Bitcoin Alpha E003: Digging Into Microstrategy's Bitcoin Treasury
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The following is for informational and entertainment purposes only and should not be construed as financial advice. This discussion is a presentation by ten thirty one, the leading institutional investor focused on the bitcoin ecosystem. Ten thirty one has over ten years of experience in bitcoin and has deployed nearly one hundred fifty million dollars into the leading opportunities in the space. To learn more, visit ten thirty one that VC let's .

find out with wealthy investors. Think with barber goodstein managing partner, or three sixty and ultra wealthy community for thirty million airs. Barbara morning, great to have new year.

So last time you hear your war read, you said was by accident. This time you said IT was on purpose. So is that a sign of what these sensitive million airs think .

about this election? Well, that is a sign that trump on the election, and we think that there is a lot of big news coming. We had our market opportunities and risks meeting last week, and there's a lot of upside from this win. So these investors .

are excited about the wind of obvious ly what that means going forward. One thing you say they are excited about is bitcoins. So I mentioned to one of our earlier that black rocks bitcoin en etf and now has more asset under management than their gold. Tf, of course, we know gold is a safe, and I know a lot of your investors they hold gold as well with their sentiment when IT comes the bitcoin and and they do in IT directly or three. Tf.

we are very high on bitcoin, and we've been talking about bitcoin for the past few years. We recommend doing IT directly because you don't pay taxes if you're doing IT directly. So that's a big difference.

But we think the bitcoin could become the next strategic reserve asset. So the country now holds two hundred thirty two thousand bitcoin. We think that trump could bump ed that up to over a million, but were good steam everybody, given that high quality advice to a centimeter air clients. Gentleman looks like this is a weekly show every, every new.

all time high. I means we got to do in other episode. So hopefully that means going to do a more new sides.

We ll see. I don't know, I don't know who we will keep up the weekly, but for now.

let's do IT over dumping now below ninety thousand, its earth shatter and heart breaking the pumps over ninety and ninety three thousand. And I was IT hope you guys had fun. Just kidding, john.

You wanted to cold open with the setting there two points, particularly one which i'm a bit unclear of, is that really tax beneficial al, to buy spot pack coin over the etf? And then two, she's given out good advice saying you should own the actual asset and not some derivative exposure. V N E T F.

And then three, she's pretty bulge from the strategic reserve. I said two things are three things really let's talk tax situation. First is a really benfica.

Al, yeah I mean, I would actually say the just studying back like um to your your second point I guess um this is a managing partner at a community for thirty million airs on C N B C making the case for what seems like a meaningful bacon allocation in the portfolios of some of the the wealthy people on earth um and I think you know again, think back where we were eighteen months ago, twenty four months ago I don't think and he was imagine we would get to this point with big pulls of cable like this so quickly um so that it's worth noting that this clip can I even exist in the first place? Um I and I think it's also worth noting get to the taxi in a second. But that she's making the point that they are arguing for holding IT directly rather than the easier kind of rapper of ebit or or another e tf that you can just know buy an a burberry account.

Uh and so I think that that is telling um because these are these are people who spend a lot of time thinking about how best to preserve the wealth of a large families with a lot of money um institutions in some cases and so they're are very attuned to the nuances of custody, uh taxation and preventing kind value leakage and maxims ing the estate planning in all the ways that they can and so that that community like this in a group like this is that tuned to um the underlying qualities that may be differentiate holding bitcoin directly in some sort of self custody or collaborate custody or institutional multis set up that they're even thinking about that little of nuance and and have got ten there and have been recommending that is highly notice and I think speaks to a level of sophistication on this asset that from kind of big balls of money that we haven't really seen before in prior cycles. Um and of course, from where we sit at ten thirty one, I think we all view that as hyper, hyper bullish for our portfolio of some of the companies, some of the best companies in the the quin space providing the pigs and travels the infrastructure necessary to hold the coin directly and uh custody at security over you know generations um and and to buy IT directly and actually own get exposure to and own the actual asset. So I would make all those points that I think this is about as bullish a clip as I could imagine for both bitcoin in in temporary wonder right now.

Um to the tax point, I think what she's referring to is the not totally sure, but this is a point that we've made to um various L P S or as investors and just people who we talk to in the space. Um I think what he is not referring to is the potential kind of tax trap you could get into buying, say I bit with very, very low fees are kind of near zero fees. Um you know biton runs over these next couple years and now you're sitting on you know a massive capital gain that outstrips anything in your portfolio.

Uh and if you wanted to say take go from there and actually take custody of the underlying asset, if you wanted to take the coin and put up his collateral al for lending or spend IT directly do anything at all with IT getting IT out of that vehicle. That means that um you've got a significant capital gaines hit from moving IT out of uh you from soling sowing the vehicle and then um rolling the proceeds into physical big point somewhere. Um and so meanwhile, that also expose you to some kind of pretty risk with a blackrock fidelity and the institution that you know might potentially have no idea threshing to do this but has the ability then to run out of the the Grace ale playbook of forty years ago and take fees up my higher uh because investors are you know morillo to pay the fifty one hundred bibs kind of tax to institution that issue the etf than they are to pay a much hier tax to um in the federal government. So I believe that's what is referring is that you have a lot more tax flexibility and just owning big win and self custody um and you're you much more able to um avoid situations like that where you end up kind of having a long term value leakage to an institution um that's providing etf so you can avoid having the much biter value leakage of um you paying uh mush attacks um to do anything with a record. So I believe that like the tax foxbase that she's pretty referring to.

yeah that could be um you know I could be the the case. This dynamic changes, of course, right now with all the big bitcoin edf, you cannot take distributions of the underlying bitcoin and kind if and when you can do that. And I mean, we've heard some rumblings s that um some of the etf providers are interested in allowing that. I mean, that will be IT will IT will some of be determined on whether you they're allowed to do that?

Um but if if that's the case and you can take distinctions of the bit coin in kind and um you know perhaps that friction you may go away SHE also could be referring to the fact that you unlike A A security um you know with a commodity as bitcoin is treated you know to the extent that you have a decline in the value of of those assets relative to your cost basis. You are able to take advantage of tax loss harvesting vesting strategies, sell a bitcoin and effectively rebuy and lock in that loss to provide a negative a tax taxable income event to shield positive x taxable income you may have elsewhere. So that's a strategy that some people have used in the past.

You certainly can't do that with security because as there's wash sale trading rules. But given the fact that there here's you know a dozen plus bitcoin T A few, I think you could effectively take advantage of those strategies. If you own you know the eyes shares big quantity, if you could sell out when and buy you a similar etf to give you the same amount of exposure. If um you're sitting in position where there's some sort of loss.

yeah very good points. We made this argument. I've made this argument since tsk mal. Like I do think. Not financial advice, but do think it's beneficial to have access to topic coin due to the reasons that john laid out earlier. There is even if you don't see the reasons for IT now, I think the likelihood that you will find reasons actually use bitcoin, whether that's for payments or collateral for alone at some point in the future, I think that's going to in increase.

And as you mention, if you're in the utf, you really don't have that flexibility or ability at all in an on top of eating the captains tax hit that you're going to take your slipped too and you to sell the bitcoin, who knows how many days is gonna to get the cash back in your account to buy the spot Price could run away. And so for holding the e tf, if it's good, first step to think about holding spot as well as barba, good team recommended on cnbc earlier this sweet, very olives, very bullish week we met last week, the live rip sorry for the hot mike last week weeks luckily the the post show hot mike was very pg above above body got some business on air there. But when we recording the Price of big queen was around seventy six thousand dollars.

As we mentioned earlier at some point yesterday, the Price ripped up to ninety three thousand, were currently sitting at eighty eight thousand, one hundred and fifty two dollars. And so we've had a significant run up in the Price of bitcoin over the last week of the last seven days. Bitcoin is up sixteen point five percent.

