{ "episodeId": "SLP682", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "kane_mcgukin": { "name": "Kane McGukin", "role": "guest", "tag": "KANE" } }, "segments": [ { "speaker": "stephan", "time": "00:11", "start": 10.51, "text": "Hi everyone, and welcome back to Stephan Livera podcast, brought to you by Bold, the Bitcoin banking platform where US listeners can buy Bitcoin for the industry's lowest fees and earn the highest Bitcoin back rewards with the Bold debit card. Now joining me today is Kane McGukin in, wealth management, obviously also a Bitcoiner and hodler for years. actually- Actually, Kane and I have been chatting in the background here and there for, for a little while, but, I thought, Kane had some interesting thoughts on the treasury companies, and he published that on his Substack, which we'll put the link in the show notes, but it's called The Mesh Point, so you can find Kane's work over there. first off, welcome to the show, Kane." }, { "speaker": "kane_mcgukin", "time": "00:47", "start": 47.03, "text": "Yeah, Stephane, thanks for having me. you know, really appreciate the opportunity just to come on and talk about the space as lots changing, lots growing, met a couple of times at different conferences, so it's good to be on and, and looking forward to the conversation." }, { "speaker": "stephan", "time": "01:06", "start": 66.02, "text": "Sure. And so, yeah, obvious, the big, you know, topic for today is gonna be around your, some of your, let's say, skepticism of Bitcoin treasury companies, and I guess just to be clear, we're talking about the, the financial engineering style as opposed to, quote unquote, merely hodling or merely just, you know, buying, and I guess just upfront again, I will just say I, am going to be an advisor and an investor in, in, in a treasury company that's not, out yet. It's in a non-US jurisdiction, so things will be going more public there in probably a few weeks there, but I'm just saying that upfront so listeners can understand, okay? Obviously, I have some interest in this, I'm bullish just in general on treasury companies, but I will agree obviously that, you know, it's not without risk, there are risks, absolutely, and I will say that, you know, Bitcoin, I think, is first and foremost, this play of if you wanna do the treasury company thing, is sort of, I view that as like, that's like a small aspect of what you should think about. So I'll just put that up front, just so people understand, and, you know, I'm not, you know, hiding things. and so let's start, do you wanna give us your overview? What's your kind of, you know, hit us with your opening argument on, treasury companies?" }, { "speaker": "kane_mcgukin", "time": "02:22", "start": 141.59, "text": "Yeah, and I think, I think to These days, look, I've bought some of these here and there, hold a little bit, MicroStrategy, I think a lot of people do. So my skepticism's not so much of, \"Hey, this whole thing is a problem or an issue.\" I think, you know, you've been in this long enough to see every single cycle is different yet the same when you get into the, the, you know, bullish bull, most bull part of the cycle, and some narrative, some individual- Individual usually takes hold as sort of the godlike feature, you know, creature in this thing. The main character. Yeah, yeah, yeah. And, you know, something just rallies everybody. Last cycle it was the GBTC arbitrage trade, you're seeing some of that in this hype, and, and so my, my thing was just Looking at this and okay, fundamentally, what's important about these treasury companies? What's important about the underlying asset? What's important about the future of Bitcoin as it kind of marries with, with TradFi? And so- When I got looking under the hood, I've been a student of markets for a long time, been in them for twenty years. my first handful of years, I really dove down deep into the greatest investors of our time, the Soroses, the Paul Tudor Jones, Paulson's, all those guys, and, and having gone through two thousand six, seven, and eight, it sort of, you start to see these things come up again. And so that was kind of the basis is fundamentally, I think Bitcoin is phenomenal. Bitcoin is the innovation. I think with treasury companies, and to one of your side questions, do you think they, they survive? I, I think components of this do survive, and as long as Bitcoin sort of stays in its own ecosystem, and then traditional fin-finance stays in its own ecosystem, then marrying them together is, is the way that we move forward. Otherwise, it might- Take too long for regulation to catch up with where Bitcoin's trying to go. So I think it's kind of a bridge. I'm less on the front, and we can talk about it a little bit more, that it's just some- Amazing new innovation. Like that is the, the Bitcoin piece, and, and what's going on in the Treasury Company is just kind of bending what is easier to fulfill those investors that can't access Bitcoin because of, you know, covenants or legal or just, you know, time to get it through investment committee. So, hopefully that sort of explains it." }, { "speaker": "stephan", "time": "05:07", "start": 306.52, "text": "Okay. So let's, so let's try to be a bit, let's try to nail down a little bit, like, where exactly Do you think things might break down? Who exactly gets wrecked? Like, are we talking that, you know, many of these treasury companies will, you know- Collapse or is it more like some of the treasury companies, you think they will actually survive, but maybe the equity holders are the ones who get wrecked, just like, you know, Bitcoin holders in past cycles who bought the top, are they the ones who get wrecked? Like, where exactly is the failure in your view?" }, { "speaker": "kane_mcgukin", "time": "05:37", "start": 337.47, "text": "Yeah, I think it's on the way That the hype is being created around these, and that is the equity issuance. So last night I was just digging in 'cause I hadn't really like done the math on it, but, I think MicroStrategy has somewhere around three hundred thousand shares outstanding now. It's either two ninety-five, three eleven, maybe a little higher 'cause they, they issued some of these this past quarter, but they only had like a hundred and fifty or so just a few years ago. So, not, not thousand, but million, a hundred and fifty million. So you've doubled your equity, which is dilutive to equity holders now, because they're taking that and taking, you know, per what Saylor says, fifty percent buying Bitcoin, fifty percent using it to pay dividends or issue other securities. that's the, the leverage, right? And so- Leverage can be done well and it's a good thing, but when you have, what happens on Wall Street in traditional finance, you have this trade, this arbitrage on the equity side, and then a lot of other people start piling in and capital starts piling in, and, and so it, it goes up until there's really no room left. And then either you have one failure who accidentally did it wrong, didn't really understand it, or a big investor pulls out capital from not just this situation, but in a, in a situation where you get a crowded trade, and it starts to work in reverse. And so I think the biggest risk that I see is just that Equity dilution to feed this other stuff, and so you see a lot of the winner take most, and I do think that'll play out, but if you look at the last two cycles or last cycles, MicroStrategy started in the beginning of a bull. And they still had the seventy, eighty, ninety percent drawdown. as a person that's been in Bitcoin, you yourself been in Bitcoin, that's the thing that's unique about Bitcoiners is they sit through those. But traditional financial people don't. So they usually punt when it's down twenty or thirty because they say, \"I've got to sit through this for two years or one year or three years,\" and, and that's painful on there. And so, to me, that, that was just the- The place that I started looking. there's, there's a lot of other ways, but I'll, I'll take a break there and let you jump in. And so" }, { "speaker": "stephan", "time": "08:01", "start": 481.27, "text": "when you're saying, okay, and I mean, as far as-- I guess I partially agree and partially disagree, right? So where I agree with you is, yes, there is a risk equity holders get wrecked. Especially if there's like a big bear market, right? Like a Bitcoin bear market and the equity bear market, you, you can be double wrecked. Yeah. Okay. So I, I see that as, yeah, it's higher risk if you aren't merely the equity holder. But I think the important thing to understand here is that even in the case of MSTR, they have gotten to the level now where they have these preferred shares, so strike, strike, stride and stretch, each offering different trade-offs and each offering different- Different kinds of things, like some of them are paying, you know, eight dollars a year, some are paying ten dollars a year, some offer some equity upside, and Stretch is quite interesting as well, that it's like a quasi-stablecoin paying out, I believe they're targeting nine percent. So" }, { "speaker": "stephan", "time": "08:58", "start": 537.51, "text": "You, yeah, I, I, well, so, so, yeah, go on." }, { "speaker": "kane_mcgukin", "time": "09:00", "start": 539.96, "text": "No, no, no, finish up." }, { "speaker": "stephan", "time": "09:01", "start": 541.42, "text": "Yeah, so I guess my point would just be, isn't it interesting then