Preston Pysh (Uncut) 01-15-2025
(00:01) hey everyone this episode is brought to you by river the place that I personally go to securely invest in Bitcoin with confidence and with zero fees and now with Bitcoin interest on cash you can even earn daily Bitcoin interest on your cash balance micr strategy started the year with 189,000 Bitcoin and they ended the year with 4464 Bitcoin so you know they started with $8. (00:27) 3 billion of Bitcoin and they finished the year with $42 billion of Bitcoin the price has gone up astronomically over the entire
year so Jeff I was uh trying to prep for this discussion and um I went back and I looked at our last time we talked very well received from everybody that was uh viewing it and there was tons of questions and I started looking through the comments I hadn’t looked at the comments on this interview since we did it and uh I was looking at these comments and it was interesting there was a lot of people asking what in the (01:03) world does it mean when you guys are saying capture the spread and uh so like some of those things we’ll talk about one of the
really funny things that I saw was you and I were having this conversation about do you let this premium above the treasury blow out and then capture the spread or do you do it just as much as you possibly can and what’s so fascinating is he really wasn’t I mean he was he was issuing some common stock and I know I’m sorry folks we’re just like jumping right into this we’re just going right to the right let get (01:38) in when we first started talking and like I’d say the first six months after our conversation he was doing you know just
occasional common stock issuance he was doing some some more convertible debt and then I don’t when was it like October November it was like he made this 21 million uh Equity or I’m sorry 21 bil billion equity in 21 billion fixed income announcement and then it was just like basically exactly what I wanted from the beginning because I it also back in the show I made the comment I just want Michael to go out and issue (02:13) 25% of his common stock outstanding and just start capturing capturing the spread Capt the spread and uh that’s exactly what we’ve seen
here in the last quarter and as a shareholder although the price is like going sideways and it’s so funny because on Twitter you see people just kind of losing their minds over like I I can’t believe it’s flat and bitcoin’s up or whatever but as a shareholder I’m looking at this and I’m just like oh my God pump this right into my veins this is exactly what I wanted him to do because at the end of the day (02:42) the more Bitcoin he can keep putting on the balance sheet in a per share basis is what in my opinion the real shareholders of this of
this company want to see what are your thoughts what what are your thoughts on him doing this in such you know I mean he is going after it and I’m curious what you think he’s going to do after he gets to this 21 billion 21 billion yeah we’ll start there I guess yeah yeah I I mean you make a great point I mean this this 21 billion the $42 billion Capital plan that was announced on October 30th in (03:15) the Q3 earnings call was the largest Capital plan ever ever announced there’s never been a capital plan to such scale
using at the market Equity issuance and convertible debt ever right this is this is the biggest Capital plan ever and just looking back in the Q4 performance is pretty incredible I mean they’ve raised 17. (03:38) 9 billion doar in like 50 days yeah the the scale of that is astronomical right so you know for your listeners I I don’t know if you know how hard it is to raise a hundred million let alone 17.9 billion so a hundred million they’ve effectively raised $100 million1 179 times which is in incredible and all
of that Capital that’s been raised just has gone straight into purchasing Bitcoin adding Bitcoin to the balance sheet so I mean just I’ve got some simple numbers here they started the year micro strategy started the year with 189,000 Bitcoin (04:17) and they ended the year with 4464 Bitcoin so you know they started with 8.3 billion of Bitcoin and they finished the year with $42 billion of Bitcoin and the price has gone up as astronomically over the entire year now je do you know what that number is in a per share basis because and I’m not trying to nitpick
and I think this is really really important for people to understand when we talk about the total amount of Bitcoin that’s being added to to the company from an Enterprise level that’s one metric but for it to really (04:50) kind of be meaningful in my humble opinion uh you’d have to own the entire company for that metric to be meaningful when you look at it in a per share basis that’s how you can actually because I don’t know the whole company I own so many shares and if the Bitcoin per share isn’t going up then it’s not meaningful
it is I just don’t know I I haven’t done that math it’d be pretty easy to do we just take the common yeah we take the common stock outstanding at the start we take it at the end and we take the numbers that you gave and we divide by (05:19) it and it would tell us that number it has gone up I just don’t know percentage wise and this is another thing his posts online uh on Twitter are always in an Enterprise level uh percent which I don’t like I would prefer to see it being posted as a you know micro strategies Bitcoin yield has gone up by x amount in a
per share basis which would be a smaller I think it’d be a smaller number um in a per share basis so I think that’s an important thing for for everybody in the community to be using as the as the actual metric is in (05:55) a per share basis I believe the Bitcoin yield is actually counted on a diluted basis it’s factoring in the dilution of the equity itself the number that he’s reporting yeah okay yeah so to put it in perspective here right uh the Bitcoin held on balance sheet is up 136% and I think the Bitcoin yield figure at the end of the year was
something like 86% so so that’s the that’s that that’s the Delta is the equity dilution yes there you go yeah I love it so that was what a 40 what was the percent difference that you just said 136% (06:30) increase in Bitcoin held and I want to say Bitcoin yield is like 80% something like that yeah that’s like a 60% difference just in the numbers which is massive but it’s important for people and they’re both huge numbers hug but but it’s important to know the difference because there is a big difference so okay keep going I’m sorry to interrupt you this just like a little bit of
a pet peeve on my part when people aren’t you know discussing it in per share basis but go ahead yeah it’s a really good point and we we get to this (06:59) uh this term of accretion right you know generally generally when you issue shares 99% like any other equity in the market when they’re issuing shares and they’re doing something that isn’t Bitcoin related it’s dilutive they’re they’re issuing shares and then doing something with it it’s dilutive in this situation it’s a creative because you are you know capturing the spread of the
premium on the balance sheet uh in order to add more Bitcoin on your balance sheet so it’s it’s increasing the Bitcoin per share as as we we just (07:30) mentioned by a significant amount now the the capital plan is really fascinating because there’s two facets to it right so you’ve got this ATM component which is a equity share issurance and you’ve got the convertible debt which is a a leverage tool so you know what’s been really interesting and watching over the last quarter is how much their leverage ratio is actually Fallen because
