Transcription
Good morning everyone. My name is Adam Livingston and I am the Bitcoin Wizard.
So, I've talked a lot about strategies, preferred stock instruments. However, I never did an ultimate guide talking about every single one in one easy cohesive presentation. So, that's what I want to do. I want to make the ultimate guide everything in one spot at least until Sailor comes out with the next one.
This is the most exciting story out there because strategy has done something that no one else has. It has built the first complete yield curve backed entirely by bitcoin collateral. So on this deck I have four preferred instruments. We have stretch, we have stride, we have strife, and we have strike. Together they give investors a very precise menu of yield duration and bitcoin exposure that simply didn't exist before.
In the next nine slides, I'll walk through each instrument in detail. Who it's designed for, from cash focused treasurers to total return funds, why its coupon seniority and duration matter, and how it plugs into the broader Bitcoin-backed capital stack strategy is pioneering. And by the end, you're going to see why these products are revolutionary for fixed income markets and how strategy is setting the standard for institutional Bitcoin credit. Let's dive in.
Here is the full snapshot of the four preferreds. Think of this slide as your field guide before we zoom in on each security. Stretch sits at the front of the curve with a variable monthly coupon right now trading at $97.70 and also paying a 10.2% effective yield which is massive. The duration is essentially zero and the volatility is a very calm 11% and the average daily volume is about $59 million which means that you can move size without slippage. It also carries the second highest seniority under Strife.
Then you have Strive moving us out on the curve, which is a 10% fixed, a non-cumulative because the market prices it at $78.90. The yield jumps to 12.7. The duration is around 9 years. The volatility doubles to 21% and the liquidity drops to about 12 million per day. The seniority in the entire capital stack is mid low. So you pick up the extra yield at the cost of optional dividend skips. and it shares that same issuance headroom on this ATM that Stretch has, $4.2 billion.
Strife is the long-dated senior piece, a 10% fixed and cumulative dividend, which is priced at $111 right now, bringing the effective yield to 8.9%. The duration stretches to 12 years. The volatility is back down to 10%. Yet the Bitcoin correlation right now is spiking to 85% because the price duration magnifies the net asset value swings. The liquidity averages 20 million a day and the seniority is ahead of stretch. This is the most senior in the entire capital stack and the at the market program is 2.1 billion and strike finishes the curve 8% cumulative with a conversion option into common stock which is the exciting part. It's trading right under $94 right now, yielding 8.5%. And the base duration is about 14 years, although it collapses if the conversion feature goes into the money. The volatility is 23% and the Bitcoin correlation is 63% and the liquidity is $19 million per day. It's in the middle of the stack and the issuance shelf is the largest at $21 billion.
So as you move from these instruments, you're seeing a different yield being paid out based on different investor risk profiles. There's different duration. There's different optionality and there's different Bitcoin beta climb. The liquidity is best at the short end and acceptable in the middle and still healthy in the long end. So the portfolio sizing is manageable across the entire yield curve. And then remember these are all covered by strategies 639,000 plus Bitcoin and that pool keeps every security overcollateralized though price action will obviously follow the asset.
So now you have the overview numbers the 639,000 Bitcoin. Let's talk about why these four securities form an actual Bitcoin backed yield curve and they're not just four random coupons. First is this amazing collateral base. It's the fifth largest corporate treasury in America right now. Just a heads up. and it's the only one based off Bitcoin, a terminally appreciating asset. So this creates what is effectively deep first loss protection. Even a severe draw down in Bitcoin still leaves several turns of coverage over the combined preferred stack. If Bitcoin draws down 80%, it's still fine.
Second, we have different engineering structural levers. Four design dials let strategy fine-tune each security. Number one is the coupon type. There's fixed versus variable. Number two, there's a reset frequency, a monthly reset for stretch, a perpetual fixed for the others. Three is convertability only. Strike has the equity option. And number four is seniority. The stretch and the strike are the top tier. And the stride and the strike are sitting notches lower. So changing these settings moves the duration, the yield, and the optionality in predictable steps.
And then third is duration engineering. For perpetual preferred, the simple rule of thumb is duration equals 1 divided by the dividend yield multiplied by the expected call horizon. So by trimming or extending the yield and the likelihood of a call strategy stretches effective duration from roughly 0 years at the front end to about 15 years at the long end.