And I think this is a product of fact that we had the trump administration coming into power. And as the week has gone on, trump s made some cabinet picks and nominees that he would like to put throughout the federal government. And logan, if you pull up the tweet from predator IT, seems like the people that Donald trump is surrounding himself in within administration are very favorable for our industry for bitcoin.

So if you look at the total nominee is pledger ran the numbers for us out of the out of all nominees. Eleven of them are bitcoin allies, seven of them are confirmed crypto currency holders, and six of them are confirmed specifically as big, clean holder. So we thought that trump getting in the, uh becoming the president would be very beneficial for a bitcoin.

And IT seems like that is being confirmed as he float new nominees for different parts of instances of so of j events. Tossa gaber is being flooded for the head of director of national intelligence pete hegseth, secretary defense my walls, the national security advisor mac gates, hitter ny. General Stephen wood, cough the amboy to the middle ast all confirmed to own big winner spoke and positive about IT in the past and one role that is not been filled yet, but there's a lot of speculation about who will fill this role is a secretary.

The treasury. Polly market has had Scott percent as a leader for some time, but the last few days, Howard lutnick, who was the head of trump's transition team, and also the city of counterfeits, jerald, which is very bullish, ed on bitcoin, has been sky rocking on Polly market in terms of the probability of him taking over. Secretary, the treasury long spill there. Would you guys think about this?

What grants are? Resident politics expert.

these are our.

I'm sitting here just doing some research on when tesla and now see you talking about politics. And I just started going out. I mean, I think just i'm not going to avoid that question, but I was just still taking about the opening clip.

And you know more people starting to come out of the woodwork and advice for exposure to bitcoin. And it's just reminding me of what we saw in the last cycle. I mean, you can remember as we started to see the Price run in twenty twenty and into twenty twenty one, you started seeing more people come out and announce that they had been acquiring bit corner.

They thought getting bitcoin exposure makes sense. I mean, this is sort of we've heard some of the macro economists know the well known investors, stanly, dark and Miller. Others advocate for bitcoin now for a while. But we really haven't seen a large number of new people or companies announced their intentions to do.

I like we started to see some of the microstrip playbook, some hints that others are gonna look to be pursuing something like that, which I know we'll discuss later, but I think we're on the very early days of of this and people really only start to come out once the Price starts to run. You know, people don't want to go against the grain when you we're in a bear market and arguing for a bitcoin allocation, bitcoin exposure because they don't want to they don't they don't want to look stupid. They want to look like genius and say, you know what, we've we've already been buying bitcoin for a while and you know go out in the public and the press and take a Victory that for what they're been doing.

And when tesla I did IT, that was in february of twenty twenty one IT looks like IT. I was trying to refresh myself on that in the bitcoin Price was roughly fifty thousand. And I remember when that happened.

I mean, I was shocking. I think that likely as Price continues to a show legs here, that there's gonna be more more people coming out and advocating for. And I think we're at the very beginning the fact that someone has done that and specifically mentioning um doing IT in a way where you're controlling your own keys and holding holding bitcoin directly yourself. I I think as john said early.

that's very encouraging. I mean, I think it's like the know the classic video of the guy, some concert out like a hillside starts to dance wildly. There's no one around him. He actually weird.

Eventually, like a second person joins in the a third and then in the matter of making a minute, like the entire crowd is around him dancing, doing the same thing um that that's a dynamic that we see played through no groups and the human psychology all the time and that here's no different and it's gna get I think that that know that dancers gona get a lot easier for people. More easier point with just the the I guess we will very progress. You could say to the extent that a lot of disapointment um do up coming to pass and looks increasingly like problem.

I have the senate, they clenched the house and yesterday and so you've got a clear the way to probably allow these one's going through a clear pathway for the kind of legislative agenda that the administration probably new favors and wants to see. And um collectively, I think that just continues to make IT easier to get to jump on the bandwagon because you're further and further reducing that going to left tail risk of some really, really you know negative regulation overture kind of some adversarial stance or posture by by the federal government. Certainly if you get a change in the D O J, if you get a change um in the treasury, if you you know get some lot of things at the fd I C O C C at such a, that just makes IT kind of easier and easier to get your hands around um underwriting the of color. Worst case outcome only on the rail tory side. And so um yeah I think as that as that continues and picks up steam, IT will just be easier, easier for more people to come out of the work like .

granting yeah and I I like to think of bst um I think IT was bittered originally put that meme out there. But bitcoin is this weird game where the only wedding move is to play. And you know we see that throughout the space, you you as we interact with investors who are interested in what we are doing at ten thirty one and starting to become interested in bitcoin in general.

You know you find people from all walks of life, you know people from all walks of life that listened marty to your podcast. Um you it's traditional finances people, it's entrepreneurs, it's um no political and policymakers, it's all kinds of groups. And that sort of how we see bitcoin adoption happened.

You know when there is someone who gets really excited and interested about bitcoin, they start advocating for IT in whatever whatever situation they're in, whether it's advocating for its use as a treasury asset at the company that they're with, whether it's advocating for interacting with the network in some way, are starting to build bitcoin products. And I think the same will be true with some of these policymakers that the game theory is something that people talked about for a long time. Naturally IT IT just makes sense that there's going to be more people who sit and sit in these position of power that will have exposure to the asset out of their own financial interest.

And then that will naturally, I think we talked about last week a sort of IT starts to reduce the career risk. IT starts to take off this left tail risk that people been worrying about. So I think it's I think it's it's only potentially a positive thing from momentum perspective in this space is.

is going to mention .

that we .

talk about career risk at last week. And I think part of what barber is doing and many others will begin to do is signal to the market like we did not. We understand the career risk and we make sure that our clients had correct exposure to bitcoin in um so that they don't look like IOS.

Looking forward, that's what you should be doing as a fiduciary for wealthy individuals is getting them into these assets at low Prices. And so I think we will begin to discover who is actually making wise allocation decisions um in twenty, twenty two, twenty twenty three beginning at this year. Um I think they're going to come out that would work say, yeah, we were doing our job.

We've got our clients allocated to allocated a bitcoin when nobody was paying attention to IT. And like you said, great. And probably that makes sense to beat the drum about bitcoin from their positions a year ago was certainly twenty, twenty two, twenty twenty three. The other .

thing we talked about last week um was just this massive inflows that we were seeing on the e tf. You know coming back to the ets and just pulling up this this page again and you can see, I think I was last week, we were showing at one point three six billion dollar inflow on november seven. Then you can just see IT for a lentz continuation of that trend over the you know the several days since then. And so IT appears to show no sign of A A stopping.

Now I said I think there was five point one billion dollars of inflows in total last week or this week. Um so far, this is a variety bid for forbid oin right now. And that I mean, that's we were speculating last week.

And I think these speculation behind the scenes are certainly picked up. He said. Individuals like David bai and during the player signaling on twitter that they are pretty confident that there is a largest nation state.

Probably in the middle is that is looking to front run the strategic reserve bill if and when IT materializes here in the U. S. And is a lot of people speculating, but that is A A big driver of the Price this week. Yes, you know I was we we don't .

have an excited for there, but wouldn't surprised at all. And I think we all would say, um it's it's only a matter time, especially now with with the amount of stressed us that bitcoin has been through and the increasing kind of need for and and focus on kind of geopolitical diversification, I guess, in an increasing multiple the world after what's happened the last few years um and with with bitcoins growing liquidity, um you know interesting.

Ly, as IT gets bigger, IT just gets easier and easier for you. Big sovereign come in and acquire a meaningful stack without totally moving the market, although perhaps they haven't moving the market in last week or so. I guess we will find that out.

But you I mean, grant, to your point to back on the etf and out of the role, is here a staff that I saw that I think is you know indicative is uh, from eric pocus pronouncing his named correctly? Ly, if not sure, but a couple I think yesterday put on a tweets saying that I bit a has hit the forty billion dollar as I said, mark, two weeks after hitting the thirty billion dollar asset. Mark already off to an insane start two weeks ago and now just um adding a third to to what I already done. Granted, a lot of that is a Price session not just pure and flows but but still I think just points to um truly incredible kind of vertical accumulation and Price action here from all sides in in the last few weeks.

