STRC如何永远改变Bitcoin……（Jeff Walton）

Bitcoin has become very attractive because, one, all the leverage was wiped out of the crypto market. There are no buyers left. Right when there are no buyers left and we're at our lowest, this geopolitical global war breaks out. You can't get money out of bank accounts in the Middle East. You can't get money out of Dubai. I mean, it's almost like poetic timing.

Not that anyone would want conflict, but Bitcoin is good in conflict. It's like, “Oh, wow. Actually, this Bitcoin thing is important.” And the longer this thing goes on, the more important Bitcoin gets.

At the exact moment, Michael Saylor whipped up some financial alchemy that I'm not even sure I fully understand and figured out how to get access to billions of dollars of BTC a day again. So, I have a guy coming on right now, Jeff Walton, who runs the MSTR True North podcast. He's a huge Saylor bull, and I want to talk to him because the stretch product is definitely a game-changer, at least local. Everyone's talking about it. I haven't discussed it once because I don't really know that much about it.

So, other than Saylor, let's get the biggest guy we can on the pod and talk to him. Mr. Jeff, what's up, man?

I'm doing well. How are you?

I'm good, man. It's an absolute pleasure. I appreciate you coming on last minute. Look, things are getting exciting. We actually haven't been talking about Bitcoin that much the last couple of weeks. We got distracted a little bit with everything that's happening and became a geopolitical stream for a couple of weeks here.

But what's happening in the Bitcoin world is electric right now. This stretch product is everywhere. Saylor's back on my timeline, and I'm like, it's time to really dive into it.

So, why don't you give us a quick intro—who you are, a little bit of your background, and your background in the Bitcoin world—and we can go from there?

Absolutely. Hello, everybody. My name is Jeff Walton, Chief Risk Officer at Strive Asset Management. We are a Bitcoin treasury company. We have a publicly traded security and a perpetual preferred security, SATA S A T A, so very similar in structure to Strategy. We're following the Strategy playbook.

We've been doing this—we went live as a publicly traded company in September—and we've been hitting the ground running. We acquired a company, similar scientific, a little bit earlier this year, and we are the 11th-largest publicly traded holder of Bitcoin at the moment and moving fast.

That's super exciting, and you're right: this electric space, everything has just been incredible over the last couple of months, watching the advancements of this ecosystem.

A little bit about me and my background: I've been working in risk my whole life, really—my whole professional career. Prior to joining Strive, I was a reinsurance broker. I sold insurance to insurance companies for 11 years.

Huh. So reinsurance protects insurance companies' balance sheets, right? Insurance inception right there.

Yeah, it's just multi-layered.

Yeah, so the insurance companies, when they collect premiums from policyholders, they invest those assets, right? They invest them into different bonds, equities, and other things. So, when the liabilities come due, they collect the float—the additional yield earned from all the instruments that they held—and they're able to collect that difference before the liabilities come due.

It's a very interesting business model. Berkshire Hathaway and Warren Buffett have been very interested in insurance their entire careers. It's one of the reasons Berkshire is so big, because they've invested in insurance and reinsurance.

It's a fascinating business model. The reason reinsurance exists is because if you have a portfolio of assets that are illiquid, like bonds, and you have a hurricane that comes through Florida and wipes out a bunch of policyholders at the same time, the worst-case scenario is that you have to liquidate all of your illiquid assets at a discount to pay off claims.

The reason reinsurance exists is to reduce volatility on the insurance company's balance sheet. There's a lot of correlation to what we're going to talk about here: reducing the volatility of volatile instruments.

I'll tell you what, they need you to take that insurance talent over to the Straight Arrow Moves right about now.

It's getting crazier.

That's sick. I didn't even know that was a thing, honestly. Is there an insurer to insure the insurers?

Yes, there's a third layer. It's called retro reinsurance. There are very few of those players. They're very large and have a ton of capital.

Berkshire Hathaway does a lot of retro reinsurance. It's a global, diversified web of capital that's protecting the insurance industry globally.

That is insane. Thank you for the background. Maybe we'll circle back to it at some point.

So, look, when treasury companies were really hot—peak David Bailey era—we spent a lot of time on them. Obviously, they've kind of unwound for the most part here. I think they were out of the discussion a little bit. People were pretty fed up with Saylor, at least sentiment-wise, over the Strategy thing post-October 10. Bitcoin unwinds and goes down to $60,000, whatever.

