What Bitcoin Did - Is MSTR a Ponzi? | Lyn Alden & Andy Constan

Episode Date: August 11, 2025

Lyn Alden and Andy Constan go deep on Bitcoin treasury companies like Strategy, debating whether they’re outright Ponzi schemes or legitimate vehicles for leveraged Bitcoin exposure. We dig into how these companies actually generate returns, why premiums to NAV exist, and the conditions that could cause the model to unravel. Lyn lays out her cautiously bullish case for well-run treasuries, while Andy argues the structure depends on new capital in ways that can’t last forever. In this episode: - What makes a Bitcoin treasury company different from an ETF - Why premiums to NAV exist - How Strategy’s capital structure works - Whether treasury companies can generate income without selling Bitcoin - The “Ponzi-adjacent” problem THANKS TO OUR SPONSORS: IREN RIVER ANCHORWATCH BLOCKWARE LEDN BITKEY Follow: Danny Knowles: https://x.com/\_DannyKnowles or https://primal.net/danny Lyn Alden: https://x.com/LynAldenContact Andy Constan: https://x.com/dampedspring

If the company doesn't necessarily liquidate, but they have permanently impaired, their preferred holders and the common equity holders, that that would be a failure mode. How do you manage the risk so they don't have a very large blowup, especially among the larger ones in the market? How does a Bitcoin strategy company create income, not capital gains? They are marketing to investors as recruits. incurring earnings that deserve a multiple. That is fraudulent. There is no hope of paying the preferred dividends without new proceeds from issuance. And that's a Ponzi scheme. That's it. There's no way, two ways about it. Do you wish you could access cash without selling your Bitcoin? Well, Leder makes that possible. Ledner the global leader in Bitcoin Back lending, and since 2018,

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You've not been on the show before, though. Do you want to start by just introducing yourself, tell everyone a bit about you and your background? Sure. I've been in traditional finance for 39 years, starting my career at Solomon Brothers, which was one of the big investment banks, where I ran a where ultimately when I left, I ran a global equity derivatives business and have been a derivatives trader all my life. Then ran my own hedge fund for a number of years. Then worked at Bridgewater Associates as a senior analyst there. And then as a, the chief of strategy of macro strategy for Brevin Howard for a number of years.

And for the last five years, I've been servicing hedge funds with my own research product in which I focus on macro. Okay. So you've had a long career in sort of traditional finance. We're obviously going to talk about strategy and treasury companies today. And we probably get into stable coins as well. But before we do all that, what is your take on Bitcoin? I think it would be good for both me and the audience to know that ahead of this conversation. Sure. I am a strong believer that a portfolio requires diversification against debasement of fiat currencies. I really learned that from Bridgewater and the teachings they've had regarding their all-weather portfolio and more broadly, their just general concept of what money is. And they focused, as did I, and as I still do, in gold, as that, monetary asset that protects debasement. And so I'm totally bought in on that idea as a necessary thing for everyone who is saving Fiat to own or whose expenses in the future, future liabilities are in Fiat, needs to own. And so, so that's number one. And as it relates to Bitcoin, gosh, I've been aware of Bitcoin since the, since 2015, probably. And so, so that's number one. And as it relates to Bitcoin, gosh, I've been aware of Bitcoin since 2015, probably maybe even a little earlier and been tracking it and watching it and finding it interesting.

I think I first became aware that, you know, very closely aware in 2017 when it's peaked in the low 18s and been following it ever since. And I would own some. I don't. I would own some for the reasons that I own a significant amount of gold relative to my AUM, and I'd replace gold with it because I consider it to be digital gold. I'm still not comfortable yet, and this is my own problem, but I'm still not comfortable with its correlation to risky growth assets like stocks, NASDAQ in particular. and what I consider some measure of speculative excesses. And so I don't own any. I tried to bid 84,000 for some and then passed as it came to my bid and then lowered my bid down and just haven't participated.

But it's a completely valid idea. Okay. Well, I think the audience will probably be glad to know that you've not completely dismissed Bitcoin as an idea. And the treasury companies are obviously an entire other beast on top. of that. So, Lynn, why don't we get into the debate you two had on Twitter? So this all came about after your comments on an investor call with strategy. Do you want to kind of just lay the context out and explain what happened there? Sure. So I've been covering strategy since they started their Bitcoin accumulation treasury strategy in August 2020. I've also been long since then. It's been a

small part of my analysis compared to everything else I do. So I focus a lot more on Bitcoin broadly than I do on strategy, micro strategy, as well as broader equities in macro, as many people know. And over time, the thesis has changed a little bit. I mean, we kind of see the evolution of it over time. So first I was like, okay, it makes sense. There's finally a stock that will own some Bitcoin. So in certain types of portfolios, you can access that. Then they began levering it, which I found interesting.

As they kind of did, I think they're either second or their third tranche of leverage. I was like maybe it's getting a little bit too levered for, I'm a pretty conservative investor. But then they started issuing equity because they had a pretty high MNAV at the time. And I was like, okay, this is actually derisking it to some extent. They're adding more on their equity side. And I increase this all that they're navigating this while. Also, I think the executive team has been strong. And so my thesis throughout the 2022 bear market was that they would get through it.

they did. And since then, we've kind of seen them shift more from convertibles toward preferred. I continue to be long. For people that follow my research service, I tend to trim the exposure when it hits kind of euphoric levels, like particularly high MNAVs and everyone on Twitter X talking about it. But I've still stayed with a position to let the house money ride. And I think broadly, Treasury companies make some degree of sense because if you have an appreciating asset, and Pierre Richard wrote about this back in 2014, the idea of a speculative attack. And Bitcoin was tiny back then.

And he kind of pointed that as it gets bigger, it's inevitable that we'll see some pools of capital find ways wherever they can to short fee of currency and be long Bitcoin. I think the thing about treasury companies is they can do it with better types of leverage than most other pools of capital have access to, which is interesting and gives them an edge. And I think that by the end of the cycle, we probably will see some treasury companies fail. I think there will be low-quality ones that get over their skis. So anytime you link leverage with something, you're increasing the risk. I do think the highest quality ones are valid. And this particular discussion happened. So I went on a strategy's earnings call as one of their analysts.

And I actually asked the barest question of the group, which is basically asking about stress testing during the next bear market. Like what kind of bear market are they kind of modeling or thinking about as they design their capital structure? And they provided their answers. And then also, I generally agreed to that their new preferred, which they're pretty excited about, is, I think it's hitting a sweet spot that the market wants. So I expected to be successful. And in one of my two threads, Andy and I went back a little bit and forth a little bit

because I'm generally in the cautiously optimistic camp around these strategy strategies. Depends on the specific company in question and the quality of the management team and everything else. Whereas he, understandably has a more critical view, which I think is healthy. I'm certainly critical in some aspects of some of these businesses.

And that was kind of the genesis, I think, of this conversation. Okay, so maybe before we get into Sailor's response to the question you asked on that investor call in, Andy, you can just lay out your kind of overarching thesis on these. Yeah, I think what's important is that while I tweeted a few things back in the bare market in the late 2020, 2022, 2023 regarding the NAV premium, I really only became pretty active in thinking about Master when my, my, my, micro strategy when it hit when it went above 500 in late November 24, 24, 23, 24. And at the time, it was real, so I've spent my entire career doing arbitrage. And in particular, capital structure arbitrage in which I understand what the asset is and understand how its liabilities are pricing that asset. And so MNAV, which is the market value of the Bitcoin compared to the enterprise value of the company, is a important thing for arbitrage.

We're not talking about book value like for most companies. We're talking about the market value of the assets is excessive relative to the market value, the market value of the liabilities is excessive relative to the market value of the assets. So that made me want to short. Now, I don't trade personally or professionally at the stage in single names. So, but the idea was the MNAV was extreme. And that's really been my bias ever since. The questions that I continue to have, well, the basic premise is that, yes, I agree with Lynn, there are some corporate advantages. There are also some disadvantages, particularly around tax, but significant advantages for issuance, if you're a corporation, to hold Bitcoin,

compared to an ETF. And an ETF should trade, does trade, at zero, well, at NAV. And so I consider micro strategy to be a slightly advantaged capital structure with a worst tax structure that should trade potentially at a premium to NAV and can lever. Now, you can lever your bit, uh, ETF as well. So that's been my big framework. One other important thing, though, is I think it's very clear that the idea. prior to Bitcoin futures and prior to ETFs that you could buy Bitcoin in a stock was a genius idea and made complete sense that it should trade at a premium because no one, you can't buy it. There were people that literally couldn't buy Bitcoin.

So the whole run-up of micro strategy to its $500 price peak to me made some sense, as people didn't have other alternatives. Now that there's a liquid futures and ETF market, I see no value in the NAV. And so my big question that I hope can get answered is how does a Bitcoin strategy company create income, not capital gains, but income on their assets? Because income is earnings. Capital gain is just a change in the nav. And if it were to be the case that I could understand how Master can create earnings out of its Bitcoin holdings that are excessive, that are worth a premium, then I could see some sense regarding the idea of a multiple to NAV. Okay. Well, I mean, Lynn, we should probably just throw that question straight over to you. What would you say to that?