And as IT pertains to what could be driving Price, maybe its getting and we're also the factor in the fact that I mean, we've seen this via discussions with L P S. Over the last year. A lot of people are waiting for the election.

Get some clarity. This is more broadly about the direction, particularly of economic policy moving forward. Many people were were a bit worried about the continuation of the economic policies other by an administration that would most likely materialize if comalong Harris was elected president. And so I think there was a big side relief when trump got in particular from wealthy individuals who fit now feel more comfortable to push some dollars into the system, betwen being one of the assets that they're buying.

Another thing discussion yesterday, I think um is really not talk about enough is that um due to the risk that we're taken by companies like block file self cius f tx talana in twenty twenty one, twenty twenty two um there's a good argument we made that the potential Price high of bitcoin in last cycle was was significantly reduced due to amount of risks that these companies were taking and essentially stealing there their lights, big coin and in gambling with IT, either directly or giving IT to to traders who are gambling with IT. And so I think potentially what we could be seeing right now is just we ve got some political we got some clarity on the political side of things and then allocators feeling comfortable to put money back into the system in the big coin. Maybe in the process of simply um getting back to the place that maybe I should have gone to last cycle before all these companies really took a dump in the punch pool and on the party for everybody.

So who knows exactly what's happening? We know that there's more clarity there. Certain ly seems to be interest from soviet nations.

And as barba good steam is an example of there are large capital allocators and wealth managers that are thinking about bacon, thinking about at the right way. So things are looking pretty good right now. And with that will transition to the next topic, which hit the term sheet report this morning.

And IT is about oral ventures, which is just raised and oversubscribed, seventy five million dollar crypto n pack by critics CS in the mark and recent of a sixteen z and we want to highlight this pull up the um pull up the highlighted picture we have now not this one. Um this is interesting. We want to talk about this because I think this is a validation of what we're doing. At ten thirty one, there has been a large imbaLance of capital, which will highlight here in a few minutes in the broader venture space within bitcoin and crypto u, there's been a lot of money allocated towards broader crypto and very few dollars relative focused on bitcoin in the industry that we are investing in. And this raised by portal seems to be an indication that many people are coming to the conclusion that big win is where the signals at.

So here's a blurb from the term sheet report this morning, an industry that seems to shed its identity and search for a new buz word every month or week racing from shiny bobbles like toga ization to mean coins to stable coins to rw real world assets for there's not in the know at breakneck eds Fisher in wrong point to one train they predicted in twenty twenty free and built investments around the supremacy of bitcoin. Now forgone conclusion with the current currency near in one hundred thousand dollars, bitcoin in was still in the doldrums at around thirty thousand dollars when portal made beads on platforms like arch epic native defi platform that later raised additional funding from multiple in john, you put this in our group chat notes this morning. What does this raise in this positioning of portal idea?

Yeah, look, I think something that we kind of say, what is, you know, everyone, capital aides, eventually everyone can eventually gravitates if you stick around long enough and you don't blame yourself up um eventually the everyone will see um the what this article cause the supremacy of bitcoin within the broader of cyp to ecosystem um and we can go into the reasons for that are multiple Martin i've talked about them many times on your podcast and we ve written about them at links.

But you know if we think that um the bitcoin is kind of the apex predator of of money um then everyone is constant going to be going through the A B test of what token they would rather hold you know bitcoin or theory a bitcoin or salon a big coin of the U S. dollar. And increasingly the answer is going to be more and more obvious, everyone. That's where economic masses is going to the crew, and that's where the economic activity will ultimately to take place and be dominated.

And so know we temple almost founded on of that is one of the key kind of central insights that this is the where the world is going um broadly moving toward bitcoin across all these different vertigo les and and bitcoin and nothing else um and that this was going to be a at the very least when to take most, if not going to take all race over you over time and over the the span of a given a fund life um so we've kind of built what we've done not just in twenty three but in twenty twenty and before in mari with you you in math two file partner you back in twenty thirteen went bitcoin only and and have been so since then you this kind of trend has been um obviously for a long time as what we've been doing temptation one on. And so um it's it's interesting not necessarily like highly surprising to see IT eventually started kind league into the broader crypto to ecosystem when we talk to L P S and and other funds that invest in of that, that ecosystem broadly were also kind of seeing that theme and that trend. And increasingly, I think it's a tough for people to deny that bitcoin is h the long term top dog in the space.

And maybe if they want to have a uh a tale of kind of investments in um you know investments that are proceed to be a higher risk, higher return uh in in other tokens, you know it's fine. But increasingly the the mass of of investors in capital are slowly shifting in that direction as as startles highlights. Um you know I think will probably still have our differences on uh the you know the nature of bitcoin native and kind of what the order of Operations for kind of succeeding in this industry that looks like and where are the really interesting kind of modernization opportunities are in the next five to ten years. But um yet it's good confirmation on the margin of um what we've been talking about for many, many years that until very recently was um certainly not consensus among gonna brought her crc do L S both large and small.

Great one. Add anything .

I would say. I mean, IT also just interesting that you're starting to see announcements like this, which does signal that there is somewhat of the thong of the you this freeze that we've seen and capital being allocated into the space broadly, right? Like you haven't for the last couple of years, you haven't really seen many new crypto funds.

It's been pretty tough market out there. Um so the fact that there is new capital being raised, that is just a point of interest. Um I agree that um I I think this sort of the narrative around focusing on bitcoin is one that is not surprising to us.

There's an element of this to me that I mean, even that blurb that we showed on the screen, I mean, IT was acknowledging that a lot of the investors in the space effectively chase, you know, the next buzz war, the next trend. It's trend oriented, investing in attracting capital to chase trends, whether it's in ft, toga ization, mean coins, toga ized, real world assets. And now I think there's an a element that the trend is basically the narrative is crypto on big coin.

And so I think you start to see rumblings of a lot more capital that is interested in things that are happening in bitcoin. But you know, we haven't really seen IT. We haven't interacted within of these groups is just not what we're focused on to some extent.

A lot of these new layer to projects that the crypto capital has gravitated towards, its projects that require some sort of change, protocol change, soft for to bitcoin. And it's essentially trying to bring a lot of what we saw with crypto in defy in web three, two bitcoin. Not to say that people can make money with those because people have certainly made money in the the brother crypto space, but have also lost significant amount of money.

I think some of these projects that groups like this are pursuing Carry the same amount of risk. Again, not something that, that we particularly have looked at. But IT is to me a signal sort to reiterate, I think what johna was looting to that um these groups are they're getting closer to where we think the real signal is in bitcoin. It's not quite there exactly, but it's an interesting uh, trend as we see IT.

Yeah many comments by coin native defied to that. Before you judge to that, let's pull up the chart and just to highlight the historical imbaLance of capital that has been focused on broader crypto o compared to the big win industry. This is one of the charge that we go over most often with L P S and potential L P S. It's this a symmetry, a big win infrastructure. Join a grants and you to put your heads together to produce this this slide when you walk people through what has happened historical and just put some numbers behind the imbaLances of capital that we've seen in the market today.

Yeah, i'm happy to start. I mean, and did I mean, first at the highest level, I mean, what this page attempts to visualize, of course, is that bitcoin is by far um the dominant crypto to currency out there and always has been. We've seen fluctuations over time in which other cyp to currencies kind of set in positions two, three, ten.

But but in terms of just measuring the market value of the underlying protocol significantly out ways um all of the next ten crypto currencies combined, whether if you look at the capital that's being allocated and deployed into projects specifically with the focus on bitcoin relative to everything else IT, effectively the capital focused on bitcoin is effectively out number one hundred to one. So there's a massive match, massive of mismatch in the amount of capital that focused on bitcoin versus crypto even though um bitcoin is by far the the largest market out there. So that's that's one point.