of the ATM Equity issuance so just to put it in perspective micro strategy ended Q3 with 252,000 Bitcoin and a leverage ratio of (08:05) 30% so that means the the debt that they had on their balance sheet relative to the assets that they had on their balance sheet they had uh you know 30% of their total assets was captured in liabilities now fast forward to the end of Q4 with the significant increase in ATM issuance and and the I think it was a $3 billion convertible Bond issuance the assets on balance sheet are 42 billion
and the liability held on balance sheet is 7. (08:36) 5 billion so the leverage ratio went from 30% and dropped all the way down to 18% over Q4 so this is this is a part that majority insane insane it’s crazy most of most of the the Bears and the traditional Finance people aren’t necessarily conceptualizing this are thinking about the leverage ratio they’re you know concerned about their like average bitcoin price and this is going to blow up and you know all of this stuff when when really in reality their financial leverage is reducing
they’re they’re getting stronger yes their ability (09:10) they’re getting healthier yeah stronger and healthier and when you compare this to leverage ratios of like standard equities you know some other equities are 80 90 100% lovered um and some even you know 110 120% levered and they have different you know Financial structures depending on their cash flow and you know all these their components now it makes sense to have a lower leverage ratio when you’re investing in the most volatile asset in the entire Market that conceptually makes sense however uh as a
as a shareholder looking forward here I (09:44) would say they’re probably underleveraged and they have capacity now to dip into this $21 billion convertible debt Market that $21 billion convertible debt plan and add more leverage to the balance sheet to continue to increase Bitcoin per share and into the future and one thing that I really love about this convertible debt is that the convertible debt effectively reduces the volatility of Bitcoin to the buyer so the so the pools of capital that are buying the convertible debt want Bitcoin
exposure for a reason X Y and Z we can get into (10:23) that if you want but what what’s happening is they’re they’re truncating the upside to the bond holder and they’re also truncating the downside to the bond holder now that excess volatility to the upside and to the downside is return to the equity holders the equity holders get the excess upside and the excess downside and that is how this kind of Bitcoin yield is generated into into perpetuity so the people that hold micro strategy Equity are generally very bullish Bitcoin and are willing to take on
that excess volatility to the upside (11:00) and excess volatility to the downside particularly in the long term 4 6 8 10 year duration so that’s one of the most fascinating components to me is thinking about this kind of like excess volatility to the upside and excess volatility to the downside and that being transformed and delivered to the equity holders this is my uh this is what I think is going to be fascinating about uh the next time he does the convertible debt round when we saw it last this this coverage ratio
or leverage ratio that you were talking (11:32) about earlier it being higher back when he did it uh you know I think you said it was 30% isere 30% yeah and now we’re like at onethird of that because of what has played out in the past quarter so when you look at the health of the company and you’re issuing more converts uh moving forward he should be able to get cheaper funding he should get a cheaper funding rate well the person would look at that and say well he’s already getting 0% exactly so so where he’s able to adjust this
is on the strike of the convertibility of the of (12:05) the converts and he should he should be pushing those the people buying the fixed income to e an even higher strike which is advantageous to the common shareholders because they’re not losing as much Equity uh assuming they would decide to convert have you discussed this on your show as far as pushing the the the yields negative I don’t see that happening I think it’s just going to stay at zero and they’re just going to push the strike higher is that is that what you also see playing out
I think this can go this can be the (12:32) really cool part about convertible debt and and really the future of additional Financial products Beyond convertible debt whether that preferred stock or anything else there’s a lot of financial creativity that can happen here um and whether that be interest rates you know maybe it’s and maybe it’s not negative interest rates but maybe it’s 1% interest rate but you move the strike out 100% yeah or maybe it’s zero and you you bring the strike down to 25% but the the payback at the end is 90%
of the of the beginning yeah so let’s say let’s (13:06) say you get a billion dollars in the door to buy Bitcoin the strike price is 25% higher but at the end of the period you only have to return 900 million yeah that could be uh a future design at the end of the day the fact that every one of these have been oversubscribed is telling is telling me as an equity holder you know hey maybe maybe we could have done a little bit better on the terms and conditions of what we’re bringing to the market because obviously there’s appetite for the the strike to be even higher than it
(13:38) was um obviously I’m very happy with the zero the coupon lless uh instrument which is amazing but I think that on this next round it’s like hey let’s see let’s see if we can just get it at subscribed or maybe even under subscribed to see kind of what the market tolerance is yeah that I guess that’s where I’m at it’s like hey let’s just see where it’s at let’s see how good of a deal we can put into the market I think who is Ever buying this is still at least from a fixed income standpoint is going to do better than (14:06) anything else out there because it’s
all trash so um yeah no I guess that would be my you know last time we talked I was like hey go out there and issue 25% of all your shares outstanding and like let’s seriously buy some Bitcoin and now I think that that would be my NE next ask of micro strategy is like hey let’s kind of test the waters and see like what we can get away with on the teas and of the new issu on the converts whenever they decide to do it but yeah I’m I wish I was in their shoes this is like this is so cool unreal man this is (14:40) unreal yeah I I think uh what I’m
fascinated about is all of 100% of the convertible debt that’s been issued so far private placement unrated right so so get into that yeah get into so private there’ve been private placements and they’ve been 100% unrated bonds so like if you think about you know any money manager let’s say you’re a money manager underwriter and you’ve got to go tell your your boss that you want to buy bonds and you’ve got two options you’ve got a rated security and unrated security and you you kind of outline it to them the (15:13) unrated security looks sketchy right
if you have just opportunity cost of capital and you’re viewing all of these different Securities unrated Securities there’s less of a market that’s willing and able to invest in unrated Securities now that forward to the future if we’re going to look at tapping these larger pools of capital I could see this going many different directions where you start getting rated Securities they go through the process of having a public offering and having rated Securities let’s just say they’re (15:45) their b-rated Securities and go going
