What Bitcoin Did - The Bitcoin Treasury Playbook | Preston Pysh

Episode Date: August 21, 2025

Preston Pysh gives us a masterclass on Bitcoin treasury companies, unpacking the mechanics behind Michael Saylor’s strategy and why it has outperformed Bitcoin since 2020. He explains how preferred stock and convertible debt are being engineered to funnel Bitcoin onto balance sheets, why the unraveling of the fixed-income market is the hidden fuel behind this model, and the risks investors face in treating treasury companies as a proxy for holding Bitcoin. Preston gets into the accounting controversies around MicroStrategy, the looming threat of government nationalisation, and why self-custody Bitcoin is the ultimate safeguard. In this episode: - Why self-custody Bitcoin is important - How preferred stock and convertible debt power treasury growth - The collapse of the 40-year fixed-income bull market - Understanding premiums to NAV and dilution risks - “Ponzi-adjacent” Bitcoin treasuries - Nationalisation and centralisation risks for Bitcoin - Why the STRC issuance may be one of the most brilliant financial products ever designed THANKS TO OUR SPONSORS: IREN RIVER ANCHORWATCH BLOCKWARE LEDN BITKEY Follow: Danny Knowles: https://x.com/\\\_DannyKnowles or https://primal.net/danny Preston Pysh: https://x.com/prestonpysh or https://primal.net/preston

It's hundreds of trillions of dollars that just needs a steady, reliable source of income. There's definitely a Ponzi involved in this. And the Ponzi is the fiat currency. It's going to be very hard for a lot of people to kind of deal with where I think a lot of these numbers are going. Long term, the governments are going to eventually figure out that they're going to have an oh shit moment. They're going to go out and they're going to look for the biggest pool of capital, Bitcoin capital, and they're going to try to rob it. There is nothing better than self-custody Bitcoin. Period. Period. Like, this is the risk. These are the trade-offs. It's the Big Boy Club. Like, if you get it wrong,

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I gave a talk on Treasury Comptus. No, it wasn't at the conference yesterday. Oh, yeah? I think it was at the conference yesterday. Yeah, I got a little emotional yesterday on the stage. Did you? I'm tired of people having an opinion that literally don't know anything about it. Well, you're not going to like this, then.

No, no, no. No, there's a difference in the way that they kind of approach it. I think that is the perfect place to start, though, because I've been skeptical of these things. And people should be skeptical of them. Yeah, and I think, I've said this a thousand times on the show. Like, I separate the idea of, like, a strategy and a meta planet, and I'm sure there'll be others. But, like, a small group of them I can see doing really well. Yes.

What I don't know is what happens to the long tail of these treasury companies. Yeah. And if the idea of just selling equity to buy Bitcoin is interesting anymore, or if we've gone past that. But why don't we start with just... I would stop you right there with that statement. Let's do it. Okay, because you're not just selling equity to buy Bitcoin. You are...

In most cases, you are, especially since they're moving to issuing preferred stock to buy Bitcoin. But you can also do convertible debt, and it's not just diluting common shareholders. There's much more to it than that. Well, is there much more to it to all of these companies, or are you talking specifically about the ones like strategy that are doing? I would say that most of my comments today are oriented to just talking about strategy. And that's kind of, I guess what I was trying to say, and maybe I didn't explain it properly, is that like all the products that strategy are doing on top of it with the prefers and things

like that, which I do want to get into, like, that is interesting. I think the companies that are just trying to copy what Saylor was doing three years ago may be less interesting to the market now. Yeah. I would argue that if you're trying to do what he's doing and you don't have a lot of access via liquidity in the preferred market or the convertible debt market, you literally can't do what he's doing. It's impossible because all you can do is issue more common stock and like you're just

going to deflate the MNAB if that's the only mechanism that you have in in this pump of a transmission that's pushing Bitcoin onto the balance sheet. So, like, if you don't have access to public, and that's another important part, a public market for preferred issuance or convertible debt issuance, you can't do what he's doing. Yeah. And so let's, where's the best place to start? Maybe we'll just start with your take, because then I've got a few questions. I've got a ton of things I want to talk about. Because I would like to, I'd like to think I've been getting this wrong the whole time. Like, that would be great to me. Um, well, well to your point like there's going to be a lot of copycats there's going to be a lot of people

have no clue what they're doing that are that are trying to copy and they're going to get over levered and it's going to be a disaster not only that you have people out there trying to do this with salonah you have people trying to do this with other things so like where i want to start is there is and this is really important and i want to make sure that this clip is out there because this is truly how i feel there is nothing better than something better than something self-custody Bitcoin, period. Period. Okay.

The other thing that I want to say is, is there's a can micro strategy or strategy outperform Bitcoin? The answer is yes. It can. Does it come with more risk than just holding your own keys in Bitcoin? Absolutely. Like, undoubtedly, yes. Okay.

And so if they're doing it in what I would describe as a, a responsible way and probably going to be the best out there executing this strategy, all the others are going to be risk in addition to strategy, potentially. Now, the other ones could do it even safer being over collateralized seven to one instead of five to one or whatever, right? And that would be safer and that would be more investable, I guess you could say. but it would still be of a higher risk than just holding Bitcoin. And my opinion is that Bitcoin today is doing 45% annualized if you're using the power

law or whatever as far as like what you should expect out of your performance if you're holding it long term. So the question that you have to ask yourself is, well, like, why do you have to do better than 45%? Yeah. In my case, and I'll speak about myself personally, I love security analysis. Like, I got into, I was podcasting over 10 years ago about security analysis before we were even covering Bitcoin. And so for me, I've been for a decade just buying Bitcoin because nothing could possibly outperform it.

This is like your two worlds colliding. And it's my two worlds colliding. And finally I can find something out there that can potentially outperform it. And I've taken a position. And I've talked about it publicly since 2020. right? I've taken a position in a company that then has outperform Bitcoin since 2020. And I'm trying to educate people on the very, very early days of security analysis for companies that can outperform Bitcoin. But it comes with more risk if you can even do it.