Um a second point I would make um you we tend to focus exclusively on bitcoin. We do think that the world as a relates to private Marks investing venture capital is moving and has been moving for quite some time into this specialist um domain where you have um investors who go in inch wide, in a mile deep and have a specific focus in a specific vertical. So we need to focus on bitcoin.

That doesn't mean that people who have given us capital have the same view as us that bitcoin is the only protocol that matters and is the one that makes the most sense to focus on. There's people who invest with us that sort of take a wider view on interest in the broader crypto landscape. But what's really interesting is that when you talk to groups like this, what is sort of univerSally accepted is that none of them believe that bitcoin is going away.

So even though there has been this focus deploying capital more broadly into the crypto landscape, everyone generally agrees that bitcoin is here, stay and likely will not be displaced by any of the other protocols. Yet there is this incredible mismatch in the capital being deployed in the infrastructure, the companies that are building the underlying technology, the picks and shovels to the space sort of speak. And so that's what this slide tends to visualized, and I think is just really interesting dynamic when you think about investing in the space and where the mismatch and the asem tric opportunities lie.

Yeah, I mean, now you pick up grant may be on one point you made specifically on just kind of the you know the benefits of of specialization. I I think we would all say there's there's kind of a common trip release I was until maybe last year among kind of crypto investors generally that you know bacon's boring and there's nothing happening in IT。 And I think, Kevin, you work in the spaces full time, know for few years and you guys even longer than than me, think we all univerSally say there's if you are actually need to do IT.

There's kind of so much going on under the hood that it's even if if if you're full time job, it's so hard to kind of hit everything and and cover everything. Um so I can't even imagine trying to to be even of a broader crypto fund um covering not just all the development in bitcoin and all the verticals IT hits, but also trying to chase ah hundreds of thousands of other tokens and and projects associated with those tokens and trying to really go deeply on on any of them. And you know so by itself, specialization in that case is kind of a superpower.

But then you're not only know as that charge shows, you're not only trying to take this broad scatter shot view of this whole kind of cyp tu e ecosystem generally. Um you're doing IT in a pool that is saturated with hundreds of of other competence um and so you're chasing you kind of this much smaller prize when you look at kind of the the economic master has a cruel to kind of arrest of like the broader crypto universe. So you've got a much small surprise and you've cut way more people trying to go after that same the same pie.

Um so uh you don't get to specialize and really go deep in you know one ecosystem um and you have to be kind of broaden scatter shot and you have to do that alongside you know hundreds of other relatively optimistic ted people trying to do the exact same thing and chasing after that one kind of what looks increasingly to be like a zero some pie, right? Um meanwhile, in focusing on bitcoin, you not only yet the benefits of the specialization um which you know you can't fake, we got a proof work um for a reason um and I think marti and matt I have more approval work in the industry ecosystem than just not anybody else having have been at IT for for ten plus years. Um so you just have if you're focusing is about bitcoin for godby, you build up this kind of accumulated muscle memory and knowledge of what's going on in the space and how the current cycle maps to prior cycles and how someone's you know company idea or proposal for one thing or another might look like something that you saw that failed five years ago that you'd have no idea about if you are spying on your time trying to cover every new corner of like the broader crypto ecosystem.

And so you get that specialization benefit and you get the benefit of chasing a much bigger pie that I think we all agree is going to get the whole lot bigger based on the trends we talk about earlier. And you get the benefit of not really having to you fight with hundreds of other funds to do the same thing. Um so I think that that kind of is the point that as some of these funds try to transition maybe more into the ecosystem over time, over the next cycle, they're going to be a disadventure ge of not having that accumulate proof work um in the industry, not having the same degree of founder relationships, the same degree of founder credibility, which which is not something you can develop overnight um and not having just that humanity understanding of how the the space works and and kind of why it's deferential um and so I think it's it's not gonna be trivial to try to to recreate that overnight and not end up and you know projects that are kind of maybe doomed to not have great kind of long term, long term outcomes. Um so I think that that pages are one of my favorite tes. So we ever put together because IT speaks in that one chart to so much about our theism and why we're so excited about what we're doing and kind of the advantages in the asymmetries that we think we have by those exclusively on um this is much bigger pie that we think is just gonna, you know, so much bigger with really not many of people doing the same thing.

Yeah I think another thing this this slight articulates and the embalmed, the capital articulate tes, is that many people have really seen what's toc launched and what everybody launched after bitcoin launched in the alternative cyphered currencies. They really misunderstand what's happening as a tech innovation, which between certainly is to extend the between the distributed system um using proof work with the difficulty adjustment a distributed consensus via full nodes in private public key management by individuals and companies and now governments is certainly a technical innovation. They get the combination of all those very to create what is the big way network is undyingly and innovation on par with the internet.

But however, I think people look at that that tech innovation say, oh, we're we're going to go do this for everything, not realizing the tech innovated in that way to produce a monetary asset that cannot be corrupted by central centralized third parties. And and the monetary good is the the, the world here. You're only making this tech innovation to enable this monetary system in the imbaLance of capital, I think is driven by partly by silicon valley um group think where we need to software eat in the world.

We need to use this tech to build all these new. Products when really all we need is money. And this gets to the point of, I think, a lot of the funds and individuals being focused on broader cyp to and are beginning to see the signal that all bickle in is the thing to focus our attention, our capital.

We're going to make that mistake too. Just a great all this tech novation is happening on big coin, like we need to go invest in this defy tech innovation. And I think that is another miscalculation that people are making.

They think that you have this distributed system, which enable this incredible monetary system, and you need to go replicate that for every different application. We did IT for money. Let's go do IT for file sharing, let's go do IT for decentralized finance, whatever that may be. Um cocoon zed, real world assets, which is simply impossible.

You can't A A blockchain can item force contract law in the physical world um and so I think we have seen IT already been uh come in many names of many people can't at bit in season to bitcoin, d five whatever and its people seeing the relative of femoral success that defied organization projects of adding clipped on the go. We were just doing IT on the wrong blockchain. We need to come to do IT um on beckley um not recognizing that I don't think that the toggle zone in the defy is actually where the innovation is.

The money is the innovation and what you have the good money. You can then go do Better things throughout the economy. You don't need to decentralize all the things. Not everything needs to be decentralized. Trust in economic contracts and interactions is actually good thing and you don't need eliminate trust in every economic transaction that you um that you participate in.

And that's where I think our focus is really gona shine as we move forward as because I think we uh we really understand this intuitively and particularly if you agree that the world twenty twenty four forward for the last five decades, we moved from Adams to bits. And there is a pretty a growing consensus that are going to move back from bits to atoms. We need to get back into the physical world and actually build things that neither take us to mars or well some manufacturer goods here, united states as to this examples and bitcoin, the money is going to enable us to do that.

And you don't need deal zed finance or organization, you just need good money to interact with the physical world to um enable people to accumulate capital and then go out and build things that make society more productive and increase economic activity and productivity throughout the economy. And so that's where I think our fox and we've talked about this in the first three episodes, really, I think particularly this cycle that we're heading into and packing in as the super claro is really good money that is scarce to visible, portable, um easy to verify. I think that aspect bitcoin is really going to shine, particularly as collateral that is used in financial products that enable you to do things in the physical world, like doing a decentralized finance in the digital world. Yeah IT seems cool, but I don't think that's really what's gonna ultimately lead to valuable um impactful um change in in our world in meat space.

Yeah well well so um I I mean I think there's we always talk we talk about and prior up so it's do but just about the order of Operations, uh, that is kind of necessary for the space. And now I think I would just pose when we think about I want to define and the coin or kind of giga brain science projects that some people can can come up with many wish you know may long term you've a very long term have some value or some place um are currently dealing with a world where like the vast vast majority people like do not have that coin.