that- You know, not everybody has to be a direct mstr equity holder, like riding the full volatility. They can be kind of holding one of these other preferred shares, and, and in that way, like the analogy that Michael Saylor uses is this idea that it's like he's kind of taking the high voltage Bitcoin and stepping it down for these different investors who maybe they aren't willing to, to kind of ride the full volatility of, of a full Bitcoin cycle, and therefore he's sort of structuring his balance Balance sheet to survive, you know, in different conditions, whether that's an eighty percent drawdown or whatever, which personally I think it's unlikely. Of course, it's possible, but I think it's unlikely. Yeah, I think it's different" }, { "speaker": "kane_mcgukin", "time": "09:47", "start": 586.68, "text": "this round with Wall Street. Very much, and banks very much involved, I, I do think it's lower. Yeah. because there's a lot of capital to, to support a, a bear market, whereas in past bear markets, when it was primarily retail or smaller investors, there just wasn't enough liquidity to come in to, to put a floor in it. yeah, and, and I think the, the beauty behind the whole thing that, that Saylor has figured out, the arbitrage is, is Jesse Meyer's picture. You know, Bitcoin's two trillion and, and you have three hundred trillion Of assets, many of them impaired because of what's going on in dollar land. in, in a sense, you know, we often talk about orange peeling. Instead of doing the hard work of orange peeling, he's just like, \"I'm gonna go meet you where you're at. I have this public entity, I have equity, I have the ability to issue these other things that I know you can buy.\" Even if your, your, you know, your investment committee says no Bitcoin, we're not technically buying Bitcoin, right? We're buying an equity or a preferred that pays interest just like any other bank preferred. So that's That's the genius behind that move. So where you might have some separation is, okay, you've got a Bitcoin treasury company that can't yet issue prefers, and the equity games kind of played out, which if you've seen the last couple of weeks, many of these Post conference, kind of May, late May timeframe, they're down sixty, seventy percent, and then you see some of them down thirty percent. And, and in fairness, that's a snippet in time, right? 'Cause you can go back and see, but you'll see ones like similar or GME that never really launched it. They sort of created that flywheel and just never really did anything. Their stocks are only down twenty and thirty percent because they have actual businesses outside of the Treasury, so they have, they, they have, you know, income and revenue streams that aren't just Bitcoin, and then you have Saylor and MicroStrategy, which- In reality, he's, in my opinion, setting up the 21st century bank. And so he's sort of using the tools to do the Bitcoin lending, because there really aren't all the rails to actually do the lending in Bitcoin terms yet. And, and that would be the innovation piece. So if I go back, i-in say, like Stretch, for instance, are, are you familiar with auction rate securities?" }, { "speaker": "stephan", "time": "12:24", "start": 744.4, "text": "I would say I'm familiar. Okay. Okay." }, { "speaker": "kane_mcgukin", "time": "12:26", "start": 745.66, "text": "So when, when I came into the-- and I was just a general question, I don't think people are, just like, people aren't as familiar with preferreds. Those are standard tools. Now, auction rate securities, I came into business, in '06. Had a big insurance company and they would do these rol- they were twenty-eight day, they had seven day, they had ninety day, and they paid a much higher interest than just Fed funds. So you'd roll them And I was young, I didn't really exactly understand, it's just now, okay, we're doing twenty million, we're doing fifty million, we're doing ten million every couple of weeks, and it was two thousand and seven, eight, stuff was getting hairy. For whatever reason, I forgot to do one, and the guy calls me and chews me out, it's like, \"Do you know how much that cost us? 'Cause it's, you know, whatever, seven days worth of six percent on fifty million bucks,\" and he kinda just, you know, lets me have it, rightfully so. Well, that was the last auction that didn't freeze. And so those investors that were chasing that yield in this product that was money good 'cause it was municipalities, other issuers, that daily interest, the dealers, the-- it was a bidding market, a Dutch auction, and so that market froze, and they didn't get their capital for two years, and some of them just lost their money. So, stretch! In a sense, is an auction rate security, and strategy is effectively playing the role of the dealer, setting the rate. There's no market participants bidding, but if you-- what, what tends to happen in Securities is, you know, analysts rate the stock and they just will let it run, and that reflexive nature that I wrote about in the report that, that Soros talks about, where it's allows A security to trade away from its actual fundamental value. So if we talk about MNAV being at three, well NAV, the actual book value of that Bitcoin is one. So if you're buying an mNav of three, you're technically paying three times the price of Bitcoin. Right. So if I'm a- Bitcoin investor, and for whatever reason, I just decide to go all in the micro strategy or some other, you know, Bitcoin treasury company, I'm paying more than I should now. I don't have to deal with self custody, I don't have to deal with all that, I don't have to deal with money on a different set of rails, and there are some people that that fits for. So that's kind of the argument, A lot of the instruments that are being issued are just the same instruments that we've seen in other places. and on the preferred side, so in February 2020, you know, February, March, everything blew up. So we were looking at some preferreds for investors and, yeah, generally it's banks. There's some energy companies, it's a, it's a better way. To find yield that doesn't always get picked apart when, when rates go crazy, and, and you can do, while rates are rising, you do floaters so they have floors and the interest rate draws with it, whereas a fixed income prefer- or fixed preferred, the rates will, will get crushed or the price will get crushed as the rate rise. So there's some unique characteristics there, but we're looking at some- Compiled a list, there's not a lot of these things out there, and they fell thirty percent in one day. So while you're looking to kinda extend a little bit to take some risk to get that extra yield, so strategy eight, nine, ten percent. Anything over what the base rate is in this market, Fed funds at four and a half, that, that's a hundred percent risk that you're taking. It's not inherently bad, it's just not a guarantee. And I'll stop there, but in the quarterly call that the strategist just did, Saylor, he basically used the exact example of what's happened with Strike, Strike, Stride, and not really Stretch, 'cause it's just coming out, but those in, in just the last few weeks, we can go over that in a second. But I'll-" }, { "speaker": "stephan", "time": "16:57", "start": 1017.31, "text": "Right. I think what you're getting at is this idea that, that was actually part of why they structured Stretch this way, because he was saying that there may be investors who might have otherwise been interested in, like, a ten dollar yield or an eight dollar yield per year, but- They wouldn't have been able to, like, on the income side, but they might not have been able to tolerate the capital value swings up and down for some of those, preferred shares, stretch, strife, and stride. Or just a, a, an income product, non-stretch, the non-stretch ones, because just as a factor of like, you know, like bond math, a-and like when the yield moves and the price moves, that factor. So I guess that's what they were trying to, let's say, target and say, \"Okay, now with stretch, we It's gonna stay the same, and that's why people sort of say it's kind of like a quasi, quasi stablecoin sort of, but kind of a stablecoin that you would access in your broking account, not as like a tether on whatever other chain. and so I guess that's what you're, that's the point you're sort of getting at, right? It's" }, { "speaker": "kane_mcgukin", "time": "17:58", "start": 1077.76, "text": "like a repo. So if now, you know, you and I, Bitcoiners for a long time, said, \"Hey, the dollar's not really worth it.\" People are put, you know, 'cause all that backs money is trust and belief, and we're seeing globally where that trust and belief that was in fiat dollar system, regardless of currency, is sort of breaking down. So In a pro argument, Saylor said, \"Well, I have this pristine collateral, and a lot of it, but I can't do anything with it. You know, it's just literally huddle. Now, that's good, but...