Well, I would say that unlike an ETF, Micah Strategy and other Treasury companies that are operated well tend to increase. their Bitcoin per share through these strategies, through this kind of debt and equity issue and strategy. And so you're paying a premium over the Bitcoin they have, but then you're also expecting this per share Bitcoin to increase. Now, there's different ratios that analysts have come to use, basically trying to figure out how much of an MNAV to apply based on forward, you know, how much they expect Bitcoin increase per share. I've actually raised the concern that the problem with that is it's recursive because the higher their MNAV is, the more, the faster they can increase their Bitcoin per share. And so that flywheel is really good on the

way up, but can also just unravel very quickly when sentiment changes. It's different than, say, evaluating a company based on cash flows from operating a pipeline business or something. And so while there's merit in that analysis, it's a new form of analysis and it's inherently just challenging. My general view has been that I don't know what the right MNFNFs. nav is. It certainly depends on the company. For example, Metaplanet is smaller, is in a jurisdiction where there's a really big tax arbitrage, which is different than the United States, so that they're actually tax advantage there. And they started from a smaller base. So they've, they've had very high MNAV and have grown very quickly. It's come down more recently. So I think

that MNAV is somewhat context dependent, partially based on how much you expect them to build a kind of arbitrage to this. Generally, speaking, as they get bigger, we should expect the MNAV to gradually compress because trees don't grow to the sky. Now, they can continue growing. It's just that after a while that MNAV generally starts to compress. That's so far what we've seen in the market. But I do think that an MNAV above one makes sense when you can attach this longer duration debt to Bitcoin and therefore get through periods of cyclicality, at least if managed well and conservatively, compared to the way that the head funds lever, the way that retail investors might lever. And so I think it's worthy of a

premium. I would like to see eventually more cash flow generating businesses have Bitcoin on the balance sheet. The kind of history of the space, so Microtrategie did the approach, they actually then ran a number of conferences called Bitcoin for corporations trying to get other corporations to do it. We saw Tesla dabble in it. Block got in to some extent. We didn't really see a lot of other companies with existing operations decide to add Bitcoin. Instead, in this cycle, we've seen a number of companies that kind of spun up to do the strategy, as well as increasingly around the margins, some existing companies do it. So I think there is a bigger market for companies that just use Bitcoin as a treasury asset while also having separate cash flows. But then clearly there's there has been

demand for five years now, and I think ongoing, for a levered, kind of pure play Bitcoin entity. And then I think the main question to ask are how do you value that? I generally err toward conservative. And two, how do you manage the risk so you don't have a very large blowup, especially among the larger ones in the market? So, Lynn, you started this by saying that you're not necessarily bullish on all treasury companies and you think that some will fall by the wayside. Do you think the companies that are essentially zombie companies that are doing a Bitcoin treasury play are going to be unsustainable going forward? And what we need is, real companies with real business models adopting Bitcoin?

So there are somewhat different types of zombie companies. In some ways, the perfect candidate to do this is one that's like a value stock, this cash flow positive, but doesn't really have any growth prospects to add Bitcoin. That's really interesting. And we haven't really seen a lot of that. Truly zombie companies that have like no cash flows, that's a much harder sell. Generally speaking so far, we've seen that the market certainly does not like unprofitable companies, companies that are losing money to adopt a strategy because they view that

as a distraction and a risk versus their kind of Bitcoin approach. So I certainly think it makes sense for companies to at least have your profitability like neutral. And I think there is a market for ones with cash flows. They don't have to necessarily have growing cash flows. And really at that point, Bitcoin competes with other uses of capital like buying back shares, paying dividends, paying down debt, they can employ that as one of their potential strategies for what to do with their excess earnings over what they require for reinvestment. Yeah, that makes sense. Okay, Andy, sorry, I interrupted that.

Did Lynn's answer clear anything up for you? No, not at all. Unfortunately, the question I asked was, what, why have, besides the appreciation, which, listen, anybody corporate, levered, unlevered, anybody who, who wants to speculate on an appreciation of a thing can part with their cash and buy that thing. But assets throw off income, particularly corporate assets. Every company decides how to spend its cash. And Michael Saylor's, you know, I guess all these companies would have been better off using

their cash to buy Bitcoin. Well, some bought their shares, and that was a pretty good return on investment. for Microsoft, for instance, who Michael tried to convince to do a Bitcoin treasury. I don't get why someone would choose to use their cash to buy an asset, given all the assets they have in Bitcoin. So that's one. And then secondly, if they were to use it as an asset, besides its appreciation, I've heard no good reason for all. owning it. And one other point that I want to come back on, Lynn mentioned the flywheel of, hey, part of the reason why you have a NAV premium is because you can continue to harvest

more Bitcoin by selling more assets. When you're doing ATM stock sales, listen, I think that's genius. And absolutely, you should do exactly what Michael Saylor is doing. Because it's genius. If you can buy $2 of Bitcoin for $1, or more relevantly, buy $1 of Bitcoin by selling $2 of value in your shares, you should do that all day long. And Michael Seller is doing it all day long. He's harvesting the MNAV. The problem is the investors are the suckers in that case.

And when I use that word, people say, well, I own my own. master since 10 or 20 or 30 or 60 or whatever and it's 400 now I win. No, you haven't performed for months since the peak. That whole MNAV expansion is by and large over. So I don't see anything more than new holders of the common stock generating returns for the old holders of the common stock, which is a Ponzi scheme. Is that not the reason that he's brought in these preferreds, though, to try and help the common stock? Right. And I think it's interesting, the preferreds. And the preferreds are legitimate investments. I happen to think there's some hair on them in some ways, in particular the STRC, in terms of its ongoing use of, which I think

everyone's very excited about. But the preferreds are essentially, the ones that are not convertible are essentially leverage. And the company's not particularly leveraged. I don't actually have any problem with them levering up their Bitcoin, but it doesn't mean that there should be an MNF. It just means they're going to, the capital, they're going to use dollars over here, STRC dollars, and buy Bitcoin over here. Their assets and liabilities are going to be identical. And if the market goes up, they win. If the market goes down, they lose. But you can do that with Ibit. One last point. Lynn mentioned term leverage. There's a deep market for long-term ETF calls now. Go and buy a 20%, an 80% in the money call for two years, and you get all the leverage that Master

has without paying the MNAV premium. Lind, I want to get onto or deeper into, if strategy is upon the scheme. But before we do that, do you have anything to respond to there? Sure. I mean, there's a number of points. One of the earliest ones was why Bitcoin, why buy Bitcoin with cash? Historically, the answer is because it's the best performing thing you could buy with your cash pretty much. And then the thesis going forward is that it's going to continue to be either the best or one of the best things you can do with your cash, especially that it's not a security. So there's with U.S. stocks, there's kind of a limit on how much securities you can have in your asset mix doesn't apply to Bitcoin, which is a digital commodity.

And so the combination of high expected returns based on those who, generally speaking, those at strategy and those who invest in strategy are bullish on Bitcoin. So I certainly wouldn't recommend a Bitcoin Treasury strategy holding for those who just aren't particularly high conviction long-term bulls in the asset. I think there's a valid reason to have high expected returns on Bitcoin based on historical returns? Not just on historical returns. I mean, I employ a number of analysis methods to determine what I expect Bitcoin to do.

I still think that the total adjustable market of what Bitcoin can address is much larger than the current size. So in my expectation over the next five, 10 years, I do expect Bitcoin to still have high returns. Now, not the returns that when you go from a billion dollar asset. asset to a trillion dollar asset. But I certainly think it can 5x and 10x from here and we'll see how the numbers shake out in the years ahead. And it's also the risk situation is different than before. So when Bitcoin was tiny, it didn't even have the liquidity for like a corporation to buy

it. It didn't have the regulatory clarity in many cases either. And so now that the tax treatment of it has improved, regulatory clarity is improved, and it's a big and liquid enough asset, the expected forward returns are not as explosively high by most analysis methods than they used to be, but the probability of beating your... The question I have really isn't whether you're a bullish Bitcoin. I like Bitcoin. I can understand the bulk case. I like gold. That's why I own it. The question is, you could say that about a number of things that have done very, very well in the past and have valid forward-looking returns.