There's all these five hundred trillion dollars of capital silos into traditional assets and they still need to figure out how to even get bitcoin and then how to secure IT um across a bunch of different setups and uh in the context and uh you know bitcoin still has a huge role that I needs to to play even further in um power grids and energy production. Um so the the kind mining angle still needs to be built out much more like we are at the very, very earliest stages of this network at a um an infrastructure level of physical and instructive level and like a social infrastructure vel kind of coming into being. And so you the I keep saying the term, but kind of the economic mass sitting on bitcoin right now that is no uh accessible by kind of some sort of decentralized finance construct is you know just dwarfed in comparison to the mass amount capital that exists in all these other assets.

And I think one of the interesting things that we're going to see the cycle next couple cycles is not like the financialization of bitcoin, but the bitcoin ization of finance of trojan horsing bitcoin into different existing ensuing pools of capital and existing kinds of structures. Um that a lot of those capable providers and locations are R D familiar with. Um maybe this is a good transition of an exit.

You decide I going was a perfect transition or deep dive today that we wanted to go into a treasury service. I think diving into the details of how we view um the way company should approach this between treasury strategy really highlights the thesis we just laid out um in action, which is you use be going to go do things throughout the world and in beat this. So with that was dumpling to IT grant. You wrote the piece back in treasury. What is IT the fourth, the fourth leg of or a third leg?

Fourth lover, I carver IT the fourth lover to equity value growth. Let me see if can just a shared screen here so people see the link? But yeah, I mean, we put this piece out earlier this year in jane, and the premise was talking about really how our thought evolved over time.

As a related to using bitcoin as a treasury asset initially know, we our focus primarily is investing in bitcoin orient companies. Companies are building the underlying infrastructure for the space. We do believe that the Mandate of what we were doing, we've talked about this for some time.

We will gradually expand into companies that weren't historically considered bitcoin companies, but technology companies are other companies that start to see the value of bitcoin incorporating IT into their business in some way, whether that's putting IT on their baLance sheet and integrating with the network, building bitcoin oriented products, catering to um providing products and services to holders a bitcoin. We do think that as the world moves more towards bitcoin, it's not just going to be bitcoin companies and that there's a role for us to play to help companies from outside the ecosystem start to into the ecosystem. But as initially, we've been focused on some of the bitcoin companies, our thought process has evolved.

We had this mindset that, well, you know, the companies that we're investing in, they already are exposed to both the upside and the downside risk Operationally from the success of bitcoin. If you know bitcoin fails, their businesses are likely to fail if bitcoin continues to go out and their businesses should benefit. But they weren't necessarily completely benefiting from the potential growth that we all expected with bitcoin and that you we were advising these companies also to hold bitcoin on their baLance sheet so that they would also benefit from the positive levers that we expected as bitcoin grew.

So initially, that was how we approached them working with these companies. And the advice was as long as you have runway cash, runway of call IT a couple of years to cover your cost because most of the companies, although we do have some that are Operating profitably, most of them at these out of the gate don't Operate profitably. They have cost that are not dominated in bitcoin.

So you need to have cash to to service your business as you're trying to scale. But that was our first kind of advice is so like, okay, after you've got a year two years worth the runway, consider having some bicky exposure because as the Price goes up, that will send your runway potentially prevent the need to delete your equity value in the future. But then we obviously saw with the with the collapse of silk valley bank and some the other institutions in early twenty twenty three, that the the assumed access to your dollars in your feet, currency reserves may not actually be as air on cloud as you expected. And so IT actually made sense, we thought, from a near term perspective for companies to hold some portion of their near term liquidity needs in Victorin as well so that they could serve us yes, marty, well.

I can say I think it's important to highlight exactly what happened during that year at the time. And yet, silver gate signature, silicon valley bank, first republic go down at that point, like oration choke point, two point out was very real. And the access to bank accounts for companies in the industry was not easy to get. And as those banks that were surfacing, the industry to fail, I mean, I get to the point where literally, if you could get out the bank buying bitcoin and holding IT and like a volt with on chain was the only way that you can move your your liquid cash because the banking industry was aggressively against the industry at that point time. And so like bitcoin was the the only option that some companies had.

But remember, that also wasn't even just I think you're telly right about you know two points, two point o but at the time, IT wasn't even just at is for Vicky companies. There was the weekend when S V B one under um garth's A Y commentor famously called an extinction level event for for startups. If if there wasn't you know a bail out that ultimately did come just because so many of them had the vast majority or all of their corporate treasuries at S V B or maybe for republic um and so that you not I imagine most of those startups that um we're not in the becoming industry or necessarily thinking um about bitcoin at that time, although hopefully some of them were. But I think you know that shows that that weekend was not just a bitcoin uh issue IT wasn't just A A problem for bitcoin companies.

That was a problem for um all all startups and and realistically know had the content kind of gone on like all all companies in um and all individual depositors in the country um but IT wouldn't be a problem or at least the problem would have been reduced if you had bitcoin, if you were able to move some money out of a bank account and into bitti in um and I I think IT was a huge important episode for illustrating um bitcoin value proposition to people. And I know IT woke a lot of people up, both kind of even in the beginning true, but outside of IT as well as to um just the reality of the benefits that the going can provide you. We've spent um most of the coins life talking theoretically about the lack of counterparty risk and how in the power of self custody, in the power of an asset that isn't the liability of account party that whether is fundamental, no counterparty risk, if you if you do IT correctly. Um and I think it's very easy when when things are going fine and there's no as bank run and no extinction level events for for companies to kind of see that as like some abstract benefit that basically isn't really important anymore in our our modern banking era where we have an fd in a fed. But I think that weekend really highlighted um the power of of that and how unique and an important of an innovation and that is for for value storage and transfer in um very adversarial and uncertain circumstances.

Sorry for interrupting.

Great yeah no but all all really good points. And so as our thought process evolved, like we looked at bitcoin as both this um near term buffer, no sort of rainy day in case you can access your funds. So make sense to have at least a couple months of working capital needs held in bitcoin and after you can satisfy some medium term requirements in your business from a cash flow perspective, holding an incremental amount in bitcoin so that you have the positive exposure to IT.

And then finally, to tide all together the latest piece of thinking that we had earlier in the year to supplement those was actually, if you have the capability to hold bitcoin as a longer term treasury asset, that actually could be a really compelling way to supplement the equity value growth in your business. And all again, pull up this peace. Just maybe call out some of the points.

This is a complicated formula in the piece. But to dumb IT down, you know, when you think about ways that a company increases its equity value is pretty simple. You have growth in the business.

H, you generate, you generate cash flow and you have dead. You're paying down on debt, but basically growth in the business generating cash flow. And then you also could have increases in your equity value just based on how investors perceive the value in your business.

So you can think of that as what multiple they may describe your business. And if they start to desire or value your business more than you could have an increased multiple attributed to your business and you grow that way. Traditionally, those are really if you want to simplify IT the three ways that you drive equity value appreciation in your business.

Um but we we're sort of calling out bitcoin as a treasury asset as this fourth lever because there's a lot there's a lot of statistics that are throwing out about the historical performance of bitcoin. You know people say in the last over the last ten years, it's grown sixty percent on an analyzed basis. One of our company's battery coming back to john's point on the bitcoin ization of finance, you know batteries doing really interesting things there.

And we'll definitely have them on a future episode to talk about what they are doing. But they've done a lot of analysis on historical four year hold periods for bitcoin. And even in the worst four year hold period of bitcoin, you've generated twenty five percent increase in value on an annualize basis.

And so um holding bickley as a long term treasury asset actually has the ability to have a meaningful impact on the equity value appreciation of your business. And we ran some scenario here really just to highlight that. And I think one thing since this is an interesting time capital, since we wrote at the beginning of this year, now at the time, we were just showing some of the companies how much cash they held on cash market, marketable securities they held on their baLanced well into their market cap.

Microstrip gy at the time was a ten billion dollar market cap company, held eight billion of bitcoin. So we're still trading at a slight premium to the bitcoin on his baLance sheet today. I think it's a seventy billion dollar market cap business. So it's gone up seven x and certainly, the bitcoin hasn't gone up that much. I believed all something like twenty, twenty three million of bitcoin, but just really interesting time, capp, there.

