{ "episodeId": "SLP749", "speakers": { "stephan": { "name": "Stephan Livera", "role": "host", "tag": "STEPHAN" }, "adrian_morris": { "name": "Adrian Morris", "role": "guest", "tag": "ADRIAN" } }, "segments": [ { "speaker": "stephan", "time": "00:00", "start": 0.0, "text": "Hi everyone, welcome back to Stefan Lovera podcast. Joining me today is Adrian Morris. Adrian is a founding member of True North and an analyst talking and strategizing and analyzing, the mechanics of companies such as Strategy and others in the digital credit market, talking about MNAV, capital structure, and so on. I've been, Adrian, I've been watching some of your work, I've found it interesting analysis, and obviously had to get you on. so yeah, I guess welcome to the show, and, let's start with, I guess, an obvious question Skeptics of Bitcoin treasure companies are getting wrong right now." }, { "speaker": "adrian_morris", "time": "00:34", "start": 34.0, "text": "I, well, when it comes to strategy, I think one of the biggest misconceptions is that they're, they're somehow in some immediate peril because of what's going on in the market, but the reality is, is that these treasury companies, whether it be Strage, MetaPlanet, so on, are very much, Bitcoin adjacent and Bitcoin dependent. So as the Bitcoin's price goes down, obviously their capital structures will, will experience stress. And I think that, that's coloring much of the commentary around these companies right now. I also think a lot of it's tied to just being blunt and- Management farming. It is very easy to pile on to strategy in these companies when the market is down, but when they're running up, the, the commentary shifts to, \"Well, they shouldn't be this expensive.\" So it's always a shifting goalpost, and I think it always is a narrative feeding goalpost. So one, one of the first things I think people are getting wrong is that these companies are in imminent distress. At least in the case of strategy, that is not true. one of the other things that I think these companies are getting wrong is that they don't seem to understand what the true-- in my view, what the true motivation for a company like Stragey is. I still fundamentally view it as a enterprise as exchanging one form of capital for another. And they're doing that through share issuance on, on MSDR, through, through share issuance on the common, on the, preferred equities, and they're doing that to acquire Bitcoin, which is growing the company's net overall net asset value or enterprise value, whichever measure you want to use, that then allows them to go to the capital markets, and since the capital markets are using these equities, again in my view, as a forward-looking barometer for where they think Bitcoin is going, where, when they think Bitcoin is go-- gonna go up, and Bitcoin should- Appreciating price, these companies see a disproportionate multiple when the market, as we're currently seeing, thinks that, Bitcoin price is gonna trend down, they tend to trend down, and they go in both directions with amplitude and, and with, with a multiple, and that's what we're seeing right now. But very, very plainly, I don't think people understand what these companies are, and, and, and since Strategy is the one that started this whole thing, the, the view that I have is that they are exchanging one form of capital for another. They're acquiring Bitcoin, they think that Bitcoin is going to become the financial nexus of, of the, of the world, and they're positioning themselves to have as much of that pristine asset as possible when that world materializes. And though, if I had to nail it down to two points, I think those are two things that people aren't understanding." }, { "speaker": "stephan", "time": "03:13", "start": 193.0, "text": "Yeah. Now, just for context for listeners, we are recording this the 26th of June. The price of Bitcoin is just under sixty thousand dollars. The price of MSTR right now is eighty-five dollars, and the price of Stretch is Seventy-five dollars. so there's a lot of, as you were talking about before, there's a lot of people who are, let's say, critical or saying it's over for MSTR or it's over for Stretch STRC. What are they missing or how do you see Stretch bouncing back? Like, I guess let's start on the, the Stretch side of things because that's kind of interesting because a lot of people, see it. Now, I guess there's kind of that argument of whether you should call it a par or what some people are calling a peg, right? They're saying the peg is broken and other people saying, no, it's actually a par. how do you see that? Is it a problem for MSTR that Stretch has fallen this low, down to seventy-five dollars?" }, { "speaker": "adrian_morris", "time": "04:04", "start": 244.0, "text": "So the whole par and peg distinction, that, that's something I, a mistake I made when it first came out last year, I was using par and peg in, interchangeably, right? But Stretch has a par, an intended par value of a hundred dollars. A peg is implying a fixed value that it must maintain. So those are two fundamentally different things. Stretch, to