The question is, why should corporations be doing that for their shareholders? Under what the corporation has, by the way, you're great at it, Michael Saylor's great at it, lots of other people are great at it, but what is the competitive advantage for an operating company, not an ETF, not a treasury company, but an operating company, but an operating company? company? Where's their competitive edge that allows them to, that their shareholders would say, yeah, I get why you are buying Bitcoin versus anybody else, or for that matter, I can do it on my own. So why are you doing it for me? Like, where's the edge? I think the main thing is that Bitcoin is the first asset that can actually compete with equities long term in returns. And so prior to this,

when corporations had excess capital, they generally decapital. They generally decapital. themselves. They would give it back to shareholders. They would pay it in dividends. They would pay it in buybacks. They would sometimes make acquisitions for the sake of acquisitions because they don't don't want to do with the money. That's often a criticism that especially some tech companies tend to do. And, you know, one of the downsides is that that makes the company more vulnerable in the future if they don't have something good to save with. Kind of like how households want to save for unplanned things in the future. Generally speaking, corporations want to save for unplanned things in the future. And there's just not been a great vehicle for that. Even gold, because it gold over the long

arc of time underperforms high quality equities. It's hard to justify holding a lot of it on your balance sheet longer term if you're a company that's trying to be in the top third of the S&P 500 returns or something like that. But I think you're saying the same thing. I think you're saying that you think Bitcoin is going up. I'm saying a different thing. I'm saying a different thing. I'm saying, thing, which is why should I trust a company that manufacturers, creates software, does whatever it does as a business, to have the expertise that you do? Well, I think in many cases, you shouldn't. And when companies adopt the strategy, many of them don't get very high MNAVs because

the market says, well, here are you, right? So they look at strategy and they say, well, these people have been doing it for years now. They look at, say, meta planet and they know the people running that. I mean, I know the people running that and they think that, okay, I'll trust those people to manage this well. So it's certainly a company by company basis. And there's a, and some of these companies have hired Bitcoin analysts, Bitcoin experts in various capacities to help them do the strategy. And then the market assesses, do they think they have the right people on board to help that company the strategy? But basically the answer is, one, in the near term, there's an arbitrage.

The market likes it. But two, longer term, as Bitcoin, kind of grows and becomes less volatile, but still has the absolute scarcity aspect to it, which is desirable. It's one of the few assets that I think there's a reasonable case that can be made that it is able to keep up with equities over a pretty long span of time, if not outperform equities. And therefore, if a company doesn't want to fully decapitalize itself, it doesn't want to say, okay, we're going to take all of our excess capital above what we need for working capital and give it back to shareholders. We want to plan, you know, for a pandemic,

lockdown or a big new competitor comes from our market, we need to make major CAPEX to change or pivot our business. They want to have something that they can hold for five, 10 years as part of their asset mix. And I think Bitcoin brings that in a way that other assets haven't. I hear all that. And I guess I just don't understand why a shareholder would want a corporation to do that for them when they can do it for themselves. This episode is brought to you by the massive legends, Iron, the largest NASDAQ listed Bitcoin miner using 100% renewable energy. Iron are not just powering the Bitcoin network.

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That is anchorwatch.com. Well, the funny thing about this, Andy, is I think the argument you're putting forward is a very Bitcoin or argument. So like treasury companies are definitely not greatly received by everyone in Bitcoin. There's a lot of people that do say we should just buy and hold our in Bitcoin because that's the point of this thing. And like you two are definitely on the right curve of the bell curve and I'm on the left. But like if I, if you had to say why would you trust them and what's the benefit that you get from the treasury companies? I think obviously two different questions. And why would you trust them? I think is very valid. But what they're, what they're sort of, the reason they can potentially outperform you just

buying Bitcoin, I assume, is just the access to capital markets. Is that right, then? Partially to the access to capital markets. Yeah, that they, they can do certain types of leverage that others can't, especially those that don't want to make one year or, you know, 18 month bets on the price, but just want to say, okay, this company plans on doing this for the foreseeable future. And they want to maintain conservative leverage ratios in debt that's not, really callable during a bare market, as long as they don't get liquidated in some capacity, they're unable to make coupon payments or something. And so I'm going to let them do it, is how many pools of capital do. Now, I'm with you that I, you know, I don't think anyone

should say, okay, sell your Bitcoin and go buy a Bitcoin treasury company. I think that there's one, there's larger pools of capital that just variety of reasons can't own Bitcoin. Sometimes they can't even own the Bitcoin ETFs. And so they can go out and buy companies or either their equity or their bonds, they give them some degree of Bitcoin price exposure if, say, a fund manager happens to be bullish on Bitcoin. There's now a capacity to do that. And then, two, if you're that company themselves and you're not, you know, you do any other business, it's not Bitcoin, could be software, could be, you know, gasoline pipeline business, whatever the case may be. And you say, well, you know, we're decapitalizing our.

ourselves. We're giving back cash to shareholders, which makes sense. But if you want to have something that we want to hold, say, 20% of our retained earnings in something longer term for unexpected events or to grow over time, that's certainly one of the things that they can do. In Micist Strategy's case, and they've actually talked about this, when they were a software company, they had, you know, flatish income. They were no longer a growth company. It's a very competitive market. A lot of their competitors had gone out of business. They were up against, you know, really, really big conglomerates at that point. And they generally found that nothing they did was enticing to the market. So buying back shares didn't excite the market, holding a lot of cash, didn't excite the

market. And they've even talked about how they would eventually start losing executives that go want to work at things where, that there's bigger and more scale. And so by becoming a larger company, partially through their treasury strategy, they were able to keep and retain really good executives. So sometimes decapitalizing yourself is the answer because it's kind of a decision that the investor will make better use of that cash than the company will. And that's certainly better than a company holding it and then misusing the cash. But there's also an argument to be made for putting some of it into something that can appreciate long term and give the company survivability through problematic events, as well as to become larger over time, which then

potentially down the road could result in larger acquisitions than they could do without having done the strategy. And then investors might say, well, I like the underlying business. And I like the fact that I'm bullish on Bitcoin. I like the fact that they're holding Bitcoin. I'm not going to say, let them manage Bitcoin for me. I'm also going to hold Bitcoin. But if I'm looking at the universe of stocks I can own, that's an interesting strategy because they can employ in some cases a little bit of leverage or not. They have cash flows or not. And they're doing something with their Bitcoin that can allow that company to, you know, thrive through multiple cycles. Yeah, I guess I'm wondering.

So before Bitcoin existed, I think it is pretty interesting that over the last set of decades, corporations have accumulated lots of cash that one could call savings, like rainy day savings, versus just regular operating cash that they need to manage to pursue their business, particularly the tech companies who've generated such cash flow. But in no case have any of these companies thought of their cash as an appreciating asset. And they've had lots of alternative assets to buy. I just don't, I think they think, and maybe I'm completely wrong, and this is this world is now going to change.

I think they think that that cash is literally a rainy day asset and shouldn't take risk. Because God forbid, Bitcoin fall. They take risk. They buy Bitcoin. And Bitcoin falls at the same time their business weakens. That's a pretty disastrous outcome for them. So I think they think about cash in a very different way than I think you're saying. which is they don't, they're not looking, they consider it a rainy day asset.

They're not considering it an earning asset. And so they keep some. Now, most companies, most operating companies, don't keep a lot of cash because they don't have a lot of cash. So I guess my question is, so let's break it down also. Firstly, there's the is a treasury, Bitcoin treasury company that is 98% Bitcoin treasury, an ETF that deserves a nav. And secondly, is there demand for Bitcoin for companies that have nothing to do with this type of activity that are just looking at Bitcoin as a asset? And I just want to make sure we're talking about the same thing.

So the second thing, these companies don't invest their cash at risk. I'm not sure why they would. And more relevantly, and I've said this before, they are good at it. They aren't good at betting on Bitcoin. Should they hire people when you yourself as a shareholder can just buy it yourselves? Only if it's true that you really can't as an individual buy Bitcoin, would you ever give company ABC money to buy Bitcoin on your behalf, even if they're able to lever it. Now, on the other side, you've got this Treasury company that trades at a premium, to nav.

What should that nav be? Should it be two and a half X where Michael Saylor is happy to sell as much as he wants, or closer to one? Or like many closed end equity funds, trains at a discount to nav? I'm not sure, but I think two is high and one is probably about fair.

So a couple different questions there. I generally think that it depends on the company, right, but for a mature one, the scale of something like strategy, I generally prefer the sub to MNAV. I think above one is still the right answer for these companies, because I think, I guess my thesis is probably earlier than you think

in terms of how much capital can access Bitcoin comfortably versus, you know, what these companies are making available. And so I still think that there's a runway ahead. You know, one of the tweets I did a while ago was I pointed out that like even if strategies MNAV compressed all the way to one, it still would have like been a major outperformance over the past five years for those that owned it because basically they accumulated so much Bitcoin per share that even after the MNAV compresses, they've done well. Yeah, I think that's a great point. And it and all the late investors would have experienced terrible returns in that period of time.

Yeah, that's why I wouldn't recommend. All the early investors who paid low prices and low and low NAV are obviously going to do well when the NAV has increased, even if they lose some of the premium they may have paid. But the people, like the people who gave Kathy Wood all her money at the top, they get destroyed. And that's who I'm trying to protect in my tweets. the late investor at high MNAVs. Only that person, nobody else. I'm not bullish or bearish on Bitcoin. I've explained myself.