\" To create financial services, you have to create an arbitrage or find an arbitrage so that lending can take place. And so he's like, \"Well, I know that there are a lot of corporations, pension funds, hedge funds, endowments that need daily- Liquidity, 'cause they might can put, they might can park ten, twenty, thirty million overnight, but then they may need it for something else the next day, and usually that's like a corporate treasury function. So Okay, well that happens in commercial paper and the junk bond market, in the Treasury market, but now if people are kinda losing trust in that, then maybe they trust Bitcoin. And strategy in general more, which is, that's kind of the environment, then he's able to create that, that product, so that particular product. you know, I'd say, I don't know them super intently, but I've, I've looked at all of them. Stride, for instance, you know, Bitcoin selling off, everything selling off the last few weeks Well, Stride was kind of the canary in the coal mine because it started selling off harder, it had a higher yield, and I think it's non-cumulative, which means if they stop paying, you're just out. And so- In that February example, you know, I've owned some of these things personally just in the past where they were backed by mortgages, it was Investco preferred, great preferred, six, seven, eight percent yield. Things got hairy in 2018-19 and there was a question to the value of the underlying collateral, which was mortgages, and that thing got hit 50% overnight. And so why I'm more skeptical is generally because you're dealing with high net worth individuals, and while- The risk sounds good if they, and this is the example that he gave on the call, you know, a 50, 60 year old or 45 year old that needs income, they, they really also need that principal to remain. So if you put- $10 in and you get 8, 9, 10, 11% yield. That's cool, but if you go 13 months later and you got basically 10%. But then that principle, that ten dollars that you put in, is now worth six or five. That kind of impairs the longer term. So that's the risk that we get caught up in with all the hype. Is, is chasing that yield not realizing how the impact is in, in price when the markets move. And so you're seeing that some of those." }, { "speaker": "stephan", "time": "21:16", "start": 1276.13, "text": "So I guess what you're, you're basically making this argument that the non-stretch preferreds could really- The, the capital value of those could really move a lot, and that a lot of the holders of those may not be really will-- or ready to kind of ride that level of volatility compared to like a hardcore Bitcoin hodler who is ready to kind of ride the cycle down sixty percent, seventy percent if necessary. that's probably, yeah, maybe there's something to that, but I also, I think, I think the other thing we have to kind of also remember is It does center on what is your view of Bitcoin's growth, right? Like Michael has his, you know, Bitcoin twenty four model that basically he's projecting, I think his base case is like thirteen million dollars in the year twenty forty five, something like that. Like" }, { "speaker": "kane_mcgukin", "time": "22:03", "start": 1323.36, "text": "twenty nine percent ARR." }, { "speaker": "stephan", "time": "22:05", "start": 1324.54, "text": "Yeah, right. So call it thirty percent-ish or twenty nine percent, whatever. and so if you hold-- if you're a, you know, if you're a Maxi, if you believe, like, Bitcoin is the future of money, and therefore, you know, the longer run price of Bitcoin Is gonna be in the tens of millions of dollars, then are you not also-- Now, I'm not saying you must buy strategy or you must go and buy Bitcoin Treasury companies, but isn't it kind of hard for us to, to make this argument or for you to make this argument that, you know, these treasury companies may not be sound if they are able to access capital cheaper than Bitcoin Kaga? And buy Bitcoin with it, right? Yeah, yeah. And I think" }, { "speaker": "kane_mcgukin", "time": "22:47", "start": 1367.05, "text": "the, the real point of the argument, you know, for argument's sake, is what's every person's time horizon? So just like Sailor said in his call, a fifty-year-old or retiree, their time horizon is very like year to year actually makes a difference. So chasing that extra potential upside could impair them more to the downside in a window when they-- so if you're taking out money and you have a twenty, thirty, fifty percent drawdown, you actually are doubling The amount that's coming out in the worst period. Whereas if you take out excess in a hundred percent rally, it's kind of indifferent. So timing really matters from that perspective." }, { "speaker": "stephan", "time": "23:39", "start": 1418.93, "text": "The lead sponsor of this show is Bold, the banking platform designed for Bitcoiners. With the Bold virtual Visa debit card, you earn Bitcoin back on every purchase. 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So go to coinkite dot com, use code livera to get ten percent off on your cold I mean, I agree with you on the timing aspect of it, but I think that, that to me is kind of like, even, imagine if we were talking to our family and friends and it was earlier Bitcoin cycles, and, you know, it's 2017, and the price is, you know, 16k, and it's the end of 2017, and we're about to hit the top. Yep. There were a ton of, you know, noobs and no coiners who bought their first coins, whatever, 17," }, { "speaker": "kane_mcgukin", "time": "25:49", "start": 1548.74, "text": "18 pointed out in the article was everybody's like, \"Oh, this is something new, it's something new,\" and, you know, Soros talks about it a ton in The Alchemy of Finance, and it's the reflexivity It creates the newness, that creates the value to run away from the fundamental value, but we've seen the exact same thing in the '60s conglomerate, boom, where they made up a bunch of new sta-stat-statistics, new stats. MNAV, it's book value. You just did a different way to calculate it. Bitcoin yield, same thing. They were doing the same thing. As a means to buy up companies, and buying up those companies would make the EPS multiple grow. And, and then, you know, he walks through a case, and I put in my paper, will strategy actually put that in their quarterly call? Just the other day, where it shows, because of the accounting change, they got an instant hit to their EPS. So they reported like thirty-two dollars in EPS, and because of the accounting change, you can account for the growth in Bitcoin, which makes all that math look much stronger than it really is. It's not that Bitcoin's not strong, but if you go in a year and a half and Bitcoin's down fifty percent, all those numbers cut by a hundred percent. And so one of the other fundamental things, I think they said they have like six hundred and fourteen million of dividend inter- or interest expense, so that could be preferred, it could be how- whatever these, Securities that they're issuing, that have to pay interest on, well, okay, so they could pay that forever with the Bitcoin stack that they have, real- realistically, even if you cut it in half. But the operating business only does two to four hundred, so they, they're having to issue securities to fund that debt liability. So to put that in perspective, if I think we can all agree that we have to have cell service, right? And so, American Tower, Crown Castle, Verizon. Any provider, that's a huge infrastructure business, but they're effectively Bitcoin rails for, for voice, right? But if, if they have to- Take on 5x, 10x debt to support that. Most people walk away from that because what ends up happening is if something goes wrong in the business And you can't issue new debt, then you can't pay that interest, and, and in a lot of ways that's what the Fed does. You know, they, they issue new, new treasuries, so new money, or, or the Treasury does it, they issue new dollars to fund interest and, and debt that they can't otherwise afford. So I think not really skepticism was just kind of my rub. It's, it's, you know, Bitcoin will and was doing its thing, but now we're sort of taking what everybody hates about the Fed or complains about the Fed and putting it on top of Bitcoin" }, { "speaker": "stephan", "time": "29:09", "start": 1748.67, "text": "Yeah, I think it just, to me, it just comes down to, is this a way to make, you know, Bitcoin accessible in ways that weren't previously? So, When it comes to like, okay, are they issuing new securities to, you know, et cetera? I think, like, I guess what I'm thinking of here is more like, if you think back to that recent ear-earnings call, I think someone actually asked a, I think it might have been Lynn Alden, asked a question of like, okay Have you kind of run stress testing exactly what kind of drawdowns? And I think he said even at an eighty percent drawdown, they would still be paying out, the dividends, and I think only at like ninety or ninety-five percent is where they would have to start pausing certain, payments. And so, you know, to me, maybe, and okay, fair enough, maybe the risk isn't MSTR, maybe the risk is some of the lower, the smaller, treasure companies, but to me, it's just, we also have to balance That against the, the other aspects of this, right? The tax, the regulatory aspects of it, are there, for example, in Japan, where there's like a differential tax treatment, or in other countries where that may be the case, or, the kind of regulatory requirement, right? So I think in the UK, that's the kind of the Smarter Webco, Coincillium examples where there are people who have UK retirement account money that's gone into MSTR or now Smarter Webco and whatever because those reasons. so I think it's a, it's a, it's a bunch of these things. It's the, it's the regulatory and tax thing, it's the index inclusion, it's, kind of offering a different trade-off, yeah. It's the flywheel, yeah. Right? So I think while it is certainly not a bad thing to have like a retail kind of com- advocate community, let's say, I think there will just be reasons that it makes sense for people to invest in these things. But yes, the timing matters, yes, there is a risk, and Cold card, right? Or the way I, I think of it. Yeah. But can it offer you different trade-offs or can it, you know, because I think the other thing that we sometimes run into is like we're in our little echo chamber of like, you know, hardcore Bitcoin maxies and people who are like, you know, die-hard about Bitcoin, and we think it's just so obvious to the rest of the world, but it's really not. There's so many people who don't even understand, like, they might have heard of Bitcoin, but they might not really understand what's Even know what's going on with MSDR, what, what's the chance they know what's happening with like Meta Planet and Smarter Web Co and all the, all the other ones and just kind of all around the world? And I think these are just ways- I think sometimes we don't mentally model what normal people think, 'cause normal people are just sort of like, they might be having most of their money in some stock broking platform, and they can sort of see, \"Oh, wow, this, whatever, Alt BG or the Capital B in France or whatever, one of these other ones did really well.