{ "episodeId": "SLP630", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "bitcoin_lending_with_andrew_hohns_of_newmarket_capital": { "name": "Bitcoin Lending? With Andrew Hohns of Newmarket Capital", "role": "guest", "tag": "BITCOIN" } }, "segments": [ { "speaker": "stephan", "time": "00:11", "start": 11.17, "text": "Hi everyone, and welcome back to Stephan Livera podcast brought to you by Bold. For American listeners, you can buy Bitcoin over at getbold.io. Now joining me today is Andrew Hohns. He is founder and CEO of Newmarket Capital, also a founder of Battery Finance. I had the pleasure of meeting Andrew. I just had some, you know, Bitcoin conferences and events, and always in Enjoyed my chats with Andrew and, excited to chat with you. So welcome to the show, Andrew. Thank you, Stefan. Happy New Year. It's great to be here. Thank you. Yeah. So, look, I know you're doing a lot of interesting stuff and, you've been talking about, and building this concept of battery finance. And so we're gonna get into all that, but, maybe if we could just start At a more high level, you know, we're talking about this market for Bitcoin, many of us are long-term believers in Bitcoin, but the market for Bitcoin collateralized finance, I'm curious where you think that is, is that on the relatively immature end, is it becoming more mature, where would you place it today?" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "01:08", "start": 68.0, "text": "well, it's definitely becoming more mature. You know, you have more and more participants that have entered the market and there's greater liquidity, but it remains very focused around short-term borrowing facilities. People that collateralize the dollars that they need and often only available in the form of stablecoins, which are different from dollars that go right into a bank account, right? That you could use to buy goods and services from people that don't aren't set up to accept stablecoins. So you have short-term facilities, typically pretty high interest rates, and usually the liquidity that you can obtain is USDC or USDT. And I think that as useful as some of those products are, they're extremely difficult to use to finance long-term plans, and they're also difficult to use to finance things and generate a positive spread on your activities. It's hard to earn enough on a commercial real estate project or a development project to pay a high teens interest rate. And so you have mark-to-market risk, you have liquidity risk, you have stablecoin funding, and you have high interest rates, and that's introduced some considerable constraints, let's say, in what kinds of projects Bitcoiners so far have been able to execute. Even with an asset that has appreciated incredibly in value." }, { "speaker": "stephan", "time": "02:35", "start": 155.14, "text": "Yeah, I think it's a great summary there because I, I don't have hard stats on this, but kind of just from colloquially talking to people and kind of seeing how things have gone, it seems to me that a lot of the Bitcoin borrowing- has been to kind of go lever long Bitcoin, right? Like it's because people wanna borrow and they wanna lever up on Bitcoin, not because they wanna deploy it into real, quote unquote, real world assets, businesses, this kind of thing. I'm curious, what's your view there? Do you agree, disagree, or how would you categorize?" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "03:05", "start": 185.44, "text": "I, I mean, I agree. Bitcoin's returns on their own are pretty much the only thing that have dependably outpaced high teens interest rates. And so if you- Borrow with, you know, a conservative leverage ratio, then you can make it across cycles and you can, you can use the financing facilities. Of course, a lot of people have not borrowed with conservative financing ratios or they, you know, are taking extremely leveraged positions in Bitcoin's price direction and, you know, the chips get swept off the table. That's not at all what we're talking about. But I think that people that are using these short-term facilities to acquire more Bitcoin, it makes sense because the Bitcoin is liquid, but to use a short-term facility to acquire something that's illiquid, like for example, whether it be a home or a, a development project in your, in your city or in your hometown or to invest in some equipment for your business. I mean, once you buy some equipment for your business, it's not easy to liquidate that. And so you have a mismatch between the horizon that you're using the capital good for and the financing that you've used to obtain it, and that I think that that has led people to really be cautious so far in tapping into what is otherwise the exceptionally strong financing potential of Bitcoin. To power their real world dreams and objectives." }, { "speaker": "stephan", "time": "04:37", "start": 277.07, "text": "Yeah, and I'd love for you to explain in your own words why is Bitcoin exceptional from a- Collateral perspective." }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "04:46", "start": 285.88, "text": "Well, you know, I think that, that for people that have tuned in and crossed the, it's Bitcoin is interesting. I was in a meeting yesterday and somebody said, you know, once you, once you go down the rabbit hole, it's a one way, it's a one way door, and that's my experience. Once people open up their minds and they really start digging into Bitcoin, the deeper you look, the more interesting it becomes. Michael Saylor has that expression, which I think is very true. He doesn't know anyone that has spent, I think he says, a hundred hours looking at Bitcoin and hasn't walked away with extraordinary conviction. I don't know anyone who spent ten hours, like actually spent the time and hasn't walked away with extraordinary conviction and really fascination about Bitcoin, and, and it, and it's fascinating from many facets, whatever your interests are. It could be your interests are monetary policy or financial history or, the structure of government or even, of course- Of course, software, hardware, integration with energy, Bitcoin culture, all these different facets are fascinating in whatever someone's particular personal interests are They can usually find a deep outlet for that within Bitcoin and think about their interests in a new way. So once you cross that threshold, it is a one-way door. Or, but what we were saying in the meeting is that it's a fascinating one-way door, 'cause it's a one-way door, but it's surrounded by a force field which prevents people somehow from even stepping across that threshold, 'cause there are so many people that won't even start the journey, and they are, you know, they're, they're, they're, they're erecting obstacles for themselves that are preventing them from beginning, beginning that process, and I think it's fascinating in that regard. I've never seen something, where the ratio of how interesting and compelling it is to the strong feelings about not wanting to look into it but not really doing the work about it is so high. So, you know, that's a little bit of the tension in terms of what are the characteristics that make Bitcoin excellent collateral. I mean, starting with probably, you know, at the top of the list, it's-- I have three different, legs of my stool when I think about Bitcoin's valuation. the first are its characteristics as money, as digital capital, and there it's finite. That's extremely powerful. You know, gold isn't, finite, it's grown Growing by two percent per year, roughly, in terms of industrial production. And so that means the half life of gold is thirty five years. If I gave you an ounce of gold today and you held it for a hundred and five years, and gold continues to grow at the same rate, you're Share of gold network