Then he introduces the stretch product, and all of a sudden the Strategy printer is going crazy. Things are accelerating in the scene. Can you give us a breakdown? I'm going to be honest: I don't really know that much about it, or how it works exactly. Can you give us a breakdown of the STRK product and how it works? Then we can get into some of the details.

Let's give a little bit of history and background, because I think this is helpful context.

Strategy became very popular in 2021, 2022, and 2023. They were taking on debt via convertible bonds and taking in capital at very low interest rates. It was like 0% interest. Those bonds were convertible into equity at a certain point in time, so they were able to get leverage on the Bitcoin that they held on their balance sheet, effectively.

But that leverage has covenants, and that money could come due at a future point in time.

Yeah, so if the price of the underlying equity in the stock doesn't go up, then you have to repay the debt.

Yep.

Right, okay. So this is just a debt instrument.

It's a debt instrument. The debt market is relatively small, a moderate size.

Okay.

They're traded very illiquidly. Think of a back alley in New York or London, with all of the really smart, high-end capital guys trading pieces of paper. There are 30 or 40 people who trade these pieces of paper back and forth.

It's very illiquid, and retail doesn't have access to them, even though they're very interesting products.

But they have covenants. A lot of these smaller treasury companies took on convertible debt, and the convertible debt has covenants. You've got to post margin. If the price of Bitcoin falls more than 50%, you could get liquidated—all of these types of things.

So, they were looking for the ideal form of debt to match to the asset itself. What do we know about Bitcoin? It's incredibly volatile. It goes up, it goes down, and it's incredibly volatile. These covenants are pretty risky for your corporate balance sheet.

Yep. There could be a point in time where you have to liquidate your Bitcoin when you don't want to. You're thinking, “I know this is still going up.”

You don't want to be a forced seller.

Exactly. So, enter the perpetual preferred equity product.

At the beginning of 2025, they launched their first perpetual preferred equity, which is STRK, Strike.

STRK. Okay.

What they were able to do was take the same structure of the convertible bond and put it into an equity that's publicly traded on the stock market, with a ticker in front of it so that everybody can buy it.

Now everybody can buy it.

It's not just 144A. It's high-frequency traders, retail, and institutions. It's in a more interesting wrapper that's more liquid.

Okay, that's fascinating. What can you do with a more liquid debt instrument?

They're learning at the corporate level.

Has any other company done something similar? Let's talk about perpetual preferred equity. How does perpetual preferred equity work?

It's an equity instrument. This is junior to all debt.

Got it.

We're talking about capital structure here. You've got debt, preferred equity, and then equity, in terms of seniority.

Yep.

This is junior to debt but senior to equity. It sits a little bit higher above the equity.

What's the importance of capital structure?

In the event that a company goes bankrupt, your seniority in the capital structure impacts your position on the claim of the assets that the company holds—where you get paid out, basically.

Where you get paid out, basically. Equity's last. If there's any money left at the very end, it goes to the equity holders. Debt holders get paid first, preferred equity gets paid second, and equity gets paid last.

Yep. What they've done is effectively monetize the risk tranches within their corporate capital structure. It's a bit complicated.

I'm following 100%. We don't need to get that far into it, but this preferred equity market has been around for a long time.

Okay.

Okay. When somebody is issuing preferred equity, historically, an issuance of preferred equity was a market of last resort.

Right? If you were a company and you were failing, you had already tapped out the debt capital markets, and you would issue perpetual preferred equity to raise capital, knowing that you never had to pay the capital back because it was equity. There was no debt maturity, so you did not have to pay it back in the future.

There might be yield covenants associated with it. You might say, “I’m going to pay out a yield stream at a future point in time.” It could be perpetual, or it could have a term. This market has actually been around for a really long time.

Yes. Okay, so let me put this into perspective a little bit more. The rest of the preferred market—JPMorgan issues preferred equity, Wells Fargo issues preferred equity, Bank of America issues preferred equity—their preferred equities pay about 6.5% interest. Strategy pays 11.5%.

11.5%, yeah. We have one; it pays 12.75%.

Whoa. Okay. And it’s backed by a huge balance sheet of Bitcoin.

Bitcoin, yeah. Whereas the perpetual preferred equities issued by the banks are backed by their bank assets.

That makes perfect sense. How is Strategy able to give 11% yield when JPMorgan is giving 6%? You guys are able to give 12%. Where’s the yield coming from on Strategy?