\" You know, maybe- So, so that's," }, { "speaker": "kane_mcgukin", "time": "32:08", "start": 1928.33, "text": "yeah, so that's where like, because that's my day to day life. So I'm in the traditional wealth management try- side, trying to orange peel normies. They have wealth, so they're concerned. While in the near term it might be like, \"How do we hit a home run here?\" but then when you try to hit a home run and you get, you know, a negative, they're like, \"Well, why did we ever do that?\" And it's 'cause you're chasing what you hear on CNBC without thinking about mechanically how it works. And so- It's hard to get traditional people to buy Bitcoin because of all the trade-offs, right? I can't just buy it at my Schwab account, or I can buy the ETF, but it's not really Right, but" }, { "speaker": "stephan", "time": "32:54", "start": 1974.3, "text": "you're paying fees on that. It doesn't have leverage. It's a different trade-off." }, { "speaker": "kane_mcgukin", "time": "32:58", "start": 1977.71, "text": "Yeah, yeah. And so when you see that, plus just, you know, being in the business decades and personally, I'm interested in all these things. So I'll go do 'em. And, you know, if you take a haircut to myself, that's- That's okay, but if you do that to someone else as a fiduciary and you just let them run blindly into, you know, get the phone calls, let's buy MicroStrategy at five fifty. Okay, well, it's three ninety-five. Well, my buddy that told me he's made, you know, eight X in MicroStrategy and we're lost, it, it, what ends up reflecting back on is, is us, more so than understanding- The mechanics, because when you talk about the mechanics, the normal person's like, \"Dude, can we just buy this thing or not?\" And but they, they tend not-- There's this idea that you put money in the market and it goes up. Yeah," }, { "speaker": "stephan", "time": "33:55", "start": 2035.49, "text": "of course. And I think the Fed and kind of the institutions, like the, the setup has just been that way, right? Like it's just been buy the S&P and just go away and just wait ten years, twenty years, thirty years, and you'll be up. That's kind of the-- That's been the message, right? And sadly, a lot of people are getting kind of wrecked without realizing it because inflation has actually been, you know, debase-- let's say to be more technically precise, right? It depends how you count this number, but if you look" }, { "speaker": "stephan", "time": "34:24", "start": 2064.35, "text": "He's on a podcast, he's awesome. Right? And so if you look at his work, it's like twelve percent a year. Yeah. Okay, and depends how you count that, maybe just in the US only, it's nine or ten percent." }, { "speaker": "kane_mcgukin", "time": "34:34", "start": 2074.25, "text": "Even better, and, and a lot of people don't do it, but just collect your grocery receipts. For a couple of years, it's, it's closer to twenty. Right." }, { "speaker": "stephan", "time": "34:44", "start": 2083.68, "text": "Right. And that would be more like the CPI aspect of it, as opposed to the asset inflation side of it. Yeah. But certainly. And so I think sometimes we, we miss the forest for the trees then if we're sort of nitpicking about, like, \"Oh, people could possibly theoretically get wrecked if they time it wrong.\"" }, { "speaker": "kane_mcgukin", "time": "34:58", "start": 2097.65, "text": "Yeah." }, { "speaker": "stephan", "time": "34:58", "start": 2098.21, "text": "Certainly, I, I grant that. But don't forget, people are getting wrecked right now. They're putting all this money into government bonds, they're putting Because, you know, knowingly or unknowingly, that's where the retirement funds are just funneling their life savings. And so now, you know, whether it's Bitcoin, Bitcoin ETFs, or Bitcoin equities You know, there's, they've got a fighting chance, don't they?" }, { "speaker": "kane_mcgukin", "time": "35:26", "start": 2126.02, "text": "Yeah. Well, and, and I think where I like to talk to is like, hey, before you go to a Bitcoin treasury company because you can get leverage. You should own some Bitcoin first, you should understand that component, because if push comes to shove, and let's just say I was right, like Bitcoin will still be around, but that, those assets probably get torpedoed, right? Other than- First movers, there's that brand advantage, there's that, I mean, strategy here has a huge size advantage. they have an expertise advantage, and a lot of times when you get into these crowded trades, the same exact setup happened at GPTC, and every influencer out there was like, \"You can do forty percent a year rolling,\" and I was like, \"It's just covered calls,\" and while that sounds cool Because you did it in a three month window and you did it three times, one, it's not annualized, two, it's not repeatable, and when you're collecting, you know, eight to sixteen percent upfront on the premium And the asset drops by fifty, it takes years to come back, and you can't write any more calls effectively on that. So, there's some You know, validity to that same hype for these things. Now, to me, in a bear, well, first things, the last bear. And I'll just use strategy again. They did actually have to move some coins around because they had some secured, you know, debt issues, and, and, and now, you know, everything's unencumbered, so it's, it's a much safer situation. But there was that, you could go and see, I think it was, I looked it up, and- May not be the exact number, but I feel like there was seven hundred coins or something that had to move around. And he mentioned it on his podcast was safe in the spring. and so- I think they're kind of that winner take most, but some of these others that maybe are taking more risk than they realize because maybe they hadn't traded options that long. and, and the equity is the option piece, so you need that flywheel to create that MNAV to fund everything else, and, and then Where what they've done, which is, you know, I do like it, we don't have a Bitcoin yield curve. you can't have a financial ecosystem if you don't have a yield curve, so he's sort of building that. It's not direct because it's still just a FX sort of arb, where you're borrowing in the cheap currency, in this case dollars, and you're buying the strong one, which is the same thing that happened in the yen, the yen-dollar carry trade. there's lots of different ways to do this, happen in the Treasury market now, where the hedge funds are just arbing for, you know, three basis points. Here, you just can do it For, for a large percent and size, so there's some stuff that is interesting and I do think it sticks around, I just think Probably what really clued me into it was, so I look at Bitcoin and historically what happens at a, at a top. Bitcoin outperforms, then crypto catches up, then crypto outperforms pretty widely into a top. It's fair, that's kind of every cycle, right?" }, { "speaker": "stephan", "time": "39:03", "start": 2342.86, "text": "That's the historical pattern, yeah, sure. Yeah." }, { "speaker": "kane_mcgukin", "time": "39:05", "start": 2345.19, "text": "Well, this year I was looking around and, and you started to notice, and it was basically last year, that the market cap of Bitcoin really started to separate. From crypto, 'cause it's, it's telling you, and crypto is really Ethereum, XRP, Cardano, the, the, the other kind of top ten. Those market caps are going south, Bitcoin's just drastically going north, 'cause people recognize the real difference at this point. so I'm looking around, I was like, \"Well, that...