Transcription
So he began with Strike as targeting two corners of the market. Number one being real estate, number two being bonds.
Global bonds are $318 trillion market. And then Strife and Stride. You can envision these sort of as pumps or even bridges from these different areas of the market into Bitcoin. And then finally and lastly in their most successful launch to date has been Strat that was massively oversubscribed. And we will have to see over the next four years whether or not strategy has to sell any of its Bitcoin. I don't believe they'll need to. All of these corners of the market want access to Bitcoin. you want yield and you've been starved of it. I believe this is a trend that's going to continue getting more and more popular strategy. I don't believe anybody is going to surpass them. If there are a million micro strategy copycats in the United States, 99.95% of them will fail. But you can't just sell common stock and then buy Bitcoin forever. You need to have an underlying business that's highly profitable. I think that will be the next hugely successful player on the market. The key differentiator for companies that are coming up in the space will be RG.
What have you made of uh the financial instruments that uh Michael's company strategy has innovated in the Bitcoin space? Have you had a chance to take a good look at those?
I have. Yeah, I've done I've done a lot of research. I've done a lot of videos and other content on it. They're extremely innovative, right? And it's very telling. Um he's created kind of different flavors of preferred stock of these fixed incomeesque instruments uh to serve different areas of the market.
Can we start chronologically to what he first launched and then perhaps that might tell a story about um the innovation curve and the adoption curve in the fixed income markets.
Yeah. So as far as a chronology goes I can't recall what he first launched. I believe it was strike um and then I believe it came all the way to stretch in the middle. I don't remember what came first stride or strife but I believe that's the rough order. So he began with Strike. Um Strike is essentially a commu a convertible cumulative fixed um preferred stock. Um I believe it was issued first uh at $8 um uh $8 dividend per share um uh annually paid quarterly um with a 10:1 convertability um for Micro Strategy shares at $1,000. Um essentially that's targeting two corners of the market. Number one being real estate. Number two being bonds. Um real estate as an investment class obviously it's very rent seeking and it is cash flow seeking type investors right um strike as a preferred stock was able to hit on those quite a lot and then also the general fixed income market right global bonds are $318 trillion market. Um and then he came to market um with uh strife and stride. I can't remember the the order in which he did that. Um, but you have a perpetual cumulative fixed $10 per share dividend with Strife and then a perpetual non-cumulative fixed $10 per share um with Stride. Both of those targeting different areas of the bond market, right? People uh who are at different areas of the the risk spectrum and people um who are at uh different duration appetites, right? People who want to be in these vehicles for a different length of time and people who can stomach a different um amount of interest rate risk. And the one that has been most successful that and essentially all of those are vehicles to pump capital. You can envision these sort of as pumps or even bridges from these different areas of the market into Bitcoin. Um and then finally and lastly in their most successful launch to date has been stretched was a perpetual cumulative variable 9% of par um uh at a par of $100. Um and that gets paid out monthly, right? Um so currently I don't know what the dividend is. I don't have the dashboard pulled up, but that vehicle paid monthly, right? You're t at that point you're targeting cash, right? Offering a variable dividend that was launched at 9%. If you look at money market funds, um those are tied really closely to the front end of the US Treasury curve. Right now, the front end of the US Treasury curve, one month bills are doing 4%, two-year notes are doing 3.5%. And so offering 9% um on launch, that is a much better deal um than these uh vehicles that are offering much less. and they're paying you um uh on a lower cadence and that was hugely successful right that was massively overs subscribed they ended up I believe doubling the initial amount of this product that they were selling and that targets money market funds right um I mentioned there high yield savings accounts who are similarly um you know high yield savings account may be uh investing in corporate bonds they may be investing in US treasuries they're offering you know anywhere from 3 and a half to 4% annually um stretch is offering double that and ultimately people can look at the mechanics of these vehicles and they may have skepticism, but the ultimate test is um whether or not people buy it and also time, right? These vehicles are very new. They're very nent. Um many of them, if not all of them, have been launched in within the last 12 months or within the last 18 months. So, we'll need to see over the next year, over the next two years, the next 5 years, the staying power of these instruments and the ability of strategy to pay these dividends down without needing to sell their Bitcoin, right? Um, currently the MMO is to uh pay these things down by creating new obligations, whether they're new preferred stock obligations or they're selling common stock that's not an obligation or they're selling common stock, right? Um, they haven't said that