through that entire process now what why I think this is going to happen is because we’ve got fby fair value accounting coming in 2025 which I think is going to be Monumental for really just the perception of micro strategy within the market um potentially getting added to the S&P 500 which would boost credit quality you know once the market cap starts to rise 250 billion 500 billion the credit quality of micro strategy increases drastically with that so they have the ability to potentially (16:16) offer you know rated products to the
market which Taps a completely different pool of capital like there’s a small pool of capital that can invest in unrated bonds and the pool of capital that can invest in rated bonds increas just dramatically and with in my world from an insurance you know my background thinking about reinsurance and insurance most of the insurance Market they invest in bonds you know yeah they the the insurance Market they can’t put Bitcoin on their balance sheet they get zero regulatory credit for it so that means (16:50) you can’t leverage against it but you
know what you can add to your balance sheet micro strategy convertible debt and you can get your Bitcoin exposure and Lage a portfolio against it yeah and that’s and this is so huge because people don’t understand how big the float is in all these insurance companies Jeff it’s out of this world like I mean this is how Buffett made all of his money with through Geico was reinvesting the float we’re talking trillions and trillions of dollars in the float of these of these insurance (17:18) companies this point you’re making is so massive so massive yeah it’s an enormous pool of
capital that that wants these products and and and just recently in the last couple weeks as well we’ve seen what is it strive Capital that’s come that’s created this kind of Bitcoin backed Bond ETF which I had for seen I know this is this is going to take off and this is going to this is going to be totally huge the the pools of capital for this convertible debt are going to increase just tremendously especially if you have (17:50) an ETF product that can diversify the Bitcoin back bonds I can foresee over 2025 we’re going to see 25 30 companies adding Bitcoin to
the balance sheet and running running maybe a smaller reduced version of the micro strategy Playbook where they’re offering convertible debt maybe it’s 25% of their balance sheet or 50% of their balance sheet different sizes and this Bitcoin back Bond con like convertible Bond ETF can capture all of those and you can have a diversified probably decently High credit rating ETF that you can hold on (18:27) your balance sheet and I can see that be very being very appealing to insurance companies Pension funds you know
all all of these other different I mean even institutions that want this exposure so it’s really fascinating holy moly dude I haven’t even got to the first question you and I are just for cruising yeah and by the way it was nice seeing you in Miami sir for the first time in person absolutely uh what I wanted to do was uh bring up a chart here I actually brought it up very briefly while you were talking um this (18:57) is just showing the comparison in between Bitcoin and micro strategy in 2024 past performance isn’t a predictor of future
performance all that fun stuff but what I really want to look at is just the volatility difference here and this is something that micheel I’m about to play a clip of Michael talking about his own Discovery through all of this which I this clip is one of my favorite Clips I’ve ever watched of Michael in in his interviews and I think it’s so demonstrative of how micro strategies still they’re trying to figure out what (19:31) this even is right so good but look at the chart you can see the volatility the orange there is Bitcoin uh it was up 120%
in the past year and uh micro strategy was up uh approximately 357 per according to the kind of the really close approximation that I got to the start of the year and the end of the year on this chart that I’m showing um but look at that volatility difference and we talked about this last year when we originally were talking which was it’s almost like trying to get on a speedboat that’s ripping past the dock (20:04) and you’re trying to jump on the boat and for a lot of people they’re looking at the volatility of Bitcoin which is anywhere
from 60 to 70% annualized which is crazy uh and if you’re trying to take a position getting on something that has that much all is totally nuts and then you look at micro strategy and it’s it’s way more aggressive than even Bitcoin itself uh over 100% annualized volatility so before before we start talking about like what that is and what that means and whether people how they should approach if they want to invest (20:35) in this how they should approach that let’s push that topic a little bit later in the conversation and what I want to do is play this
clip of Michael I think honestly I think this is one of the best Clips I’ve ever seen of Michael um and let me just make sure I give credit to the folks that uh that were interviewing him here this was risk reversal media there’s a guy uh his name is Guy Adam adamy and uh Dan Nathan that were interviewing him on this we’ll have a link to the full interview if people want to check this out I highly (21:05) recommend that you check this out because this clip is amazing uh but we’re going to play this in full form and then uh Jeff and I
will probably have three hours worth of things to talk about after this Clips in so let’s go ahead and play the clip we get to 2024 and um then we discovered the value of volatility I mean really understand it because in January of 2024 Bitcoin isn’t an asset class and and the second week the SEC approves those ETFs and then you start having the snide comments like well now we don’t need micro strategy (21:36) anymore they’re like just a proxy they’re like a you know a clumsy ETF substitute we’ll just put our money into the ETFs but what
happened at the same time was the having was coming and all of the investors the ball Traders went through a secular rotation and they started selling the Bitcoin mining stocks and looking for something else to trade so if you track the liquidity in the op market and in the equity Market there was a major shift in q1 and early Q2 where a lot of the the volatility and the options Traders and Equity Traders (22:09) they basically hopped off a dozen uh Bitcoin mining companies onto micro strategy because the Bitcoin miners were going to the
having where their revenues get cut in half so when that happened our options interest exploded and we became the number one options Market when the SEC approved the ETFs they didn’t approve options okay so uh today our options Market is like $95 billion our options Market is is the same size as our market cap and then we discovered that the real strategic opportunity we had was we can construct a a balance (22:45) sheet of permanent Capital with leverage and uh and when you take Bitcoin and make it 100% of your of your stock you’re going
to trade probably if Bitcoin is trading with a 60 ball you going to trade with a 75 ball just because of the uncertainty of what the management team is going to do like I have the option to sell Equity or not sell Equity or we might do something or not do something I have the option to do debt or not do debt that option is going to move you from 60 Vol to 70 or 80 Vol then if you actually execute the option (23:16) by selling Equity at a premium or by issuing convertible bonds you move to 90 or 100 Vol so all of a sudden we had an equity