\" Makes sense, but what does that mean? And then I pull up and I compare MicroStrategy to Bitcoin, same gap. That usually you got with crypto. I was like, okay. Right." }, { "speaker": "stephan", "time": "39:57", "start": 2396.81, "text": "It's, instead of alt season, this has been a narrative as well. Like, instead of alt season, it's LBE season or whatever, whatever word we're using, right?" }, { "speaker": "kane_mcgukin", "time": "40:04", "start": 2404.21, "text": "Yeah. And so I was like, okay, well- You know, just kinda let it go by. And then I got to looking at it, and then ETH goes on a tear, and it's still like six percent under. Bitcoin and, and you know, Bitcoin Treasury Company, I just use strategy not to pick on them, but I just use them as the index like they're the best breed. Still way above, so I'm like, okay, well, if every cycle we have this narrative that's never gonna end, and the worst case is never gonna happen, and it so far has always happened. What potentially could happen here? And then I remembered some old George Soros stuff, and I went back and I did the research, and that was kind of the output of the paper. So it's less, it was less so much hating on or, or being super skeptical about these vehicles. It was just like, \"Hey, let's look at this and what are the real risks?\" Because people are blindly calling me and like, \"We just need to buy that thing.\" And, and so you have to think about, \"Okay, well...\" What size, what percent allocation, if you, if it did get cut fifty percent, how happy would you be? That, that sort of, which is, you know, you've probably done that a thousand times. In your own Bitcoin journey, you know?" }, { "speaker": "stephan", "time": "41:30", "start": 2490.17, "text": "Yeah, especially mid to late, late in the cycle, it does put you in a really weird spot. Like, yes, you obviously caveat and say, \"Well, look, you've gotta really like introspect yourself and say, 'Look, look yourself in the mirror.' If you bought Bitcoin and it dropped...\" You know, sixty percent, would you still be comfortable with your decision, and would you be comfortable hodling for another four or five years to come back up into the green? And if you can't answer that, hand on your heart, and can't answer that, then you gotta, you've gotta sort of slow your roll a little bit and just maybe kind of small chunk it into Bitcoin, if you really wanna take a position, just kind of slowly kind of, you know, actually DCA, as there's a lot of- It's not the popular thing, but- Right." }, { "speaker": "kane_mcgukin", "time": "42:16", "start": 2536.22, "text": "Yeah, 'cause you, I mean, even in circles that you, you follow in or I follow in or, or whatever, there's always at least eighty percent of us that say, \"Man!\" I should have bought more when it dipped, right? Nobody ever, everybody says they will, but it's like, oh, it's, you know, this cycle, it's, it's down to seventy, I'm waiting for forty, I'm not buying until it's forty, and then, and I'm just picking numbers out of the air. Right, right," }, { "speaker": "stephan", "time": "42:44", "start": 2563.99, "text": "but if we think about like that FTX bottom of like sixteen K, like late twenty twenty-two, or the re- the more recent one was this kind of tariff tantrum or whatever we're calling it at like seventy-five I think after you've been around a while, you sort of start to recognize those moments and you're like, \"Correct, this is actually a, a great buy point, a phenomenal time.\"" }, { "speaker": "kane_mcgukin", "time": "43:06", "start": 2586.09, "text": "Yeah. And that was, That actually, in, so I talked about the chart and the comparison in crypto and seeing that gap, I was kind of waiting on that. And that was a moment where I was like, \"Well, okay, so I could go buy a Bitcoin treasury, or I could just do it with myself with options.\" And That's what I did. I just chose that route, again, as an, as an experiment to prove out the concept of what I thought was happening. And, you know, it kinda proved it out, and I was like, \"Okay, well...\" And, and not everyone, I'm not saying everybody should go try and do that by any means, you know, you know, not financial advice here, you know, but because we now have a lot of tradFi tools, it gives a lot of flexibility where- If I understand Bitcoin or if somebody understands Bitcoin and you have another tool to do that thing, why am I going to introduce the principal-agent problem? Where it's, it's awesome that they can hoover up or, or, you know, you mentioned you're in one. I probably would do one if, if I was gonna, because that's an opportunity for the people that are running it. To really make it up and you just hope that they all do good by the investors but the equity holders when you look at the structures if it doesn't go well they're probably the first to lose" }, { "speaker": "stephan", "time": "44:42", "start": 2682.11, "text": "And I think, look, I think obviously there are risks, and I, yeah, of course, there is certainly that element of like, and I understand that's an area where some people are cons- saying, \"Oh, well, see, some people got in on the ground floor, and now they're, quote-unquote, dumping on retail and stuff like that.\" But there's risk for that. You know, and exactly, like, the people are taking risk, they're, they're trying to execute. The point is you're trying to choose a professional team, and the point, As a sustainable, you know, arbitrage for like from here to hyperbitcoinization, I believe these public companies can do things that you and I as individuals can't do, either because of, you know, access to that level of capital or leverage, or, you know, it's, it would just be technically and very professionally difficult because maybe not everyone knows how to go and do options and whatever. these companies, I think, can, help execute this and make it accessible For people, and I believe part of the case is to do this in different jurisdictions around the world, and so that's, that's, that's why I believe it's, it's a real, you know, it's a real edge, put it that way. I think it's a real edge and that equity holders can participate in such an edge, and it's not just kind of insiders are the only ones who win here, like I think Equity holders who, you know, buy, you know, in, into these, and have a long view with a professional team, I believe, you know, it'll be a, a rising boats kind of, situation." }, { "speaker": "kane_mcgukin", "time": "46:15", "start": 2774.8, "text": "Yeah, and I think long view is-- That's, that's the disconnect. So- You're on the ground floor, you're doing it, other people are on the ground floor, other people are doing it. I don't buy that as a, you know, it's like the people say, \"Well, you got in early in Bitcoin, so you don't...\" Well, there was a risk to do that. It was riskier then than it is today, right? So the risk is, is setting, going and setting up one of these things and fighting through the legal and the different tax and, and the different jurisdiction, like that's a big, it's a big risk, Your own level, but, that was the one thing that stood out as I started this a couple of quarters ago. If you listen to what Saylor says, and the reason why I keep bringing him up is just 'cause his, the information is, is there, it's easier, it's tried and true, so why not try to learn from the best if you're gonna do it, rather than chase one of these smaller ones that maybe doesn't have the same expertise, His time, his timeframe, and, and, and I assume anybody that's putting one of these for most people that are putting one of these together is, I mean, I think he says twenty years. You know, and, and I think that if you ask me, \"Do I think Bitcoin is higher or things are better that are tied to Bitcoin in ten, twenty years?\" Absolutely. Do I think so in five years, most likely? I mean, some things potentially could go wrong, but I, I think Bitcoin's higher, right? And so then he steps it down as like, \"Okay, if you look at all the debt structures and the issuance, it's about six years.\" I think he might say that in there somewhere. And You know, if you think about Bitcoin, let's just say you took 100% of your cash in 2017 or 2021 and put it in at the peak Six years later, you were positive. Now, three of those six years are pretty brutal and, you know, you go to the depths of those bears, even though you're confident that they come back, you're kind of wondering, \"Is this the time that it doesn't?\" That would be the risk with treasury companies, that let's say, you know, if we look at a market that Bitcoin is very much like, Gold, you know, it played that role up until Bitcoin was created, and Bitcoin is, is taking on that role and, and taking over that role from 1981 to 2008, it, it never made another high. So twenty seven years. So I think the question as an investor, not somebody that's starting one of these or participating in management of one of these, but from a person that has access to the equity or the preferred or the convert or whatever, you have to say, okay. Is this yield or is this multiple, this MNAV that I'm paying if I go through a 3, 5, 10, 27-year period? Where the underlying never makes another high, am I gonna be comfortable? And that's just an allocation decision. And so what, the reason why I point that out is, to me, that's the thing. That gets lost in. You just buy as many treasury companies as you can, and we're all gonna get rich. I think the, the idea that everybody's gonna get rich has changed in the last two years, and, and a lot of the fiat brain, is what I like to call it, has seeped into- Bitcoin where kind of the core ethos was, yeah, sure we're here, everybody's here on, you know, everybody's interested in making money, but that wasn't the Primary reason what brought them to, to Bitcoin, that was sort of the thing that they were running from. And now it's become like, how quickly can I multiply my stack? Versus let it grow." }, { "speaker": "stephan", "time": "50:14", "start": 3013.79, "text": "Yeah, so I think we can't deny that Ngu has been a big marketing factor, you know, as long as bit-- almost as long as Bitcoin's been around, every cycle has kind of been driven by that. No matter how many podcasts and books and whatever we can talk about the ethos and the decentralization and the self-sovereignty and all these things, none of those really pull in as many people as the Ngu. the best you can do, you-- the best you can hope for is that like someone comes for the Ngu You're able to sort of teach them some of the values of like why you should self-custody and run your Bitcoin node and all these things. so that's kind of how I'm seeing it, but I guess to your point around like, you know, could there be a long time where you're underwater or down from the high? I think, to me, it just comes back to, \"Do you believe this time is different with Bitcoin?