has diminished by eighty-seven and a half percent. I mean, that's an enormous reduction, and that has a thirty-five year half life. Silver's half life is much less. Cash's half life is, you know, extremely short because cash is growing so rapidly. Bitcoin's half life is infinity. It's not growing once we get to that twenty-one million cap, and the difference between an infinite half life and a thirty-five year half life is enormous in mathematical terms. So The first thing is, it's, it's finite, and that's, that's meaningful, but it's not just finite, it is fungible and divisible. Honus Wagner baseball cards are finite, there's only, around twelve of them, but they're not fungible. Each one has a little bit of a different grade, they're not divisible. You can't cut the corner off of one of the cards and, and retain the re- the, the remaining fraction of value within the other card. And the same goes for art, the same goes for wine, the same goes for, Classic car for real estate, it's hard to subdivide and sell just a, a fraction of a share of a well located piece of real estate, not to mention it's not liquid. Bitcoin is also weightless, it's portable, it's programmable, it has so many different characteristics that make it excellent as a store of value and as a means of digital capital. And then the second leg of the stool that we think about is Bitcoin's versatility, and there I'm referring Stefan to applications that employ Bitcoin. They support it as a store of value, but they're not actually using the Bitcoin as a store of value per se. And there you have time" }, { "speaker": "stephan", "time": "09:18", "start": 557.73, "text": "stamping kind of things." }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "09:19", "start": 558.93, "text": "What's that?" }, { "speaker": "stephan", "time": "09:20", "start": 560.13, "text": "Time stamping as an example. Time" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "09:22", "start": 561.71, "text": "stamping or energy management, like what's happening in ERCOT with the large flexible load program, and similar things are happening in Tennessee, in Tokyo, in the United Arab Emirates with zero two and Marathon and the partnership that they have, or orphan oil well and natural gas well emissions recapture, or landfill emissions recapture, what Gridless is doing in Africa with run-of-river hydro, and beyond energy applications. There are many, many applications for Bitcoin, like Sat streaming or cyber walls, you know, in terms of cybersecurity and creating impenetrable servers to address spam and the challenges of phishing. And when you start to think about Bitcoin's ability to power digital gates or to support e-gaming or to support new financial applications through, through value streaming and value for value, not to mention payments and remittances. Not to mention time stamping, which plays a very interesting role for current events and for cataloging history and for news, not to mention all of the energy. The versatility of use cases for Bitcoin is off the chart. Everyone is using it for these useful reasons, and that is introducing demand for the asset that underpins its proposition as a store of value, but it's not directly related to it being a store of value per se. So it's excellent savings technology on the first leg of the stool. It has all of these other applications on the second leg of the stool. No one's using gold to balance the grid. No one's using gold to create cyber domes for anti-fishing and spam protection from a cybersecurity point of view. And then the third factor, which is, not Intrinsic to Bitcoin, it's extrinsic, but the third factor is, the fact that we're typically measuring Bitcoin's performance in something that has no cap. Which is dollars, euros, yen, sterling, yuan, Canadian dollars, and so on. And because we're expressing Bitcoin's returns in a unit where there's no ceiling to the quantity of money, it will produce very, very significant fiat-denominated returns in Bitcoin for the foreseeable future, because there is, you know, I mean, as Lynn Alden brilliantly put it, nothing stops this train, at least not for the foreseeable future. The, for the very foreseeable future, you know, you have Social Security looming crisis twenty thirty four, many entitlements, demographic challenges coming to, into focus, and we're gonna see a lot more, quantity of fiat money. And it's every crisis, it's not even just the big ones. I was doing a review, the other day for a presentation, and, you know, you think of like the global financial crisis, you think of the European sovereign debt crisis, you think about COVID, the big ones But then if you go back and you look, the twenty fifteen Chinese stock market crash, twenty sixteen Brexit, twenty eighteen Turkey lira and the Italian bond market sell-off, twenty nineteen hyperinflation in Argentina, twenty twenty, yes COVID, but also Russia Saudi oil price war, twenty twenty one Evergrande, twenty twenty three Silicon Valley Bank, every single one of those, we saw significant introduction of lower- Cost, liquidity, significant increase in the quantity of money, and very, very accommodative monetary policy. So it's, it's the go-to strategy book for whatever the crisis is, and when you're measuring a finite asset that isn't just finite But it's also versatile and it's weightless and it's divisible and it's fungible and it's all of those transparent, auditable, decentralized, it's all of those things. It makes for a very, very interesting Value proposition, and then just to mention one other, to, to bring it back to your original question, why collateral? All of that's a good reason to like have a long position in Bitcoin. But why collateral? If you're a lender and you look at like the kinds of collateral that are available today, like real estate, real estate's, you know, many people I think would say top of the heap when it comes to collateral. But If something goes wrong with a loan that you've made and it's supported by real estate, it isn't, it's not like that that you can recover against the real estate. That's why banks have entire workout departments that spend twelve to eighteen months repositioning the asset. They have to manage it. Something might go wrong, the roof might leak, they have to deal with tenant issues, they have to find a buyer who wants that particular asset in that market. It's not divisible, it's not liquid. And that's why you have these big overcollateralization ratios. But Bitcoin, if you add it as a form of collateral to a traditional financing package, it really, in our opinion, depressurizes the recovery because it means as a lender that you still have collateral in the traditional loan, that's no different in the traditional asset, but you also have collateral in this other asset that is trading twenty-four seven, universal. Fungible, transparent, divisible, liquid, all of these other factors, and it gives you options as a lender that I think are very worthwhile for their attributes as collateral in addition to the fact that it's trended to appreciate over time." }, { "speaker": "stephan", "time": "15:05", "start": 905.22, "text": "Back to the show in a moment. This show brought to you by CoinKites dot com, the creators of the best Bitcoin hardware security devices, such as the Coldcard Mark IV and the new Coldcard Q. Now, we use Bitcoin Hardware security devices to keep our keys offline, our private keys offline. Now, the way these work is you can do that setup, write down your twelve or twenty-four words on the, the seed word cards, and keep that secure. Now, you can use this device to interact with the Bitcoin network using software such as Sparrow Wallet, Electrum, or Bepco Desktop or Nunchuk, as a few examples. Now, you have a range of security features that