It's funny because that, I mean, that makes total sense. But one of the interesting things that's happened in the last few weeks is the kind of trad-fi people that are now fading strategy. So you had Jim Chaynor's on your show. Yeah. That was a great show with Pierre. And then just recently, I was telling you just before we recorded, I recorded with Lynn and Andy Constan. So he was an ex-bridgewater guy. He's probably, I don't know, in his late 50s or something like that. And he is very skeptical of strategy. He called it a Pondy scheme. He got quite fired up about it. And he also called out Saylor for being fraudulent in the numbers, not necessarily in misreporting them, but mis-explaining them and putting the Bitcoin gain down

as earnings. Yeah. I have a lot more that I want to make sure that I like say from like a really broad like overview. And then because that's going to get into a very detailed accounting jargon heavy conversation really fast. And I'm not trying to avoid the question. I want to cover that question. But this is this is really important for a person. that's looking at this company strategy or any other treasury company that's trying to do that from the outside, I would argue you have to understand three things, like really, really well in order to truly understand it. The first thing is Bitcoin.

Yep. You know, I know, the audience knows how hard it is to even understand Bitcoin. Like you go have a, you've had conversations with your family members for literally decades. and they still don't get it. Okay, that's number one. So a person has to have a deep understanding of Bitcoin. Number two, a person has to deeply understand security analysis. And when I say that, it's not just an understanding of common stock.

Like, you really have to understand preferred stock. You have to understand what non-cumulative or cumulative or perpetual. And like, you have to understand all that terminology. Does it convert? Does it not convert? Like, most people don't understand that. Most people don't understand that the earnings potential of the business pretty much unaffects preferred stock if it's not, if it doesn't have a convertible piece

to it at all. And that's huge. If you don't understand that, you're not, you're never going to understand a Bitcoin treasury company, just that little piece that I described about like security analysis. So that would be number two. You have to understand security analysis. Number three, you have to have a deep understanding that the fixed income market, it has been bid for, 40 years and it's started and it's finally starting to unravel since 2020. So from like the 1980s until 2020, if you were a fixed income investor, it always went up. It was literally in a bull market for 40 years straight. And so when a person's looking at micro strategy and they're saying, okay, so he's like securitizing Bitcoin, he's issuing fixed income, but like that's not going to

last forever. And my argument is, is when you have a bull market in something for 40 years and it's starting to unwind itself, like you have a really, you have just tons of potential energy that's been stuffed into this, into this fixed income market that's unwinding. And that is the fuel. That, that in and of itself is the fuel that's allowing Michael to do what he's doing with strategy to funnel all this Bitcoin onto the balance sheet. It's because, he's servicing that fixed income space as it's unwinding, which, in my opinion, has a decade. I literally was having dinner with Adam back last night. And as you know, he's starting a Bitcoin treasury company.

Yep. Okay. And we were sitting there literally laughing our face off because we're like, nobody understands that like this fixed income market is unwinding itself. And I was like, Adam, how big is, how big is that unwind? And he just like started laughing. And he's like looking up and he's like, it's hundreds of trillions of dollars that's unwinding itself. And Danny, if we went and asked 100 people off the street, do they understand this last,

this third piece that I'm talking about, which is the unwinding of the fixed income market? How many of them understand that? There's probably zero. Zero. Like, so all three. So in like if this was like a Venn diagram, is that a Venn diagram with the circle? Yeah. You have to understand all three of those. And so like how many people do you know that understand Bitcoin, understand the fixed income markets unwinding after a 40-year bull market, like straight bull market, and that they also understand security analysis. I mean, you?

Well, I'm not trying to, I'm not trying to employ that. I get the point. It's almost no one. No one. But like, and I would be in one of those. Like, I get Bitcoin. Yeah. But the other two, I probably don't have a very good understanding of.

So why don't we do a Preston Pish masterclass and go through each one? Like, so Bitcoin, I think the audience knows Bitcoin. Yeah. Let's ignore that. that one for now. Like, let's start with the preferred stock. That was number two. Like, what do you need to understand to understand these companies? So, um, from a security analysis standpoint, I would just break it down like this. You have, you have the common shareholders, right? When you're a common shareholder, you're the lowest in the stack, okay? Um, which means that if you're a preferred

shareholder or you're a debt, if you own the debt, the bonds of the business, the only time that that stack matters is in a bankruptcy. Yeah. So if the company goes bankrupt, the bondholders get paid out further. You go to the assets, what are the assets on the book? So for like micro strategy, it would be whatever the Bitcoin's worth. If it's zero, well, then that's marked down the zero. If the operating business that makes about $100 million a year-ish profit, I don't know what

the top line is on that. I would guess, you know, $500 million to a billion is what the top. offline revenue is or something to that a multiple of those earnings. But the assets that that caused that the building, the infrastructure, the computers, like all that it all gets liquidated. And then whatever's left gets paid out to the bondholders first, the preferred shareholder second, and then the common shareholders last, if there's anything even left. Okay. That's just the basic stack of failure. But if the business isn't dead and it hasn't failed and gone through bankruptcy, those first two stacks, the debt and the preferred stock, the terminology might be a little off

here, but they don't participate in the earnings potential of the business. So if the business has just a knockout quarter and they made tons of money, those first two don't participate in that upside like the common shareholders do. If that company makes a ton of money, that company can then pay that out in a dividend or it just gets realized as additional retained earnings that benefit the common shareholders. The other two, they're just, they're income investors.

So they've been promised a stream of income. And if the company makes a ton of money or it makes no money, they're still expecting that payout. In the strategies case, that's the people buying stretch, strike, strife, all that stuff. Exactly. All that preferred issuance is treated. It performs just like a fixed income bond, the preferred stock. They get 9% or whatever is, regardless of what happens to the company. That's right. So that preferred stock, and I got a caveat, if it's not convertible, okay, when either one of those, the debt or the preferred stock is convertible, it performs a lot like a bond. But then as the common stock price runs, there's, there's met. that allow those investors of those to convert into the common stock.