I like Bitcoin. I just don't happen to own it yet. But I'm trying to protect the people who pay high MNAVs for Bitcoin treasury companies and in particular master. I think that's valid. And it's like I'm right there with you when it's hitting like 3x nav and it's all everyone's talking about. that's literally like for for my research that's when I'm selling uh and now the funny thing though for context like my first trim of like a strategy was back during the peak in 2021 now that was a really good uh sell for like two years um but then ironically those whoever bought that from me if they just held until now they actually did very well um yeah that's the problem and i think it's right selling anything in a bull market

It's super hard. You sell it and then you don't get back in. That's the problem with general market timing ideas and this one in particular. I completely agree. In a bull market, well, in any market, market timing is just extremely difficult. And once you're out, getting back in is even harder. But I'm saying a four, so a four year period, right? So for example, with micro strategy in particular, I did sell it.

I trimmed it in 2021, added more in 2022. So that was traded well. But the funny thing is if someone literally, if we were talking about protecting investors in 2021, it seemed dumb for someone to come in and buy micro strategy at the peak MNAV in 2021. And for like two years, it did look really dumb for whoever bought that if they just held it. But ironically, after three, four years, they actually are still, they're actually doing a, it's a really good investment for them to have bought at the peak in 2021 at high MNN. have. So my point of saying this is that we don't necessarily know how long this arbitrage can

exist for, for basically those who bought in, quote, late to be bagholders, because 2021 looked late for a lot of people, but then as we discussed this in 2025, that was actually not late. So then the question is in, what would you if they, if they had, well, anyway, I think what you have to do when you do that analysis, and I'm sure you have, but when you do that analysis, you have to then say that the sales were also done by, that you had to buy Bitcoin and you had to buy it on a levered basis and compare those returns. But listen, I have, that's certainly a possibility. What I think the point being is that here we are, what would you say going forward? And what I'm hearing is very bullish outlook for Bitcoin, which I totally get.

And some conservatism in terms of whether an MNAV is sustainable long term for the biggest investors, sorry, for the biggest companies like Master, and opportunistic when you are going to sell MNAV at high and assuming you're then going to buy the Bitcoin and buy Bitcoin. and then do that swap back into Master when the MNAV is low. That's a totally sensible strategy. I could completely agree on all those ideas. So I think Micahistrate is aware that there are different type of investors, and that's why they're offering so many different things

because there are those that want exposure with less risk. There are those who do want to make all these bets, and they can benefit for the fact that micstrategia is very liquid and volatile, so it's a really good kind of trading vehicle. For those, my answer to that is I would generally recommend caution for those buying in at high MNAVs. Now, what a high MNAV is will depend on the company and the market. So, for example, a high MNAV for Metaplanet. It's a little bit different than a high MNAV for strategy.

Like I tweeted out back when MNAPlanet had like a six MNAF. I was like, I like the company, like people running it wouldn't personally buy it at like six MNAF. It's since compressed. It might, you know, we could be at this conversation a year from now. Maybe it's high again. I don't know. So for risk management purposes, I would generally recommend people avoid high MNAVs. I wouldn't necessarily claim to know what band of MNAV makes sense with the caveat that

generally speaking, the bigger and mature and more mature that market is, you generally should expect gradually reduction in MNAV. I still think we're at the phase of the market where one is not the right answer either. I think something in the one and a half range makes sense. It could be between 1.2 and 1.8. I don't really have a super specific view because I think there's a lot of unknowns still ahead of us. I generally view above two is where I'm increasingly disinterested, at least in U.S.-based treasury companies. I think that's a totally reasonable thing.

And for one, I don't even look at these other Bitcoin treasury companies at all. Though I'm starting to pay attention to the ether one, Ethereum one, ether. I don't even know the name of these things. But as it relates to Master, I don't know if it's 1.2. I don't know if it's 1.5. At 1.2, I think there's going to be an interesting dynamic on whether people think it'll go to 1 or below. So, you know, all that stuff is really, really hard. I guess what I still don't quite get, and this is the thing that I'm really struggling with.

What's the end game as it relates to making money on your asset? Is there a business case in which you can generate profits, not appreciation, profits by having a large stake in Bitcoin that non-corporations can't do? Partially. So one of the methods, and it's not really at scale yet, and I don't think it will be in the next five years, but it is being done, is, for example, you can use Bitcoin. on the Lightning Network while retaining custody of it to facilitate payments. Basically, you provide liquidity. There's a whole technical thing we can go into about how it works. But for example, one of the companies that's doing it is Block Inc. They have some Bitcoin and they also are active in the Lightning development space. And they talked about this at the Vegas Bitcoin Conference. They're generating pretty high ROI in Bitcoin terms with Bitcoin. Now,

the scale's not there yet, because Lightning as a payment network is still small in the macro sense. It's, you know, it does billions in volumes, but it's still small in the macro sense. And specifically the percentage you get from moving around those billions are, you know, small. But if we talk about a future where Bitcoin is quite big and lightning and similar things are quite big, that is a potential future income source. You know, right now it's generally not, does not really demand for, you know, borrowing Bitcoin in many cases other than through financial arbitrage, should Bitcoin become bigger, more used as money? There could be lending aspects of it that get

interesting. But right now, firmly, it's more about the appreciation, the idea that Fiat's going to keep debasing, Bitcoin's going to go up, and that's how the, you know, the companies work. Which is why I like Bitcoin, but I still don't, can't get comfortable buying a corporation that's supposed to earn money with my money. I'd rather buy the physical Bitcoin or an ETF. Yeah, makes sense. I think the yield on lightning is going to be an interesting one. Because like you say, Lynn, Block came out,

and I think they said they were generating about 9%. They're kind of in a silo where they can set the fees themselves, which make it hard to know what the exact figure will be. Because I think River have also published a report, which said they get something like 1.5%. And they run a very large lightning node. So who knows what the actual figure will be? and I do think we're going to see some Bitcoin Treasury companies come out and try and do that as a way of generating profit.

But one thing I do want to go back to, Andy, because we started this conversation with you claim that strategy was a Ponzi scheme. Like that kind of came from Lynn's question, which we've not actually got into, which was how does strategy perform in a bear market? And in the investor call, Lynn, Michael said that if it dropped 80%, he thinks they're fine, 90%, they may have to pause some dividends. Andy, can you just lay out what you mean precisely when it comes to it being a Ponzi scheme? Yeah, it's a very simple thing, which is a Ponzi scheme is a situation where past investors are paid money, paid return, from proceeds of new investors' money. And that's all it really is. And so what I'm referring to isn't the NAV. The NAV isn't a Ponzi scheme.

A ETF isn't a Ponzi scheme. You take the money from investors. You go buy the asset. All good. No Ponzi. What is a Ponzi is when you have interest that you're paying and have no income to cover that interest. literally no income.

That's why I also asked, when's the income coming from? That's not appreciation. So there is no hope. Again, this is why I said, what's the future income of the Treasury Company? There is no hope of paying the preferred dividends without new proceeds from issuance. And that's a Ponzi scheme. That's it. There's no way, two ways about it.

So, Lynn, I'm curious on your take on this because there's a, Andy, just for your context, there's a great Bitcoin analyst called Checkmate, James Check. He's a good friend of mine. I think he does really good analysis on this. And he calls these treasury companies kind of Ponzi adjacent. I'd like to know your take on it, Lynn. That's exactly what I'm saying. There's the ETF and then there's the no income paying out interest with no hope of future income.

Yes, I think there's two levers of this. on that first lever, it is true that they're paying out existing, you know, coupons and dividends with the expectation and ongoing issuance of new capital. That part is true. And that, if you define a Ponzi scheme as just that, that's correct. Now, for example, if you look at the SEC's website for like red flags of a Ponzi scheme, and I, and the reason I was familiar with this resource is because when I, years ago, I wrote an article for why Bitcoin is not a Ponzi scheme, which is different that a Bitcoin Treasury company. That it isn't.

And people, but yeah, people would say it is. So I kind of did research and I pointed out, you know, for example, the Pondy Scheme red flags, according to the SEC are high returns with little or no risk, overly consistent returns, unregistered investments, unlicensed sellers, secretive complex strategies, issues with paperwork, difficulty receiving payments. And that's, so generally speaking, there's, when you think of the word Ponzi scheme, usually it comes to something to give obfuscation, secrecy, fraudulent assumptions with it. And that's the part I would say, of course, there's not any of that here.

So I disagree with that. I think you look at Strategies' most recent marketing document where they talk about their PE and where they talk about their earnings relative to everyone else. That is deceptive. Completely 100% fraudulent. just because it has recently become gap to consider earnings as appreciation of Bitcoin treasury assets as earnings doesn't mean when you say, hey, I am the biggest earner in the, whatever, the top whatever earner in the S&P 500, that that is not a fraudulent statement because if the market falls, they will be the biggest loser in that quarter in history. And they are marketing it as this one-off mark to market.

They are marketing to investors as recurring earnings that deserve a multiple. That is fraudulent. Well, I would say I'm not sure I would call it fraudulent, but I don't agree with the charts that show their PE comparison either. It's their company. How can you not say to them, hey, you're committing fraud here by marketing your shares as having a recurring earnings? Well, I think recurring, it depends on what time frame you're looking at. They expect probably have a lot.