It’s the productivity of the underlying asset. Let’s talk about what we’re doing and what this instrument is. What are these perpetual preferred equity instruments? They’re yield instruments—yield products designed to give low-volatility exposure to the underlying assets on our balance sheet.

Okay. Makes sense. So, your company and what Strategy does: you’re long-term underwriters of Bitcoin. I’m directionally long Bitcoin.

Our company is directionally long Bitcoin, and we’re doing the work of underwriting what the future of Bitcoin looks like. We’re underwriting it to a 25% to 45% CAGR over the next 10 to 20 years—annual growth.

But we recognize that there’s going to be a lot of volatility in between. So we say, “We’ll do the hard work. We will take on the volatility on our company’s balance sheet, and we will deliver this yield on the instrument we’re providing to the market.”

We’re responsible for figuring out how to pay that yield. For our company, for example, we have 18 months of cash and investment coverage over our dividends. Twelve months of that is held in cash, and 6 months of that is held in STRC. That’s our first buffer.

We can pay out our dividends for 18 months if we did nothing—just in cash and our STRC holdings. Behind that, we have 17 years’ worth of Bitcoin coverage.

At what price?

At today’s price.

At today’s price. Yeah. If you’re interested in holding an instrument that’s going to pay you a 12.75% yield, or Strategy’s 11.5% yield, you look at the risk that they don’t pay the dividends.

Say you were forced to use your Bitcoin. You made no more cash, and you were forced to use 17 years of Bitcoin at $71,000 and some change to pay out your dividends. How would you make money through that? Wouldn’t you essentially just evaporate the company?

The fascinating thing about this business model is that I think it’s very compelling and very interesting even if you had no other access to capital.

Are you long Bitcoin? Do you like Bitcoin?

Ridiculously long. All spot, but yeah.

Let me pose an example for you to think about. If I gave you 1 Bitcoin today for free, would you be willing to pay me $8,000 a year for the rest of your life?

If you gave me 1 Bitcoin today for free, would I be willing to? Potentially, yeah. Generally, probably. But for the rest of my life is crazy. I’m pretty ridiculously long Bitcoin, but I’m not sure that I would. I need to think about it for a second.

Let’s say Bitcoin goes flat or goes down significantly. If, in 2 years, we’re trading at $40,000 per BTC, I’m in a ridiculous spot. I’m in a tough spot. If I pay you $8,000 today for $70,000, then pay you another $8,000, and we’re at $24,000 while Bitcoin is at $40,000, this gets weird.

Let’s say you already had 4 Bitcoin, and I gave you 1 Bitcoin. All you had to do was pay me $8,000 a year for the rest of your life. You would have 5 Bitcoin total. Would you do it?

Yeah, true. But I paid for 4 of them.

Right, but what’s the benefit of getting that additional Bitcoin today?

You’re just getting more size—more leverage, basically.

Yeah, it’s a little bit of leverage, backed by a balance sheet. You could start to think of it that way. It’s a very interesting analysis. I’ve done the math.

Probably, yes, because I have moon-boy Bitcoin targets. I think probably yes, but realistically, it’s a tough equation. Is that your math?

I’m the chief risk officer. I’ve run thousands of Excel sheets in the background and used code to understand this. It’s a very fascinating equation when you back-test it.

You can go look at this: if I did this at the beginning of every month throughout history, even if I did it at the very bottom, in the bear market and the worst period of time, does this model work? If I had to sell Bitcoin, am I better off today doing that than if I hadn’t done it? Are you better off paying $8,000, basically?

Let’s think about it. $8,000 times 8 times 4 is $32,000.

Yep. You’d pay me $32,000 over 4 years. You’d pay me $64,000 over 8 years. One Bitcoin today is worth $70,000.

Do you think that, at that future point in time—8 years from now—you’re going to be better off if I give you that Bitcoin than if I didn’t give it to you?

Before we go further on this, let’s think about the whole idea here. With stretch and sayda, what we’re doing is carving off the excess volatility and the excess return.

Because it has a senior position on my balance sheet, it’s less risky than our equity. We’re carving off the excess risk and the excess return, and that excess risk and excess return is going to our common stock.

Can I ask you a question on this? If I buy this product and lock in a 12% yield annually, aren’t I sacrificing the reason I’m holding Bitcoin in the first place, which is extreme outsized return?