trading with 100 I think today it’s like 120 ball basic double uh Bitcoin equity and now here’s the big idea right uh the S&P is 15 ARR 15 ball Bitcoin is 60 AR 60 ball it has been that way for four years we take a company with permanent capital and we create something which is 100 or 120 B 100 to 120 AR okay now that attracts all the options Traders all the arbitragers all the Bitcoin maximalists it becomes (23:57) hot money uh you you know the call rate if you sell if you hold a dollar bill for 30 days you’re getting uh sof for at 30 you’re getting
480 basis points or something like that if you hold a million dollars with the S&P index for 30 days you can get like 15% interest by selling the 30-day calls at the at the market if you hold Bitcoin ibit for 30 days what you couldn’t sell the options until just recently but now you can sell them and generate about 100% interest if you sell the micro strategy call option at the market it’s 220% interest rate (24:33) okay just to hold the the the share um and so all of a sudden what we’ve done is we’ve created uh a levered uh a levered
flywheel on top of a product which is already 4X as volatile and 4x as performant as the SNP the result is our liquidity explodes our options interest explode and we do a convert bond in q1 a week later we do another convert Bond that’s the first time in history anybody ever did two convert bonds back to back two consecutive weeks then we do another one in Q2 then we do another one in Q3 then we do a billion (25:10) dollars of ATM in Q3 and then we start to get into a Groove and we realize that at the end of the day you know uh the Market’s
going to Rally around some leader and you’re either going to lead in a decisive way or you’re going to sneak around and and apologetically be opportunistic or you’re going to hide and wait and so we just decided we’re going to lead I mean John D Rockefeller decided to roll up the entire petrochemical industry and he bought out all of his competitors all of his customers all of his vendors and (25:43) first he did it for for a cash and he would they would say okay well pay me this he’ go to the bank he’d borrow the
money and he’ give him the cash and at some point people in the industry said you know Standard Oil stock is worth more money than the cash and he just started issuing the stock and Henry Flagler of course built Florida with Standard Oil stock and so there’s this point in the market where the market decides it trusts you and it wants to Rally behind you and we got to the point in October 30th and we just said look (26:13) we’re going to put the question to our shareholders do you want us to basically build this business or not and after 40 consecutive
Bitcoin purchases after laying the foundation of a Bitcoin you know development company after actually rolling out the kpi of BTC yield which is we just sold a billion of equity it was backed by 350 million in Bitcoin we bought back the billion in Bitcoin we captured 650 million of the Arbitrage that works out to 4% that 4% is like a a Bitcoin dividend to the shareholders but we’re going to keep it on the balance (26:47) sheet roll it forward and reinvest it once we constructed that model we just said look we’re going to issue $21 billion
of equity and we’re going to issue $21 billion of fixed income whether it’s convert able bonds or preferred shares or corporate bonds and we’re going to do the fixed income to say levered we’re going to do the equity when is at a massive premium to the underlying assets to capture the yield and to delever um if you want to get behind us on that that’s the plan we put it out there the next day stock trades up we (27:18) outperform every magnificent s company we outperform Bitcoin we outperform every Bitcoin company yeah so the shareholders
spoke I mean they by it’s not a surprise to me I was 95% certain they would like it because I meet with them and they were like this is the most brilliant thing ever yeah just keep doing this so after that you know we had a good week and then November 5th came and uh there’s a red sweep and all of a sudden you have a pro Bitcoin White House a pro Bitcoin Senate a pro Bitcoin Congress Pro Bitcoin cabinet Bitcoin (27:48) rages from 68,000 to 999,000 the short of it is we raised 1010 billion in four years after our initial announcement and
that’s like Progressive work and learning you know we’re learning and the Market’s learning to trust us right we’re building a relation my relationship is not just with My Equity investors it’s with the convertible Bond investors you know you meet with a convertible Bond investor say I saw you last quarter I saw you you know you yelled at me for this and this I fix this I’ll do this we’re Partners (28:17) together I promise you I will do this I’m not gonna I’m not gonna mess with your opportunity I’m not gonna hedge it I’m not
gonna I’m not going to steal your trading opportunity I will do this and this and this the guy goes well and and I’m looking forward to this future they goes thank you for your cander $500 million order like if you have trust and people understand you they’ll give you your money so what happened next is we raised 13 A5 billion dollars in four weeks and I you know if you look at my tweet my my (28:47) tweet uh this morning is basically yeah we generated about a n billion doll plus gain for our shareholders in those four weeks
we’re making hundreds of millions of dollars a day it It’s Tricky for conventional investors to understand it because you’re not capturing shareholder value creation via Gap accounting because for two reasons one bitcoin’s indefinite and tangible but two in the history of 50 years of the capital markets everybody’s been on the US dollar standard which is zero V zero AR against the dollar and this is the (29:22) Bitcoin standard 60 ball 60 ARR against the dollar we don’t have the math the accounting to keep up with that in the traditional system
and that’s why we have to put forward things like a BTC yield a BTC spread a BTC gain and those that understand BTC they get it and they’re long and they love it and those that don’t understand BTC or don’t understand this or just aren’t really interested in putting in the work they just think it’s sham crazy and they’re just going to short it or they’re just going to whatever so that’s where we are (29:54) today is from desperation to opportunistic to strategic to to Identity at this point we’re a Bitcoin treasury company I’m on a mission
my mission is I’d like to see the entire world recapitalize on bitcoin every company every family every individual every government I think it’s an economic protocol for Prosperity I think it’s as important as English or fire or electricity or steel I just think it’s good technology it’s a good idea we’re we’re reaching the fund stage the next four years I think are kind of fun we (30:30) get to we get to do a lot of interesting things to help people good Lord there’s so much there there is so much there I don’t think you can see me laughing as I’m watching this okay
so for I want to start off uh where do we start where do we start so people might have heard uh Michael and I think for for some they hear him saying things and they’re just like this guy’s off his rocker because he’s using he’s he’s an engineer first and foremost right he goes out and he’s saying uh you know the Vall that we’re seeing at micro strategy it’s like we’ve (31:05) figured out a way to like tap it’s like a nuclear reactor and we’re we’re instead of running from the volatility we’re going in there and we’re like literally harnessing the volatility