\" Like, as in, \"Is Bitcoin truly different?\" And I think you and I probably do agree that Bitcoin really is different this time. And yeah, yeah. So even if we do have a bear cycle, I think it, it is really gonna come back. I think- It, it, it, I'm curious to get your view, like we are kind of, I mean, some people like the power law, some people don't. I, I like it, I think it's an interesting, I think it's legit. And we're kind of sitting about on the power law now, like we haven't even hit the real euphoria phase yet, I would say. So, like, I would say, if anything, it's like Bitcoin is just being adopted over time, and it's just kind of growing on this power law for now. Now, yeah, maybe It's like we start to get into that real euphoria, and then at that point, yeah, it is gonna get really wild and crazy, and you're gonna start seeing like, you know, like in twenty seventeen, we saw one company renamed to like Long Blockchain IST or something ridiculous, like, and they had a pop just off that, just renaming to blockchain and then AI, just put" }, { "speaker": "kane_mcgukin", "time": "52:01", "start": 3121.23, "text": "AI in your name. Right." }, { "speaker": "stephan", "time": "52:02", "start": 3122.39, "text": "Yeah. So we're gonna, we're gonna see all that kind of craziness. But the point is, you know, if you are Looking at who is a professional and, you know, trying to professionally increase BTC yield and do the, the right actions to responsibly take a small amount of leverage to increase, the returns, you know, I think that's, that's gonna be the differentiator, isn't it?" }, { "speaker": "kane_mcgukin", "time": "52:24", "start": 3144.46, "text": "Yeah, and, and I think if you look at, like, the debt ratios, the only reason, again, Saylor talks about it, I don't follow all the other ones, I think it's ten to twenty percent. Well Okay, the debt ratio of a household, as long as it doesn't get over 30% with a mortgage, you generally don't run into financial problems. If you get over 30%, meaning your mortgage payment to your income, to your take-home income, And that's a stretch these days because of where rates are and home prices, but at some point you're probably going to run into a tight situation. So if you look at it from that perspective, at ten to twenty percent, that debt ratio is totally manageable." }, { "speaker": "stephan", "time": "53:10", "start": 3189.59, "text": "Yeah, and I mean, as I look right now, strategy dot com, their debt over BTC NAV is twelve percent. Yeah. Very low. Yeah. And so now I think there's kind of a more advanced conversation about what exactly does it mean in a preferred shares future where if they start doing a lot of preferreds, then maybe that's really where the kind of the leverage factor comes in. If they convert," }, { "speaker": "kane_mcgukin", "time": "53:28", "start": 3208.03, "text": "convert. So that's what I was gonna say. So we live in a fiat debt world where it's like that debt relative to revenues is high? And that's the leverage. But what is definitely different is the, the leverage that's being taken, at least in that case, is equity leverage." }, { "speaker": "stephan", "time": "53:48", "start": 3228.42, "text": "Right, it's balance sheet aspect, it's the balance sheet side of it, not the income side. It's the" }, { "speaker": "kane_mcgukin", "time": "53:52", "start": 3232.05, "text": "opposite. So if you have, again, my world, most people are equity holders, they might hold some bonds, they might hold some other things, but they're not doing exotics, they're not doing commodities. some of them do Bitcoin, but it generally is like, \"Oh, I can do an ETF, okay To do on whatever exchange, river, whatever, which isn't hard, but just meet people where they're at. and so they w- they might say, \"Well, I'm gonna buy Bitcoin, I'm buying whatever Bitcoin Treasury company.\" Well, you're really buying levered equity in when euphoria goes too wrong in one direction, so it's gonna track Bitcoin at some multiple, but we know that Bitcoin typically falls, then that multiple flips on its head and works in the other direction. Yeah. because, because that's where the leverage is on the equity side, and, you know, that's just a volatility arbitrage, and that actually is pretty smart, 'cause you're taking volatility in one market, using it to create something in a different market And, and we've not-- I mean, you could do that at early days of mortgages, but you see after you do that for a couple of decades what happened. so, so I do think, Mnabs compress, you have some kind of bear market, some of these start to tr-struggle, you'll find that some of them were levered in the opposite way, in a debt way and not an equity way, or they were both, which would double whammy it. So you, I would imagine just like sitting through 2008 and these mortgage companies, banks come in and they pick apart and get the good stuff, the other part goes BK, different. We, we don't really have the securities yet, but maybe some of these prefer just get annihilated, that happened in two thousand and seven. And you could literally go in and pick these things up at twenty-five percent, twenty-five cents on the dollar. Not saying that now, but, you'll have consolidation and, and, and then" }, { "speaker": "stephan", "time": "55:54", "start": 3354.48, "text": "mergers and acquisitions activity in, even in the treasur, Bitcoin trading companies that" }, { "speaker": "kane_mcgukin", "time": "55:58", "start": 3358.21, "text": "space. In, in that space. And, and then in, in, in like a bull case scenario. Once that classic, you know, grift that runs the hype in like the 1920s Treasury companies or the panic of 1907 with Treasury companies or how many trust companies or the oil boom in the 1890s and 1900s which was trust companies, where you saw trust, trust were like banned from doing business and they're brought back For Bitcoin to do this collateral asset that, people understand the value, but we haven't had financial products around it. So once that happens, the bull case is that Whatever arises out of that rubble, assuming that that were the case, becomes the 21st century bank, which maybe they end up replacing JPMorgan, Goldman, Bank of America. I think that's a stretch, but those big brands might go start buying treasury companies. You know, I could easily see, you know, BlackRock, especially since, since they're already involved doing that. Maybe I'm sure right now regulations are tough, but what would really be innovative is if instead of you having to take fiat interest, you could take Bitcoin interest. So you could buy this equity or this prefer, this traditional market thing and receive in kind actual Bitcoin. Or pick, you know? And, and that's sort of what, BlockFi was doing. Now, they had a, they were just doing traditional margin business, but you could deposit stablecoins, receive Bitcoin or cash. On that Bitcoin, receive more interest in Bitcoin. I mean, you know, River is kind of doing, not that, but you can deposit the USD" }, { "speaker": "stephan", "time": "57:43", "start": 3462.83, "text": "account, yep, getting you, you and" }, { "speaker": "kane_mcgukin", "time": "57:45", "start": 3464.75, "text": "get paid Bitcoin, so I think there's some really-- I agree with you on that front. I think just when, again, timing with a lot of these coming in, more towards when Bitcoin is at a traditional cyclical- Topping region, I don't, I don't think we're there yet. we haven't really seen that big, big thrust, but, there's probably a better time. And, and I actually think- Some of these preferreds and fixed income instruments, probably are front-running BitBonds." }, { "speaker": "stephan", "time": "58:23", "start": 3503.43, "text": "Right. And I, I think, that's the conversation. I think Andrew Hones did a talk on that at one of the BPI events, I think, in DC, expla-- kind of explaining this idea of like, what if the US government put out bonds but attached some Bitcoin into that and kind of what would happen there? Yeah. I think it's interesting to see we could-- I mean, it's possible. It depends how long- How long this kind of, this particular bull run goes, like maybe if it goes out for another year or two, by then maybe there's more treasury companies in play with preferreds out, kind of issued and liquid and kind of active in the market. Maybe at that point, there'll be like a lot of people who are buying those preferred shares, and maybe that kind of dampens the bear cycle, like for all we know. yeah, it could, it totally could, right? Because you could be, like, as, I'll give you an example, let's say, you know, it gets really frothy next year or whatever, and people are like, \"It's three hundred k, Bitcoin three hundred k.