If I gave you $70,000 and bought your product—what’s it called, Theta or Stretch? Let’s use Stretch. If I took $71,000 and bought Stretch instead of Bitcoin, and Bitcoin did a 3x over the next year, I’m only returning $7,000 and some change. I’m returning about 11%. I missed the whole upside.

Why wouldn’t I just go buy JPMorgan’s product, buy spot BTC, still get half of the yield you mentioned, and then get their convertible product, but then get the upside for the reason I’m buying Bitcoin in the first place?

I think you’re missing the concept of capital allocation globally. What’s the point of capital allocation? You’re skewed because you’re long crypto and long Bitcoin.

Explain that. Explain capital allocation globally.

You’re skewed because you’re long crypto and long Bitcoin. But what’s the reality of how capital works globally? If people have cash or capital, they’re holding it for different reasons and different things, and they need to use it at different points in time.

Younger people with a longer time horizon and probably low expenses are willing to take on Bitcoin volatility. They might be willing to go 100% long Bitcoin.

Yeah, but what if your dad or your grandpa, who’s 80 years old, wants some exposure to this stuff to help them in retirement? They can’t be 100% long Bitcoin and take a 50% drop to the forehead. They’re torn apart if that happens.

The question becomes: where does all the capital lie? Who has all the capital?

These instruments provide a different exposure for those different capital pools that will never buy Bitcoin.

I see. So you’re able to get more yield than you would from a traditional product, but you don’t carry the risk of a 50% haircut on BTC.

That’s correct.

Who’s the marginal buyer of this product?

Let me put this into perspective as well. It’s not just the yield; it’s also the liquidity. The liquidity is incredibly important.

Fair.

These instruments are incredibly liquid. For example, just today, STRC traded $260 million. The JPMorgan preferred instrument traded $2 million.

Yeah, believe it. Okay, $2 million.

That’s like a pump and [censored]. Yes, this is 100 times more liquid than JPMorgan preferred stock. Wells Fargo preferred stock—these are some of the largest banks on the planet.

Yep, yep. They’re offering a 6% yield and they’re illiquid. This is offering an 11.5% yield and it’s liquid.

Uh-huh.

Okay, that’s fascinating. That changes capital. It changes how businesses manage capital. Now, who’s buying this? Who would be interested in this in the long run?

The global fixed-income market is probably between $200 trillion and $300 trillion.

Jesus. Okay, okay. Massive. Gold is what? $36 billion?

Yes, $40 trillion.

Okay, so think 10 times larger than gold. Yes. Okay, and how much fixed income is out there, who has it, what are these things in, and how liquid are they?

These products are targeting that entire market. Again, that entire market is people who would never buy Bitcoin. They literally can’t. It’s just a mandate: “I can’t buy Bitcoin. I can’t even buy IBIT.”

They buy IBIT? They won’t or they can’t?

They just won’t.

They just won’t.

There are a few things. Typically, asset managers—the CEO of our company is Matt Cole. Matt Cole spent 11 or 12 years at CalPERS. CalPERS is the California pension fund, the largest pension fund on the planet.

He managed a $70 billion bond portfolio. He wasn’t able to touch a fund until it was 3 years old.

Why is that?

It was just a mandate.

Okay. Jesus.

Funds have mandates like this everywhere.

IBIT is 2 years old.

Yeah, yeah, yeah. There are people who won’t even touch IBIT until it becomes 3 years old. They have a filter. You literally can’t even buy this [censored] until it’s 3 years old.

Okay. Not legally, but they have mandates from their board.

Mandate, yeah. Legally, in quotes.

Yeah, yeah. I got you.

They’re just not going to buy it. They have a filter on their screener, and it says, “Got to be greater than 3 years old,” or whatever.

Okay, so you’ve got that as one component.

Those people never buy IBIT. The other thing that’s happening right now, just for perspective, is that insurance companies have trillions of dollars of capital sitting on their balance sheets. They hold cash, bonds, equities, and all these other things.

They can’t buy IBIT. They can’t buy Bitcoin because they have regulatory constraints and rating-agency constraints that do not allow them to take credit for it on the balance sheet.

But they can buy STRC.

They can buy STRC.

So, what is the pool of capital, roughly, that previously had no access to buying direct Bitcoin exposure, IBIT, ETFs—all of it—but can buy STRC?