you can use with these devices, such as Passphrases, you can use seed x or, or my favorite is multi-signature. Now, if you're starting in a basic way, just start with the device and the USB-C cable, plug it directly to the computer and use it that way, and then later improve your setup. But I believe these devices are great at helping secure your coins, especially as you start to migrate up into multi-signature security. But don't be disheartened or don't be, scared away, they are accessible, and I think you actually do learn about Bitcoin in the process. So to get yours, go to coinkite dot com, use code livera to get a discount on your cold card. And now, back to the show. Fantastic. And so, yeah, as you were saying, it's, it's these different qualities of Bitcoin that make it a special thing from a collateral perspective. And I know, you know, at least some of the lenders that have, you know, been around, it's been an interesting, I guess they've mentioned this idea that, look, it's a twenty-four seven market, you can instantly sell, this kind of idea using like" }, { "speaker": "stephan", "time": "16:47", "start": 1007.0, "text": "And or a Lending or others out there, and I guess one other question I think a lot of people might have, and I'm, I'm curious to hear what your answer on this is, why have Bitcoin borrowing interest rates been so high compared to other things? Is it just that those other things are- Central bank government subsidizes, is that why mortgage rates are so much lower than Bitcoin borrowing rates, or is there something else to this picture that, that, you know, is also in the, in the picture?" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "17:15", "start": 1034.77, "text": "Well, I mean, the Bitcoin market has been growing in terms of capital availability, but it's still very small. Now, I mean, if you compare it to other even short term credit markets, corporate commercial paper or money markets or something like that, Bitcoin is a tiny, tiny fraction of those. So, you know, in order to attract liquidity, you have to produce returns that, are so strong that you can, you know, that you can attract that liquidity. And many of the, you know, and, and the kind of liquidity that's been available so far is really just short dated, short dated capital, you know, whether that's one year facilities or six month facilities or What have you, but they all have the kind of mark-to-market risk associated with them. So the key unlock for the market over the course of the coming years, and this is gonna come, I think, in working with institutional investors like insurance companies that have asset liability matching mindsets and also pensions that have asset liability matching mindsets and other investors that can benefit from more efficient capital structures that are driven by things like credit ratings and transaction. I think the real unlock is going to come over the coming years when we can begin to build that ladder of maturity in funding that enables us as a community of bitcoiners to develop products that are aimed at a medium to longer term horizon. That's the real, to me, that's the most exciting thing that I personally can be working on, because I don't, you know, I'm not gonna be a great programmer, that's not my forte, but where, you know, where I can contribute, I think is really creating interesting new paths of capital markets availability to fund, to fund up what I consider to be an extraordinary amount of pent up ambition from people that have built significant asset base within Bitcoin and have dreams and objectives and business plans, but don't have the financing tools yet To realize them." }, { "speaker": "stephan", "time": "19:28", "start": 1168.43, "text": "Excellent. Okay, so let's talk a little bit about this model. You've told me a little bit about it, I guess offline in terms of, battery finance and the idea here. So could you just explain a bit, maybe if you can walk through an example, maybe that would be useful as well?" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "19:41", "start": 1181.46, "text": "Absolutely. I mean, we just announced at the end of last year, the completion of our launch of financing for the platform, which is just the beginning. We have a pipeline now, several billion in terms of borrower demand, a lot, a lot People have been reaching out, trying to, not trying, but seeking to integrate Bitcoin into either their existing traditional assets or seeking to utilize their Bitcoin to acquire traditional assets, but with stable financing structures. The first loan that we did, it's kind of symbolic. It's, it's a multi-family apartment building in Center City Philadelphia on Bank Street, which I thought is nice. it's about a half a block away from the First Bank of the United States, which is really cool, but it- It's, you know, loft style apartment building. It's got arched architectural windows and exposed brick walls and kind of looks like, you know, cast iron facade, like that kind of thing. And about sixty five apartments, three commercial units on the ground floor. There's a veterinary hospital in the building, a bridal dress store, and the owner of the property has owned it for almost thirty years. And the building had an appraised value of about sixteen and a half million dollars, and it had a nine million dollar loan existing, a traditional loan, without any Bitcoin. We made a twelve and a half million dollar loan And the use of proceeds was to pay off the existing nine million dollars, so we're now the first mortgage position on the property, to provide a value-added financing for the sponsor in the sense that we have provided two million dollars for capital improvements to the property so that they can renovate some of the units as they turn over and make some cosmetic improvements in the common area and, things of that nature which will add value to the property and, and improve Prove its position, and then with the remainder, which was one and a half million dollars, purchased Bitcoin. And at the time, we purchased about twenty Bitcoin. Bitcoin was lower priced than it is right now, and that forms the collateral package for the loan, the building and its capitalized improvements plus the Bitcoin. So it's a unified collateral package in support of the loan. The loan has an interest rate which is designed to be rational and is designed to not over- Overstress the property at mid-single digits interest rate, and the borrower, they can repay the financing at any time, with no penalty, no make whole, no yield maintenance or lockout. You know, a lot of the obstacles that borrowers often face when they enter into a financing is that they're stuck in the finance, and we say, \"No, you're not stuck. You can repay it at any time. We'll release the real estate from any security. You can reposition the property, refinance it, sell it, anything.