Yeah, I mean, one company we have on this list is microsoft actually realized you going to pull this up. But IT is interesting to look at the microsoft numbers now considering the fact that to the assessment of bitcoin as a treasury asset on their baLance sheet has been forced onto the board meeting agenda in a few weeks here. And there will be interesting to see other react to that.

Maybe they will listen to this and get some get some ideas in wise up and say, hey, maybe we should assess this seriously. Other examples I mean, day port noy, my old boss, he I ve been trying to get to understand the the long term value of holding bitcoin as an aspect of personally and for the business of barral sports. And he's been very public about the fact that he had fumbled the ball time and time again.

And there was a point earlier this year, the end of june, and what he was on one of his life shows saying, if bitcoin dips down to the forty thousand, between forty thousand and fifty thousand dollars, I want to buy ten million dollars worth for a bar to put IT on the bound sheet and I respond to to that video at the time, at the end of june and said, dave, don't try time the market, time in the markets more important. Why don't you just cut up your your lump sum investment that are looking to make a by five hundred thousand dollars with a bitcoin every two weeks for the rest of the year? That's a Better strap.

We found out this week he did not take my advice. He did not buy bitcoin at all. And his kicking himself again, saying he missed IT.

So I went back and I ran the numbers. I said, if you had taken my advice on two thousand twenty twenty four bought five hundred thousand dollars. We're the bitcoin.

Every two weeks, they would have spent five million dollars buying bitcoin. They would have eighty point three five bitcoin on the body sheet, and that bitcoin would have been worth almost seven million dollars. So there are up, if you'd taking my advice, to be up almost forty percent on their their dca investment over the last a five month period. And this is not to poke fun at dave, but IT is highlight that, uh, if you have big one in bound sheet, in most importantly for a big coin on your baLance SHE during these periods, when IT, when IT does gap up the the amount of equity value, the value of your cash cash equivalent goes up pretty significantly and forty percent gain in the cash value of one of the treasury assets on your baLance sheet is prety meaningful. That could allow you do gives you incredible optionality as a founder, somebody running a business.

I mean, that brings up a whole on both kind of the founder side, but then also especially on the larger pop code um with your microsoft point and would be action to see how that plays out next month. Um but IT brings up a whole like new vector of conversation, I think at corporate treasuries and you know like A C F S office because we have spent the last forty fifty years and especially last twenty years um in a world where like baLance sheet in general has just been completely like uh devalued, like this strategic value ports of baLance sheet assets has kind of gone away, in a world where um we need to uh deploy capital and anything to um to be inflation, where we had rates know near zero for fifteen years. Your wealth is just melting if you're sitting, if it's in cash or maybe you're treating water like in the best of times with retain your treasury's or something.

Um and so the ah the baLance y the strength, the baLanced ET does not a bit focal point you've seen over the last twenty years a move especially in um that can start up world toward um you know asset light models, but even in at larger companies. So that have a historically had fifty years ago much kind of bigger bound sheet and and bigger capital assets, the variety of reasons for this. But um people have preferred to move toward a world where you you're Carrying less on the about sheet you have if your assets um in a world where you can actually park capital in an asset that you appreciates that the kinds of rates that um you grant is talking about um the baLance sheet suddenly has no value again.

It's not just a place where um no reserves go to die, where you keep the absolute kind of minimum amount that you you possibly need to to run the business on like a Justin time basis because anything else, this is going to leaking value for your shareholders. And I believe you know micros iller, who's kind of pony this more than anybody else is publicly has has made this point to that. Um you know public markets over the last couple decades have been very much trained to not going to look at the baLance sheet, really value the baLance sheet and um the existence and emergence of bitcoin as an asset with this kind of reference that anyone anywhere can log into with meaningful size and meaningful liquidity and hold for you know a thousand years if they want to, with minimal fees and values lige um totally reintroduces that conversation and and changes the way that um I think a companies and increasingly investors will have to uh assess and value A A corporate baLance sheet.

My my hard take though, on the frequent treasury surgery on the public, the pop cos side is I think you can also go to foreign direction. And I think we'll see in this cycle companies, specially smaller companies. Um you saw what was my genius, A I genius system, whatever bank of yeah right companies that are kind of right right on the margin, right on the edge saying what we intend to you know buy some crazy medic coin for the baLance.

IT worked after the stock so far and we'll see how long that last. But um I think it's very easy to look at what microbes is done and take the lesson from IT that a corporations ultimate kind of a reason for existence is just a like accumulate as much bick on the about sheet as possible. Um and I think that's that's the wrong message to take away.

Um sailor is getting a premium on his stock because he's he's doing something with that baLances. Ute cruel. He's turned his entire company into um a mechanism for acquiring bitcoin and adding to his bitcoin for share, you know faster than investors are able to do by themselves. So you can have a view on how long you know that that lasts.

But at the end of the day, that's that's what a corporation that needs to be IT needs to be an agglomeration of assets that come together in session arrangement that um you produces value over and above some cost of capital that um investors could just produce themselves. Um sailor has has done that by you know turning his company into A A levered bitcoin acquisition machine. And um I think that can probably continue for a while.

We'll see how long that goes. But basically what are you getting at is grant to another point that that you've um talked about a lot and A N A turn that you coin a sad flow. Ultimately, that's kind of what this needs to be, right, whether it's through financial leverages like microsoft or Operating leverages like the companies that we invest in many, which I think we will ultimately go public um and run similar strategies like h the companies you know need to be focusing on.

How do I maximize um the the flow of bitcoin that I can provide over time to to my shareholders, not just kind of sit on a pot of bitcoin and expect my stock to get a multiple for that, right? Because I as an individual shareholder like I should just have that the going like I don't want you to hold that kind of behind you know a tax wall that I can access if all you're going to do is gonna t there on IT um at at the very most value that kind of know one x its its market value. There's no incremental value to me for for you having that bitcoin.

Um so I think we're going to see a lot of people learning the wrong lesson from uh from the theme and from microloan a success um and no question to see how how that plays out um but um certainly at the very least, I think a big take away from the last year to across all these points. If you ve got a company at all of any size with any corporate treasury and you've decided we're going to have x reserves for the short, medium, long term, um some percentage of that should be uh with some meaning percentage that should be in the coin. Don't necessarily expect to get premium multiple just for holding IT, but absolutely um everyone is going to need to make that kind of of education decision and maya rosoff will in another.

So what we'll see this dive into that more and got I think I think I agree. I think one of the other question is, can there be microstrip gy copy C, I think the framing of the question is such many. I think the poor framing of the question is, can anybody catch micropore gen?

I think at this point, no and not think anybody is going to have the baLance sheet or the ability to go dialogue. Shareholders are access debt markets the extent that sailor has, particularly with between at ninety thousand dollars to go acquire more than one percent of the bitcoin supply, sailor has the first mover advantage. And he was the first mover running by himself for for many years, and was able to go out, require that large stack.

So will they be be able to catch sailor outside of the government? I find IT hard to believe. Maybe it's possible, who knows, maybe apple wicks up when they says score IT were going to happen. And I find that hard to believe though I can see other question is um the other part of the Better framing is IT is microstrip gies strategies replicable for others that want to require betwen on the bound sheet and maybe not catch microstrip gy, but follow what they've done in john, I think you just describe why in the long run, people certainly try many people benefit from IT.

And I think thing we should note is that there is an immense amount of debt capital, particularly credit funds, that one access to these type of deals, these convertible notes theyve been very successful for microstrip gy. Microstrip gy only is so much ban with to offer these convertible notes and do these out to market equity of deals. And so that there is certainly strong argument to be made that there are so much money in these credit funds that if there were microstrip gy pure microscope copycats are probably would be demand from credit funds.