they will sell Bitcoin. Um, we will have to see over the next four years, 5 years whether or not these vehicles see continued success and they're able to maintain those dividends that they are promising. Um, or whether or not um, Strategy has to sell any of its Bitcoin in order to pay these dividends. I don't believe they'll need to, right? But ultimately the market will determine these things in time. Um and really what has happened here is tremendous innovation at the crossroads of traditional finance in Bitcoin. The fact that these instruments exist and that they were so successful tells me that all of these corners of the market, right? Whether you're short duration money, you're middle of the curve, you're long duration money, you want access to Bitcoin, you want yield and you've been starved of it. And these vehicles being issued by an entity that has over 650,000 Bitcoin on its balance sheet. um have proven to be hugely successful in attracting those yield starved investors over to the other side of the aisle, right? This Bitcoin side of the aisle. Um and that's why you've also seen more companies attempting to do something similar. Metaplanet has been hugely successful. MetaPlanet is a very unique story because in the United States there are a whole host of options that you can choose from in order to get yield. Our government bonds, right? You can park your money in the 30-year and get like 4.8%. you could park it in one month bills and get um 4%, right? So, there's no shortage of of of products that offer yield in the United States. And our government bonds trading um well well above the reported rate of inflation are proof of that. In the West, it's not so much of an issue for us in the United States at least. In Japan, it's an entirely different story. Their bond market is completely decimated. Um they they've had negative yields in real terms for a very long time. they've they've imposed yield curve control for I believe the better part of a decade um pinning their rates as low as possible in order to encourage investment elsewhere and it's fallen flat on its face. And so what MetaPlanet is offering is this essentially the sailor strategy over in Japan um with their new preferred stock instruments. They are aiming to create the best-in-class fixed income instruments that are offering yield to a cohort of investors over in Japan who've been completely yield starved. So that's why they have been hugely successful um in the market that they're operating in. And I believe this is a trend that's going to continue proliferating, continue getting more and more um popular. And ultimately I think the the next companies that will be hugely successful in doing this uh running this playbook and doing this strategy will will be differentiating themselves from the standpoint of their operating business. Right? So far, the market as far as common stock goes and the way these things trade has really loved selling common stock and buying Bitcoin and doing nothing else. We don't care what your underlying business is. We have no interest in it. We just want to know that you have a team of operators that can successfully do this trade and outperform Bitcoin, right? Um, you know, the the the two key indicators are obviously your MNAV, but more than that, your Bitcoin yield and whether or not you can actually outperform Bitcoin over a multi-year, multi-deade time horizon. Um, and so I think the key differentiator for companies that are coming up in the space and and starting to do this more will be whether or not their core business is low capex, high cash flow, and better than that takes in Bitcoin revenue as well. Right? So, a hugely profitable business um that has one underlying core business or several underlying core businesses that take in Bitcoin revenue. Um I believe that that will be the next um class if you will of Bitcoin treasury companies that succeed. um because so far the ones that have succeeded have been the ones um that have started this and been able to run this playbook effectively and successfully um in different markets right in the United States you have strategy um I don't believe anybody is going to surpass them right you know they have 650 uh000 plus bitcoin on their balance sheet you know metaplanet has Japan if not all of Asia right they now hold I think 2555 BTC as of this morning um on their balance sheet um in in so far the geography has been the key differentiator for the success of Bitcoin treasury companies moving forward. I believe it's going to be that I believe it's going to be kind of an underlying engine, if you will, of Bitcoin accretion. Um, where it's not just your public vehicles that you're creating, but it's also an underlying business that you have um that has direct Bitcoin cash flows or at least a huge amount of cash flows, a high degree of scalability, and you're either um putting those directly into your treasury or you're flipping cash that you're receiving into your treasury. Um, I think that will be the next hugely successful player on the market. I know it's not a question you asked, but that's immediately where my mind goes to is what's next, right? Strategy has succeeded in this. Um, they've they've come out with the way that they're going to actually honor these dividends and honor these obligations that they have. MetaPlanet has done the same in a different geography. I think the next player that will succeed um will be the one that has a a core business that's highly profitable. Um, and better yet, the the kicker, the sweetener, if you will, has uh annual recurring revenue that comes in in Bitcoin terms.
Why do you think that's so important? Um, as opposed to revenue in fiat?