my knowledge and to my recollection, has never been ma-marketed as something that has a peg. It has a one hundred dollar stated par value, and that's the same thing with all of the Other preferred offerings, and I do believe that in the space, there's been a lot of interchangeable usage that's, that hasn't been ill-intentioned, but I think it's kind of muddied the view on what that hundred dollars represents. So that aside, I view the preferred offerings, whether it be Stretch, Strike, Strife, Stride, Sada, eventually the metaplanet, Mercury and Mars, I view all of these as Bitcoin derivatives, and I think that is one of the, I wouldn't say mistakes So I would say misunderstandings that has been prevalent is that you can't have, in the case of MSTR, MSTR existing on top of Bitcoin, right? And it being very, very much a Bitcoin derivative, or as we were calling them last year, a leveraged Bitcoin equity, wh-whatever common al-common term you wanna use. So you can't have MSTR sitting on top of Bitcoin, stretch and all the preferred sitting on top of MSTR, and there'd be no mechanical or structural correlation with Bitcoin And that's me putting it very, very simply. And as my understanding of these grew, I started doing more statistical analysis on them in terms of regression analysis, in terms of correlational analysis, in terms of the, correlations with, Bitcoin's movements and the, the, the kind of the ways they, they move in independent of Bitcoin, as well as the ways they move in terms of the, parent equity. So in the case of Stretch, for example, when I started modeling it out, it does move with MSTR and it does- Does move with Bitcoin. So that, that kind of changed my understanding of them, and as I kept doing that modeling and the, and the data kept being more and more consistent, I realized that, yes, these are preferred equities, but they're Bitcoin derivatives first, because the entire capital structure sits on top of Bitcoin. Gotcha. And that's the-- And that's" }, { "speaker": "stephan", "time": "06:19", "start": 379.0, "text": "the statistical terms, is it fair to say you're like looking, when you're saying the analysis, is that like day-to-day correlation, and you're saying it's got a very high correlation obviously with the price of Bitcoin movements" }, { "speaker": "adrian_morris", "time": "06:31", "start": 391.0, "text": "So I, I did this analysis from inception all the way through to this Monday, it was the last time I ran it, and at certain points, the cor-- the overall correlation with stretch and MSCR has been as high as point eight six. So that's quite high. And Sailor himself has mentioned that it's been point six, right? So he, he's aware of this correlation. But I think what was getting, Loss in translation is that there's the aspirational marketing that they're giving, but then there's the real structural mechanical reality of these equities, and I think that, that there needs to be a better job of marrying those two." }, { "speaker": "stephan", "time": "07:08", "start": 428.0, "text": "I see. Because that's maybe one area where some have been critical of the messaging there, saying, you know, people might say, if people thought of it like a stablecoin or as like a, like a money market fund, they might have-- or if they had heard it explained like a crypto, like a crypto risk-free rate, then, that maybe conflicts obviously for people who have bought Stretch and it's now down. I think maybe that's where that line of criticism is coming from. What do you-- How do you see that? Yeah. Is that seen as like a fair criticism or it's more like, it's, you know, somewhere in the middle or you think it's not a fair criticism?" }, { "speaker": "adrian_morris", "time": "07:45", "start": 465.0, "text": "Somewhere in the middle, somewhere in the middle. So again, and this is, this is me coming from my perspective, as an investor, you have to understand what you own. So a company can market something or use whatever description, descriptive language they want to describe that, but it's still upon you to read the fine print. And even though Saylor has, yes, mentioned that it's like a money market fund, he's made all of these comparisons, i-- he has never said it is a mar-money market fund. He has said it is like, or intended to be, or its intended structure, and he-- then he's gone on, right? But obviously, very naturally, people are only gonna hear money market funds, and that's what they're gonna key in on They're not gonna key in on all the distinctions and the disclaimers, right? So I think that Stratis needs to own that, and they need to, they need to tighten up the messaging for sure, because I, I, once I started doing the analysis, I was saying to myself, that's a very, very flawed analogy, and it's opening themselves up for, for a lot of criticism. And when, even when Stratis first launched, I said, \"Look, if you're expecting this to be stable at a hundred dollars, given what Bitcoin is, and given what they're doing that said, because these are Bitcoin derivatives and because Bitcoin is the nexus of the capital stack, I