\" But we encourage borrowers to stay in the loan because what we do, Stefan, is we say if the loan is repaid at year four or earlier, the minimum Length of time that we wanna have the Bitcoin exposure is four years, obviously four year cycle. If the loan is repaid before four years, we release the real estate but the Bitcoin stays in place, and then at year four, we share in the upside. We get a majority of the upside of the Bitcoin, the borrower gets a minority, and then Every year that goes by, we gradually reduce our share of the Bitcoin upside, and the borrower gradually increases their share of the Bitcoin upside. And so if they stay in the loan for the long run, they're vesting into more and more Bitcoin upside. The longer it goes, our opinion, our loan to value is going down, down, down, so we're getting into a better position in terms of the collateral security that's supporting the loan. We're still getting interest on that, so we're getting, you know, paid to wait in terms of the liquidity that we've provided, and we're also giving the borrower really valuable, tool to re-denominate some of the equity that they hold in this asset that they know and like, that they've held for thirty years But re-denominate that equity out of fiat and into Bitcoin and integrate the dynamism of Bitcoin into their investment strategy without having to sell, you know, some other asset in order to buy the Bitcoin, they're just thinking of it as Bitcoin equity with With this general construct, let me say like this, usually an, an, a lender has only, interest that they have to squeeze as hard as they can to get their return. That means that it's a adversarial relationship between the borrower and the lender, or if not adversarial, extractive, or if not extractive, zero sum game. You know, it's like, it's not-- for the lender to get more interest, that means the borrower has less cash flow, and the more the interest that it becomes The more stress that it puts on any project because of debt service coverage, and that's why borrowers are always thinking, \"How can I lower the interest rate? And how can I optimize this?\" And so they're spending all of this time and mental energy trying to optimize the financing when they could be using that time for other things that could be more value added for that project or more value added for their lives. And so what we're saying is we're saying because we've added a new element, a third side of the paper, as Ross Stevens recently wrote in his annual letter, which is Formulas that share in the upside of Bitcoin in a collaborative way between borrower and lender, a collaborative financing structure. We think we can deliver a level of interest that will incentivize the borrower to not be, you know, so, always focused on how do I optimize it, how do I lower it, how can I refinance it. We liberate that whole entire work stream, and we say, just, just, you know, just be cool. Stay in this loan, you'll vest into more and more of the Bitcoin upside as time goes on. It's a very efficient structure for the financing, and it introduces Bitcoin economics into all of these assets that you know and like. So that's the essence of the proposition. Of course, depending on the overcollateralization rate and the cash flow of the business and the tenor of the financing and the amount of Bitcoin, the interest rate might be a little different, the amortization terms might be different, the appreciation sharing might be different. Those are all kind of commercial terms that we work with the borrowers to develop in a private credit way. But, those are the tools that we have in the toolkit." }, { "speaker": "stephan", "time": "26:27", "start": 1586.59, "text": "Yeah, I think it's really interesting because it can, let's say, open things up for more people who don't currently hold Bitcoin and want to, or on the other hand, the typical case of like a Bitcoin hodler who has a stack but doesn't want to sell his Bitcoin to, whatever, to do some project. So I guess those are-- Am I right then that those are kind of the two, let's say, target customers or target borrowers in this model?" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "26:50", "start": 1609.99, "text": "Yep, exactly right. You have- Asset owners that have assets that they know and like and they don't want to sell them necessarily, maybe they're strategic for their business or strategic for their lives or important for their portfolio or they're emotionally attached or wh- whatever the reason, they're all valid and they maybe have existing financing on those assets. This is a tool for them to refinance and to re-denominate some of the equity into Bitcoin, and we think that it's a much better proposition for them. And then on the other side, to your point, you- You have the hodler community, which I love working in Bitcoin for many reasons, but probably the top, top reason is the people. And when you go to meetups, and you-- I mean, I know you know this 'cause you- You know, you have one of the top podcasts in the space, and you've been at all of the conferences for so many years, and, you've met everybody. It's a fascinating group of, of, of, of individuals, and they're very entrepreneurial, they're very principled. As Bitcoin has grown, they've become quite asset rich. They have big ambitions, big plans, a big desire to see those through, and the idea that These kinds of tools that we're developing could be a mechanism to enable bitcoiners to actuate the objectives that they have in terms of a tangible world investing, let's say. That's like very exciting. That's a very exciting possibility, and I think it crosses a lot of different areas. I mean, you know, a lot of people are talking about impact investment. That's a major thing for many, many years, impact, and, you know A lot of times when you have an impact investment, and this is conceptual, but you have what they call concessionary capital, capital that comes in and it, it accepts a lower return in order to make the economics of an investment possible." }, { "speaker": "stephan", "time": "28:45", "start": 1724.62, "text": "Right. If you ideologically want this thing to exist, you might be more inclined to invest in it even if you could actually earn more elsewhere." }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "28:51", "start": 1731.2, "text": "Right. And if you actually introduce Bitcoin into some of those impact propositions, it turns that on its head because now it's strengthening the impact projects with the dynamism of Bitcoin over time, and if you can set the financing not at an extracted le-extractive level, where in order to attract Some private sector investors, you pay a higher rate of return by also attracting public sector concessional capital or foundation capital that effectively subsidizes a distribution of cash flows that makes everybody happy, 'cause you got these ideologically motivated and these economically motivated, you can flip that on its head, you can say, \"Oh, timeout.\" We can finance all of this with much more liquidity by delivering actually a much higher return, sharing some of the Bitcoin upside, and giving the projects a much more sustainable cost of capital, and giving the sponsors of those projects an asset that, magnetizes all of the monetary energy of Bitcoin, right? It's, you know, over time. And then I mean, imagine, you know, you have small businesses that add Bitcoin to their balance sheet, they already are. You look at the River Report A lot of small businesses are doing that, but, you know, you extend that, you broaden that, and you broaden that to cities and, you know, people that are looking, you know, rural projects. Imagine, I was talking to an individual in Canada who was telling me about the Royal, the Crown corporation that's focused on providing financing for farmers. And there's a big, I mean, you know, there's a big intersection, let's say, between agriculture and Bitcoin. there's an intersection having- To do with sustainable farming techniques, back to land movements, different kinds of dietary and nutrition, but there's also just kind of the operational integrity of adding Bitcoin as a component to farming because farming needs heat Farming, it, it has different kinds of localized power plants like meth biogas facilities or solar facilities, and they produce intermittent power, and the Bitcoin could- Be the purchaser of that when it's not being used for other agricultural purposes. there are all different kinds of ways to think about that, and I was saying to him, imagine if something like the Crown Corporation for the Farming Finance provided financing facilities for Canada's small and medium-sized