And then fourth is a risk transfer path. The result is a very clean staircase. So, Stretch is there absorbing short-term cash demand with almost no price risk at all. It's designed to trade around $100. People view it as a stable coin. Stride and Strife cover the midcurve where traditional corporates usually live. And then Strike is offering longdated exposure plus an equity kicker for investors who both want to get paid while they wait for the upside on the common stock MSTR. In traditional bond markets, you need multiple issuers to build a curve like this. But strategy has delivered the full range in one capital stack, all secured by the same Bitcoin treasury.
On the next slide, we start the deep dives beginning with stretch. But before we do that, here this is the yield curve for BTC credit from strategy earnings call. As you can see, there's different duration, there's different yield percentages, and they're trying to plug in different products along the curve meeting different investor profiles. The one thing that stands out to me with these four instruments is that they're all paying out higher yields than all of these other options. And they also circle in a future opportunity because there's $30 trillion of opportunity in medium duration corporate credit. We'll see what they come out with.
Time to break down stretch strategy short-end workhorse that sits just below strife in the capital stack. The coupon mechanics are that it is variable rate and it's paid monthly. The management sets the dividend each month to reflect prevailing market conditions for short-term BTC financing. The run rate right now is 10%, but the board can dial it higher or lower. Now, because the coupon floats, the interest rate duration stays close to zero. Price stability is the point of this instrument. The price is $97.70 right now, paying a 10.2% 2% effective yield, which means that your upside is capped if Bitcoin soars, but you're getting 10%, which is 500 basis points over what fiat T bills would pay you.
Okay, this is the target market. Cash desks, corporate treasurers, think money market accounts, think savings accounts. This is what I'll be putting my money in when I'm earmarking it for taxes. So, think of this as the cash anchor of Strategy's Bitcoin yield curve. It's variable, it's liquid, and senior preference income. It allows investors to earn a robust coupon today and roll that exposure month-to-month while freeing strategy to extend duration and optionality in stride strike and the top tier strife.
So talking about stride, we have a 10% fixed non-cumulative paid quarterly. If the board skips a dividend on stride, it never accrues. So the investors are compensated upfront with a higher headline rate, a 12.7%. I love Stride. I'm not going to lie. To think that you can get three times what a US Treasury gives you and then have it protected by all of that Bitcoin, that's incredible. I don't see why they wouldn't pay the dividend on Stride or how they couldn't. But hey, that's just me. Remember, this is not financial advice. This is financial entertainment. It's just at a good deal right now, too, in my opinion. $78.90. That effective yield thanks to that discount is quite juicy. The duration is about nine years, which is the middle of strategy's yield curve. And then the volatility is about double that of stretch because the price moves and not the coupon. So out of seniority, it is the lowest of the four preferreds below stretch, strife, and strike, but still ahead of common equity. The collateral coverage is 3x the par value at current Bitcoin prices, which strategy labels as high yield equivalent. and the target issuance for strategy. They want to issue a billion dollars over the next three years per the capital structure roadmap.
So let's talk about investor profile who buys stride yield hunters who need a double-digit coupon and can accept some call and skip risk. Credit hedge funds running basis trades against BTC futures or higher grade strategy preferred and total return funds looking to pick up spread without necessarily venturing into growth equity. So the key risk I would say there's dividend discretion. Remember because it's non-cumulative that means that management can defer without obligation. So just watch the coverage ratio and the board guidance. But remember in my opinion I don't think you have anything to worry about. Not financial advice though not financial advice. So stride is kind of fill in the medium duration the high carry slot that would normally be serviced by double B rated corporate bonds. It lets strategy attract capital that wants yield without equity dilution while keeping coverage at a level still comfortable for most credit mandates.
So next stop we're going to move up to strike the same coupon discipline but with a conversion option that adds the equity style convexity. We have an 8% fixed cumulative paid quarterly dividend and the convertible feature which is super exciting because each share of strike is convertible into .1 MSTR shares. So, if MSTR goes to the moon to $1,500 a share, you can convert to common equity and make bank and you're getting paid an 8.5% effective yield right now by waiting. To me, this is a perfect instrument. If you're middle-aged and you still have time, you don't want to retire in the next year, but you want to wait for MSTR to go to the moon while getting some payments, then I like Strike. It's mid-tier seniority. It's above stride, but it's below the other ones. And the collateral coverage is about 6x par at today's BTC price. And strategy labels this mezzanine equivalent. The investor profile, you know, besides what I just said for the individuals, you got to think about the crossover credit equity funds hunting coupon plus that upside convexity. Total return managers who like optionality but want a fixed income carry floor. and derivative desks looking to delta hedge the conversion optionality for relative value trades. So this is the mezzanine bridge between the high carry credit and full equity exposure. You get an 8% floor, the cumulative protection and that conversion kicker that can turbocharge your returns in a Bitcoin bull cycle. It pulls in the capital that wants both coupon certainty and equity torque, helping strategy deepen its stack without sacrificing the integrity of the collateral.