think what we're seeing right now, in my view, was expected I've been posting more recently about my analysis, but I've been doing this analysis this entire period, and, and I saw this coming. And I didn't see it coming because it was a flaw or because the, the products aren't good, it's because Bitcoin had been showing weakness For several weeks, right? And we'll go up to eighty-two, we'll come down, we'll go up to eighty-one, we'll come down, we'll go to eighty-two again, then go to seventy-nine. So the-- it had been battling in this range for several weeks. And online, I would tell people whenever Bitcoin or MSJ would move, \"Shut up, don't say anything,\" because we don't wanna jinx the movement, right? But all jokes aside, I anticipated that there was going to be a breakdown. Therefore, it stands to reason that if Bitcoin is breaking Apple stock or how the market m- Ford models its expectations on Bitcoin, and they do it with leverage and with, in the options market, they do it with the optionality with regards to prefers, they do it with regards to shorting the common stock. The, their, the market is expressing its views on Bitcoin through these equities in a variety of different ways. It stands to reason that if Bitcoin is expected to break down, that these companies are expected to break down as well, and therefore everything in the capital structure becomes impaired because of the correlation with Bitcoin. So that doesn't mean Stratus is going to fail, that doesn't mean MSJR is going to fail. What it means is the capital stack is currently under pressure because of Bitcoin price action." }, { "speaker": "stephan", "time": "10:34", "start": 634.0, "text": "And the corollary in my mind, should Strategy do something to try to get stretched up to one hundred, or should they, you know, I guess the ideas people have been throwing around is they should maybe raise the dividend rate to make it more competitive against Sater or whatever, or just in general, or some people have been even throwing this idea of they should actually try to defend it in some way to actually buy it. Now, I think there may be some laws around exactly how they can do that or not, but, I guess that's the question. Should strategy do something here about STRC or should they just sort of wait?" }, { "speaker": "adrian_morris", "time": "11:11", "start": 671.0, "text": "They can't do anything, in my view. So one, one of the things I've also mentioned is that, The dividend rate and the dividend frequency, those are intended to spur interest in the equity, right? So, or the preferred equity. And that, that is what they-- that's what they're doing. So when, when strategy says, \"We'll raise the dividend if the price goes lower,\" oversimplifying, but they're gonna raise the dividend if the price goes lower, that is to spur interest and people come to come in to, stretch or and to then drive the price up, right? It will drive up interest. The same with SEDA. And then the narrative Shifted to, well, they need to do more frequent dividends. And when Sada came out with the daily dividend, the, the narrative was very much like, \"Oh, they're gonna destroy Stretch. It's, it's over. Sada has a superior product.\" And, and when Stretch was going bi-weekly or semi-monthly rather, people said, \"Well, now they need to go daily because Stretch did, because Sada did that, right?\" But I was watching the, the, the data, I was watching the analysis. The impact on price was being driven by Bitcoin So that was MSt, that was MStR, and that was ASST. It wasn't because of the dividend. And the spikes that we saw were because of retail interest, were because of general interest, yes. But as we've seen now, as Bitcoin has broken down further, Sada is below ninety, I think they're around what, eighty-four, eighty-seven, something like that, and Stretch is now mid-seventies. So if it really were about the dividend frequency, if it really were about the dividend rate, that wouldn't hold true. Now what, and very, very plainly. Those are designed to mitigate volatility. They aren't designed to out engineer Or engineer away the volatility, right?" }, { "speaker": "stephan", "time": "13:04", "start": 784.0, "text": "Because that's going more to like the peg idea instead of the par idea, let's say. Precisely. You can't engineer the" }, { "speaker": "adrian_morris", "time": "13:10", "start": 790.0, "text": "market. And that, that is, I think that's what everyone is learning right now. Now, does that mean that they should, again, coming back to what you originally said, should they change the dividend or anything like that? I don't think it matters in this current environment. Even if they were to raise the dividend, I don't think that's gonna push them back to par. I, I think it, it would increase the likelihood of people looking at effective yield, and you would have a lot of people taking positions there, but taking a position Is not the same as consistent trading interest and consistent trading volume and consistent liquidity coming into it that's gonna drive it back up to par. In the case of, of stretch