farmers, even large farmers, to integrate Bitcoin as a component of the collateral for their family farms, because family farms are longer term investments, they're ten-year investments, twenty-year investments, sometimes thirty-year investments. Multi-generational investments. And so they have the ability to withstand the daily volatility if the Bitcoin is sized properly, and especially if it means that you could deliver them a lower cost of capital for them to grow their fundamental business, which is in this case the agriculture. And you can imagine that being applicable to not just Canada and farming, but many different geographies, many business types. It's a flexible model for impact investing that can really, I think, flip the script, and that's what Bitcoin specializes in, right? Flipping the script." }, { "speaker": "stephan", "time": "32:03", "start": 1922.85, "text": "The lead sponsor of this show is Bold, the best place to buy, sell, and save Bitcoin. For listeners in the US, Bold lets you secure your financial future with complete peace of mind by integrating a low fee Bitcoin only brokerage with next gen multisig vaults. With Bold, you can smash buy Bitcoin or set a DCA plan for only 0.99% fees and seamlessly deposit the Bitcoin direct to your Bold vault. The Bold vault is a 2 of 3 collaborative multisig where you hold 2 keys and Bold holds 1 as a redundant Back up, protecting against loss or theft. You can use Trezor, Ledger or cold card hardware wallets to spin up a Bold Vault in just a few minutes, and the Bold Vault is the only collaborative custody vault available with zero monthly fees. They're also offering zero fees on your first ten thousand dollars of Bitcoin buys and twenty five dollars of free Bitcoin when you buy a hundred dollars of Bitcoin or more. Try Bold today and upgrade your stacking experience over at getbold dot io. And now back to the show. Yeah, it's really fascinating to kind of think through what this means for people. I am curious on the-- now we've been talking a bit on the borrower's perspective. Now, if we talk about from the lender's perspective, what does it look like for them? Because I guess historically, the thing you might have heard them say is, \"Why would I?\" You know, lend you fiat when I can just turn around and use that fiat to buy Bitcoin for myself or, you know, this kind of thing. Does it, you know, does it make sense for some other reason or is it maybe, you know, there's just, you know, such a large market for it in the same way that there's all these people dying to, you know, falling over themselves to lend money to MicroStrategy for very cheap, this kind of thing. So I'm curious if you have any comment on the lender side of it and what's in it for them?" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "33:45", "start": 2024.94, "text": "Well, capital markets are a continuum of different needs, and those different needs are expressed in time horizon, demand for liquidity, tolerance for volatility, overall return objective, ability to produce income. There are many different factors, right, that an investor could have, and some investors need income, many investors do. Who do those investors include? They include people like pensions who have beneficiaries that they have to meet the payout schedule. They include insurance companies that have to fund the cost of, current claims and losses and also produce dividends in order to make their shareholders happy or retained earnings, as the case may be. They include endowments and foundations that are designed to generate income in order to fund scholarships and other charitable activities and university research. So there are many different valid, you- uses of income from the institutional investment world. And as a result of that, there is a strong demand for credit, for credit investments. And what are credit investments? Credit investments are investments that have a senior claim in the event of liquidation, so they're safer, and they produce a yield, but the yield is lower than what you would get if you were an equity investor, where you have a junior claim and you get the residual, you get what- Whatever is left over, and you're, you know, you're happy because, you know, that's what your objectives are. And so we're not really focusing on people that would otherwise just want to buy Bitcoin and absorb a hundred percent of the volatility We're not saying to them, \"We have, better mouse trap or, you know, you know, we've got something that you should consider instead.\" What we're saying is we're saying for people that have in mind the desire to generate income from credit This is a much, you know, this is, this is a modern approach. This is a much more sensible approach. Now, the main factor that we're solving for on the, on the side of the lender or the credit investor is the challenge of inflation, and I'm going to say real returns are the right benchmark. Inflation-adjusted returns are the right benchmark. And because there's been so much quantity of money and so many, you know, tricks and strategies with the interest rates and the, the QE infinity and the operation twist and the BTFP and the RQF and the ZFY and all of these other kinds of things that are coming down the pike that don't even quite yet exist, it is easy to lose sight of the fact that if you get your money back, quote unquote, you get your money back, you know, you make a hundred thousand dollar credit investment, you get At five or ten percent interest rate, for five years, and then, five years from now you get a hundred thousand dollars, you say, \"Oh, I got my money back and I got a return.\" But unless you look at it on a real basis, you're not understanding the returns. And, you know, the returns, I was in a meeting the other day and, it just came out like some things do, phenomenal, as in, as in nominal returns, right? So the returns are, you know, May be apparently phenomenal, but on a real basis, they're, they're horrible returns, because since just twenty twenty, even using, you know, government statistics, the US dollar has suffered about twenty percent cumulative depreciation. And so if you invested a hundred thousand dollars and you got your interest, and you get a hundred thousand back in twenty twenty-five, that's like getting eighty thousand back. So unless you have twenty thousand of interest, you're in a negative position. If you only have, let's say, twenty-five thousand of combined interest, five percent per year, you have a real return of one percent per year. You've absorbed all of this credit risk just to barely stand still, and you're not even, you're not even rededicating all of that interest to principal because you're one of those investors that has legitimate needs for income, such as pension beneficiaries. Endowments for research purposes and, and, and the examples that we were giving. So that's the situation that, credit investors confront today, and, not only that, but the landscape is about to worsen Because if you're a student of financial history and monetary history, to me it is overwhelmingly clear that the inflation in terms of monetization of prior debt is going to increase significantly over the course of the coming five to ten years. we have looming benefits crises, Social Security, Medicare, pensions that are largely underfunded on an asset liability ratio. Illinois, the state of Illinois, twenty percent of their State budget last year was dedicated to pension support. I mean, that's a crazy fac-factor. You know, you have all of these sort of accumulated burdens that, and, and the huge demography challenges, whether it be in Japan or, for that matter, China, certainly United States, other places. And so I think, I think it's clear that the way that these accumulated burdens are going to be sorted is that they will be satisfied on a nominal basis, but that the nominal, the real value of that nominal satisfaction is gonna be greatly lower because of inflation. So people, they might be expecting, monthly pension of, of, of, of whatever the amount is, twenty-five hundred, three thousand, they'll get it, but three thousand dollars ten years from now is gonna be worth way less. than three thousand dollars a month today, and that's gonna be, and, and but people will say, \"Look, we delivered what we said we did, it was three thousand, here's three thousand.