So they will perform a little bit like the common equity. But for the most part, if it doesn't have that, it performs just like a bond where it's just completely based off of the income stream that it'll make. But if they're convertible, does it dampen upside volatility? Because if the price of the share is going up, they're going to sell. That's exactly right. It does. And this is one of the reasons why you're seeing strategy move away from issue. convertible debt. Because they want common stock to go through the roof. They want the volatility

in the common stock because they can harness it and it creates more interest than it just it's it's like rocket fuel to him being able to do what he does, which is, you know, transmute this, this, this, this MNAV into additional Bitcoin on the balance sheet. Mm-hmm. Okay. The other thing that I would just kind of preface with all of this is as they're, as they're using this preferred stock and the convertible debt, they're able to raise cash. They're able to sweep it onto the balance sheet. But in the way that we'll use really simple numbers to kind of illustrate this. Let's say that the common shareholder had $100 worth of Bitcoin on the balance sheet

and the company's trading at an MNAV of two. So the market cap of all the stock would be 200. Okay. So that math's really simple. If you go into the preferred market and he issues $50 worth of preferred stock, it's cash he receives, he immediately turns it into Bitcoin and he sticks it on the balance sheet over on the common, you know, it's raised over here. It's stuck on the balance sheet. The common shareholder now has $150 worth of Bitcoin. Okay. That preferred investor is just getting the income stream that he promised. They're not they're not getting a claim. on that Bitcoin whatsoever, that additional 50 Bitcoin that was raised. So that preferred shareholder, they don't care about it. Like it's no impact to them. They're just like, I just want my 9% every year. Give me my 9%. Whatever you do with it, I don't care. Just keep giving me my 9%.

So you can see how if we're valuing at an MNAV of 2 and he just doubled or he just increased the amount of Bitcoin he had on the balance sheet by 50%. Now he has 150 over here. And he has 150 over here. you would double that and now the stock should be up at 300 instead of 200. Okay. That's just the really basic math. And what does he owe back to that preferred? He just has to keep paying the dividend stream. Okay.

Now, this is where this is what will really bake your noodle when it comes to like what he's doing. Those dividends are fiat denominated. He's going to pay and we're just going to use really simple numbers, 10% on the initial raise, which is denominated in dollars. What he's doing as soon as he gets it is he's transmuting it into Bitcoin, which is growing it, call it 50% annualized. So going back to the really basic, like, how do you want to run a business these days? You want your assets denominated in Bitcoin, and you want your liabilities

denominated in Fiat. And so that dividend payment that he's making, in the preferred, okay? After 10 years, if that Bitcoin that he's, if that, if those funds that he raised and he swept into Bitcoin, 10 years later, do you know what that dividend looks like in Bitcoin terms that he has to pay? It's, it's like almost zero. Okay. He's still paying the, the $10 dividend on a hundred par, right? Which is the 10%. He's still paying that. But after 10 years, relative to what he raised and when he stuck on his balance sheet, it, to him feels like it's literally like zero. Yeah. So, I mean, I've got a load of questions in there. I think we're

going to get onto the next one with these questions. But I couldn't agree more that assets and Bitcoin liabilities and Fiat makes total sense. But what I don't know is what it means in the short term. Like long term, that obviously is a clear winning path. But in the short term, if price of Bitcoin goes down, like we know it does, then like what happens to those liabilities if you're asset is dropping a value. Yeah. So again, generically speaking, and again, this is just strategy. This is not for all Bitcoin treasury companies. They might be way more over levered and like more precarious or whatever. But like for for strategy, almost all of the dividend payments and coupon payments that he's paying out over on this side of the, I'm just like drawing a line. Like this is

the common shareholder. This is all the other the preferred and the in the debt. He has. five dollars worth of Bitcoin on the common shareholder side for every $1 of debt that he's paying out over here. So you could say he's over collateralized five to one. So if the Bitcoin price would go down 80%, he still has $1 of Bitcoin for every dollar of issuance in the fixed income space. Yeah. So I heard him on the earnings call say that it could go down 80% and nothing happens. And if it goes down 90%, which I don't think Bitcoin is going to go down 90%, then he would have to pause. He would start getting diluted. Or he could pause the dividend payment.

So, okay, another great comment, because he can. Okay. Some of the issuance, and this goes into just security and your understanding of security analysis again, right? You have preferred stock that has cumulative and non-cumulative preferred. Okay. What that means is if it's non-cumulative preferred, that means he can miss. a dividend payment and there's literally no impact to him that he has to pay it back. Is there is kind of second order consequence of that where there may be no impact?

Because like at that point people are going to be selling off everything they can. Well, no, I don't know that they would be selling. So would it be an impact? Absolutely. Like would the stock probably get hammered? Yes. More importantly, would the stock of that particular preferred that's non-cumulative get hammered? Oh, yeah.

Yes, it would. And so what does he, what does he ultimately want with every one of these issuance over on the preferred side? He wants the price to, well, not on one of them, but the STRC, he doesn't want it to, that's even arguable. Okay. So he wants the price of the preferred stock to run hot. Yeah. Okay. Why does he want it to run hot?

Because when he wants to raise more, he can just issue more shares. They're bidding higher because his. incomes better than anything else in the fixed income market. So it's bidding. So if he issues more shares, do you want to issue more shares when they're higher or lower? You want to issue them when they're higher? Because you can raise more money without diluting yourself, even on the preferred side, because there's the dilution of the preferred, right? So he's issuing it there over on the preferred side. He's raising cash, and he's sweeping that into Bitcoin. If he starts missing dividend payments because he can, okay, because they're non-cumulative preferred, he has that option.