or CETA." }, { "speaker": "stephan", "time": "13:51", "start": 831.0, "text": "I see. And so, I guess, so you see it then as just sort of, it's a waiting game, just wait it out, or if they, if they choose to do, things on the common, if they're issuing MSTR to get Bitcoin that way, that's, that's a different thing, but for, on the stretch side of the house, you see it as just, just, it's a waiting game. We're waiting for Bitcoin to come back up." }, { "speaker": "adrian_morris", "time": "14:10", "start": 850.0, "text": "It is. It is. And they, they can I think that they likely will do that, but I don't expect it to, to appreciably help it, help it to get back to par. I think that, Bitcoin drives these, and everyone in the market right now is becoming very, very aware of that fact." }, { "speaker": "stephan", "time": "14:33", "start": 873.0, "text": "I see. So, the other, I guess, broader, because it, some people from the, let's say, Bitcoin who aren't interested in the treasure companies or they don't like them, they're-- now there's this, argument being made that maybe the risk is mispriced, and these are people making this argument of, \"Oh, you should sell the stock and buy the Bitcoin, and don't worry, you know, that they shouldn't justify a premium above MNAV.\" And I know part of your commentary has been more that, \"Look, At least partially driven by sentiment, or maybe mainly driven by sentiment, I'm not sure exactly your argument there. and so how-- what would you answer to them? Do you believe a premium to MNAV is still a justifiable concept on the common equity for these Bitcoin treasury companies? And, and maybe elaborate a bit on when that premium is justified?" }, { "speaker": "adrian_morris", "time": "15:23", "start": 923.0, "text": "Well, in terms of, of risk, this is also where I, I run against the grain somewhat. Risk assessment is very subjective. You are looking at previous performance, looking to say to yourself, \"Well, given the past performance, how will this likely perform in the future?\" It's just another kind of forward-looking assessment when it comes to risk, and you're trying to assess that have you effi-efficiently and effectively accounted for all the particular variables that can cause variation in the price, right? But you're still looking back. It is still a- A, a, a backward looking assessment that you try to project forward. So when someone says a risk is mispriced, I, I, I often understand conceptually what they mean, but your assessment of risk and your modeling of risk will be different than mine. There, there is no objective baseline for risk assessment, right? There's just a general guideline. So, and it doesn't mean the risk assessment is irrelevant, what it just means is you have to understand what that means. Now, coming to the point about should these companies, demand a multiple? Markets are forward looking, and MNAV is sentiment driven primarily, because I, I tend to ask people, \"Why would you pay three dollars today for something that's mathematically worth one?\" And that, that is essentially what people are doing in the entire market. When you buy equity, when you buy any equity, when you buy any asset, you're not paying the price you think it's gonna stay, you're, you're paying for the price that will be. And you will al-- you're always assuming, if you're buying it, that the price will be higher, or if you're betting against it, you're assuming the price will be lower. Regardless of, of the fact, you're still making a forward-looking assessment, right? And that is why it is sentiment-driven. It can't be objective. No information from the future can inform your decision in the present, therefore, by definition, structurally, mechanically, it can't be objective. And that is why I say M&A is sentiment. Now, coming back to, should these companies trend forward with Do you think that these companies are going to be able to acquire Bitcoin and do things with the Bitcoin that are advantageous? Are they gonna go into lending? Are they gonna go into preferred offerings like Strategy has? Are they gonna go into other differentiated Bitcoin back models? If you think yes, and, and since markets are forward looking, then it makes sense that they would trade, trade at a multiple. But what we're seeing right now is because Bitcoin's price has broken down The opposite is also true. If when Bitcoin goes up, they outperform, when Bitcoin goes down, they also go down further. So they outperform to the upside and to the downside, right? And I think people are confusing the two. They're seeing that Bitcoin is breaking down and they're saying, \"Well, it shouldn't, it shouldn't be trading at a multiple, and it shouldn't therefore, these companies are, are a bad investment, you should just buy the Bitcoin.