It’s probably hundreds of trillions of dollars. A couple hundred trillion. It’s multiple hundreds of times the Bitcoin market cap, basically.

A hundred times the Bitcoin market cap.

Yes. Yes.

Interesting. Okay.

The scale here is enormous. Astronomically enormous. This could scale because, in [censored] terms, all of these funds that are physically, legally, or because of internal company mandates unable to buy Bitcoin because of risk, age, or whatever reason, are able to safely put STRC on a balance sheet.

Yeah, they can start to consider it.

Yeah, exactly. The other thing is that STRC isn’t even a year old. STRC is 8 months old. Think about where STRC and our instrument will be 3 years from now.

There’s this hockey-stick pattern that typically works for ETFs. Our company is an asset manager. We have 12 to 13 ETFs as well. There’s a typical trend when you look at ETFs and how assets under management works. Typically, at the 3-year mark, there’s a hockey-stick, J-shaped pattern.

Why? What’s significant about 3 years?

You hit that maturity—

That mandate.

That mandate of track record. Track record in large capital is incredibly important.

Got it. They’re not going to go buy, you know, X amount of Bitcoin on whatever platform.

They’re just not going to do it. You need to have a track record of this stuff, and a track record of paying dividends. There’s been a big question about how Strategy is going to pay the dividends. Well, they’ve got cash on their balance sheet, and they’ve got $50 billion of liquid Bitcoin sitting behind it as well.

Yeah, but they can’t—the Bitcoin number is sort of a farce because they can’t really tap into that.

They could theoretically. They probably won’t have to. But the whole thing implodes if they have to, right?

I don’t think so.

It’s not about imploding, but that candle is gnarly if that happens, right?

Yeah, yeah, possibly. They could also pause the dividends on the preferred stock. But if they do that, then there’s massive selling and deleveraging.

There doesn’t have to be selling.

If the price of the preferred falls—

The dividends—

Then why is anybody holding it and carrying that risk?

They could pause the dividends, but you’re right: the dividend does accumulate.

It accumulates.

Uh-huh. So if they pause the dividend, the dividend they would have had to pay accumulates. There is that component. Two, if the price of the instrument fell drastically, they could theoretically buy it back as well.

If they had to pause the dividend, everybody would panic, in theory, right? They pause the dividend, everybody panic-sells, then they have to offer a higher yield. It just gets crazier and crazier.

Yeah, it’s a very low-probability scenario. These companies are created and designed to be high-credit-quality companies. There are so many things you would do before you would do that.

You would look at derivatives and options on the underlying Bitcoin. You would look at yield strategies, debt, and different financing scenarios. A lot of people like to instantly go to that doomsday scenario, but I think it’s misfounded.

The reason is that the relative risk of that happening is way worse—or way less likely—than seeing massive explosions in the existing credit market. I’m talking about private credit, any part of the bond market, and any of the existing preferred market.

People who are especially focused on this space aren’t necessarily thinking about that risk event relative to other risk events in the rest of the credit market.

Okay, that makes sense. So private credit is just going to implode too, but this is less likely?

I personally believe the scenario you’re trying to go down there is far less likely than a significant event in any of these other credit markets.

Okay, cool.

Yeah.

So then, I guess, a follow-up—I’m honestly just trying to understand this. I’m not trying to go to doomsday. What percentage return does Bitcoin have to generate for STRC to be able to maintain an 11% and some-change yield? I know they have a bunch of cash on the balance sheet.

It’s 1.8%.

1.8%? Bitcoin needs to go up 1.8% a year and they can pay the dividend forever?

Interesting. At what point would the yield disappear?

But then your answer is that they have the cash, they have the Bitcoin, and then they can go deeper—

The money supply increases at 6.7% annually. The U.S. M2 money supply—

Oh, okay, okay, okay. Damn, is that true? 6.8% is high. Since 1970, for the last 50 years—

56 years.

That’s gross.

It’s gone up at a 6.7% CAGR annually.

That’s gross.

You look at the relativity and you’re like, “Okay, Bitcoin needs to go up 1.8% a year.”

To 2%.

Yeah. The money supply increases by roughly 4 times that.

Yeah, yeah. That required CAGR.

The other thing that’s fascinating, and this is what I think many people don’t really understand, is that the preferred equity is the product.

Right.

The common equity is also the product. What do I mean by that? You have Bitcoin, which is the asset that everybody knows.

Uh-huh.