Well, what the market's going to do is they're going to be like, oh, my God, I don't know if I'm ever going to get paid again in this issuance because he doesn't have to pay it. So the price is going to get punished. It would go, you know, from call it 100 down to 70 like that as soon as he would miss a payment. And so now he has to issue a whole bunch more, which means he has a lot more dividend payments that he has to pay if he wants to keep that vehicle alive. Yep. Okay. And so he has an incentive to continue to pay it. But the way he's looking at it is I need, if I get myself in trouble, I need a rip cord that will hit a parachute to help slow down my, my dividend payments that I have to pay on this stuff.

And so for him, it's, it's like an emergency hatch on the one issuance. That makes sense. That's all it is. And so when you think of like how he's, how he's engineering this, because this is like, as an engineer, I, um, Looking at it, I'm just like, like, wow, this is so brilliant the way that it's organized. Have we ever seen products like this before in any market? Hell no. But he said himself that he is, he's using AI to help himself design all of this.

He's vibe financing. Yes, he's vibe finance engineering. Yeah. It's vibe finance engineering. But when I look at him, I'm saying, wow. So he has, he's over collateralized five to one. Bitcoin could go down 80%. He's still one to one match.

Would that be dilutive? because he would have to, you know, either issue more in the preferred market or the common to kind of raise to make up for the dividend payments to kind of get himself through that bare downturn. All of that is yes. Would he survive? Absolutely. He's the issuer. He's basically the central bank of micro strategy shares on the preferred and the common side.

So like if it goes down, these people that are saying, oh, he was almost margin called. honestly, if you say that, if you say he was almost margin called, I'm looking at you and saying, you just do not understand security analysis. You don't understand that he's the issuer of last resort of his own stock and he can raise funds way beyond what. This is one thing I've learned, you know, studying businesses all the years is like when you think they're dead, you might be surprised at how creative they can get in raising more cash because they can always issue more shares. Yeah. and just dilute the existing base of shareholders. And they can stay alive a lot longer than people ever realize because they have that luxury in a public market.

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But you said if he's going to sell a stock, he wants to sell it high, which makes total sense. So if someone who is looking, like not personally, but someone's looking to buy strategy, is it stupid now to be buying that at anything over like a 2xM nav in the sense that he's going to be diluting that stock as like as soon as it gets to, somewhere between two and three you to shoot. So as a hardcore Warren Buffett value investing person, this is the classic investors quandary, which is if I go and buy a growth company that's got revenues just blowing through the roof. Okay. And what I would argue is that's what you're seeing with micro strategy right now is that it's growth factor, his ability to compound the Bitcoin on the balance sheet at the pace that he's doing it, you're causing.

in this like dead man zone of am I overpaying for it because it's just it's growing so fast and the market's just piling into the stock and like there's a premium on it and is that premium going to collapse and come down to a steady state and for five years I basically went sideways because I overbought because the market was exuberant. Yeah. Okay. It's the classic growth versus value problem. And to that, I don't have an answer for people. I have no idea where the MNAV should settle. I have a sneaking suspicion that, like, you know, anything under a two isn't that bad.

But whether that's valid or not, I don't know. I don't know. But I will say this, should it be more than one? In my opinion, hell yeah, it should be more than one. See, I don't disagree with that at all. So let's get on to the third part, because this is understanding of a fixed income market. Maybe it's worth starting with why that's unraveling. Yeah.

So when we went on to the petro dollar system and, you know, if you could zoom out and just look at 100 years of like U.S. of the 10-year treasury in the U.S., you would literally see in the 1940s, it was 3 or 4 percent. And it went straight up into the 1980s, which was inflationary. we were basically debasing the peg against gold. The rest of the world was pegged us. So they were also doing it simultaneously. And you just had interest rates running.

We go onto the petro dollar system and then central banks collaborate and just continue to bid the way that they're infusing dollar liquidity fiat into the system is through the fixed income market. They're just bidding those prices to keep the stability. That liquidity is coming into the market. If you're, I mean, you could, I always joke, you could have been a ham sandwich for 40 years in the fixed income market and you would have just made money. And so once we got to COVID, you had the 50 or you had the 10 year treasury that literally got to like 50 basis points was how compressed that got. So the prices were literally sky high and the yields were 50 base, a half a percent. And just to kind of put context on this, just to kind of like.

like help people understand how overbid this market was. If you were a retiree and you had a million dollars and you put it into a 10 year treasury in 2020, okay, you made $5,000 a year. So if you, if you wanted to live on a fixed income, right, which is any retiree, right, that was what you were dealing with. Is like you had the, and that's assuming you made a million dollars. So if you made 10 million dollars. Let's say you had the net worth of 10 million dollars and you put it in the fixed income to like provide you your your basic income to live on. 10 million dollars gave you $50,000 of income for a year. Like Danny, these numbers are so insane. Insane just to kind of give, when I say the fixed income market was bid for 40 years straight, this is how insane it was. Okay.

So like that's now unraveling because what I would describe at that moment in time was you had absolute total global cooperation through the central banks to make sure that the scheme was completely pieced together, just in time manufacturing was at its peak like globally, collectively. I'm getting roses from literally the other side of the world because that's actually more efficient than them cutting them in the backyard and putting them in the grocery store. That's how crazy, like, the global cooperation was. Yeah. And, like, that was, I would argue the absolute peak was in 2020. COVID hits, which really makes you raise an eyebrow of like, like, I don't even go down that path, right?

And now all of a sudden, all of that is starting to unwind itself. And now it's spinning the other way. And the world's desperately trying to find a store of value asset that can replace the U.S. Treasury market. Mm-hmm. Okay, because now all of a sudden the prices are spinning off and they're going lower and the yields are going higher. And we're, in my opinion, and why Adam and I were laughing is because in my opinion, you're at the national anthem in a nine inning baseball game of like that market unraveling itself. And so like that energy is so let's go to strategy again, okay, to kind of like, frame.

may be worth contextualizing like the size of this market. Yeah, it's hundreds of trillions of dollars. And this is hundreds of trillions of dollars that don't know where to go. It's hundreds of trillions of dollars that are servicing. So who's the customer? The customer is any boomer or a person that's of retirement age that just needs a steady, reliable source of income. They've made their money.

