the ethos is Bitcoin, is it's not like you have more coins than I do, therefore you won. Or, you know, my enemy has Bitcoin, therefore I shouldn't. It's an everybody wins ethos. Everybody helps, everybody educates.

Starting point is 00:21:33 It's, you know, back to the technology world. Technology works best when it's open source. a good financial strategy works best when it's open source so the more bitcoin treasury companies the better and you guys are leading bitcoin treasury companies thank you very much but we're getting our ass kicked to be honest pop it's been it's been ugly well i was gonna ask you what what does it feel like well you know first off it sucks you know to be down a lot of money fong's like yeah we don't have that problem yeah no so one thing you said there is no micro strategy competitor like all of the other treasury companies that exist there are so many um strengths that strategy has that you can't fully appreciate or recognize until you're in a similar chair and

Starting point is 00:22:22 you're trying to make the same decision and you're like oh wait we can't make that decision because we don't have that strength or lever that strategy has you know they have a fantastic cap table they have a very liquid stock. They have a lot of optionality that I think is really unique to MicroStrategy. And I wish we could do what MicroStrategy could do. In terms of how is it having a stock that's down 75% from our pipe price? I was hoping we would be making $50 million a day when we launched the stock, not losing $50 million a day. So it's painful. But at the same time, And I've been here before four or five times. I mean, I've been in Bitcoin since 2012.

Starting point is 00:23:05 I've been through five Bitcoin winters. As painful as this process is, it's nothing compared to what we've lived through before in the past. It's like, oh, we're upset about a 30% drawdown or 40% drawdown in the price of Bitcoin. Back in the day, we used to have 50% drawdowns in the price of Bitcoin in six hours. Okay? it's like a whole nother world of crazy. So the key thing is, is survival. The key thing is, you know, the, the, a bear market for a treasury company like ours can always get worse. And so you always have to have the mindset that you're playing a long game. And, you know, to Fong's

Starting point is 00:23:47 point, Bitcoin is very early. Bitcoin is going to be incredibly successful. The key thing is to make sure that you're there when bitcoin is successful and you're not in the tombstone uh and you're not around to see the dividends of the fruit of what we've planted and so you know i i think uh for us we have to chart a different way than strategy did you know congratulations by i saw the news today you closed the deal how painful is that process i do not recommend doing a related party yeah yeah it's not fun we're gonna interview pump now yeah i know i do feel like i'm getting grilled at the moment well no you know it's funny too because sailor will always say like emanate hell you know you don't want to do that and it's like he's not wrong he's not wrong that's

Starting point is 00:24:33 again it's it's so many times i find myself well i question actually fong you ever seen on the internet people say the worst words in tech or bellagio was right i feel like in bitcoin you You know, Michael was right gets said a lot. Do you say that a lot internally? Michael and I have our fair share of one-sided debates. You know, what I would say, though, the thing is, look, I've been a public company officer for 10 years, 11 years. Mike's been a public company board member and CEO since 1998. And you guys are wading into the world of being public companies, or you're now deep in the world of being a public company. It's a responsibility to your shareholders that we have entrenched in us collectively of 40 years of experience.

Starting point is 00:25:25 and you know for those out there who are shareholders of strategy who own mstr any are preferreds it's it's it's a hard job when you have five million folks out there who own your shares in some way shape or form and it's a responsibility and so it's in in that way it's a lot different than owning bitcoin running a public company uh and mike and i do not take it lightly we talk every day about the capital markets decisions we're making once in the morning, once at the end of the day to recap, mostly one side of conversations. But it's a big deal. And for those who are becoming Bitcoin treasury companies or are, I wish you all the success. And it's a lot of, it takes some fortitude, even more so than owning Bitcoin does.

Starting point is 00:26:21 And I think, like, there's the capital formation piece of this, which I think there's really no company in the world better than MicroStrategy at. There's the capital allocation piece of this and balance sheet strategy, which, you know, there's a lot of things that if you listen to all the podcasts, like, oh, okay, that makes sense, like durability or, you know, there's certain attributes you may want in your balance sheet. But until you're actually holding a balance sheet of that size, you really actually don't spend very much time thinking about what attributes do I want in my balance sheet. And so there's a lot of appreciation that you have for certain elements that you only get once you're in the battlefield and you're like living the experience. And then I think one thing that's a little bit different and how companies are going to have to find their own way is like we're going to have an operating business. We're in the process of completing a merger with the company I've been building the past 13 years, BTC Inc., which owns the conferences and Bitcoin Magazine and UTXO, which is our asset manager.

Starting point is 00:27:23 And so that's going to be something a little bit different about our company. And like, you don't have an AI company. So each of these treasury companies, they're going to be put in a position, if they don't have the inherent strengths that strategy has, how can they create value and differentiate themselves so that they have a compelling thesis for why you should buy that stock and not just put everything into strategy, which frankly, putting everything into strategy is a pretty damn good plan. So I think that story is playing out. There's a lot of capital that's gone into DATS, which I hate the term DATS, but whatever. There's a lot of capital that's gone into DATS.

Starting point is 00:28:03 I think half those companies are going to disappear over the next 18 months. There's going to be a lot of consolidation that's going to occur. And then I think the other half that sticks around, they're going to have to do more than just sit on a pile of coins. And so I think you're going to see a lot of operating companies get acquired, I think, you know, not just in Bitcoin, but throughout the crypto landscape. And we're going to see which models work. And I think one thing that our industry has always been very good at is copying good ideas. And so, you know, if people start doing differentiated things that are successful, people will quickly follow behind and you know the the stretch has been incredibly successful

Starting point is 00:28:42 um you know you've seen sata i know there are many treasury companies that are very interested in doing their own preferred if they can get to the scale i mean is that something that y'all talked about i'm sure no no we'll take a different path okay well there you go different path i like it i'm not smarter than these guys so i'll let them those capital market calls twice a day i'm uh i'm good they're uh they're gonna out beat me every day sometimes you gotta know what what games to play and what games exactly right exactly so um anyway i don't even remember the original question but um it's all right i'm getting yelled at but we gotta go but uh i appreciate both of you guys uh coming up here uh fong i'll leave you the last word uh what's kind

Starting point is 00:29:25 of your word to the bitcoiners during a bear market uh if you're not if you don't have the stomach for the bear market of bitcoin then i would not suggest you buy bitcoin you should buy stretch right and and and if we're going to show products here right like buy the product that has bitcoin behind it that's that's not volatile and gives you 11 that's why we created that product incredible all right thank you guys

The Pomp Podcast - The Future of Bitcoin Treasury Companies | Phong Le & David Bailey

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.