They're comparing it to the biggest companies on earth that have decades of recurring earnings. Which is why I agree the comparison is not valid. I wouldn't go far to say fraudulent. It's not valid. How can they do it? Well, so I'm trying to, so basically, when I look at, say, a highly cyclical company, a company that has periods of earnings and periods of losses, any investor would generally assign a lower PE multiple to a company like that for a correct reason. If there's a company like a mag seven tech stock or even a really big mega cap like Costco, if you look at the PE of what people put on Costco, I think it's excessive. But clearly there's there's an argument that investors use when, you know, there's a premium that investors pay for smooth growth.

earnings. They pay a much higher multiple for that correctly. And so when someone makes the argument that, you know, based on current gap earnings, microch strategy has a PE of like five or something, and they say, well, our competitors of 20, we should also have 20. I generally would say, right along with you, that I don't view that as an accurate comparison because you're comparing a highly cyclical expectation of gap earnings and losses, even if Bitcoin does continue to appreciate, but at a bumpy pace, versus a very smooth expectation. Now, fraudulent, I mean, it is gap earnings. It is, they're following a certain accounting standard.

So I personally wouldn't use that term. But ideally would say that I wouldn't, that's not how, certainly not how I would evaluate the company. I would instead look at other metrics that I used to evaluate the company. Let me ask you a question on that then. Why is micro strategy doing that? Why is the company putting out slides like this? Why are they doing it?

Well, one to keep mind, that was one slide out of a. 100 slides, but why are they doing it? You'd have to ask them. I mean, they are, any companies trying to put their best foot forward and say, you know, this is why you should own our company. You know, all sorts of different companies do it.

That's their approach. That's, that's not the slide I agree with. I think they had many good slides in their deck. That's, you know, maybe one of a couple slides I, you know, I wouldn't make, certainly wouldn't make the argument for. Okay, fair enough. I think it's, I think it will so let me just say this.

there are no Ponzi schemes that fail, sorry, that don't fail. Ponzi schemes fail, and that's when they become known as Ponzi schemes. Bernie Madoff was never a Ponzi scheme until he failed. And so it's possible that Bitcoin rallies forever. It's possible that there's never a down case where, and they continue to create recurring earnings. And in that case, micro strategy will never be declared a Ponzi scheme. Well, there certainly will be down periods in Bitcoin. I think even Bitcoin Bowls, any rational one would say that this.

My point is that as long as that, and this is why the adjacent part is the key bit, Bitcoin Master will never be a Ponzi scheme as long as the ETF continues to appreciate. The Bitcoin underlying asset continues to appreciate, whether it's bouncy or not. sort of irrelevant. It'll be a Ponzi scheme when they no longer have access to financial markets to compensate their preferred shareholders, their coupon shareholders, and they can, they must sell Bitcoin to do that. That will take the MNAV to negative. That'll create a Ponzi-like environment when they can't fund. They can't get that next sucker to buy the preferred because there's no income. Or it will never be a Ponzi scheme if they find a way to actually turn this asset into an

earning asset, which is why I keep coming back to that question. So I think it's very clear that in no Ponzi scheme history, has anyone ever said, see, it's a Ponzi scheme. They suspect it might be a Ponzi scheme, but in the backward-looking history, first it has to fail. And then, let me tell you something, fraud will be the least of sailors' problems. That slide will live in infamy. But it never happened. Andy, help me understand. Because let's say in the absolute worst case scenario, Bitcoin drops 90%, Michael has to pause dividends on the preferreds. Like, what makes it a Ponzi scheme at that point. What makes it a Ponzi screen if the equity goes to zero? That would be one. But by the way, but assuming that all he has to do is pause dividends, he doesn't have to sell any

Bitcoin, then the likelihood of the equity going to zero is almost zero. Is that not right? Well, I mean, unless he has fixed, so you can't bankrupt, unless you have a fixed obligation, he does have some converts, but they're mostly small. That's not the downside case I'm worrying about, to be honest. I've never been worried about the downside case. I've been worried about the downside case. I've worried about he no longer has access to issuance at what he deemed satisfactory levels of issuance and thus he can't pay the preferred shareholders. They experience a significant drawdown. The common shareholders experience a significant drawdown that takes MNAV below one. Remember, they always have the Bitcoin. That's why the term adjacent, which I agree completely,

is the essential one. There's the ETF, which is not a Ponzi scheme. There is the preferred issuance, which is creating dividend income necessary, that requires further issuance. That's the Ponzi scheme bit. That's it. Only that bit. And when that can't work, when that issuance to pay dividends can't work, what the

consequence to the various investor classes, that's hard to tell. But my basic assumption would be when they cannot finance any longer, they will either have to sell Bitcoin to pay their dividends or their MNAV will drop below one and their preferred shareholders will get washed out, meaning capital losses, not they can hold them for as long as they want. But let me tell you something. A preferred that's never going to pay its dividend ever again trades very cheap, like practically zero. At the start of this call, Andy, you were saying you used to work in capital structure arbitrage. Is that where if you saw these dividends get paused, then someone like you would step in and short the common stock? Oh, if dividends get paused, the first thing

that happens is the common stock goes down because there's an expectation that the common stock will be used to fund the dividends, or much more importantly. Preferreds are a small class of investors, much more importantly, to fund debt payments. But yes, the first thing one does when a preferred dividend gets cut is short the stock. Okay, Lynn, sorry, I cut you off then. Well, I was going to hop into largely agree with Andy with some caveats. And so, for example, that's why on the earnings call, I didn't just ask about Bitcoin falling. I specifically brought up the topic of capital access because you, I mean, you can have a stagnant sideways market.

you know, Bitcoin could fall 50% and just go sideways for three years and then MNAV just compresses and then it's like, well, you know, what happens there? And you start to run into challenges. Now, in the prior cycle, they primarily relied on converts, which gave them the advantage that on a quarterly basis, they had very little obligation because they were either zero or near zero coupon. And the view was, as long as Bitcoin doesn't go like five years in a bare market, they're probably not going to have an issue converting or refinancing these. Now, preferreds are interesting because it's more of a bend and not break model, which is they have higher quarterly obligations, but those obligations are less immediately catastrophic should

they fail to meet those obligations. And now what that opens them to, and this is where I agree with Andy, the failure mechanism is then pretty known, which is that if MNAV compresses, regardless of what Bitcoin price action is doing, if it just, compresses and obviously the deeper the bear market and Bitcoin, the worst this whole thing gets compared to your dollar-denominated liabilities. You start shutting off dividends. There's one preferred where you don't even get back dividends, like they're junior ones. The senior ones where you do get paid back dividend, it's still based on the assumption that eventually Bitcoin and MNAV will both recover and the company will be able to issue more equity

to back fund those dividends. The longer that doesn't happen, equity investors should start pricing in a negative MNAV, or below one MNAV, I should say, because they say, well, okay, here's how much Bitcoin they have, here's how much debt they have, but then also they have this accumulating liability for preferreds once any of this comes back online, if it does. And so they can start pricing that. And if you dig yourself in deep enough of a whole, the probability that they're going to recover diminishes. And people can bet on the probabilities and there will be, you know, so, but the point is, I would consider a failure mode to be that if the company doesn't necessarily liquidate,

but they have permanently impaired their preferred holders and the common equity holders, that that would be a failure mode. That 100% agree with every word, Lynn just said. It can happen with Bitcoin at any price. Yeah, and so as an analyst, that's something I focus on. That's why I brought it up on the earnings call.

People are generally, we're in a bull market, but I'm like, let's ask the bear market question. And I agree with you. And I think that the main thesis here, the main question, and this is why I'm also pretty conservative on MNAVs and I'm willing to pay for treasury companies, given any individual context, is they have a mechanism to effectively short fee it and get more Bitcoin. The fair MNAV is debatable. There's market participants actively debating on what that answer is.