They're in retirement. They don't need a lot of risk and volatility of the underlying. They just want the principles. to stay what it is and they want to get some type of income. And that's the market. So if going to the numbers that I was saying earlier, like, how in the world could you live off of a $50,000? Now, the numbers are higher than that now. But still, like, you need like hundreds of thousands of dollars to sustain your lifestyle moving forward.

If you've got a net worth of $10 million, you don't want to live off $50,000. No. Yeah. Amen. And again, the number today would be significantly higher than that because the numbers are now at about 5%. It's quickly unraveled from that. And I think that the numbers are only going to get more entertaining as we go into the coming decade. And I say that it's going to be entertaining isn't the right word.

It's going to be very hard for a lot of people to kind of deal with where I think a lot of these numbers are going and it's going to be the inflationary impact that's that's driving it higher and higher. But so when you look at the, when you look at the fixed income market and you're saying, okay, so like what, what this is a question I would love to state. A person that would look at strategy would say, what the hell's the product? What's the product? I don't get it, right? Here's the product. The product is he is servicing. And even further upstream than that, like who, when you build a product, you're providing some type of value to a customer at the core. If it's a real product, you're providing value, extreme value, especially if you're outperforming Invidia.

What's the extreme value that he's providing to the market? And who is that customer? The extreme value that he's providing is he's given about 200 basis points more in fixed income to anybody that wants it in the world. And he's doing it in a way that he's over collateralized as to being under collateralized. Okay. So if you go out and you want to buy some type of corporate debt in the market, maybe you can get 7, 8 percent somewhere in that ballpark in return. So if you're in retirement and you're going out there and you're saying, okay, well, this one looks kind of like it's a healthy company. It's not going to fail.

I can get 7 or 8 percent by owning it. or you could go by strategies issuance and not only is is it healthy i would argue that he's already got all the money five times over literally sitting in the in the on the balance sheet to pay it okay in an asset that's growing at 50% annualized which is insane which which when i'm looking at it from a safety factor is is way more safe than some company that says, hey, we're going to try to make the money and continue to service the debt, the dividend or the coupon. He's already got the money. He's already got the money five times over, and it's growing at 50% annualized. Okay. So you want to talk about the health difference.

There's a really big difference. But typically when you're in markets, if something is way more healthy, the yield on it is lower. Yep. Right? Just look at credit cards. Like, why do you pay such a high thing on credit card because it's very risky. So he's paying 200 basis points higher. I would argue he's literally five times safer than anything else out there. And so who is he servicing? He's servicing the trillions, the hundreds of trillions of dollars of demand that's out there for something like this.

Like the new issue, it's the STRC. He's going after money market accounts. And I think it's eight or nine percent. Where can you go a money market account where your principal is somewhat pegged at $100, and you're getting, call it, an 8 to 9 to 10% return on your money? And if you want to sell it tomorrow, you still get your principal of 100 back, but you had the luxury of receiving such a high income. He's literally outperforming money markets by double at least.

So not to sidetrack you too much, but with Stretch, which is essentially a $100 peg stable coin, I think he's starting that issuance at 9%. Mm-hmm. Why won't the market wake up to this and that end up being below 5%. Well, so he can keep raising, so that's the beauty of the instrument is he can keep raising the interest rate on it. By just issuing more. Well, and the other thing that, yeah. Mm-hmm.

Well, so, no, he can go in and literally adjust the interest rate on it. Yeah, but I guess that, so he can just adjust it up constantly. Mm-hmm. Well, so in your case, so what you're describing is, if he didn't issue any more stock, the market's going to bid it. It's going to go over the hundred that he's trying to peg it at. And the yield will collapse down. Yeah. So how does he handle that? He just issues more shares. Because when he issues more shares, he's going to collapse it back down to 100 and he's going to keep it at 100. So it's like a it's like a geyser that's just shooting out cash. But the interest rate can still move content. that the if he keeps it pegged at 100 the interest rate will because there's so much demand and he's controlling that demand through further share issuance that that interest rate will stay there as long as he doesn't adjust the interest rate wait help me understand this so this is just your basic when prices in bonds or preferreds go up right when the prices go up the yields go down okay it's just that

So by issuing more, he can keep it at 9%. So if the demand is driving the price, the price on the underlying higher, yes. So even if you went out five years from now as this matures, you think it's still going to be at 9% on the stretch product? Well, I don't know what he's going to adjust the interest rate at. Because he wants to pay as low interest rate as possible while still having demand, I would assume. Absolutely. But he also wants to have somewhat of a, to have that demand there, he's always going to have have somewhat of a premium over what the rest of the market's offering.

Even if the market wake up to the idea that this is actually way more safe. And the reason he's going to be able to do it is because he's literally sitting on this asset that's growing it, call it 50% annualized. But what I can't understand is like if the market wakes up and thinks like you, I think they would probably be happy to do it at 6%. Uh, pull on that thread a little bit more. Describe what you're saying that this is the safest fixed income product out there, essentially. Yeah. And so why can't he undercut the other products? Why does he have to be at a premium over them?

Because I think if he came in and undercut the market, like the discount was lower because he's more healthy. He understands that he's more healthy. But the problem he has is the market doesn't understand that he's more healthy. So I guess that's my point. Like in a few years time, if people are starting to think the way you are about this product, why can't he be doing that at 5%. Oh, he could be. And with the way that that, vehicle is structured, STRC, he could lower the rates because he has an adjustable interest rate that he can change. So as this matures, you do expect that interest rate to drop at some point. If the market's demanding the product, he could relative to everything else. So the question you have to ask yourself is what is the rest of the market doing? If the rest of the market is bidding to, I'm just going to use crazy number, the rest of the market's at 15%. And they've now understand that he's healthier and safer than everything else. And he doesn't have to overpay because the demand

just continues to be there. Maybe he could have his at 13%. So in that scenario, it went higher, but on a relative basis to the rest of the market, it's trading at a discount to the yields that you're getting in the rest of the market. So of the $100 trillion in fixed income, it needs to find a home, how much do you think Saylor can capture? I have no idea. But I, when I looked at the STRC issuance and he came out and it was oversubscribed at 4.2 billion, today there's a lot of market demand for this stuff. I'm just pulling up MVK's site. He asked me to be an advisor on the website.