\" I'm gonna, they're gonna rotate some of their stuff into like stretch and say, \"Okay, I want-- I'm just gonna rotate into something that kind of is USD-denominated but pays me nine percent a year,\" you know? And then MSTR on their side, they're gonna take that income and buy Bitcoin with it and sort of use their kind of structure of their longer-term balance sheet to sort of weather the storm a little bit and get Start this nine percent, on stretch as an example, while those individuals are able to kind of, kind of, what's the word, flip around between these different, like, kind of, rebalanced structures, they're just able to" }, { "speaker": "kane_mcgukin", "time": "59:58", "start": 3598.31, "text": "move. Again, I'll go bull case here, because, you know, I wrote this, I think the paper that I've just put out is kind of the most interesting to me given where we are in the cycle. In May, I wrote, \"Basically, here's the engineering behind, and here's how he's using traditional tools to make Bitcoin accessible to a large swath of market that it will be years before they could buy it based on regulations, whether it be general financial regulations or their own investment committees, all that kind of stuff.\"" }, { "speaker": "kane_mcgukin", "time": "01:00:40", "start": 3640.51, "text": "You could, I just forgot a second where I was going here." }, { "speaker": "stephan", "time": "01:00:45", "start": 3645.98, "text": "right, but you-- I guess you were explaining a bit of the mechanics of how the, these things are, let's say, pulling forward the access, right? Yeah." }, { "speaker": "kane_mcgukin", "time": "01:00:53", "start": 3653.54, "text": "So look at Strive. So traditionally, a preferred pays you some rate, they're generally higher because they're generally riskier than traditional fixed income. they're higher up the capital structure, so Strive is the highest one up. And if they stop paying dividend, it's cumulative, so before they pay another, they have to go back and pay all the other ones, the, the past ones. But, I can't remember, I, I think it's every year, but every year if they stop paying that they didn't pay, they have to add one percent. To the interest rate, up to a max of 18%. That's a unique feature that you, you don't, I mean, there may be some other securities out there like that, I'm not- familiar with them, and I know in traditional prefers they aren't. And so if I'm a fixed income manager and I really believe in Bitcoin, which I think a lot of people are finally coming around to that, and I can buy this thing and maybe I get it at a discount. And I have that, it's not a call feature, but effectively, you know, a feature that juices it, right? That's increased yield." }, { "speaker": "stephan", "time": "01:02:05", "start": 3725.86, "text": "Gives you increased yield over time if it's not paid." }, { "speaker": "kane_mcgukin", "time": "01:02:10", "start": 3730.93, "text": "Yeah, yeah. So there's stuff, I mean, there's some unique stuff in there that I think's good. I'm more looking at Bitcoin cycle and trying to figure out, where are we there? And then, is this that euphoric thing that we traditionally see? And okay, let me put my hat on and see what would make sense on the other side if- You know, you get some kind of drawdown. what would make sense? You know, 'cause a lot of times investors will wait for the event to happen and then go try to figure out" }, { "speaker": "stephan", "time": "01:02:47", "start": 3767.5, "text": "What's worth something. Yeah. What are you trying to think about? Well, how does this break down? Well, what does it, what does it look like, right? Like as we said, it, it likely looks like MNAV compression, it likely looks like, you know, maybe some of the hype is fading or maybe it's a little more difficult to get capital, like for these treasure companies, maybe they can't get loans and funding as easily as they could in the hype bull run, and maybe just less retail interest, right? Like I guess the quote-unquote euphoric kind of retail, retail hasn't shown up yet, maybe it does, but then eventually when they go, then that's kind of where it will come down to which of these treasury companies has a sustainable balance sheet, which of these has taken on good credit terms, not bad credit terms, or like structured things appropriately. there may be M&A activity, as we said, like maybe it's like a Pac-Man game, some of the treasury companies may start buying the smaller ones, like maybe one of them has a higher MNAV than the other. And it's accretive to buy that other one, something like this. I mean, all these things are possible." }, { "speaker": "kane_mcgukin", "time": "01:03:51", "start": 3831.49, "text": "Yeah. What, what is, kind of just my question, throw, throw 'em back to you for a second. Obviously, Bitcoiners love Bitcoin, wanna do anything, build and, and see Bitcoin grow. But what, from your side, what's most interesting to you, in the treasury company space and, and sort of what you're looking most forward to doing, being a part of one? And obviously, there may be some things you can't say, so you can leave that out, but, Well," }, { "speaker": "stephan", "time": "01:04:20", "start": 3860.81, "text": "I think part of it is just like watching things are evolving very quickly, and I think the more recent understanding that most people are coming to is- There was this idea that, okay, maybe convertible notes are-- maybe not the long-term play, maybe that's-- it's seen more like it's about getting to the stage where you can have preferred shares and have a, a range of them and different jurisdictions, different, you know, styles and things that can be out there. I think there's also opportunities that these treasury companies can, Do things to help education about Bitcoin in general, or maybe they can help, things like funding Bitcoin development or things like that. Like, there, there are elements that I think these different, you know, treasure companies, they'll try to differentiate in different ways, based on whether that's the jurisdiction, the sector they're in, or whether they have like an operating business, I think they'll all try to differentiate in different ways. so I'm just kind of excited to see how those things go. But yeah, I think the other big factor is just like Like maybe it's like a branding and education aspect, right? That people, maybe they're not as willing to just go and read about Bitcoin itself, but maybe they'll go and read, like, they'll go and learn about this particular company. And as part of that, then, okay, now they're gonna-- after they've sort of gotten, become an investor in that company, now they're gonna sort of take that rabbit hole journey that many of us have taken in the Bitcoin world of, like, you know, listening to podcasts, reading books, and, you know, talking to people or going" }, { "speaker": "stephan", "time": "01:05:54", "start": 3954.78, "text": "to sort of grow the broader, let's say, movement or communities, let's say, around the world. So I, I think those are interesting ideas, and who knows in the future exactly where this goes, like, could some of these treasury companies will, kind of explicitly saying, \"Yes, we're gonna try to do financial services, right? Like if you look at Jack Ma's with twenty-one or XXI, yeah, they're going to" }, { "speaker": "kane_mcgukin", "time": "01:06:17", "start": 3977.42, "text": "land," }, { "speaker": "stephan", "time": "01:06:18", "start": 3978.2, "text": "right? They're explicitly saying, 'Look, we're gonna do the treasury play stuff, But we're also gonna do, be- being like a Bitcoin pro- making Bitcoin products and services. And so we'll see maybe they differentiate in other ways of actually offering some kind of Bitcoin loans. Whereas, let's say Michael Saylor with MSTR saying, \"No, no, we see it more like our role is to do, you know, the preferreds and to not go into that particular aspect of it.\" Yeah, I mean," }, { "speaker": "kane_mcgukin", "time": "01:06:45", "start": 4005.72, "text": "he's taken the easier route, which determ- you know, depending on how you look at it, smarter or not smarter, right? Because He's using something to meet people where they are today, whereas Mallers and those guys, while they might actually completely innovate and change the world of finance, it's a lot heavier lift To, to say, hey, you know, one thing that's missing, we talked about the inflation and, and the debasement. You know, if you calculate a real rate, you need a nominal interest rate, right? 