for our own benefit and so he’s basically created a crypto nuclear reactor so what in the world does he mean by that and sorry to you know just jump in here I’m just like this gets me so excited Jeff I swear to God absolutely like jump through the roof um so when we think about a nuclear reactor right you have your plutonium rods you push them down (31:38) they create all this heat that’s coming off and then you put just water around it and it Heats it up and you get all this violent uh volatility through the water molecules it creates the Heat and you pump it out you
know out to people that need uh the energy um so very simply what he’s doing through all of these financial instruments whether it’s the convertible debts issuance or he’s going out there and just issuing more common stock into the market and then he’s raising cash and he’s going and buying Bitcoin with it these two things (32:08) this interplay between these two things is creating this violent amount of volatility in the marketplace what it’s doing is it’s attracting speculators it’s attracting people that are going long and short simultaneously
to capture yield in the market this is sometimes referred to as fast money on Wall Street and he’s just sitting back and it’s and he’s harnessing this energy and just pumping it more and to to become more and more Bitcoin on the balance sheet is what he’s doing right and this is this is nuts I think most people are looking (32:41) at him and they’re saying oh this is so dangerous this is this is uh you know he must be in debt up to his eyeballs he’s going to lose all of his Bitcoin because he’s borrowing so much money but think back to what
Jeff and I were talking about at the start of the show from a health standpoint from a Financial Health standpoint the assets versus the liabilities it has improved tremendously in this past like a lot and not just in percentages but in nominal terms as well the numbers are crazy they’re in the billions and (33:11) billions so I would start there I want to hear what your take is Jeff of that clip yeah a lot of people don’t recognize or or understand that the Bitcoin itself that they’re raising is permanent Capital like
the exit strategy is buying Bitcoin Bitcoin is the is the Best Collateral the planet has ever seen intangible too which he highlighted very clearly in there which means he doesn’t have operational sustainment costs associated with this permanent Capital but keep going I’m sorry to interrupt yeah yeah absolutely and I’m I’m (33:45) incredibly bullish for the future of Bitcoin as collateral like the next decade for Bitcoin as collateral is going to be incredibly exciting we’re going to see that infiltrate in in many different many different ways when
where people are going to be wanting to to post their Bitcoin as collateral and return a a yield or effectively yield it I mean we’ve seen that go poorly in in past situations but I I think there that’s very appealing for many different reasons in thinking about micro strategy stock and the volatility a couple things (34:15) that have been really interesting to me as well in the last 30 days micro strategy has been one of the top 10 traded publicly traded equities in the entire market for the last 30 days in a row there the 110th largest
Equity company but they’re trading in the top 10 for the last 30 days in a row that’s really appealing to me they’re trading effectively with uh you know the mag 7 in terms of daily total traded volume why is that it’s because there are there are so many um players in this game that are leveraging that volatility in both (34:50) directions and that’s uh the derivatives Market he mentioned the options Market was just as big as their entire market cap and there there’s so many people that are playing in the options Market whether that
be the convertible debt arbitragers uh long options players uh you know hedge funds that are managing exposure in in any One Direction and some other things that are particularly appealing and he kind of hit it there is um if you hold a large amount of micro strategy stock you can use the derivatives Market the options Market to (35:26) generate a yield on your Equity holding into the future there’s not a really good robust system for that yet uh for Bitcoin and just to put this in perspective U back in November you could sell covered call options so a covered call is
let’s say you have a 100 100 shares you could sell a covered call option that represents a 100 shares and you could sell it 100% out of the money and return a two and a half percent yield one of the most common questions I get from family and friends is Preston where do you personally buy your Bitcoin from (36:04) and the answer is really simple I buy it on river.com not only can you buy Bitcoin with zero fees on recurring buys but you can earn Bitcoin interest daily on cash balances while waiting for good buying opportunities and over
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a new standard in Bitcoin investing go to river. (36:53) com s/f fundamentals to get up to $100 free when you sign up and buy Bitcoin that’s river.com /f fundamentals holding Bitcoin is the best way to protect your family from the threat of fiat currency collapse and few people understand this better than Tony yasbeck cyber security expert and founder of the Bitcoin way Tony was in Lebanon when the currency imploded he’s seen the chaos that erupts when the ATMs stop working and the bank accounts get Frozen he knows what it’s like to lose everything but with his cyber
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consultation today at the Bitcoin way.com stip (37:59) uh in in 30 days so if this if the price of the stock goes up another 100% you get your shares called away or somebody’s buying the stock from you at that price if it doesn’t go up another 100% you collect two and a half percent yield and you could run that 12 times throughout the year and make you know 50% yield running a a derivative option strategy strategically now everybody’s doing this in different perspectives everybody’s trying to figure out exactly how they want to strategize and and
use this uh derivative options structure to (38:37) facilitate cash flow one to either like add Bitcoin to cold storage or facilitate their life uh so they could build on bitcoin or or whatever that may be and it’s a it’s a fascinating design you know there’s so many people that are using these other different products in different directions and different ways to do whatever they want to do and it’s it’s really appealing so um I think we’re also seeing you know some people come into micro strategy with the idea that in a if there is
a bare Market which I I think there will be a (39:11) bare Market at some point in the future who knows exactly what that looks like but if there is a bare Market you can use your micro strategy stock and and generate a yield a cash flow in the interim if you have an understanding of what’s going on in the market and how things are kind of moving the other the other thing that’s really appealing is I I feel like if you look at micro strategy stock and you kind of zoom out and you think about okay it’s trading at the top 10 publicly traded equities