\" And that's very destructive, you know, if you really, if you really play it out. So what we're saying is we're saying, look, why not, you know, why pivot later from a position of weakness when you can pivot now from a position of strength? And the question then becomes, if you're a credit investor, does it have to be a drain on real returns where you seek more and more risk in order to get higher and higher income to run faster than this never-ending wheel of inflation? Or can you instead reconceptualize it? And say, \"Timeout, we can, we can be more constructive on the rate of return current. We can focus on much more rational projects.\" Deliver much more valuable financing structures, and at the same time, by introducing some Bitcoin into the structure and sharing in a collaborative way, in the performance of that over the medium to long run, we can produce results as lenders where instead of just having a diminishing melting ice cube, like Michael says, but instead having a growing endowment and a source of strength. For building out portfolio, portfolios, that to me is really where it becomes a very interesting and compelling story and I mean, and, and, and institutions that adopt this earlier, and they are starting to. I mean, we saw news even just this week in Tesa, in Tesa, São Paulo, Italy's largest bank, announced that they had bought some Bitcoin, and they've been studying it for some time, and, you know, you're seeing some leading financial institutions, u-uh, beginning to engage in some of these activities in very interesting ways, but it's just starting, but it's gonna take a few cycles for sure, and the ones that- That because Bitcoin is finite, there's a really strong advantage to not delaying the decision to begin, a build in Bitcoin." }, { "speaker": "stephan", "time": "41:50", "start": 2509.81, "text": "Yeah, I think it's, really, as you've, as you've laid it out, really, inflation is coming, most people are losing pace against the printer, and you need Bitcoin to basically beat the printer. That's, that kind of in very blunt, simple terms, that is the situation that a lot of people are in. As you mentioned, there is, well, there should be Appetite from some of these large insurers, pension funds, you know, to, to come to the party here because they have obligations and, it makes-- it would make sense for them to, to come to this party. so- I guess I'm also, curious in terms of, is this gonna be, or at least from a battery finance perspective, is this a US only thing or are you- Elsewhere around the world?" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "42:37", "start": 2556.81, "text": "No, I mean, it's, it's, it's a flexible program. I mean, my background is credit investing, globally for, for years. We've, I mean, I've taken credit exposure in well over fifty countries around the world already, and a lot of emerging markets have done a lot of work over the years in many, many interesting places, and I've had the privilege of meeting a lot of interesting people. And Bitcoin is global, and it cuts across all industries. I mean, you know, when you start to go to Bitcoin, Differences. You meet people that are dentists, lawyers, real estate professionals, yes, of course, software engineers, hardware, but also people that have fashion companies, people that have hospitality companies, restaurant chains, they own hotels, they are real estate developers, people from all different kinds of industries have gravitated toward Bitcoin. And so you have, in my opinion, I think that the Bitcoin community is the single largest un- underserved cohort in the specialty finance world, and it's also full of people that are, like I said, exceptionally entrepreneurial. They have an asset whose long-term characteristics are phenomenal-- trustless, verifiable, decentralized, auditable, transparent, weightless, all the things that Bitcoin is super well suited for financing. But they're just currently not being served, and so I really hope that we can form partnerships in many different geographies to attract sufficient funding to-- because, you know, what's really needed to make all of these objectives in the tangible world happen for where we are in the evolution of Bitcoin these days is actually fiat, right? I mean, you, you know, because otherwise, if you're buying the real estate with Bitcoin, well, you've sold your Bitcoin, you don't wanna do that, or if you're buying- Buying the equipment or the construction material, it's all the same. And so what you really need is you need people who are willing to provision fiat, which is a very short half-life Provision that fiat to exchange for things with longer half-lives, like durable goods, land, equipment, buildings. Combine it with Bitcoin and then share in the growth of those activities. You know, we've been looking, I know that you're dialed in from Dubai, I think that the United Arab Emirates is just so incredibly fascinating, and I, I love traveling there. I've been there many, many times. But more generally, I would say principles of Islamic lending. Which are also very similar, incidentally, to the principles that are articulated in the Torah, in Deuteronomy, and in Christian teachings as well, but which have evolved over the years and nowadays, within the Islamic approach, I would say it's the most original in terms of being focused on these ideas of no interest and instead sharing in appreciation in credit arrangements. But because of fiat, virtually all of those kinds of stra- Structures are sort of like basic, Western loans with the equivalent of interest masquerading in a, in, in a structure that doesn't call it interest. And so you might buy an asset and sell it at a premium at the end of the life of the contract or have some kind of, you know, a discounted margin or wh- whatever the case may be. But that's because, it's not because people wanna get around the idea or, or, or sidestep the principle, it's because when you're building on- Fiat, it's quicksand, and if you can instead reconceptualize these concepts of appreciation sharing with digital capital that absorbs the monetary energy and absorbs all of the development that's happening in a world that's growing much, much, much more digital. Which of course the world is in every different way, then you can actually develop structures where you're sharing in the risk on both the borrower and the lender side in a way that provides the community with a diversifying interest in Bitcoin, and it provides the lending pool also with a tool to diversify its interest away from the idiosyncratic business risks of those particular commercial operations. So I think, you know, you asked, \"Is this a global business?