Because ultimately what you're seeing is that strategy essentially is V1 of a Bitcoin financial services company, like a Bitcoin bank, if you will. Um, they have short and long-term debt obligations and a lot of Bitcoin on their balance sheet. And the reason that their debt obligations get so overs subscribed is because of the Bitcoin on the balance sheet and the yield that they can offer as a result. And so, you know, the next logical step in my mind is if you are morphing into a bank, you need to have an uh an underlying operating business that's profitable, right? You do not have the Federal Reserve of Bitcoin. You do not have an entity that can go and create Bitcoin. Um, and so from an investor standpoint and a long-term success standpoint, um, you can't just be an ATM machine forever, right? You can't just sell common stock and then buy Bitcoin forever, you need to have an underlying business that's highly profitable. Um, not only in order to weather the storms of the Bitcoin cycle, but also to weather investor fatigue, right? If there are a million Micro Strategy copycats in the United States, um, 99.95% of them will fail, right? What are your differentiators beyond your team of operators as a company? Um, and for me, I think that that it it just makes the most sense that you you have a cash flowing business that takes in uh dollar denominated revenue, but also that takes in Bitcoin denominated revenue. Because if what investors are seeking is outperformance that comes from Bitcoin, I think it stands to reason that companies that take in Bitcoin revenue would be uniquely positioned to uh attract those investors, right? And so that for me is why it's so important and we talk about this parallel economy quite a lot in in reality, in practice. um you know we we haven't necessarily seen a parallel economy emerge. Bitcoin's monetization has actually taken more of the path of the Trojan horse, right? It really has infilt infiltrated traditional finance and offered yield to yield starved investors and as a result enabled more Bitcoin purchases. That's the way in which Bitcoin has captured traditional finance and in a way and really we're still at day one of that process. But it's it hasn't really built a parallel economy so much as it has been a Trojan horse for the time being. Um, and that's what is has led to Bitcoin success over the last couple of years. It's been a huge component of Bitcoin success rather than individuals buying companies that have created vehicles for institutions to gain access to Bitcoin, whether it's direct spot access through the ETFs or whether it is proxy access through uh these Bitcoin treasury companies who are issuing preferred stock uh in the United States and in Japan. And so for me, um it it just it makes the most sense that a company that can successfully um kind of cross that bridge, if you will, to uh taking in Bitcoin revenue directly and then down the line once you have this fortress of Bitcoin um in real time um being able to put that Bitcoin to work, being able to create actual financial instruments um that may pay out in Bitcoin. Um for me, that is kind of where I see this all headed and that that's what can be enabled by Bitcoin denominated revenues. you can work around a lot of the tax implications um of having to flip the dollars for Bitcoin or vice versa. Um so yeah, no, that's why I that's why I see the market heading in this direction. Um you can't be, you know, have an unprofitable core business and and solely do the speculative attack forever, particularly if there are a million players in the United States that are doing it. I think the way that you succeed is by differentiating yourself and having long-term stability and an ability to repay these debt obligations that goes beyond just issuing more of your instrument. That's uh that's why I'm so convicted that that will be the next play that does really well, particularly here in the United States.
There there seems to be um a race to accumulation right now before um the search and establishment of a viable business model that can help monetize that stack. Um how long do you think that runs um before we do find that some of these treasury companies um through experimentation whether through financialization or otherwise um start happening upon viable business models.
I think that those can happen in tandem. Um what we saw we saw very early on this year MetaPlanet kind of went out and announced actually I think it was in the summer uh you know they they went out and announced and then I think you know they they retracted it or they they walked it back a little bit or they corrected what they had initially said when they essentially said that look we would be exploring how to put the Bitcoin on our balance sheet to work to make other strategic acquisitions in order to put the uh you know uh create an underlying profitable core business or put our Bitcoin to work. The market didn't like it at the time. the market was hugely negative about it at the time, but I think they were that, you know, Metaplanet's announcement was early, but it wasn't wrong necessarily at all. I think that's the direction that these companies need to go in. And I think that uh the market more than anything, and this is the reason I'm saying this is because these were ideas that I had before the New York conference and these are ideas that were validated by the people at the unconference. I spoke to a lot of the execs um a handful of the execs at these treasury firms both states side and elsewhere about this idea that the the next people that would be hugely successful and even the current models that are out there in the general public that will continue to be successful will be the ones that either make strategic acquisitions of other businesses to accrete Bitcoin um through their you know through just through general cash flow um or the ones that have not yet uh gone to market publicly but choose to do this from day one um would be the ones that would succeed. That idea was validated by the folks um over in New York. And to your question, I don't think it's so much as a timeline as I think it's, you know, these things can be done in tandem, right? Um but nobody has yet to uh really try it, right? Um people have kind of dipped their toe in the water. Metaplan, for example, about this, the market uh uh the market rejected it and you know, they kind of pulled that back. Um, I think from day one, if you make it abundantly clear, like a new treasury company that's directly coming onto the scene that we're going to run the playbook at the same time that we are going to use outside capital to scale our core business for long-term Bitcoin accretion. I think if you can effectively pitch that to investors and effectively craft your story around that, then I think the market doesn't punish you. Um, I think the market to this point, what we've seen is they really don't like um when you change not not change up your tune or um make a make a wholesale change in the way that they're doing things, but I think it just boils down to investor communication. If somebody could come onto this scene and from day one say, "Hey, we're committed to doing both of these things. We're committed to running the capital markets playbook um creating financial instruments in order to accumulate Bitcoin for our balance sheet and at the same time um utilizing our existing core business to uh flip cash flow into Bitcoin or acquiring other businesses that have Bitcoin cash flow. I think the market would really love that, but we've yet to seen a player who can effectively pitch that to the market and have anything other than the market rejecting it. Um yeah, I'm highly convicted in the way that this is heading. Um, I won't name names, but this is something that was discussed at the Treasury's conference and was validated. So, uh, we'll have to see what people do over the next 12 to 18 months here.