and you look at the volatility it’s had just (39:35) in the last three months in Q4 right we had to saw a huge run up it broke 200 went up to 550 came back down to 300 who knows where it goes from here but it it appears like it’s moving like a trillion dollar company yet it’s only just a hundred billion dollar company right now it it’s like it’s gaining Steam and getting bigger and I I I have a feeling that you know two years from now this Q4 moment in time where it dropped from 550 down to 300 will look like a blip yeah so it’ll be interesting to see these numbers that
(40:12) you’re saying I think it’s important if somebody would go back and listen to our conversation from last year you have to make sure you take into account the stock split for some of the numbers that we were saying like we were saying $160 and some of these types of numbers which would be the equivalent of $16 uh because they had a 10 for one stock split so that’s also important for people that are maybe uh listening to the previous conversation in concert with this one um there so uh there was a really good point that he made in here
(40:38) to talk to this idea of capture the spread this terminology that we keep talking about Michael said in that uh clip he said we did a billion dollars of equity it was backed by $350 million of Bitcoin and then we added $650 million of more Bitcoin after we did this raise so what in the world does all this mean okay I’m going to try to make this as simple as possible for people with this capture the spread his company if you add up all the shares out there right um trades for and we’re going to use very simple numbers (41:10) here we’re just going to say a billion
dollars if you took all the shares and you looked at how much Bitcoin he had on the balance sheet there’s a billion dollars worth of bitcoin the common stock that represents this Bitcoin and the operations and everything else on the company the the shares sell for $3 billion okay so that’s a 3:1 ratio so the amount of Bitcoin is a billion the company’s trading for 3 billion for a 3:1 ratio so now if you’re Michael you can just say let’s say he wants to uh go out there however many shares there are (41:42) and he says I want to add 10% more
shares into the market okay he just basically creates more stock certificates he goes out into the market he sells the stock certificates and he sells them approximately for this $3 billion price per and you take the 3 billion you divide it up by the 10% more shares that are added and what he’s doing is he’s just raising cash he’s selling more shares to raise cash in this scenario he would have raised $300 million because he approximately you know most of the time we were saying (42:12) it’s a delu of activity where that $3 billion would be diluted in a per share
basis this because he’s raising this call it 300 million in this scenario he goes out in the market he buys Bitcoin with the $300 million of cash he just raised from issuing the new stocks and now he has an additional now how much Bitcoin does he have on the balance sheet he has $1. (42:35) 3 billion dollars worth of bitcoin on the balance sheet because he took the $300 million he bought Bitcoin he put it on the balance sheet so now when you look at the ratio if it was trading at a 3 to1 before you would think that it would then let’s say
the multiple is the same you’d take $1.3 billion doar you’d multiply it by three and that would be the new market cap uh what are we at 3.3 or 3. (42:56) 9 uh billion dollar somewhere in thatx Park and you can see what he’s effectively doing is he’s taking something that is let’s say the Bitcoin is is $100,000 if he does this activity he’s effectively kind of buying the Bitcoin for $33,000 when he’s doing this because he’s able to issue shares that are worth three times the amount of Bitcoin on his balance sheet this is what we call when people say he’s tapping
the ATM this is what he’s doing when when I’m yelling capture the spread what I’m saying is your Shar Shares are worth three times (43:28) the amount of Bitcoin on your treasury so issue more common stock and go buy more Bitcoin with it because if the if the common stock and the Bitcoin were at parody let’s say they’re both a billion each it doesn’t it’s it’s not as big of a value capture for him to go out and issue more common stock and buy more Bitcoin because he’s getting it it’s 100,000 per coin and he’s going out and buying at the $100,000
price but if you got this multiple blown out at 3 3x the treasury he’s effectively buying it for3 $3,000 so you want them to do that all (43:59) day long folks this is what we mean capture the spread this is what we mean by ATM and so where this where this gets even more fascinating is that if the price of Bitcoin goes up the leverage ratio drops right so on you’re talking on the convertible debt side yeah well I’m I’m just talking period healthwise yeah just healthwise right and so you know they’ve raised what is it two
200,000 Bitcoin in Q4 yeah and so that’s that’s now base permanent capital okay base permanent Capital if we see increased uh bitcoin price from (44:41) let’s say strategic Bitcoin Reserve or any other company that are adopting a micro strategy Playbook you know continue to buy Bitcoin and we see a bull market where the price of micr strategy grow you know or the price of Bitcoin goes up another 25 50 100% all of a sudden that that leverage ratio drops drastically really quick exponential as the price of Bitcoin goes up the leverage
ratio drops like exponentially and that that provides more capacity to adding convertible debt to the balance sheet and leveraging up the (45:13) balance sheet even even more which is also incredibly appealing because it’s a creative right you’re you’re selling your stock even further out of the money instead of issuing it you know an ATM you’re issuing it out the market whatever the market prices that day the convertible debt effectively issues it at a future price that’s that’s greater 55% higher than what today’s trading price is at
least that’s what the last piece of convertible debt was offered at so yeah it it it provides even more Bitcoin per share by taking that (45:44) leverage on uh on the balance sheet what are your thoughts on the NASDAQ news QQQ the NASDAQ 100 yeah the NASDAQ 100 I thought that was incredibly exciting moment for for micro strategy so for those that are unaware micro strategy was added to QQQ which is the NASDAQ 100 this is the fifth largest index ETF in the world and it represents the top 100 globally NASDAQ listed non-financial
companies and so this is incredibly appealing to me because one they qualified for the NASDAQ 100 before S&P p500 which is very rare it’s very (46:30) rare that you see a company you know have a a hundred billion doll market cap without the the financial underlying base support from an index ETF like the S&P 500 so it’s very rare that you see a company go to the top 100 before getting S&P 500 uh inclusion so there’s a couple couple reasons this is incredibly appealing one because it it adds a constant bid to micro strategy in perpetuity so any
any person or uh you know pension fund that’s buying QQQ when they put a dollar into QQQ that dollar is split and spread um between the 100 (47:11) equities that’s represented in the QQQ index so those buyers when they buy QQQ they don’t care about any of these metrics that we’re talking about right they don’t care about nav premium they don’t care about PE ratio they don’t care about anything thing these are buyers that are agnostic to price and are buying the equity at at any price which is incredibly appealing for the future of being able to issue at the market Equity