So now we climb to the pinnacle. Strife, the top seniority long-duration preferred built for investment grade mandates. We have a 10% fixed cumulative paid quarterly dividend. This has top seniority in the preferred stack. Strife ranks above stretch, strike, and stride. It's trading at $111.77 right now, paying that 8.9% effective. The duration is approximately 12 years. So the long anchor of strategies curve the volatility is about 10% right now which is the lowest of the four preferred thanks to the premium pricing and the stability of the coupon. The coverage equals 10x the par value at current BTC prices. So strategies internal metrics are pegging it as investment grade equivalent. Investor profile think insurance companies think pension funds seeking an investment grade style carry with an 8 to 9% handle. Bank balance sheets looking to optimize risk weighted assets with overcollateralized BTC exposure and long only credit funds that need seniority and cumulative protection but are willing to take measured Bitcoin beta. We have seen incredible price appreciation for Strife. It is the most protected in the capital stack which is incredible but on top of that it's returned 33% in a matter of months. Stripe is literally just too good. It's like a life hack. I don't know. It's incredible that it exists. It is the investment grade cornerstone of Strategy's Bitcoin yield curve. High coverage top priority and almost a double-digit coupon. It attracts conservative capital yet still outperforms equities. It anchors the stack's credibility and allows strategy to layer more adventurous instruments underneath it without jeopardizing the whole structure.
So, every capital stack has pressure points, kids. Here are five that matter most for strategy's preferred curve and what you need to track to keep the odds in your favor. When we look at the collateral stress test, okay, the coverage today is $639,000 Bitcoin with about $74 billion worth, which is $74 billion backing 6 billion of preferred par, which means that there's a 12x aggregate cushion. So, a stress scenario of a 70% Bitcoin draw to $35,000 leaves a 4x coverage, which is more than most investment grade bank hybrids. The prices will fall. That might be math, but the principal remains very well-insured. You also have to remember if you're buying traditional preferred stock, it's based on the security of future cash flows, but strategy already has the money. So, take that for what it is. Risk is mispriced. And remember, there is dividend discretion with Stride. Maybe they don't have to pay a dividend this quarter, but you're getting compensated for a higher yield if they do. There are the ATM supply programs. So remember strategy can tap the market fast which is great for balance sheet agility which can have a negative effect on price if the demand isn't deep enough that week. This is a very very very extremely minuscule issue in my opinion. Remember they are buying Bitcoin with the proceeds which is just making your NAV go up. But hey, it does increase the supply of shares. And right now we're seeing a ratings gap opportunity in the broader market. There is no Bitcoin collateral model yet beyond what strategies already come up with. That means the spreads bake in an uncertainty premium. But the moments that Moody's or Fitch launch a formal BTC hybrid template, the yields might compress. I don't know. They might widen depending on the methodology. It should widen as far as I'm concerned, but hey, what do I know?
So the bottom line is that you're paid 8 to 13% yields because yeah, the risks are real, but they're also very quantifiable and they're really overcollateralized if you don't believe Bitcoin's ever going to have a big draw down again like we have seen in previous bare cycles. I am of that opinion. So if you monitor the leverage, the BTC coverage, the board dividend actions, the ATM tap cadence, the regulatory headlines, and the live trading depth, you'll know when the reward still outweighs the risk.
So let's close by stitching the whole story together. Number one, what strategy built is a complete Bitcoin secured yield curve that spans zero duration income to equity linked upside all inside of a single issuer and collateralized by 639,000 Bitcoin. And why this matters for markets is because fixed income investors can finally choose their preferred mix of yields, duration, and Bitcoin beta. This unlocks a new asset class that bridges traditional credit and digital hard money and it's paying double to triple yields from what you get from traditional income products. So each investor profile can find a home within the stack. That means that strategy can raise capital efficiently while the investors pick their lane. They're going to evaluate whatever fits their mandate and buy it. So strategy did not tweak an old capital structure. It created a blueprint for Bitcoin-backed credit. As the stack grows, the yields will find fair value, the spreads might tighten, and this curve is likely to become the reference point for every other Bitcoin treasury company that follows.
Thank you so much for watching. My name is Adam Livingston. I am the Bitcoin Wizard. If you like this content, please like this video, subscribe to the channel, and help me spread the orange gospel to the masses. Have a terrific day, kids. Class dismissed.