\" But As someone that's held MSTR since twenty twenty-two, it has outperformed. I've used options to outperform. I've, I've bought on drawdowns and sold on, on runoffs and outperformed. There are many, many ways that, that, the market and individuals are using these equities to outperform Bitcoin. So it's not just a simple, should they trade at a multiple? It's very much, what are, is the market using these equities for? And how you can use these equities to outperform Bitcoin, and that overall is what is justifying the multiple that they see. It isn't just they own X amount of Bitcoin, therefore it should be worth X amount of Bitcoin. These equities are very much the vehicles that the market is using for their forward-looking projections on Bitcoin and for their positioning on Bitcoin and for their betting on Bitcoin. Everything in the options volume on FSTR, everything on the way that the company is shorted on a daily basis, everything on- And what I'm seeing in ongoing trading volume tells me that the market is using this, this equity and this capital stack as a way to place bets on therefore looking assessments on Bitcoin. So, yes, they should trade at a multiple because the market is assuming forward value, and that to me, that demands a multiple." }, { "speaker": "stephan", "time": "19:25", "start": 1165.0, "text": "I see, and I think at least one way I've been trying to understand this stuff is to look at, like, leverage embedded in the structure, or I guess nowadays you can also use the term amplification, which is the broader term, which is, let's say, implied by using SDRC or CDA, but even just debt, right? Like if you just look at the company and it holds, if it has, you know, this particular Bitcoin stack, and maybe, you know, you-- We build in our assumption of what we think Bitcoin Kager is going to be, right? Whatever, thirty percent a year for the next ten years, and the cost of capital is, let's say, twelve percent, right? Just kind of typical assumptions. Y-you could sort of build out a, a case that based on that debt or based on that amplification after ten years, that it will be outperforming Bitcoin. But then you have to still kind of discount that or handicap that by, let's say, okay, custody risk, dilution, management execution risk. And so you can sort of look at what would the future, look like based on these assumptions, but kind of discounted by certain risks. What do you think of that, this concept of leverage or amplification that is embedded in the structure of the company? And can-- is that also part of the- You know, the justification of a premium." }, { "speaker": "adrian_morris", "time": "20:42", "start": 1242.0, "text": "Depending on the investor, it can be. So what, what you just went through, saying that, \"Well, I can justify this and now to discount this and so on and so forth,\" that's what the market is doing at the aggregate level. It's just that you have different players coming to the market with different assumptions and different, base cases for how they wanna value these companies. So in the terms of leverage, I like to distinguish between there is Leverage is created through the capital structure, through, through the, the preferred equities, and then there's leverage that's, that's what I call market facing. So if I, if I create a quick distinction The preferred equities, those create internal capital structure leverage. The convertible bonds, those create internal leverage, but they're also market facing, 'cause you have other market participants that, that have pro-provided the convertible bonds that are then taking on leverage bets in the opposite direction on, on the convert in, in proportion to the delta of the convert, and that's how they're making money, right? The reason why Strategy moved away from that kind of leverage is because of the short interest it creates. It creates persistent- Short interest, and it creates a lot of downward pressure on, on the equity. And all of these different ways of looking at it are all justified. There's no one right way or wrong way Overall, to look at these equities, if you're trying to model them forward and trying to say, \"Does it deserve a multiple?\" What I urge people to consider is, \"Does your model make sense?\" Is the-- is the market saying that Bitcoin is likely gonna go down, that's why MCR and Stretch and Sada and ASST are going down? Probably. Will the market eventually say in the future that they should trade at a multiple? Probably, but the why behind that is important. And in my view, the why behind that is In the case of MSTR, you have the options market that's, that drives price far more than anything else, in some cases even more than Bitcoin. You have Bitcoin itself and people's ass- assumptions about Bitcoin and how much Bitcoin that they can ac- acquire, and therefore, like you mentioned, they have eight hundred and however many thousand Bitcoin right now, let's say one day they get to a million, there are people modeling that out and saying, \"Well, if they get to a million, they're...