Looking to read the benefits of the returns from the convertible notes. The number three, I think, which is what we focus on, is once that strategy sort of style luted and played out, what is um what is truly going to drive valued to shareholders for companies running with a bitcoin treasury shared gie, as you mentioned, sas flow like having an incredible Operating business that is highly productive, highly profitable and being used widely by individuals struck the economy. And that I think is the next stage um maybe not the next stage, but we will certainly see that began to stick out as those companies that have incredible Operating businesses, high cash flows that they are rolling into bitcoin on the treasury as the the companies that begin to stick out maybe.

Yeah there's there's a lot there to unpack the first question. The very first question I think was like is what microstrip doing is a replicable um sailor is saying it's replicable. I mean the mean I think the the third quarter earnings presentation and the videos is on the website, you can go watch IT.

I mean, I think it's really fascinating is a really interesting presentation. And it's the first time they have really got in detail about what they're doing. But also, I think it's is really the first time like they've been howling the narrative on what they are over time.

And I mean, I was just I was doing some research again on on this because in the presentation sailor says that microstrip gy is a bitcoin treasury company, right? I think those were the words um he used and i'm just going to pull up again my screen and just show some of this because I thought I was fascinating. You know you can go their website now and that's what IT is.

So microstrip gy is the word's first in markest bitcoin treasury company. But I remember I was just a couple of months ago. I mean, I think he was at the microstrip gy summer.

He was calling them a bitcoin development company and you can go and I went to the way back machine and you know you can see here in september um that's what that's what the websites are there a bitcoin development company. So I think they've been honing the narrative of what they are as of know q one, q two. That's what they were calling themselves bitcoin development company.

Here's the earnings presentation. IT was we build software. We leverage capital markets activities to acquire bitcoin, and we develop and we're going to be developing software that's related to bitcoin, too.

They made some announcements around doing to centralize identity. I don't know some of that. I would be surprised if they sheltered that effort so quickly. So perhaps that's still ongoing and in the very early stages.

But in the q three report, um this is the q three one even though the I think there they're head titling of these pages IT says q one but this is the q three report now they're clearly said they're biton treasury company and what he markets them doing is being the best at offering bitcoin oriented bonds, right? This is convertible debt instruments that effectively sell the volatility that exists in the underlying stock in return and provide downside protection to the convertible notes investors. And they're the world's best at doing that, and they've been the largest convertible that issue in the us.

This year. And so the question of is what they are doing replicable, IT. Depends what you mean by can a company go out and issue instruments like this to take advantage of the demand that public markets oriented investors have to get exposure, you bitcoin oriented exposure, but also have the downside protection that sailors been able to offer.

I think that's possible. I mean, what we've heard is getting access to the convertible all debt instruments of microsoft. I actually is very hard. You know, there's a ton of demand for them. They've obviously performed really well.

And in fact, in that presentation, he is not only making the case that microstrip gy stock is outperformed bitcoin over lots of different historical periods that you can look at, he's made the case that investing in the converted debt instruments have actually outperforming bitcoin. So there's a ton of demand for IT. Um so much so that people I think you're getting boxed out from participating in that so could accompany replicate the strategy issue um you know these type of instruments as a means to acquire more bitcoin.

Yes, I think so. But microstrip gy definitely is unique in the sense that they have a huge stockpiled bitcoin over two hundred and fifty thousand a bitcoin today. Their stocks is one of the most actively traded stocks in the public markets today.

He went in the presentation to show how much volatility exists in their stock, which is the necessary component for driving some of that benefit in the options market and driving interest in their securities. And I don't think that necessarily is going to be replicable for company, so depend how you boiled down, but that was a mouth. So all positive and see how you guys .

want to react to yeah I guess the one quite I thank you a lot to IT at the end is making the case for a microstrip gy.

Not being replicable like is the gravity of the fly wheel that they started in twenty, twenty so strong that is so much like why would you do IT? Why would you put capital anything other than the microscope gravity? As he said, it's one of the most get the highest one of the highest volumes in terms of stocks being treated uh, in the markets last few months.

What does this year to one moment look like for a company? Try to replicate that? And is that even possible as did they catch lighting in a bottle?

I think part of the part of the issue I would I would take the other side of IT not being replicable uh no one you know I think we can put the rest the idea that as you said, why there was going to catch him um but I definitely think there's an argument that to grants point um and to bring you back to my the earlier thing that I said about the big one ization of finance.

There's five hundred trillion dollars of kind of capital locked up in in different silos that needs some access to bitcoin in some way eventually or some sort like bitcoin leverage. Um a lot of those people are not going to be able to easily or quickly, just know liquidator reorganize and just go entirely into into bitcoin. And so um I think there's going to be a long period where there is significant demand from these different credit funds, especially to have exposure to something like a microstrip gy convertible bond, which is grand said astoundingly, has has outperformed mick.

I don't think people realize um people in broader al finance fully realized just how and saying that is for kind of a dead instrument that know Normally has know the costs that on on those things is like one percent um for that instrument to have a performed a backup in that's a truly incredible um and I just think that speaks to um how unique that strategy is. How interesting that's going to be to those hundreds of trillions of dollars of capital that um are looking for returns and looking for bitcoin level returns and get necessary just become bitcoin night. Um and I think the something that he said in the presentation that the sail said, um we see this image of microstrip gy as kind of a bitcoin refinery, almost an oil refinery where you know they can package volatility and return profiles in different ways to meet kind of the needs and the um worth return desires of a bunch of different types of investors and you I think that's what I was referred to with the big coin ization of finance idea that we are they are the first.

But I think there's so there's going to be so much demand for that. They will certainly not be the last. And I don't know if the next version of that is even a public company acquiring the quinta treasury issue and converts that could look very different.

We've got a company that we've looked to before battery finance in the portfolio um that are you're thinking, I think, a very similar ways about how bitcoin can be combined with the, as founder says, alot with a traditional products in h finance with equity incredible to generate risk return profiles that are more or less interesting depending on what dials you want to turn on, what levers you want to pull to different types of investors for pools of capital. Um that for one reason, another are not just going to convert to being bitcoin, you know tomorrow tomorrow evening. So uh, I think that is a huge theme that we're gona see.

I think there's a way too much demand for IT for for sailor to be the only one who does this in perpetuity. And I think that you know the next ten runners up, even exactly copying his strategy to say nothing of totally other structure that um people have not even thought our employee yet that we know are kind of on the back burner, even know the next ten copycats of microstrip gy that have a thousand bitcoin, five thousand bitcoin, ten thousand bitcoin. Like if we think about where we're going, you if you imagine microstrip gy, can one day be a trillion dollar plus market gap company, which you don't have to work that hard to get there with certain bitcoin Price projections and you assume that they keep acquiring bitcoin.

You know at some rate, um the companies that are the the next ten best copycats of that um are are going to have a lot of, I think, going to see a lot of demand because there is only so much capacity that my strap has been given a quarter a year to take on incremental incremental debt or issue in criminal equity even even at crazy numbers, even as as we continue to run um paraos ally. They can only service so much that at a time there's ultimate limit because of me, a little bit much solution they'll take in and even core. And that just means that huge wall of demand looking for things like this is going to have to go elsewhere and it's going to go into the next ten copy had to microsoft's going to go into things like what battery is doing, what other kind of innovative credit providers that are, are, are going to be doing with bitcoin.

So I do absolutely think that, uh, sun version of this is replicable and a lot of different ways and a lot of different kind of verticals may not look exactly like what microsoft gy is done. And I think he'll be the the top dog in this particular kind of version of this for a long time. But I think this is a huge theme that will see interesting finance in next five years.

Now you answered my student. The the momentum of all the capital looking given to these products is going to be the catalyst this year. D one necessary for for microgravity copycats where people that see what they're doing in you do employee a similar strategy. You pull this up grand.

yeah. I mean, I just was there's a number of interesting slides in the deck. And just to maybe elaborate more on giant point, I mean this page is the capital structure specifically on the convertible notes.