'Cause it's nominal interest rate minus the inflation, and we don't have one of those in Bitcoin. And the closest that you can get is maybe like an unchained, and then that kinda matches Saylor's twenty-nine percent a year. So if you're at sixteen and thirteen, that's twenty-nine percent, But if, say, Canter and Mallers and those guys actually do real Bitcoin loans, then you have a real rate, which can tell you, just like in, in fixed income land Can tell you should I be holding this asset or should I be holding something else? Now, I think we all kind of believe that, that Bitcoin is that thing you should hold for a long time and you, and you should ride up and down and kind of DCA or put in whatever your, you know, particular risk tolerance, but from a capital markets perspective You can't build capital markets without a true base rate on that instrument, and we don't have it. I mean, Saylor's building out that credit curve, but it's really a, a fiat credit curve. It's fiat" }, { "speaker": "stephan", "time": "01:08:27", "start": 4107.82, "text": "denominated, at least for now. Maybe in the future, there's something different there." }, { "speaker": "kane_mcgukin", "time": "01:08:31", "start": 4111.74, "text": "And, and I'm sure a lot of that, like you say, when not sleight of hand, he's taking the easier route, but If you can go do the thing you wanna do and get ninety percent of the way there, I mean, you see it all the time. Banks let fintechs, you know, fight all the regulation, break their way through, do something really innovative, and when they finally get there, they go buy them for two billion dollars." }, { "speaker": "stephan", "time": "01:08:54", "start": 4134.82, "text": "Right. Or they just kind of copy the model and do their own, copy the feature, and, you know, it's like our tech company sometimes lived in fear of Google copying their feature and, you know, they don't. No, they just come buy you. You, yeah, or Acquire you or whatever." }, { "speaker": "kane_mcgukin", "time": "01:09:09", "start": 4149.75, "text": "So," }, { "speaker": "stephan", "time": "01:09:10", "start": 4150.43, "text": "yeah, lots of things. But there was one, there was" }, { "speaker": "kane_mcgukin", "time": "01:09:12", "start": 4152.77, "text": "one other thing just from kind of, again, the skeptic part, and I just saw it recently, just flowing across, and I can't remember who, but it, it was kind of a part of that Earnings call or, or after the earnings call, just, you know, there's a lot of news that comes out. And, and there was this, \"Oh, Strike's gonna get the K, I think it was, maybe wrong, but I think it was the K.\" Gonna get to a thou- it, it's worth a thousand dollars. And, you know, part of the reflexive hype narrative is throwing some price out there and then getting everybody, it's, it's the Wall Street bets. If we all get behind this thing, it's gonna go. That is the reality, that's the Soros thing. But if you read a little bit further into the prospectuses, a thousand dollars is the ability for them to call that in. The, there is a, a thousand dollars is the price for which things can convert. And so if you can get the price to certain points It gives you the entity a lot more flexibility. That could be good, could be bad for the investor, but for the entity You know, if you think about at the end of the conference this year, the pitch was like, \"Go be a company because you, as a company, have a lot more power, clout, whatever, than you as an individual.\" And I don't disagree with that by any means, but when I see some of those Kinda sounds like, where does that number even come from? But then I'm reading through the documents and I see in the document, I was like, okay, well, yeah. So I" }, { "speaker": "stephan", "time": "01:10:50", "start": 4250.6, "text": "understand this is like, one of the, preferred shares has this, convertibility aspect, and so then it's like, above a certain pr- above a certain price, it can convert into equity. So it's, I guess, somewhat dilutive to the common shareholder, but the point would be, well, MSTR, the entity, got their money up front, on the front Yeah. So they were able to buy Bitcoin with it. But like," }, { "speaker": "kane_mcgukin", "time": "01:11:16", "start": 4276.6, "text": "if you're just, oh, I'm just gonna buy MSTR, you know, and it peaked months ago. It is down, Bitcoin's up, and you're like, \"Why is this thing not performing?\" Well, because that whole, the thing that you should have bought was that specific preferred. And maybe you're just an equity guy and not a fixed income guy, and you're like, \"Well, I don't want this thing with yield on it. I want the levered MNAV play.\" And so because you didn't understand the nuance of the different tranches You, you know, you, you bought the wrong thing not knowing, just getting caught up in the hype." }, { "speaker": "stephan", "time": "01:11:55", "start": 4315.81, "text": "Yeah, I mean, certainly people can get caught up in the hype. I think that's, you know, nothing new, we've seen that many times before in Bitcoin. and I think the other interesting thing that I'd just add is that Yes, this, I guess, if we think post-FTX bottom, this broader kind of cycle, we've had these kind of mini cycles with some of the treasury companies, right? So they've been up and down, and they are arguably-- well, they are more volatile than Bitcoin itself. And so there are times where they're down, you know, forty percent, fifty percent, seventy right now, you know, from the high. But then later in the cycle, after Bitcoin takes another run up, they go up even harder, and then we do it, we do it again and again, Euphoric Bitcoin top, and then that puts in the overall top for the cycle, and then we, you know, we do it all again. Yeah. so it's just kind of like, if you're gonna do this, you need to be ready to ride the volatility, right? And some people, they want the volatility, right? Because they feel like, I guess it's a natural thing of like, \"Oh, I missed Bitcoin in the early years, so let me try to buy this volatile thing that...\" Can outperform, and so I guess that's part of the mindset for some people, and so I guess that's-- you just have to, if you're buying, you know, the common equity of these treasure companies, you're in for a volatile ride, especially if they're a smaller, like MSTR is one thing, but to buy the smaller ones, they are more volatile, and just be honest about that." }, { "speaker": "kane_mcgukin", "time": "01:13:16", "start": 4396.05, "text": "Yeah, that's a great point. It's just like early Bitcoin, do your homework, right? You can't take somebody else's story, you can listen and, and get educated, and I think to your point on education, you know, the whole sound money, what is money? What Bitcoin fixes that education play isn't done, but by and large you can't take that to somebody and then be like, \"Oh, that's something new, you just blew my mind.\" Whereas the Bitcoin Treasury company education component, you can still do that because there's, there's different unique ways that it builds Bitcoin into the capital structure. Yeah. And I would just add" }, { "speaker": "stephan", "time": "01:13:55", "start": 4435.39, "text": "that some people don't care until they're personally invested. And so they won't care about learning about, you know, Rothbard and Mises and all these people telling us about sound money until they've kind of got some, some skin in the game, and whether that's BTC in a cold card or BTC on- On a custodial exchange or a Bitcoin ETF or a treasury company, until they've got a little bit, they're not gonna actually go down the rabbit hole. And I think this is like, it's like a new type of funnel for certain people who, they're not-- they weren't gonna come in the, the principled, you know, cypherpunk, no KYC way, they're gonna come in through some of these things that are on their stock booking platform." }, { "speaker": "kane_mcgukin", "time": "01:14:36", "start": 4476.93, "text": "Well, I mean, I would say just from my side of the business, you know? I can talk about it till I'm blue in the face for, for people in my shoes, on my side of the business, not the client side, but fifty, sixty year olds that are like, \"Ah, don't touch that, it's too risky.\" But you go through a period like February to eighth of April this year, world's falling apart, tariffs are gonna blitz everything, and their trusty bonds just went through the floor, and then Bitcoin, I mean, everybody knows gold, but most of them believe in that, it's just a standard, you know, narrative in, in our they see Bitcoin going through the roof, and it's been doing it for fifteen years, and then they see strategy or whatever, you know, also and they, wait a second You know, it, like you said, they finally had their moment where that one thing they had been hanging onto, that was gonna save them, didn't save them. And so they were willing to hear the message of debasement, the message of the problem with inflation, and then they were even more willing to go get at least a little bit of education to see Should I really actually be putting myself or exposing myself to these other tools, even if it's not huge, because they're working and I never thought they would?" }, { "speaker": "stephan", "time": "01:15:59", "start": 4559.04, "text": "Yeah, I think, I think you nailed it there. Like, I think there are a lot of people slowly waking up over time, right? There are some people who woke up in past cycles and, you know, in the cycles to come, you know, I think there will be bull and bear, and you just have to, we have to be ready for that. so I think it's a great spot to finish there. So listeners, make sure you check it out. I will link the Substack and Kane's, X account as well. Kane, thank you for" }, { "speaker": "stephan", "time": "01:16:28", "start": 4588.32, "text": "You are seeing with your customers also." }, { "speaker": "kane_mcgukin", "time": "01:16:30", "start": 4590.69, "text": "Yeah, thanks, Stefan. I enjoyed it. happy to come on and look forward to future conversations, but, it was a fun one." } ] }