\" I think that for different markets in different places, there are ability to-- Bit-- Bitcoin is a new tool in the structured finance toolkit, and we have been building with it, and the results are incredible. It is a very powerful tool, and if you just open up your mind to what you can accomplish by engaging this seriously as a building block for structured finance and structured credit, you can accomplish really remarkable results. Risk-return transformations and make possible, and make not just possible, but make a probable and make, you know, much, you know, really advance the potential of many, many more projects in many different places." }, { "speaker": "stephan", "time": "47:39", "start": 2858.97, "text": "I'm curious if you have any thoughts on what could go wrong. Is it just, as an example, could it be a person engages in this kind of endeavor, but actually their business fails, and, you know, what, what kind of thing happens in that scenario? Is it just sort of, at that point, are you sort of hoping that you can wind down the business, or you're kind of hoping that Bitcoin goes up and off, that you're kind of, you're still okay? Or how would that, if you could walk through, like, what, what would, what might that look" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "48:05", "start": 2885.36, "text": "I think that the thing that goes wrong is probably, you know, probably the number one thing is sorting through the time preference and not just the time preference, but also the, time horizon of the activity. And, you know, if you add too much Bitcoin because it is volatile To a project, an initiative, a company that has the, the, the, the possibility that they're not going to be able to make a medium duration voyage with the Bitcoin Then that's where it becomes potentially very risky because you'd be in a situation where you need the liquidity, and of course, Bitcoin is famous in the short run, famously volatile and understandably volatile for, for, for many different factors. And so to me, a responsible approach to building with Bitcoin as a tool is to size the Bitcoin component of the collateral package And pair, size it appropriately and pair it with projects that have a long enough and foreseeable enough ability to generate the carrying cost income that is necessary to carry the debt With a rational, cushion so that you don't have a situation where, where you have a shorter, a, a liquidation toward the shorter, you know, horizon. If you can make it Through four years, let alone eight years, let alone twelve years, then that's where you begin to really benefit from the logarithmic expansion and the rate of adoption and all of the versatile use cases that are being built And that's where you can, you know, get above kind of the, hysterical movements of the market and think about it more In a, a calm and, purposeful way." }, { "speaker": "stephan", "time": "50:07", "start": 3006.51, "text": "Right. And, as I recall, I think from one of our offline conversations, you mentioned this is, in a sense, part of this is, that's your business, right? You're look- you're assessing the creditworthiness of that business to say, okay, is this a viable business or no, this is an unprofitable idea, therefore we wouldn't- Make this loan, that kind of thing. Yeah, exactly. So I guess that's, that's probably the-- So that's an element, that is an important element that can't be, neglected, making sure it is a profitable, or at least very likely to be a profitable venture. Yeah." }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "50:36", "start": 3035.79, "text": "Having a professional approach to the underwriting that is, risk informed. Because even as a lender, you know, the last thing that we wanna have happen, is, an asset that, doesn't have sufficient capacity to, carry the, carry the debt because then also we are long the volatility of the Bitcoin too. We don't wanna be in that situation. You know, we, we also, especially want to have a minimum four years of exposure to the Bitcoin, ideally longer. And so we need to by fusing the Bitcoin With traditional assets, we believe that we've created a vessel that is poised to make that longer distance voyage, just like you wouldn't sail across the ocean, you know, on, on, on, on a, on a surfboard. you know, you need, you need a proper vessel. You wouldn't even sail across the ocean really on, on, on a, you know, an opti-- you know, a small boat, right? You need a larger boat that has to be outfitted to make that journey. You have backup plans, you have contingencies, you have enough supplies, you have resources. And of course, even then, some of the largest, most well-outfitted ships didn't make the journey. There you have diversification. So you have to have a mindset, okay, how am I going to build this in a way to underwrite it, to use our best judgment and create, a pool of thoughtfully underwritten risk that is overwhelmingly likely to be able to make that medium to long run journey and let the Bitcoin have its time to benefit from those three, three legs of the stool, all of its characteristics and the adoption that that generates, the versatile use cases and many, many more that are being built every day. And the increase in the quantity of the money that we're being used to measure the returns in." }, { "speaker": "stephan", "time": "52:28", "start": 3148.23, "text": "Excellent. One other question, I'm curious on, if you have any thoughts on Sab one twenty one, if, let's say, the Trump administration, you know, if that is taken away, and let's say some of the larger, some of the banks can enter the bit-custody game, and maybe in the future they could also enter into the Bitcoin lending game." }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "52:48", "start": 3167.84, "text": "Yeah, I think there's gonna be big transformations. You know, it's not-- I, I don't think it's just, you know, one, one regulation, you know, we sh- we should pin it all on that one thing. I mean, you look at, you look at the strategic Bitcoin reserve, that is potentially super powerful. But then you say, \"Oh, wait, hold on.\" Brazil has introduced legislation to do this to the tune of eighteen billion. And Poland, the presidential candidate there, talking about it, that lady, I think she was what, French, the French member of the European, parliament, says, \"Look, we have to start thinking about this as well.\" Then you have, what's the number that it's up to? Ten or eleven or thirteen United States states that are saying, \"Okay, we should have these, you know, kinds of, of reserves.\" And, and then you start to think about, okay, well, hold on, Sab one twenty one, that's interesting, but how about the Fasb rule change and the flowing through into the earnings of publicly traded companies, the movement in the Bitcoin, and it's not just the price movement quarter after quarter, but with the path that is being carved out by not just MicroStrategy, but Marathon as well, thinking about inventive strategies for corporate treasury, people are looking, okay, what's the Bitcoin per- Share, and then you're, you're, you're layering on a Bitcoin per share. How is that KPI, Bitcoin yield, manifesting quarter after quarter? How does the Bitcoin price movement move? What does that do to EPS? How can we use our balance sheet to deliver more EPS? I was listening to, a podcast, what was it? I think it was True North, the microstrategy True North guys, and they had one of them a very interesting observation, which is like earnings You, a really interesting contrast to be able to generate earnings from a balance sheet without the same kinds of operational risks and netting costs as you have to if you have a built-out network of retail stores and you're looking at what are the same store sales growth or year-on-year or quarter-on-quarter, or you have to, you have a large team of sales and distribution personnel in order to go and promote the product in different places. Any kind of operating business that has this focus Focus on, on, on net operating income and says, \"Look, we have this initiative, we've launched this new product, we have this whole team, we have this whole strategy. Yes, we've had expenses in getting it off, but here's the margin that we've been able to generate, and people pay a lot of money for that growing margin.