Then you have the common equity and the preferred equity. The preferred equity is low-volatility Bitcoin. That excess risk and excess return gets delivered to the common equity. The common equity is like high-volatility Bitcoin. You can think of it as amplified Bitcoin.

These are 2 different expressions of Bitcoin. You can think of it like that.

Yep, yep, yep.

What’s really interesting about Bitcoin is that it trades 24/7, 365.

Mm-hmm. And it moves. It’s volatile as [censored].

So, if you’re a trader, these instruments start to become very fascinating.

Yes, yeah, yeah, yeah. I want amplification. I want to turn it up. I want volatility. I want to hedge my portfolio with the most liquid instrument.

That results in people who are longing it, people who are shorting it, and people who are trading it.

Getting movement. You need movement, yeah. So that creates more movement. Now, what does that movement do? That movement creates liquidity pools.

So, Strategy, funny enough, is around the 250th-largest U.S. company by market cap, okay? 250th, okay. Yeah, but it’s around the 15th by volume. Shares traded, yeah. By volume, okay? That’s fascinating. That’s what allows this ability to pay these dividends into the future, because that trading back and forth means that stock is moving. They’re able to sell equity within that trading. So, you think about the relativity here, right? I think Strategy needs to raise $800 a year to pay their dividends. Okay. They raised like $700 on the common stock last week.

That’s fair, yeah. Last week. Yeah, okay.

So, the relativity is you put it into perspective. You’re like, okay, there are 252 trading days in the year. The probability that they raise $800 million to pay the dividends is there, right? The volatility on the common stock isn’t going to go away, either. What’s some moon math on how much Bitcoin they’ll be able to buy if volume stays generally at this level?

I mean, there are websites that are doing this now, but I think this week they’re probably going to pull in 30,000 Bitcoin, maybe even higher. It’s a bit crazy, but the most interesting part here is that everybody used to give Strategy shit for buying the top, right? Like, “This only works in a bull market.”

Yep.

Well, here we are, 45% off the highs, and it’s still working. They’re leaning in, they’re growing, and they’re picking up steam. This instrument is all you can see on Twitter today, especially this last week.

Great take, yeah. Irrefutable. So, the plumbing has changed.

Yeah. I don’t think people quite recognize that. The plumbing of Bitcoin has changed. This hasn’t existed in bear markets in the past—an instrument that was attracting new capital that was never interested in Bitcoin into the ecosystem to buy Bitcoin. Every dollar that they raise on STRC, they’re buying Bitcoin with it. That’s new capital. It’s a continuous bid.

The other reason this works, and I pointed it out a little bit earlier, is that historically, if you’re a capital allocator and you had a medium-term liability—if you knew that you needed to buy a car a year from now, for example—you had $40,000, but you wanted to buy a car a year from now because you were going to move or something. Where would you park the money?

Uh-huh.

Let’s think about a down payment. Let’s say you had a $100,000 down payment on a house, and you were going to buy a house, but you thought it could be next month, 6 months from now, or 8 months from now.

Yeah, I mean, I’m probably keeping it in dollars in something super low-risk. You’d probably keep it in dollars.

Right. Stress-test it. What’s the risk profile? Would you rather earn 4%, or would you rather earn 11.5%? What’s the downside? Are you going to be able to get your $100,000 out? It traded $250 million today. Your $100,000 trade would just get lost in that sea of trades.

Yeah, yeah, yeah.

Right? So, you think about liquidity and risk profile. Are they going to pay the dividend this month? Are they going to pay the dividend over the next 12 months? They have 24 months of dividends covered in cash today.

So, do you have your mortgage in this or no?

I prefer not to share my background, but our company just bought $50 million of this. Let’s put it that way. Our latest SEC filing just came out, and I think it shows around $140 million in cash. We just put $50 million of our cash into it.

Why didn’t you put the rest of the cash into it?

We also have a perpetual preferred equity instrument, so we have to think about liability management and duration capital. You can think about capital management in terms of duration. Your shortest-term liabilities need to be super liquid.

Uh-huh.

As you go further out, you can go a little bit further out on the risk profile to take a little bit more yield, to harvest more yield. You think about the relative risk profile and your credit quality. How do you communicate to the market, and to credit investors, that you’re continuing to be creditworthy and managing risk on your balance sheet?

Wait, are you paying your product’s yield with STRC yield?