issuances or you know having increased credit quality for raising debt so I totally agree with (47:46) what you’re saying but I think it’s important to also highlight this can cut both ways let’s say they take up a a lot of market share in one of these indices let’s say Bitcoin starts really you know selling off like we’ve seen it sell off 70 80% in previous cycles that cell pressure is going to come along with being in these indices as well as they as they would potentially be dropping uh in in those indices so I think that’s also an important highlight
yeah it is an important highlight it could it definitely could go both ways uh yeah I (48:16) think QQQ rebalances once a year uh and S&P 500 for example rebalances four four times a year so you see maybe different rebalances yeah it’s regardless it’s it’s a new buying pressure that wasn’t previously there and even even if the price Falls at some point in the future let’s say you go into a bare Market you know as long as they don’t fall out of the top 100 you’re not going to see a a drastic probably Market noticeable movement in in my perspective going forward
it kind of depends on the macro environment and (48:51) all these separate things but thinking about micro strategy that’s something that Bitcoin doesn’t have right Bitcoin doesn’t have this kind of passive uh passive buyer I mean there are Bitcoin ETFs and we’ve got passive buyers that are buying the Bitcoin ETFs but Micro strategy is an is an equity Bitcoin is a commodity and the the fundamental design of those markets are different and they’re different products that serve different um you know Solutions or or reasons for holding
in a in a portfolio I I read a tweet uh a little (49:27) bit back it was like it’s hard enough to understand Bitcoin then you over here right like it’s so hard to understand that and wrap your head around it and then you also look at how hard it is just to understand security analysis and what you have with micro strategy is the overlapping of these two things of deep deep security analysis especially because it’s not even the income statement is typically how you’re doing security analysis this is all balance sheet based which is also very strange and weird and then you’re just
(49:59) overlapping you have to understand Bitcoin in the first place to even wrap your head around this and I think it’s it’s very obvious why so many people are very confused by this company they’re looking at the performance over the last four years and it’s outperformed Nvidia and they’re saying how in the world is this this guy’s buying imaginary Mario coins like how in the world how in the world is this outperforming AI chips and um I don’t know how to to cover it in a way that um you know cuz I’m sure people (50:33) are listening to this conversation are
like what in the world are these guys even talking about right now I’m sure because there’s a lot of financial jargon and you have to really understand the financial jargon to kind of begin to to get your head around a lot of this but um I I say all this because I think it’s really really important for anybody that’s hearing this conversation and saying I I feel like they know what they’re talking about therefore before I’m going to buy some of this to just caution this person because if the if (51:03) buying the S&P 500 is basically like
you know driving a Volkswagen Jetta I would argue bitcoin’s like hopping in a Ferrari and I would argue micro strategies like climbing in an F22 and and trying to fly it the the technical competence and what you’re going to experience from a volatility standpoint is is such a Quantum Leap from each one of these types of Investments that if you don’t understand it there’s a there’s a good chance you’re going to buy it at the exact wrong moment you’re going to see the price move away from (51:36) you you’re going to get scared to
death you’re going to say I never understood it from the beginning and sell it and you’re way you’re way worse off than you ever were uh by not participating in the first place that’s my word of caution and that’s my concern for listeners that are listening to you and I talk about this I just want to throw that out there that you really do need to know you need to understand what you’re buying you need to do the homework now with all that said if a person’s going to buy this is the real (52:04) question I have for you if a person’s
going to buy this what’s the best way for them to buy it if they actually want to participate in this you know so that’s a that’s a great question and I’m going to double tap everything you just said right like this is this is a one I think this is the most interesting story in all of corporate finance ever ever ever ever um two it’s incredibly complicated I mean you have to have understanding of so many different you know Market Market components to understand what’s going on with with the (52:38) micr strategy stock so it’s incredibly
confusing and it’s interesting and you mentioned this right you’ve got like two camps right you’ve got the the the bitcoiners who understand Bitcoin and then you have traditional Finance who understands leverage but they don’t understand Bitcoin so you’ve got these two camps that are both confused but the confus for different reasons um and and they’re they’re kind of merging and getting close to each other so it’s a it’s a fascinating interplay and I think with where we’re at right now with the (53:07) micro strategy Equity anybody who’s
understood Bitcoin probably owns some micro strategy um just understanding what where the the power of Bitcoin and where it can go into the future and I think anybody coming into the into the scene new now they probably heard about it on the news or they’re just dipping their toe into Bitcoin and there’s I think there’s so much to learn from understanding the the foundation of Bitcoin and and the power of uh of what Bitcoin can do and how transformative it can be before you (53:43) understand what micro strategy is right
I think um Michael sailor he’s even said this it takes like uh first you’re a denier then you’re a skeptic then you’re a Trader then you’re uh like a bull and then you’re a maximalist and that’s it you know it takes 10 hours 100 hours thousand hours 10,000 hours and once you go through that kind of character Arc then you start to get into the micro strategy character Arc and I would say it’s almost exactly the same first you’re a denier and a skeptic and then you start to trade it think you know (54:13) what you’re doing and then you start
thinking long term about like whoa this might be the most powerful financial company that’s ever existed and that it just it takes time to to research and and understand both of those things so I mean I the way I view it is you have to have an understanding a fundamental understanding of Bitcoin have done a cold storage transaction before you can even begin to conceptualize the power of where where micr straty can go and and ultimately there are so many so many products out there that are incredibly (54:47) appealing to people that want to like
make a ton of money like there’s there’s like these leverage products you can get two times micro strategy uh returns which if if you new and you’re listening to this I I would caution against you know jumping into these products that are that are like leveraged equities or um you know feeling like you missed something I I think this the safest way to participate in this entire trade is really just picking the same fundamental uh view of Bitcoin just buy and holding like common stock uh in (55:26) perpetuity if if this is if this is