\" And then on the other hand, you have companies that are saying, \"Well, hold on.\" We're actually utilizing treasury strategies to generate margin with much less operational risk and, and a totally different set of considerations. I think that's gonna create Really fascinating new valuation models in publicly traded markets over the course of the next-- again, this isn't all gonna happen in one, two, three, five months, some of it will, but it's a story that's gonna unfold over five, ten, fifteen years, and in certain instances, much longer. And these new models are all leading to Bitcoin adoption at different pace, you know, but it's at least several cycles before we see broad Bitcoin adoption, so it's not just gonna be one thing in one country, SAB. Fasbi, Strategic Reserve, it's, you know, the Czech Republic saying that anyone who huddles for longer than three years doesn't have to pay capital gains tax, it's gonna be It's gonna be the accumulation of all of these policies, and not only that, but the coming of age of, of, of younger people that are natively digital. And of course, the way that, human, human progress works, that's always happening But, you know, we have so many-- the progress that we should anticipate from here to twenty forty-five is exponential, and we should anticipate very significant advances in healthcare, in communication, in travel, in robotics, in artificial intelligence, nanotechnology, and all of these factors Are going to be more and more and more digital, more and more and more supported by the technological architecture, and so Bitcoin, which is effectively technological money. is extremely positioned to absorb the growth in those spaces, while at the same time, it also is positioned to absorb The accumulated burdens of yesterday's fiat structure. And so that is, that's why it's so interesting. It's like, I'm glad we're having this conversation in January, because January, you know, the Roman god Janus, has the two faces, one facing toward the back and one facing toward the future, the god of passageways, looking forwards and backwards. And I think that it's a really, really nice context for, for where we sit right now and the transitions that are, that are unfolding." }, { "speaker": "stephan", "time": "58:05", "start": 3485.21, "text": "Yeah, I think, I think you summed it up really well in terms of all the different things that are happening and, you know, of course I, I, I think there'll be, there'll be downturns to come in Bitcoin, right? People shouldn't expect, oh, it's just up only, but at the same time, there's a lot of reasons to believe that, you know, this is a network, and it, this network is rapidly growing over time. More and more people are joining the network, whether they're individuals, family offices, businesses, governments, you know, insurance, pension funds, you know, et cetera, you name it. There's all these people who are joining, so it's just really" }, { "speaker": "stephan", "time": "58:41", "start": 3521.28, "text": "Really interesting to see what happens with it. yeah, and I think what you're doing is quite interesting because it is a different structure to what we've historically seen with Bitcoin backed loans, and now it's kind of this meshing of the worlds of, you know, other assets and Bitcoin, and I think- it'll be interesting to see, how the market reacts with this and what kind of, you know, interest there will be, both on the borrower side and the investor side in terms of not having to mark to market, right? Like I think that was a big thing because one of the big things, you know, I think many hodlers can relate to is this idea of, okay, if I'm gonna engage in some kind of Bitcoin backed loan What if we have an eighty percent drawdown like we've had before, multiple times in Bitcoin? Might-- have I got enough collateral to survive and withstand that, or am I gonna get wrecked, right? And, and that's kind of playing on many people's minds. And so if people have this concept of, \"Oh, okay, I've got this loan for four years or eight years,\" then it kind of makes them- More comfortable with that risk, I suppose." }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "59:42", "start": 3581.97, "text": "Yeah, I think that's the key factor actually, is transforming time preferences. You know, Bitcoin, Bitcoin lives forever, humans don't, and the ability to exchange the medium to long run performance of Bitcoin with, the resources that you need in the short or shorter run in order to build the life that you're looking for within that moment in time. You know, when you're, when you're in your twenties, you have different needs. When you're in your thirties, you have different needs than when you're in your seventies and, and whatnot, and different phases in life and, you know, professional objectives and family demands and ability to travel and physical fitness and all these different factors. And if you begin to think about how can I, how can I use the Bitcoin within the time preference? you know, of where I am, and you can transform that because a financial services company, effectively like Battery Finance, is in a position to, absorb and absorb those time preferences in a different way, 'cause companies can live forever, right? Companies don't have a finite biological timeframe. of course, they can run into risk that challenges that. If properly set up, you can have a very long horizon, and that allows for the transformation of time preferences. You know, I would just say that, that that whole idea of time preference, I have to credit, I have to credit the team at ten thirty one. You know, they call their funds the low time preference funds, and they've just done such-- they've been phenomenal partners for us in the growth of battery, but, beyond that, they just have such an interesting portfolio of, of builders in the Bitcoin space and their attitude. Which is lowering time preference and really thinking about how do you build durable structures that are meant to last, kind of have the Bitcoin ethos. You also hear about this with like Bitcoin urbanism and, you know, some of the people that are talking about new Bitcoiner modes of approaching architecture, Bitcoiner modes of approaching agriculture. We're talking about that earlier. As you infuse this through different industries, it's a, it's an ethos and it's a mindset, and I think it's helpful to conceptualize time preferences, especially in financial activities and in life objectives. You know, if you can sort through your time preferences and articulate your goals over the context of the short, medium, and long run, you can accomplish-" }, { "speaker": "stephan", "time": "01:02:06", "start": 3726.33, "text": "Yeah, I just think so much of this stuff is really fascinating and, yeah, I just think it, it's a really interesting approach. So, look, Andrew, thanks for joining and, Yeah, I found it really, a really fascinating conversation and, really intelligent perspectives you've been sharing. just before we let you go, where can people find you online?" }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "01:02:23", "start": 3743.77, "text": "newmarketcapital dot com is where you can find us on the web, and you can send an email to battery at newmarketcapital dot com." }, { "speaker": "stephan", "time": "01:02:31", "start": 3751.83, "text": "Fantastic. Well, Andrew, thank you for joining me." }, { "speaker": "bitcoin_lending_with_andrew_hohns_of_newmarket_capital", "time": "01:02:33", "start": 3753.46, "text": "Hey, thank you, Stefan. It's really great to catch up with you. I can't wait to see you in person somewhere on the Bitcoin World Tour." }, { "speaker": "stephan", "time": "01:02:38", "start": 3758.68, "text": "That we will do." } ] }