And the higher the market assigns it, the more Bitcoin yield these companies can get. Now, I expect that over the long argument. of time, MNAVs will compress close to one when these become, if you become a trillion dollar company, you know, it compresses very significantly, I think, over the long arc of time in a cyclical sense. So in a bull market, it's high, in a bear market, it's, I mean, micro-ageage has already gone down to a very low M-NAV in the prior bear market. So I think we can see one and then also see high again. But I think the cycles will, will compress closer to one. Then the question is, is that, is that two years from now? Is that five

years from now, is that 10 years from now? Is that 15 or 20 years from now? And how much Bitcoin yield will they have accumulated by that time? And what will the capital structure look like when that starts to occur in a more persistent sense? Again, not in like a one-year bear market or two-year bear market scenario that they might be prepared for, but just longer term, when the MNAV is kind of permanently drained. Now, a lot of people thought that when the ETS came out, that would permanently drain their MNAV. And this whole discussion around Euphoria and high MNAVs occurred after that, ironically. So the market has shown so far an inability to determine when their MNAV is going to kind of persistently go away. And so we'll see. And that's,

the answer is I don't know, but that's why I prefer to be conservative with my, where I'm willing to enter within MNAV, where I'm willing to trim my existing holdings, if I perceive the MNAV is getting too high. Okay, that makes sense. So maybe just to close out on this section, because I do want to talk to you about stable coins as well, because I think you've got an interesting take on those, Andy. But before we close out the Treasury companies and strategy in particular, if you had to put kind of a percentage chance on them failing in the next decade, where would you put that? Because, I mean, personally for me, it would seem like low single figures. Bitcoin, sorry, master failing in the way Lynn described a washed down, a significant

marked down in the preferred shares and a MNAV below one in the next 10 years, I think it's 50%. Wow. Lim, where would you put that? I think the next 10 years, there's a pretty high chance we enter that state in a bare market. Then the question is, do we get out of that state? I expect that we would. So I think it's a, in the next 10 years, I would assign as certainly a sub-fifty. percent chance that we that that that's the ended discussion of where my

strategy ends up. But much like much like they were in in the 22 bear market, I think there's a chance that will be it will find them somewhat impaired at some point in 10 years. I could be wrong. I think there's a decent chance. The idea that it happens permanently, I would sign probably less than a quarter. Yeah, I don't know about permanently. I mean, guy, you know, survive 2000.

So can he survive another one? I guess. I don't think so. I don't think you'd come out of that spiral because things tend to be like that. You have these manias, not to say that microstrategy is a mania and certainly not to say Bitcoin is a mania. But you had these strategies where a certain type of strategy works for a while, then it never comes back once it fails. And SPACs are like that, but hey, SPACs are coming back too. So maybe possible. I'd love to talk a little bit about stablecoin. Yeah, why don't you kick us off, Andy? Because I've spoken to Lynn about this in the past a number of times, and we were messaging before we did this show. And I think you've got a really interesting take. So you start us off with what you think stable coins are, what kind of addressable market there is for them. Right. So I want to be very limited because mostly I don't know shit.

I want to be limited to one kind of stable coin that I'm not even sure actually exists at this very moment, which is a genius act compliant, fully backed stablecoin. The reason why I want to keep that in the frame is because they can only own, for one, they are illegal, it's illegal for them to pay interest. And two, they can only own what I consider money, meaning treasury bills, bank reserves, and repo. and all government-backed versions of those things. And so let's start with that. Then the way I break it down is there's three things I care about,

which is, and again, I don't know shit. I'm just trying to figure out the world. One is what I think people call payment rails, which are how we in our lives, both domestically and across-border sense. Most of us spend our lives within borders. Buy and sell stuff. You know, it's not, credit cards are the front of a bank account.

Stripe and PayPal are the front of a credit card. Checking accounts are literally bank accounts. ACH, bank wires, all of these things. are ways in which we move deposits from our bank to somebody else's deposits. And those are what, and I guess Venmo and Zell are more platforms than they are, they do some of those things. It's a transfer of deposits from one person to another. And so I think there's, in the U.S., by and large, I think it works pretty well, you know,

I don't hear a lot of complaints about the timing or speed or cost of transacting between bank accounts. Wires are anachronistic and are really the only way to do large transactions. And those are too damn expensive. So maybe there's something there. But pretty much all those other things work just fine. Could there be a better solution like stable coins? Yes, if it. eliminates the entire bank checking account part of the world.

So that's one thing. The next thing is, okay, in that world where you have people transacting, employers paying people in a stable coin, employed getting stable coin, and then using it to transact for their daily usage. let's say that world exists. What is the balance of money that will be held in stable coin just for transactions? Because I think we all probably keep a little bit of money in our checking account just because, even though it pays absolutely zero interest. So that's another thing.

And then the third thing is stable coins as a long-term vehicle for saving U.S. dollars. And that's my framework. And so when I think about all those things, I say, I don't know, but it sounds like there is a very good use case, particularly outside of the U.S. for a new payment rail in U.S. dollars. Two, if there is a new payment rail, there's going to be a little bit of money that people keep on their phone. Instead of keeping in their checking account on their phone, they'll keep it in stable cones on their phone. and that'll pay no interest and create excess demand for T-bills. And then lastly, as a savings vehicle, I don't get it. I mean, as a savings vehicle within the U.S., I totally agree, it's the rest of the world

where that becomes more interesting. But, Lynn, I'll let you respond to that. So, I mean, Andy and I are pretty aligned, I think, on stable coins. I might be a one or two degrees shifted a little bit more toward maybe the bull camp of them. You know, if I've been on record since 2021, that I think Bitcoin, stable coin market caps, going to grow dramatically it has. I still think it's going to go grow dramatically. But I generally agree that a lot of the percentage of it won't be fully new demand for dollars and T-bills. A lot of it will come out of existing usage of dollars. And for example, even like the Treasury

Secretary tweeted out the 3.7 trillion figure for, you know, new stable coin and therefore like T-bill expectations from some report. If you actually dig into that report. So that was Citibank, Citigroup, one of their research divisions. Their analysis was by 2030, they had a bare base and bull case for what the world of stable coins could look like. Their base case was 1.6 trillion in stable coins. Their bull case was 3.7. That was the one that the secretary was citing. But if you look at either any of those cases, let's say the 1.6 one, their base case, they actually broke down where they expect that to come from. And some of it was from American bank deposits.

Some of it was foreign already dollar denominated bank deposits. Some of it was from physical bank notes. Some of it was some money markets. There are these various kind of pools that, you know, could move into stable coins. With only some of that being fresh new demand for people that, you know, hold, Egyptian pounds and want dollars and find this and that they might have not otherwise do it physically. I know people that actually do that, but let's say there's some people that because of the friction is involved, don't do that. And stable coins might make them easier. And you just apply

that to any country you want to talk about, that it will create some new demand. The other caveat is that it's not the same as a dollar, and as Andy would agree, it's a payment mechanism as well. So, for example, I know Egyptians that buy physical dollars purely as savings, not for like 10-year savings, but like one-year savings. For longer-term savings, they like gold in real estate and things like that. So liquid intermediate term savings, there's a pretty big market for that in developed countries. They can do that with physical dollars. Stable coins in some capacities make it easier to get to them, which, and Andy's pointed this out, can lower the gray market premiums. $4 that you find in many markets.

I would also argue it could create new demand for dollars because the demand side could be adjusted based on those frictions diminishing. They say, well, I used to have to pay this much for a dollar. I used to have to go some sketchy place and make these connections. And now I can just do it on my phone. So maybe now I actually want more dollars than I did before when my only option was physical or like a local bank I don't trust. So I think that can increase demand.

And then also I think one of the things, doesn't get discussed enough as small businesses around the world. So there are 40 plus currencies in Africa. There are 30 plus currencies in Latin America, some dozens in Southeast Asia. I don't know the number offhand. And imagine if in the United States, like every state had its own currency. So your customers have different currencies. Your people lending you money might have different currencies. You're trying to figure out how to save some of your currencies. You find that, you know, state X has better currency. then state Y and you're in Y, but you want to hold state X currency for your liquid savings.

So it can be a mess. That's the case in a lot of the world. And so I think there's a business case where a lot of these businesses will want to hold some stable coin balance that's pretty substantial that bank notes are not solving for them, that local banks are not solving for them. And so I think there's a stable coin demand for that. So the way I would kind of phrase it is that when people ask macro questions, you know, will this dramatically extend?

dollar dominance, my view is generally no. It's not a non-variable, but it's not as though it structurally changes my thesis around it. It's just like one variable among many that there's now certain new avenues to own dollars and therefore T-bill exposure in a way that wasn't before. So it's not zero, but it's not something I kind of reorient my world around. Now, if I put like my venture cap on, you know, you would have capital, we do Bitcoin-related venture, some of those, especially in developed world, will also have stablecoin usage in their products and services that they're building. So I think there are multiple billion dollar opportunities out there for companies to make use of stable coins. I think the remittance market is still

silly in terms of the prices and the frictions involved and the speed and the opakness of that. I think that can be resolved. I don't think the U.S. even though we're the place of dollars, I don't think we're the key market for stable coins. I think the rest of the world is. is or certain parts of the world. And I think that it's just as part of the ongoing digitization of money. So when you think of some of the potential use case of stable coins, I think thinking of them just as a dollar equivalent is maybe not quite the full picture in the sense that instead of just being a physical dollar, you're actually getting a dollar bank account.

So if you're in a country like Egypt and you want to save dollars, instead of putting $20 bills under the mattress, you actually can have almost like a US dollar bank account. And then the second point to that is, do you not see like this as kind of a de facto dollarization for any of these countries? Like if you're in Egypt, why would you hold any Egyptian pounds if you could hold the dollar? Do you not think that could be the kind of bull case for stable coins? Well, I think the, I think the, well, let me, let me explain what I think is, so all those things may be true. It's the, the issue is that it requires certain things that people don't understand, I think. regarding the physical plumbing of how dollars circulate through the world.