On this website. Yeah. So I'm helping him out a little bit. I saw that he's brought Rizzo on as well. He's going to be. So strategy have 628,000 coins at the moment. If these products are as successful as you think they are, he's going to be sat on a whole load of cash, which is going to go to Bitcoin instantly.

At what point does that become an issue? Well, okay, so when we talk about the very beginning of the show, I said that these investments come with additional risk, which you just, where you're leading me is that additional risk, right? My biggest concern with Bitcoin Treasuries at large is long term, the governments are going to eventually figure out that they're going to have an oh shit moment. They're going to say, oh, my God, like, we've been conditioned to just continue to blow out our expenses further and further every single year. And now we're being forced into this situation where we have to be

fiscally responsible or else we literally die relative to all the other countries on the planet. And we have major issues. So what, what are they going to do? They're going to go out and they're to look for the biggest pool of capital, Bitcoin capital, and they're going to try to rob it. Nationalize strategy. Nationalized strategy, nationalize whatever is where that could potentially go. When I think about that scenario, it's all about if you want to try to predict the future, you always just kind of look at the incentives and you say, okay, it's like, what are the incentives? And then that'll help you help guide you and where it could go. But in that scenario, what's the incentives of a politician, votes, re-election. That's what they care about. So if they're going to go

rob a treasury, are they going to go rob a treasury of a company that millions upon tens of millions of people own? Or are they going to go to a treasury that five people own that gives them a lot of the bang for the buck? I think they're going to go for the latter. Of course. But they also need substantial amounts of capital. So if they're going to go rob one, like, they're going to make sure that it's worth the squeeze in the one instance or whatever. So is that a threat? Is that a risk? 100%. If you're not accounting for that in your overall security analysis, like, I don't know what to tell you. But when you look at the risks between self-custodial Bitcoin, where you hold the keys and nobody can take it versus I own paper Bitcoin in a treasury company. Like, this is the risk. These are

the tradeoffs. It's the Big Boy Club. Like, if you get it wrong, I'm sorry. Like, you're going to fall in your face and hurt yourself. So that is a, I think probably a very possible outcome. I don't know if it is going to happen, but it could. But there's another risk as well in terms of centralization of Bitcoin to the Bitcoin network itself rather than like this nationalization of strategy. Do you see that as a problem if he gets to, I mean, presumably he's going to get to a moment. I mean, he's going to get to a million coins. He's going to, he's, because he is literally five years in front of everybody else, there's a reason he has so many Bitcoin.

Because he, he is, he's not out in front. He's way out in front. Yeah. I don't see it as a, I don't see it as a risk because I think, I mean, I would argue the influx of all these new treasury companies is the thing that's naturally bringing a counterforce to the consolidation of Bitcoin on his balance sheet. So is that healthy? I think it is healthy.

Is there going to be a lot of people that do it poorly and investors that invest in it and then get wrecked? Yeah, there will be. But if I'm just looking at the natural market forces that are providing a counterbalance to that, additional Bitcoin treasury companies are a counterbalance to that. And when I'm looking at ETFs that I'm way more concerned about ETFs

that are just you know, custodying at Coinbase and there's going to be three that really kind of win in the end probably probably no more than that and they're all custodying at Coinbase. I find that to be even more concerning

because that's representing all all of those investors that bought the ETF. half. And I mean, you talk about a honey pot of honeypots. See, I would maybe fade that in a way that I assume at some point in the near future, in kind creation and redemption of ETFs is going to agree with that. And I think if you get in kind redemption, then that risk is somewhat nullified. I would agree with that. So like there's a huge tale after strategy. I've got it here. So we've got marathon at like 50,000 coins, 21 when they launch, it's going to be like 43. Yeah. And Adam Bax is at

30. Do you think that kind of ratio between 50,000 and 600,000 coins will stay the same even as they grow? Or do you think any of these companies can actually meaningfully catch Saylor? So why does Metaplanet have such a high MNAV versus strategy? Because it's smaller and they can increase their Bitcoin stack more quickly. So when we're talking about like what's an appropriate MNAV to pay for one of these companies, part of that math is how big is the Treasury today, and how fast can they grow it? When you look at micro strategy, there's this natural, because they're so big,

it's harder for them to grow the position size that they already have on a relative basis. Therefore, the MNAV should be, you know, the market should value it lower than one of these smaller treasury companies that are doing the same thing that might have the ability- They can triple their Bitcoin in a year. They can quadruper, whatever.

And so that's, going to allow them to catch up. And if there's 10 of them that are doing it responsibly, they can start really putting a pool on the amount of Bitcoin that's flowing onto their balance sheets as opposed to what he's able to. And then just think about the competition in the fixed income market. What do you think they're going to do when they go to the fixed income market to compete with Michael? I think they have to come in with higher interest rates. Of course. If they're not going, if they're not competing in the U.S. if they're competing in other markets, well, that's not true. But if they're competing in his market that he's dominating,

like absolutely dominating, they're going to have to come in at 200 basis points higher than him or something. Or even more over collateralized. Or be over, yeah, or be more over collateralized. I don't know if the market even cares about that. Like I don't think the market cares about that at all. I think sailors plenty over collateralized probably. I think the market will eventually look at it that way because you're, you're thinking about it in the correct way, Danny, which is if If the balance sheet is healthier and the management team is just as good, like, that should fetch a lower yield. And they shouldn't have to pay up. But you've got a whole brand that's like happening there that's going to be difficult to compete with.