I mean, we have cash on our balance sheet. We will receive dividends from STRC, and we’ll have the ability to do things with those dividends from STRC. We’re going to manage the balance sheet to pay our dividends into perpetuity.

Okay, but that’s how you’re able to offer a higher yield than STRC, right? You have some cash, some Bitcoin, and then your cash goes into their product.

Theoretically, theoretically. Why are we offering a higher yield than Strategy? Theoretically, our balance sheet is slightly more risky than Strategy’s. Mathematically, if you’re thinking about asset-backed lending, the number that Strategy needs Bitcoin to go up by—1.8% compounded annually in order to pay the dividends forever—is around 5.8% for us.

Okay, okay.

Again, we’re underwriting the long-term perspective of Bitcoin. Our instrument has a different risk profile than Strategy’s STRC instrument.

Is 12% and some change far enough off of 11% and some change to justify essentially looping the STRC product, given the risk profile?

It’s fascinating that you bring this up. Our instrument is 125 basis points higher than Strategy’s instrument—12.75% relative to 11.5%. It’s funny that people make that comparison, but I think a more compelling comparison would be our risk profile relative to JPMorgan’s perpetual preferred.

Fair, but obviously we’re going to look at Strategy versus STRC, too. We’ve already accepted the JPMorgan comparison. We’re on Bitcoin yield here, so it’s going to be compared to STRC.

The difficult part is—

With—

I would say they’re complementary. You could say we’re competing with them, but I think they’re very complementary products, especially when you’re thinking about capital allocation for duration.

Fair. Fair. So, when you look at the mathematical risk profile, which is fascinating, you’ve got a lot of analytics.

Yeah, and we’re going to try to publish some of those here soon. I think the relative risk profile between STRC and our instrument, Theta, could be debated to be much lower than 125 basis points.

Okay.

Without my lawyers jumping down my throat, I can’t say too much. I’m just trying to get this thing out there. There’s math behind it, right? You can run Monte Carlo simulations and do the math.

One fascinating difference, to give you some perspective, is that Strategy has around $50 billion worth of Bitcoin, $8 billion of debt, and about $9 billion of preferred equity. You could think of that as total amplification of around 30%, but their debt leverage is around 12%.

Okay.

Our company has around, I don’t know, $950 million worth of Bitcoin. We have $10 million of debt, so we have a 1% leverage ratio. Strategy has a 12% leverage ratio. We have the capital structure that Strategy wants to have by 2029. We have it today because a majority of our amplification comes from perpetual preferred equity.

The capital that we brought in through perpetual preferred equity has no debt maturity. We never have to pay back the principal. There’s no call like that. If you hold the instrument, you can’t call it from us. You can’t call your principal back; you have to trade it in the open market.

Got it. Thank you for the explanation. I was curious. I guess my last question, to wrap it here, is: if $100 of STRC is purchased today, how does that capital get allocated? How does it actually work? Do they go and buy Bitcoin with it?

They can go buy Bitcoin with it, and they buy Bitcoin with it quickly. Think about volume. A lot of people have been focused on the trading volume of STRC. Sellers aren’t going to sell STRC under $100, so the price needs to be above $100 for them to actively sell shares into the market.

Everybody has been focused on how much volume trades above $100, because some percentage of that is capital coming in the door. You can think of it as them selling their product every day.

It’s just a function of the printer, right? It’s how much volume is trading on the instrument. Historically, around 50% of volume above $100, or above a price of $100, is taken in and used to purchase Bitcoin with it.

So, you think about it: it’s actually capital that’s coming in the door to Strategy. That capital is cash, right? It’s fungible. You can do multiple things with it. Likely, a majority of it is going to buy Bitcoin.

Cool. Another thing that’s been fascinating is that, at the same time they’ve been issuing STRC, they’ve also been issuing MSTR at about a two-to-one rate.

If they brought in $500 million of STRC, they probably issued $1 billion of MSTR.

Billion. Okay, so they raised about $1.5 billion in that circumstance.

And the reason they’re doing that is they’re maintaining the credit profile.

Got it.

Right? So that credit profile stays constant. The next week, when they announce their buys, they’ll say, “I don’t know, we bought $1.5 billion of Bitcoin this week.” And yet, the next week, they raised all this money and successfully raised all this money on their perpetual preferred equity instrument, but the risk profile stayed the same.