So there are two types of dollars, basically. There's coinage and bills, physical currency, and there's electronic dollars. And as you said, currency and bills are in mattresses, in wallets, in vaults, wherever they are. That's where they are. and there's 1.2 trillion of them floating around outside of the United States. So that's one thing. And then there's all this electronic bills, dollars.

And electronic dollars take really only two forms, bank deposits or securities. And bank deposit and money markets are really just a pass-through vehicle. You say, well, I have my money, my cash in a money market. No, you don't. The cash in the money market holds repo and treasury bills. It doesn't hold physical dollars. It holds repo and treasury bills. So when somebody wants a dollar, they can only get one in two ways. They can convince somebody else that, well, there's only one way they can do it. They can convince somebody else to sell it to them. And so you have to ask yourself, okay, this Egyptian wants a dollar in his stable coin wallet.

He's going to have to get a dollar to deposit with the minter. Where is he going to get that dollar from? And he might get a physical dollar, physical dollar bill, and that'll get brought into the system. Or he might get somebody to sell their T bill or monetize their money market fund. Only in that way to dollar, or he might get a bank to create money out of thin air by lending it to him. That's the only way money can move, and all of them fund what Lynn was saying regarding the $1.6 to $3.7 trillion of new demand, which, by the way, my own projection is $750 billion of, which is a $750 billion of, which is a, tripling of existing market, stable coin market. So it's going to happen. But the question is,

where does it come from? And does that create, and this is only macro, does that growth create new demand for dollars? It doesn't. It doesn't at all. It's just a transfer from people who have dollars to people who want dollars. And currently, it'll be made a little easier. The only place that new demand for bills comes from, likely demand, is from people taking physical benjamins and converting them into stable coins. That $1.2 trillion and $2.4 trillion globally is the TAM. I may be misunderstanding here a little bit, because like let's say you are in Egypt's and you have Egyptian pounds. I assume you don't need dollars to buy a stable coin. You could take your Egyptian pounds onto an exchange and get a stable coin on an exchange?

No, you can't. Let me say, explain why. Of course you can. If there's somebody who's will in the secondary market, you can get anything you want. But that's not new demand because somebody sold you that stable coin for your Egyptian pounds. That's not new demand. But you cannot get a newly minted stable coin created without physical, without US dollars. this is this is where i think that that nuance really comes into place i don't disagree with anything andy said except for part of the conclusion uh so what stable coins do is they increase the surface area of where these fx these secondary market fx trades can even happen uh so there are certain markets that are that either dollars have trouble getting into or they're very expensive and shady

to get um by making them easier to get there's more surface area where someone could say i have Egyptian pounds or, you know, Indian rupees or Argentine pesos, and I go to secondary market in some capacity, digital, physical, whatever, and I buy stable coins with them. And some, you know, entrepreneur on the street or in the digital world is facilitating that liquidity, that connection. So that increases the surface area of people that could demand dollars and want dollars. Now, they don't sit there and take a dollar and put it into the stable coin. They bid whatever other currency they have for the stable coin proxy of a dollar. And then what that does is that's around the margins, a new bid for dollars that didn't exist before. Partly, that takes away

from the gray market premium that already exists. But if that gray market premium gets small enough and the whole process gets easier, more people might want dollars. Kind of like how the internet existed before the browser, the browser made it easier to use. Therefore, the demand for the internet increased and therefore, you know, there's, you know, more people that wanted it. So kind of like how stable coins can make dollars easier to get. First, they can collapse the gray market demand or gray market premium. Then it potentially can increase the total demand for dollars, because now it's an easier process. And then the mechanism is then stable coins can trade out a slight premium to a dollar, which is where other players come in and they will, you know,

do the process of giving, you know, the stable coin issue or dollars and get stable coins back and that that's how that arbitrage is is done. That's how the peg is maintained. And so it's not necessarily that the demand for the number of dollars increases per se, but the attractiveness of the dollar to pierce into these other markets and take market share from them potentially goes up in a way that I think is non-trivial. And therefore, and it does have some implications for dollar strength. It's not the only variable, but I think it's a new variable to consider that it can take market share from some existing, you know, developing market currencies more easily than it could in a purely physical form.

Right. I don't, listen, I don't disagree that it is that there are a variety of potential places that stable coin disintermediates. Number one is physical dollars, bills, literal bills. Number two is foreign currencies that are really not desired. Now, if they were really not desired, there's already a great incentive for people to get out of them. With friction. With friction is the point. Right. But with friction, agreed, and that friction will be released. So maybe some of that

marginal dollar demand will agree. I don't disagree with you, Len. And then the third one is bank deposits. And bank deposits are vulnerable because people may want to save for whatever term, but that comes at the expense of demand for assets. It's not free. So either it hurts the currency, the supply comes from either the physical dollars or the bank deposits or possibly some foreign currency related problems. which presumably those foreign countries are not going to be happy about. I agree. They won't be. They may act in some way. I don't know how they act, but they may act.

I think there's maybe another piece of this, which is like you started this, Andy, by saying you wanted to talk about the stable coins that are regulated under the Genius Act. I don't think it's out of the question to think maybe a Tether International type company spins off and does stable coins that are purely based outside of the US still backs them with a dollar and does offer like a share of the yield that they're making on those treasuries? Does that change the equation if we see something like that? Well, I think the issue there is leverage. So if people want to take on a levered, trust me exposure for a stable coin,

That allows money, essentially money to be created, which has risk. So I don't really think of it, but I guess there's a potential for growth of non-backed interest-bearing stable coins. But I wonder what the market, how the market isn't currently being served by the existing stable coins. But again, this is outside my expertise. The international ones can still exist to be fully backed. It's just that their source of dollar exposure is either foreign dollar bank accounts or foreign holdings of T-bills that don't touch the U.S. system. And so the downside of them is that if you're operating in the United States,

you probably can't get a recipient to sell you, like send you that international stable coin right to your bank account. In a future world where your bank account can you, even accept, you know, Genius Act stable coins. So you're saying, you're saying it's a, so again, it's a Euro dollar. But you're saying it's a Eurodollar. Yeah, it's digital Eurodollar. I believe that there is, you know, the, again, that's sourcing stablecoin demand,

converting Eurodollar existing supply into stablecoin existing supply. It doesn't change much net. it just gives, as you say, more access, which I think still hits the physical dollar market more than it does and potentially causes banks to struggle because they lose the deposits, right? Yeah. These things have to fund some. These deposits have a purpose right now. And whenever a disruptive technology like this causes bank deposits to, um, shrink, which it will, that will have a tightening impact and less demand for dollars

offset by this easier access to dollars that creates more demand. It's a tricky, it's a tricky plumbing issue. But I think you're right to think, as I said earlier, it's this disemediation, intermediation and temporary you used one year, I was using shorter term. Savings is definitely a demand for dollars. But absent that Benjamin's getting burned and this factor, I don't see it anything that's going to save the U.S. if they need to issue a ton of bills. I agree with you there. I don't think it's going to quote, save the U.S.

I think it's a marginal new variable to consider in macro analysis for the dollar. I don't think it's the biggest variable, but I think it's a new variable. There's open debate around the size of that variable. And any sort of headline variable, any sort of headline number you see around stable coin demand, the thing we would agree on is that not all of that and not even most of that is entirely new, fresh demand, $4 and T-bills from foreign currency. Right. I think the most of it, and I think the most that is whatever that is and whatever the right number is,

Most of that excess demand, which is new demand, is going to come from physical currency. That's the part I'm not sure about because I think that there is, some of that will come from physical currency. But then the question is how much entirely new demand for dollars will be generated if it's easier to do and the spreads are narrower. I'm just saying where does it come from. I'm not saying where the demand comes from. It comes from people that have. Say you're right. and somebody now, because it's easier, wants more dollars.

How do they get them? They bid Egyptian pounds for stable coins. They get the stable coins. They bring the stable coin peg to say a dollar in a cent. So $1.1. And then therefore someone else with access to dollars sends them to that stable coin issuer. Where do they get them? They get them from the U.S. financial system.

Which comes from where? Existing dollars. But the point is. Okay. But it increases the total, yeah, but increases the total demand for dollars, which therefore does affect the exchange rate, potentially of the dollar. It affects exchange rate. Yeah. I agree 100% that the biggest vulnerability to stable coin demand from the rest of the world is on the depreciating force on those currencies.

Can I just see if I'm understanding this, Lynn? Are you saying that it creates new demand for dollars because someone is essentially paying a dollar and a cent for a dollar? Essentially, yeah. I mean, basically, so it's a couple more steps in that. One is around the world, there are people that have local currencies and there's a market often in their countries to get dollars, often physical dollars. And they're willing to sometimes pay a premium just because of the frictions of actually getting a dollar. Now, stable coins can come in and say, instead of literally going to a street corner in the shady part of town and making a, physical trade with a duffel bag, you can do it on your phone or, you know, things like that.