Yeah. So I want to get back to the original question, which we talked about 50 minutes ago. Oh, the accounting stuff. But before we do, like long term, do you think MNAVs of all these companies will be under? two, like looking five years out in the future, let's say. I think for the smaller ones that kind of come on the scene, if they have the ability to kind of brand themselves well, then it might be in excess of that because they're able to compound and grow the Bitcoin on the balance sheet faster. Actually, I said last question on this, but in a bear market,

let's assume cycles haven't changed. We go into another, like, relatively deep bear market. I don't think we're going to get 80% again, but let's say you go into like a 60% bare market and it's a little longer. Do you think they'll start trading a discount again or do you think those days are kind of and actually let's talk specifically about strategy because they've been through a bear market. They did trade at a discount for a amount of time. Do you think they will ever go below one for a period of time? The thing I've learned in financial markets is prices will usually not make sense. And so would it surprise me to see them go below one? Not at all. That wouldn't surprise me at all. Okay. But you think, again, in a bare market, because I really like Lynn's question on this

in the earning call, because she's thinking about bear markets. And to me, that's maybe the most interesting part of these treasury companies is like, we're going to find out who's swimming naked in a bear market. And I assume it's not going to be zero people. Of all the treasury companies, even just take like the top 50, let's say, of any real size, do you think we'll see some of them go underwater in a bare market? If they're levering themselves like two to one right now, they potentially could. I think that the, and maybe this is me just being too optimistic. But what I've seen in security analysis is that public companies that have access to public

markets can stay alive a lot longer than people realize. And they can endure a lot just because they have the power to issue more shares to generate life, the cash. I do also wonder if there's going to be an interesting dynamic. If we see a lot of them go to a discount and to their nav, if there's like a consolidation, like why wouldn't Saylor buy coins at an even bigger discount if you could, essentially by acquiring these other companies? Absolutely.

And that's just, that's another natural market force is you will see other companies that will. And it might not be sailor. It could be the black rocks of the world that go in there. And I mean, think about it. If you're if you're BlackRock and you can go buy a bunch of Bitcoin at half off by just, you know, but think about that. Like they're going to go in there. The the market price is this. And BlackRock comes. Let's say, you're running a treasury company that's half the it's at an MNAV of 0.5. BlackRock comes and knocks on your door and said, hey, we want your coins. We want to buy your whole company. You're like, okay, no problem. I know the market's at 0.5.5. It's at 0.5.5. BlackRock. I know the market's at 0. but I'm not selling unless it's 0.9 or it's 0.95 is where it'll quickly get repriced in in the when it when they pull it off the market yeah it's going to be interesting but it's going to be very interesting it's going to be it's going to get wild so let's get back to that

original question one other one other one other one other really interesting thing that nobody's I haven't seen anybody talking about is if the MNAV is below one if if if the company sells the Bitcoin and buys the stock, that's actually accretive in Bitcoin terms to a treasury company. And it is. I totally see what you're saying, but it ruins the narrative. That's, well, it ruins the multiple, the over collateralization of the fixed income issuance. And so you'd be sending a market signal that, that what they thought was the pristine capital that's backing everything is actually encumbered by the management itself through such antics. And then in a bull market, when things are going well, you would never have confidence

that they're not going to sell the Bitcoin. That's right. That's right. So strategically, even if it makes sense, strategically is a bad decision. And that's why I think you didn't see strategy do that in the bear market, even though he's also saying that, you know, he measures everything in Bitcoin per share for the common shareholder. And that's important for the common shareholders, how he optimizes. So the fact that he didn't do it goes straight to your point that you're sending a very mixed message to the market,

which this is all, this whole thing is possible because of the fixed income market. And I think that's probably why you saw Taylor go on that tirade saying he'll never sell his Bitcoin, even his personal Bitcoin, because he wants the market to know that that stuff is never moving. Yeah. So original point was this guy called it out as a Ponzi, which maybe that's an easier one to do. So we could start there. And then we could talk about the earnings. Yeah. There's definitely a Ponzi involved in this.

And the Ponzi is the Fiat currency. See, checkmate called, I don't know. I don't want to put words in his mouth. I don't know if he was talking about Sailor specifically in strategy. But he called these treasury companies Ponzi adjacent. Oh, yeah. I disagree with that. I disagree with that.

The Ponzi in this that he is harnessing is Fiat. Going back to the asset is Bitcoin on the balance sheet and the liability is Fiat, which is the Ponzi. And so he is he is leveret. He's leaning into the idea that Fiat is a Ponzi. He's taking full advantage of it. And he's stacking the soundest thing that nobody can manipulate or tinker with. to create more units of. And yeah, I think that anybody that's saying that really doesn't fully understand the

security analysis side of it and they definitely don't understand that fiat's unraveling itself in real time. And that's all, that's the play. Yeah. If he's wrong about that, let's say tomorrow governments collectively around the world wake up and say, you know what, we're done to basing the currency. If we don't peg it and take total control of our monetary units together on a global scale, this Bitcoin thing is going to ruin all of us, right? And then the whole strategy thing falls apart.

But as we know, that's not how this is going to play out. Okay. So the more interesting point he made is strategy calling their Bitcoin gains earnings. He thought, I mean, he was fired up. He called it fraud. I mean, I don't think that's right. But there is some nuance in it where Bitcoin going up is not necessarily earnings. And it's not recurring earnings.

Well, I would agree with that. But anybody saying that it's fraud is being very disingenuous because they're audited by the biggest accounting firms on the planet. He's following Gap accounting rules. And according to the accounting rules, he has to, you know, know, file the 10K and the 10Q the way he's filing it, right? So I think that that's like very unreasonable to say that. Now, just to give context to it, sorry, I just want to make sure I'm giving Andy's point clearly is it was one of the slides in the earnings call that he had a problem with where it looked like he was comparing his earnings to the other companies.