your first time thinking about this or learning about what’s going on because it is so volatile if if you’re taking a longer Horizon four eight-year Horizon you will H you’ll have no stress and you will be able to sleep at night but if you’re taking Leever if you’re taking positions on leveraged products or options you better have some fundamental understanding with what’s going on you know and be willing to pay attention and have like be actively Trading within the market and if you’re not if you don’t (55:58) have the time or the space or the capacity
to do that I would really caution against any of these little leverage products um or or even options yeah on this topic so what people often don’t understand is when you’re dealing with something that has a ton of volatility on the underlying of any 2x product you’re going to get you better be be be performing to absurd levels if it has a lot of volatility I have a chart I’m going to pull up here and show people what I mean by this I made this and I made it for the ETFs not for micro (56:32) strategy whatever I’m say whatever
I’m showing you right here just kind of amplify it for micro strategy because it’s so much more vol it’s like almost double the volatility of Bitcoin um okay so the way to read this chart on the left rail if you go down the left column there it says Bitcoin annual return so if Bitcoin and I’m just going to pluck out a number here let’s just say 30% let’s say in this coming year for the whole year Bitcoin does 30% on the underlying of Bitcoin a 2X levered ETF okay if we’re assuming that the daily (57:07) volatility on bitcoin is let’s just say
3% okay so if you go to and that would be the top uh row you see where I have ETF return at 3% daily volume you come down you look at the third 30% on the underlying on the left Rail and you come up with 36.326680 out of a 2X levered product okay what I want to really show people here is if you get more volatile on the underlying instead of it being 3% daily volume let’s go to 5% so let’s move over the Bitcoin still the underlying of Bitcoin still did 30% and but we had 5% (57:44) daily volume look at your return that you would get on the 2x product it would be -4% even
though Bitcoin the underlying was up 30% on the year okay let’s go over to six % daily volume now you’re at a negative 31% return on the 2x product and and go down and you can see where in the last at the very bottom there if you look at the uh at the row the very bottom row it’ll show you what the break even return has to be on the underlying for each one of those uh corresponding daily volum uh uh volatility levels and you can see the as (58:23) the volatility goes higher and higher it is extremely difficult to make money in these 2x lever products because the the churn of what
they’re having to do in the derivatives Market is so massive and the the it’s Herculean effort to keep this under control and so I see these people buying like a 2X levered micro strategy product and I’m thinking oh my God oh my dear God like what’s the what’s the V on micro strategy on a daily basis 6% 7% it’s Al it’s out of this world how high the fall is so if you’re trying to do a 2X lever (59:01) product on this and you’re really trying to get ahead of the underlying honestly good luck like I don’t think people really understand
the amount of risk they’re assuming by doing something like this um you know I I own uh I still own the calls that we talked about last year uh they don’t mature until December of of 2025 and I haven’t sold them I’m continuing to squat on them and those are way different than a 2X deled ETF product Let Me Tell You Folks like way different so word of caution um I’m not saying to do it I’m not saying to not do (59:35) it I’m just showing you the risk profile and uh how heavily levered it is to the Daily volatility because it’s just chopping up
the returns because they have to be able to balance it all out yeah yeah if the price Falls 50% in one day if the price Falls 50% let’s just say price Falls 50% let’s say in a week it has to go up 100% % in order to just break even yep and that that’s the that’s the challenge with those products is like timing could be could be your worst it could be your worst enemy and the pros the people that (1:00:07) are actually holding on to this they’re gen they’re generally trading it amateur quickly not to be rude but yeah yeah well I mean
the Twitter crowd you definitely amateurs but like there are Pros that are using this as a as a tool as part of their trading strategy and they’re they’re in and out of it you know they’re moving they’re moving out they’re they’re they’ve got way more information and they’re trading on tons of data that you know maybe the amateur Trader isn’t good luck taking into consideration yeah good luck good luck (1:00:40) you you better have some type of crazy uh oh who’s the Paul Sim you better be like Paul Simon like level mathematical genius if you’re
playing those games in my humble opinion but yeah absolutely Jeff we could we could go on and on man I we need to do another one not a year from now but probably in like six months or something yeah absolutely it’s going to be an exciting six months it is gonna be it’s gonna be so exciting um and uh going back to the one question this is this is the one thing I would say if if (1:01:11) a person is wanting to take a position I think the best way to go about this is to just like slowly dollar cost average and not try to Market time anything and uh dip your toe in the
water this thing is violent this thing is violent um it’s like it’s it’s a bullet train yeah like it’s jumping on a bullet train right like you you can get your face ripped off in both directions and like I mean good yeah hang on hang on hang on for sure all right uh you have a podcast uh tell us about that tell us about anything else that you (1:01:48) want to highlight and we’ll wrap this up yeah absolutely uh if you want to find me I I am on X Twitter my my handle is punter Jeff or you can search Jeff Walton you can find me there we have a a super group investment club
and we do we do videos every Wednesday and it’s called mstr true north and it’s a it’s a group of guys we’ve been at the the front edge the knives edge of this trade for uh for the last year and we’re staying up to date on everything that’s happening within the market convertible debt ATM issuance you know SEC filings (1:02:20) earnings reports all of those things and we we kind of digest them and jump into them none of it’s Financial advice but we love to talk about you know how we view the trade and what’s happening in the marketplace so
feel free to join us there uh there’s a ton of different groups that you can check out there’s irresponsibly long micro strategy on Twitter there’s a a Discord called The mstr Den where you can go talk to other like-minded people in different groups over there and there’s there’s so much content out there and uh yeah please (1:02:48) follow along this is what I love about you Jeff you make it fun man you do you guys make fun yeah it’s a it’s a lot of fun uh and I’ve really enjoyed following what you’ve done this past year and I really appreciate you making
time to come back on the show yeah absolutely thanks for having me look forward to the next one yep for sure I think I heard sailor say you know if it’s good for a million it’s good for 10 million if it’s good for 10 million it’s good for 100 million and if you take that concept and you start you know applying $10 million (1:03:16) per Bitcoin times 100 you start looking at those numbers they’re staggering that is financial strength because they have the ability to use those assets as collateral to generate a yield