That can reduce the gray market premium. Therefore, increase the overall interest in people in doing this. They might have said, look, I would like to get dollars, but I don't want to go through the hassle of that. So I'm just not going to. But if I can do it on my phone or easier at a cafe on a phone or something, whatever the case may be, then I'll do it. So let's say there's new demand for dollars for similar reasons that they're already

demand, but it's just easier to do now. There's more demand. And the way it works is they go to a, secondary seller, someone who's entrepreneurial in these markets and is acting as the facilitator, and they'll say, well, I'll give you this many Egyptian pounds or this many Argentine bases for a stable coin. And to the extent that stable coins, therefore, temporarily traded a slight premium, then the actual, like, entities that have an agreement with the issuer to give them, you know, wire them or otherwise give them money and get stable coins, we'll do that, because now

there's an arbitrage to do that. And that comes out of the actual. First, you have to convert the currency. Well, the ones that are doing that already have dollars is my point. So someone else in a market is trading their fee of currency for a stable coin. And that's FX markets that are happening around the world. From whom are they getting the secondary seller? And what does the secondary seller have now? He now has their local currency and has given them the stable coin.

Okay. Fine. Now what? Now that stable coin trades at a slight premium, assuming this is happening at scale, compared to some starting baseline. Yep. And therefore, someone who has the ability in an agreement with the stable coin issuer to mint stable coins will say, okay, I'll send you a million dollars.

Well, sorry, let me, let me come back before we do that. I forgot to deal with the important issue. The person who had the stable coin before that now has Egyptian pesos, Egyptian currency, they don't want that. And they have de-dollarized. Sure, but they repeat it. Where's the net demand that you're talking about?

So the net demand is from the M-user. The middleman, they will, for example, buy stable coin to a dollar at $48 per Egyptian pounds, and then they'll sell it at 51 per Egyptian pounds. That's a great market premium. And, you know, it'll just, I just, just walk me through the flow because this is where I really want to understand. Secondary market transaction, guy buys a stable coin, guy sells a stable coin and local currency. Where's the dollar demand?

The dollar demand is from the end user. No, no, no, I'm just talking about that transaction. Well, but the transaction involves the end user. So someone, it's just those two, there are two parties that are involved. Yeah. The person who's trading the fiat currency for the stable coin is where the demand is. And doesn't it net as zero? Assuming that it just happens once.

But then the broker then says, okay, well, there's clearly a demand for what I'm doing. I will go and get more stable coins. Okay. So they pass on the demand to somebody else. They're the middleman. to do. First they, so, so initial buyer comes with an Egyptian pound, gives it to, gets a stable coin from a seller of a stable coin who now has Egyptian pounds. So far I haven't seen any net demand for U.S. dollars. All I've seen, the fact that it was a stable coin is irrelevant. It could have been

chicken. Sure. Let's start with paper dollars and then they move to stable coins. So right now, physical dollars get into Egypt in some way. People literally bring them on a plane. Yeah, in suitcases. Now, if there was no demand for dollars in Egypt, nobody would bother doing that. But there is demand for dollars in Egypt. And there's a certain premium even people are willing to play to get dollars because it's not trivial to do so. And so someone comes in with a duffel bag of $10,000, let's say, whatever the legal limit it is or sometimes illegal, whatever, they come in with a duffel bag. They then make a market. of being a being say, I will, I will give you, you know, if you want dollars and the official

exchange rate is, let's say 50, I'll give them to you for 52. Yep. Should you, should you want to give your dollars back? Because maybe, maybe an Egyptian is holding dollars for a six-month period to save up for a car, right? Maybe now they finally want to buy the car. They actually want to sell their dollars back to the market. The same broker or a friend of the broker might say, okay, I'll buy them from you for

$48, 48 Egyptian pounds. So there's a market for that person making a spread. Now, if let's say currently there's a billion dollar stock of physical U.S. currency in Egypt, that's an arbitrary number. Now, if next year, because of some policy or whatever, there's now $1.2 billion in demand, and there's a shortage, they start bidding up that gray market premium because it's harder to find people that say, yes, I will make this trade. So then someone will fly another duffel bag over there. They'll fly away to get dollars in the U.S. or elsewhere.

Right. Fly it into Egypt and therefore more dollars are in there. They're scarce to somewhere else. Okay. So now we're flying it back. That comes from where? That comes from in... Initially from the Treasury, from the Treasury and issue through the banking system. And so, okay.

So the dollars, in this case, their state, their financial system dollars, we can keep, let's keep using the currency. So a physical bag of dollars goes out. Where did that dollar come from? Those dollars come from. Those dollars came from the Treasury and the U.S. banking system. Right. And so they were in, they were supporting existing banking. Yes.

Right. Yeah. And so if you do that enough, you start. to get a shortage in the U.S. of physical currency. And there is a degree of fungibility between bank reserves and currency. A bank can do it. A person can't. But if enough people go to the bank and say, I want currency and the bank keeps finding themselves not enough currency, then they go to their Fed and say, we need to make this trade. So then there's more domain for currency. It gets out there. And then some of it finds its way in the duffel bags around the world. And that's exactly

the way, so what I think is happening with physical dollars in Egypt, physical bills, is you're going to see the duffel bags going in the other direction. And what you're going to see coming in this direction is stable coins. So partially, but here, I think the additional part of that is, let's say currently there's a billion dollar stock of dollars in Egypt. and if you say, okay, we made the process way easier because it's digital. I think there are some, there are non-zero number of Egyptians that say I didn't bother to get dollars before, even I would have liked them, I just didn't bother. Now I will. We agree.

And so now there's one point, let's say there's 1.5 billion in active demand for dollars in Egypt. And that, you know, stable coins can fill that gap because that's what's... We agree. And I think what happens is it, um, And that whole process just is a currency market event. Yeah, it's currency market. Now, the final thing is where it can actually somewhat affect the supply is the Fed and to some extent that the Congress and the Treasury, when they're determining policies, either fiscal monetary policies that either expand or contract the money supply, they're partially looking at inflation when they do this, at least especially the Fed. around the margins, the stronger the dollar is, the more leeway they have to enact policies

that are growth of credit, either base money, abroad money, or both. And so to the extent around the margins that the dollar is strong, it can actually increase the number of dollars that are out there because the entities that are capable of doing that are more likely to allow that to happen. There might be less demand among voters for the Congress to reduce physical deficits if if the dollar is strong enough that there might be less, you know, the Fed is more conducive to doing things that either QE or lower rates to encourage banks to lend more, whatever the case may be.

Right. So I agree. So that, so you're, I think I'm reaching the point where I see the foreign demand creating currency pressures, debanking pressures, and possibly that which leading to easier monetary policy and thus more dollars. Yes. Yes. I see.

Yeah, that makes sense to me. Yeah. And then the question is, what's the magnitude? That's the question. Right. And the magnitude to me depends on back to the beginning, which is you've got $1.2 trillion of bills. I mean, currency and circulation, I think that's a real town. I think we're going to see a lot of that turn into stable coins.

You've got the ease demand, which we kicked around some numbers. Like, how many people have savings that they can't save in dollars right now? And, you know, we know there are billions of people. So is it a billion people have $1,000 of savings they want to do? Or is it 100,000 million people that have 10,000 savings? It's not $3 billion with $1,000 around that they want to convert into dollars. So it ain't $3 trillion. But it's probably something more than a couple, $100 billion.

I think when you add small businesses, I think you can, I think you can add another trillion. You think they're going to want to, small businesses are really good at sweeping things to things that pay interest. Well, again, in, let's say Africa, small businesses throughout Africa, small businesses throughout Latin America, small businesses throughout. No, but I think that collectively, there's a, like, in the U.S., the value of small businesses collectively is big. And that's generally true for other places as well.

And so I think the combination of consumer demand and small business demand, not just for dollars, but for basically a dollar bank account, effectively, across, cross border. I think that's interesting. I think I haven't done the numbers. I'd be interested in the numbers. And I'd be irresponsible to just sort of rough it out. But we are a significant portion of the global economy. The global economy is a collection of big and small businesses. It seems large to be anywhere in the trillions with this type of excess demand. I think we could hit a trillion. Yeah. Okay. I'm at 7.50. We'll see what the market looks like then. but yeah i'm mindful of time i yeah i think that the key takeaway here andy is that your um your bearish treasury companies your neutral stable coins i think the hardcore bitcoins are going to love you i doubt it but um i really doubt it i really doubt it well you you're relatively bullish bitcoin so there you go um but thank you guys so much for time i really appreciate it andy where do you want to send anyone that wants to check out your work dampspring dot com or um at damp spring on twitter

and I really appreciate it from both of you. This was a pleasure. And I really appreciate the debate. Yeah, enjoyed a lot. Enjoyed the conversation. It's been a lot of fun. Lynn, you close that. Where can people follow you?

I mean, I assume everyone already follows you, but Sheila anyway. People can check out Lindaldon.com or my book, Broken Money. And I appreciate the conversation, both you for hosting it and Andy for bringing up all these interesting points. Perfect. That was a lot of fun. Thank you, guys.