And because they're not recurring earnings, he thought that was. Yeah, okay. So that might be, yeah, we could we could argue that. this point that they're not recurring earnings, I want 100% agree with. The way that I would try to value it, instead of like kind of getting into whether it is or isn't, I would give people maybe a framework to think through like, how would you do this? So when I would value stocks, this before Bitcoin even, one of the things that I love to look at was the growth of retained earnings on the balance sheet. because what that was showing me is like when you're looking at the income statement and you're seeing the the cash flows that are generated from the income statement, that's interesting. But what I really like to see is like what does the equity of the business look like as far as a growth rate over time? And when you're looking at that trend and you're kind of plotting it out and maybe you have three years of data and you can see the growth rate of that equity, you can say, well, this company is growing its balance sheet at 10% annualized.

And then you can kind of like model out. Like if that 10% growth rate kind of persists in the future, I can then look at what the market's valuing it at. And then I can conduct an IRA, an internal rate of return calculation to figure out what I think an appropriate price is to, to own the company. So when I look at strategy and you look at their balance sheet and you look at the growth of the balance sheet, I can tell you over the last five years, it's completely warranted that it is exceeding the return profile of Nvidia.

Okay. And because when you're looking at like what they're reporting and I disagree with the way the gap accounting treatment is, I, you know, Preston Pish's opinion, like if I, if I could control how that accounting would work, I think that the way that you would do it is you would list as on your asset line of your balance sheet, you would list it as a current asset because it can be immediately sold. It's super liquid. And you would list it at the purchase price on the asset line of the balance sheet. And then any unrealized gain would actually be listed into the equity line of the balance sheet. And nothing would flow over to the income statement unless a

sale was actually conducted in the Bitcoin itself. That makes sense to me. And then it would be listed as an extraordinary gain or loss on the income statement. That's how Preston Pish would do the gap accounting treatment. That's not how it is. And I think as a person who's looking at the results, the whole reason that the income statement exists the way that it does is to help an investor know that this is recurring revenue. This is a recurring expense. This is an outside abnormal, extraordinary gain or loss that probably only happens one-time item on the income statement.

And then the investor or the shareholder can discount that or think that there's more value there. So I disagree with the whole way that it's treated in general. But he's just following the rules. He's just following the rules, which is a good thing for him getting included into the S&P 500 because they have this stipulation that you have to have multiple quarters of earnings. And I guess it counts as earnings, even though I don't see it as earnings. I see it as unrealized gains. And it's a good thing in a bull market, but it's not going to be a good thing in a bear market

if he has to post like 10 billion losses. Absolutely. Yeah. Yeah. Okay. I mean, I think we've done, this is the Preston Pitch Masterclass on Treasury Companies. There's a lot more to this than what we covered. Is there anything else that is worth getting into now?

I just, I really want everybody to really understand that if I'm talking about this kind of stuff a lot, it's more for my own intellectual stimulation. And because I find it's as a finance engineering person that loves studying Buffett and these other ways, of like valuing business. I'm like a pig in mud with this. This is like one of the most exciting things ever for me to be talking about because I'm constantly learning new things and I'm having these aha moments like, oh my like the STRC issuance for me was just like that is the most brilliant thing I think I've ever seen like come to market.

And then hearing Michael say, oh yeah, I got the idea from AI. I'm kind of like, oh my God, like what is happening? So like I'm just really, I'm really. enjoying, like covering this. And I say all that because at the end of the day, the best thing that a person who doesn't understand any of this jargon, because I know there was a ton of jargon in this conversation, people who don't understand anything. Just buy Bitcoin, self-custody of the Bitcoin. Like nobody can ever take it from you. You're going to get crazy returns, I suspect, based on everything we are seeing and where this is all going. And you don't have

to be fancy to like really have a profound change. change in your life by just owning Bitcoin and enjoying the ride and like not overthinking it. 100%. And that's what I'm doing. But just I said, I just want to cover one more thing. I think we've got time. People talk about all these preferreds as Saylor like creating his own yield curve. Can you give a TLD on that? Then I've got a question on it. Yeah. Well, he's just looking at he's looking at the pools of capital and fixed income. And so like what's one of the biggest pools of fixed income. It's literally money market accounts. And so he's very strategically going and looking at these different pools of capital. And you have investors that want long-term

fixed income. They want to hold for 30 years. You've got people that are wanting 10 years of exposure. You're having people that want like an overnight rate. And he's just looking at all of those. And then his issuance that he's going into the preferred market with is trying to service those large pools of capital. And the larger the pool of capital, the more he wants to focus on providing something there. Something else that I think is a little more nuanced in like what he's doing. The fact that he's using preferred stock is really interesting in and of itself because he's really never having to pay back the face value or the book value of the issuance. It's just the dividend or the coupon payment. It's the dividend payment when it's preferred

stock. And that's huge because if you look at like convertible debt, and I know I'm going off on a little bit of a tangent, but like when you look at convertible debt, when you issue that, let's say you raise a billion dollars of convertible debt, you have to pay the billion dollars back in addition to whatever coupon is associated with it. But with preferred, he's, he's raising, call it a billion dollars. He never has to pay the billion dollars back, but he does have to pay the dividend if it's perpetual. He has to pay the dividend forever. But he's, but he's, he's, He's looking at that dividend payment 10 years later and saying, well, it's literally de minimis amount of money because I'm sweeping it all into Bitcoin. Yeah.

So the question I have on that is he's got four of these preferred stock issuances. Is there anything else he's going to do, do you think? Is there more to come? I think so. I don't think he's done. What do you think is missing from the stock? I would have to look at his, I would have to look at the durations that he's targeting. And, I mean, it would be pretty, he has a slide.

I saw it in his second quarter shareholder's meeting that lays out the whole duration and like where the large pools of capital are in fixed income. And you can see where the various preferreds have been issued. And I would just look at the next biggest one. And that's probably where he's going next. It's pretty incredible. I'm starting to understand it. You understand it well, Danny.

This was very useful for me. Thank you. We should probably go to the conference. Thank you, Preston. Thanks for having me, Dan. I appreciate it.