And you can see here um the the five different tranches are convertible that they have a has cute of analyzed interest obligations at thirty five million. They used to have much more expensive debt, which they took out. But to john's point, like they will only be able to support a certain amount of that provided that there is some amount of cash interest expense required.

Um the interesting aspect of their businesses, they have this underlying a business intelligence software product that, that generates cash flow that allows them to service the debt. But if you look at IT over time, I mean, actually, I think he was making the case that they've been seeing some pretty nice near term growth over the last twelve months. But effectively over the long term that that's basically been a flat business for as long as you look back.

So at some point, I do think they get capped out on the amount of that, that they can issue. Instead, the question is, you know what happened to what happens to the premium that they're getting on the stock, particularly as more companies try to replicate this strategy or at least offer alternatives for investors to get exposure. Because now we were showing on the on the biton treasury piece we wrote earlier in the year at the time, micros ratee was a tindher marca business.

They had eight billion of bitcoin on the baLance sheet. So they were trading at a premium. But he was at at one point, one point two five x premium to the underlying bitcoin.

Know you can argue that they should have some premium because they have the cash foes from the underlying Operating business. And then you as sailor argues, um you know they they should be uh given a premium just based on their ability to continue to deliver bitcoin oriented leverage. And they like to coin this metric on bitcoin yield and how much bitcoin pursue growth they're delivering to their investors.

But today today it's a seventy million doll business and twenty three million dollar um or twenty three billion dollar a bitcoin trader position so the premium is a three x um where's I go over time? Um does that is IT merits IT for there to be a three express? Um um I would guess if I to speculate, I think that premium comes down over time.

And even I mean, you could even argue that sailor is sort of acknowledged that, that would go down. Let me see if I can pull up another side here. I mean, this was a pretty interesting slide as well that sort of outlined one of the points john was making as a different ways to slice and dice, getting bitcoin oriented exposure and taking on either enhance the leverage to bitcoin or or less leverage to bitcoin.

And here, what is basically saying is by issuing convertible notes that have some downside protection, don't share completely in the upside to bitcoin because it's convertible debt that converts at a premium to the microstrip gy stock prize, you're sort of trading off some of the bitcoin upside in exchange for some downside protection. And so he showing the convert should be no zero zero point seven five ex leverage to bitcoin. In fact, over know the last several years, he shown that the converts have outperformed bitcoin.

And I think that's mainly because the equity premium relative to the underlying bitcoin to the net asset value, he has gone from this one point two times to three times. And so the fact that the equity is traded up so significantly, that's what's allowed the converts to outperform bitcoin. But in I think in A A more steady state environment, they wouldn't not perform bitcoin. That converts would be slightly less than bitcoin.

And then if this is sort of the the steady state view of what each of these different instruments could look like, I mean, I don't know does is the equity microstrip equity at one and a half time supreme? Um is that more realistic and rational as compared to three times premium? I think best is going to be an interesting dynamics to see playing out.

It's it's an interesting corporate finance question because and he makes I think he made this point in the um the earnings call, and i'm not just so taking of you one where the other but essentially what are basically talking about is like, you know more less surprised to book multiple and essentially no company other than outside of your banks really trades on Price to book, right? They trade on earnings, are free cash flory, but dar something else you know no one really knows of how their head or cares what in videos Price book is or what google Price to book is or no mea apple eeta.

Um because they are they're trading on the metric of what they can deliver on a flu base you're on year um with their P N O or cash flow to to shareholders. Um and so the on one hand, I could say like or yeah like why is why is equally trading IT of three three extreme um to the underlying bitcoin. But if I believe if I could get myself to believe that they have a durable credible case for over the next ten plus years, there's gonna have a different difference of access to view what they've set up by this five while they put in place to doubly grow their bitcoin purchase by some amount.

Um you know why why wouldn't I put some premium on today's underlying bitcoin? Because you know markets are for looking and I want H I i'll take the know a ten year of you and mark up my violating ally based based on that, not just based on what the the two days no kind of root market value of that acid is um less the dead, obviously. So I think it's ah this you pulled the between en yelled construct and this is kind of what I was looting to earlier.

Alright, like just holding the bitcoin on the know, that's great. You should do that to every company should do that to at least some extent. But that is you know fundamental, not the same value proposition to shareholders as kind of doing something with IT and being able to provide them a bitcoin denominated return over time, provide them effectively source satiable over time.

Um and that's what at least there they're targeting. And so if I were you know a microscope bull ah that's probably what I would be arguing, right? Like why shouldn't receive some kind of premium just on on the basic nav? Because here's what I believe they're onna do. Yeah yeah .

those a good point. And I give if today they're at three to one market cap are relative to the a underline guy, the bitcoin, and they're saying that each year they should be able to deliver six to ten percent more bitcoin purchase basically. Then over time that denominates or the underlying bitcoin, you say over five years IT grows ten percent, then you that, that would be effective fully.

Just put aside Price appreciation market cap of three to one relative to the underlying assets in five years, that could be three to one and a half and then over sun, that, that value starts compressed. So I think one way to interpreted is that the investors are giving credit to the expected appreciation of biton uh, on the baLance sheet that they expect microstrip gy to have over time. I mean, this is the way I think about IT is IT is a financial engineering play like they can support a certain amount of debt on their baLance sheet.

Based on the underline cash flows in the software business, IT is more or less financially engineering the outcome to drive incremental bitcoin purchase incremental bitcoin to the baLances. But you you can think about getting leverage two bitcoin. So microscope gy does that and they give you according to say, there one and a half times leverage to underlying big coin performance.

The other way to get leverage to bitcoin is to have Operating businesses that are tied to the performance of bitch coin. You know when when bitcoin Price and adoption increases over time, that doesn't actually benefit microstrip gies underlying business wherefor, the companies such as the ones that we are investing in, they ultimately benefit from increased adoption. And so their leverage comes from an Operational perspective.

And um they're able to deliver increasing bitcoin um effectively bitcoin per share through the generation of sad force like what we're talking about. You you only have to generate positive bitcoin SAT flows to have a greater percentage supply a relatives of the total market. And that's another way that know we think about investing in the spaces. What we are doing, in fact, is getting equity exposure to the companies in the space, and that should you know I don't know what the the apples to apples comparison is relative to what a sailor saying as one and a half times over ship bitcoin. But if you have Operational leverage like the company is that we do, I think you going to be looking at a similar dynamic.

Yeah, no, I think last note on this because I know we get to wrap up soon, but people really focus on the debt service that that microscope are growing. But these are convertible notes, right? Like you you get the cash, you buy the big coin bit in, rescues up, stock Price cues up.

You can burt the debt and equity. And so get rid of that service. You go rent, repeat. And this is like when you just put IT in this simple terms, so you're getting cash in the form of dead.

You take that cash by bitcoin, biton as well stocked as well, and float up converse the equity. You divide shareholders at a argument, ideally at a Price above we boat the bitcoin. So that is pretty simple financial engineering to to a degree.

And critically, he's turned IT out so that he gives himself the room for a becos cycle to play out. Or more than that, I think all the notes that are out stating now at least know when they were issued five years in tender, if if not longer. I think there's somebody go out like eight years.

Um so it's not just like issuing the convert and you know to do next year, hopefully bitcoin ribs in in the anim. It's giving uh you know the company is significant time to kind of let bitcoin do what IT has historically done. And grant, I know I love the just really about at that point point that you made about um ultimately like what we're saying here is everyone in the next ten years is going to be looking for biton exposure but also leverage to bitcoin in some way you can get that financially.

You can do a macri play. Some will do that you know Better than others or you can have Operational exposure, Operational leverage to bitcoin. And that's know what we have in the portfolio.

And um we see atomic companies um that we you know that we have in a portfolio that are showing that um Operating leverage today and notes why we're starting this environment. Just very, very excited to be doing what we're doing. And um in the position morning.

That was your big way out for for the week. That seems like we're going to be given out the house every week. So see next week maybe with the guest.