Got it. So the credit investor then is not concerned about the credit quality of the instrument, right? They want to buy more. So then what happens to MSTR? You have the people with the risk profile who are willing to just buy Bitcoin bit by bit, and then the people who aren’t willing. We open up this new market, and they buy STRC. Does MSTR just get destroyed?

I don’t think so, because the value of the common is a function of the underlying Bitcoin. In my opinion, I think it’s completely mispriced at the moment. You look at the capital model and the capital structure that they’ve created. In my opinion, this should be one of the top publicly traded equities in the market.

What is fair value for MSTR? What do you think it should be priced at?

More than it is right now.

Significantly more than it is right now?

Significantly more than it is right now. I think the market cap today is around $50 billion. Given the moat on the capital and the fact that they have magnitudes more Bitcoin—what do they have?—12× more Bitcoin than the next-closest publicly traded holder of Bitcoin.

Damn.

Right. It’s just like 10—no, 11, 12×. They’ve got 12× more Bitcoin than the next-closest publicly traded holder of Bitcoin. And the structure, the instrument that they have in place relative to that, can grow. Like I said, the total addressable market of that is $200 trillion to $300 trillion.

What’s the total addressable market for iPhones?

Eight billion people. If everybody on the planet had one at $1,000, it’d be $8 trillion.

Okay, so an $8 trillion total addressable market for iPhones, and a $200 trillion to $300 trillion total addressable market for this instrument.

I talked about this on my stream last week. They’ve got about $4 billion of this outstanding currently. If it 10×, it would be $40 billion. If it 100×, it would be $400 billion. If it 1,000×, it would be $4 trillion. That would be about 1% of the total addressable market.

If it 1,000×?

Yeah, in size, in notional outstanding. It’d be about 1% of the total addressable market. Maybe 2%, 1.5%.

Okay, so my actual sign-off question then is: What is your end-of-year price target for Bitcoin?

Oh, man. Higher. It’s higher. I think we’re—

Is it disgusting? Do you have a sickening price target?

Oh, man. Yeah, probably. I probably shouldn’t say it out loud. I just think it’s materially higher because the plumbing has changed. The Bitcoin ETF was the most successful ETF in history. Morgan Stanley just launched an ETF.

How many figures is your price target? How many commas?

Six figures.

Okay. Mine’s higher than that.

There’s a probability of outcomes that’s so high, right? It could move very aggressively. But it depends on what happens globally and politically. Are there cracks in the credit system? Does the credit market—

There is a world where there are cracks in a lot of the global financial system, and then it moves fast and there’s another comma in that scenario. But that’s a pretty bad scenario for a lot of people. That would probably mean a lot of people are in pain, and that the money supply is increasing very rapidly.

You’ve got to think about the reality of being in a situation like that. Ideally, it wouldn’t move that fast, but it could. The plumbing’s changed, right?

Yeah, I like that part. The plumbing’s changed.

This was sick. I actually think you did an exquisite job breaking down some complex topics. Pomp, Jeff, hopefully we can run a part two at some point. Is there anything you want to sign off with?

No, I think we’re going higher. I think it’s all going higher, and this digital credit is going to change how companies rethink capital allocation. There’s no better place, really, to put your capital if you have short-term liabilities.

Jeff, I appreciate you, man. Thanks for coming on.

Thanks for your time, brother.

Take it easy. We’ll see you. Peace.

All right, what do we think? I think this STRC thing is cool. If you really have to just grow 1.5% annually and they can back that 11% yield, I think it’s a cool product. That’s a sick product.

Also, I [__] with the access-to-new-capital thesis. It’s very cool. Now, STRC 2: he kind of just said we’re looping STRC and taking a little more risk. That one is a little bit like, hold on. My radar started really going off at that point.

I think the guy is sharp. He’s sharp, and he gave a good explanation. The iPhone thing was funny. When we start getting into looping of the looping, it’s a little bit uncomfortable.

I just don’t fully agree with the access-to-new-capital thesis because it’s like, okay, if you want safe money on your yield or on your money, you’re probably just buying JPMorgan, right? That’s not going to implode. You’ll take the 6% over 11%. And then, if you want upside, you’re just buying Bitcoin. So does the 11% just get lost in the middle? I don’t really know.

The convertible debt [__] is a little bit—I don’t want to say over my head, but I just haven’t spent a lot of time with it. It’s like where we were with the conflict in the Middle East four days ago. I need 96 hours to really give you a take on that.

But I do very much appreciate him coming on.