\" The math can be X or their overall value can be Y, and I'm paying for the price for it right now, assuming this rate of dilution, et cetera, et cetera, et cetera, the price should be this by 2027, 2028, right? They're, they're making all those, those assessments. All of these are valid models. So co-- coming back to what you said, yes, what you just said is a very valid way of going about it. It's just a matter of, does your valuation framework align with what is really going in the market in terms of how these are being priced?" }, { "speaker": "stephan", "time": "23:36", "start": 1416.0, "text": "I see. yeah, so as we've mentioned, there's like this financing, flows, and I guess there's, I guess three main buckets that I can see. So you've got issuing common stock To buy Bitcoin, you have the convertible notes idea which you, you mentioned, and then you have thirdly the preferred shares style, which is like Stretch and Sater and Stride, Strike, Strife, et cetera. and so I guess some people are kind of coming from more like the Bitcoiner camp who don't like Treasuries, they see it like, they only want companies to stack out of operating, you know, business income. They don't like the concept of sort of using the financing system. I'm curious how you see that I, I mean, presumably, you know, w-w-well, I think I, I, you know, both of us are, let's say, pro-trustee companies, but, how do you assess that, this, I guess, do you see that as a useful distinction or is it not really? Like financing flows contrasted with operating income cash flows?" }, { "speaker": "adrian_morris", "time": "24:37", "start": 1477.0, "text": "Well, if the company has operating cash to do it, they should do it. But the whole ethos of a Bitcoin treasury company, coming back to what I said earlier, is you are very, very simply exchanging one form of capital for another. And the comp-- in the case of Strategy, they are exchanging common stock for Bitcoin, and they're putting the Bitcoin on the balance sheet, wash, rinse, repeat. They're doing the same with the preferreds, they're issuing preferred equity to buy Bitcoin, they're putting on the balance sheet, wash, rinse, repeat. So it really is just a matter of preference. Now, in my mind I don't really see an issue with the current model because, again, as a Bitcoiner and as someone that is assuming Bitcoin's growth in the, into the future, assuming additional Bitcoin adoption, assuming additional Bitcoin, Intertwining into the financial, architecture of the world, I have no issue with a company currently doing whatever they can to acquire as much Bitcoin as they can, assuming that future It's just that my forward assessment is aligned with a, with a more, with a higher Bitcoin price, more Bitcoin adoption, et cetera. Therefore, I'm fine with what they're doing today. Some may think that's bad, some may not like the idea of issuing shares and, and, and a model that, that's a, that's a reflexive share issuance dependent model. Okay, but it doesn't make it invalid. It's just a matter of preference, I would say." }, { "speaker": "stephan", "time": "26:09", "start": 1569.0, "text": "I see. Yeah, and, on the question of, MNAV and the different ways to count it, right? Because I guess there's been some discussion about the different ways to think of or to count MNAV. so maybe you can outline what you see as the interesting or relevant ways to count MNAV or think of MNAV." }, { "speaker": "adrian_morris", "time": "26:32", "start": 1592.0, "text": "Again, where I'm Go against the grain is that MNAV, something I've been tracking for a couple years now, right? So we have the original, original MNAV, which was multiple net asset value. Now you have EV MNAV, which a lot of people have, have issues with because, because of the capital structure, EV MNAV is actually gonna be mathematically higher than MNAV. What I tend to track, because again, I've been using more, statistical modeling and using more, in some cases, machine learning Learning modeling on, on these, I actually track something that's more akin to multiple to asset value. I'm simply taking the Bitcoin holdings, the Bitcoin price, the market cap, and then coming up with a multiple that way. And that, in terms of my modeling, has been far more accurate in giving me a picture of the market than EV MNAV or MNAV. so in terms of what is the right way, technically, because of the new capital structure, the right way is EV MNAV because it accounts for the preferred equities in, in the calculation. If you want to take a view that you don't think that enterprise value is justifiable, and you think that the enterprise value is overall perhaps drag on, on the, overall capital structure, then you'd probably align with more of a standard MNAV, right? But it really depends on what you are looking at. My view is that EV MNAV MNAV, those are great for markets, for a market read on perhaps how the market is, is discounting or, or ma-- or pricing the capital structure or pricing the debt and so on and so forth. However Based on my analysis, the market is more pricing this akin to Bitcoin and Bitcoin only. As Bitcoin moves, strategy moves. I've even seen similar co-commonalities with ASST and Strive. So for me, I focus on, on the more, the most basic assessment of where market, the mar-market multiple is, and that, in my view, is total Bitcoin holdings market cap, that's the multiple, and that's what I go with. Now, people will attack that, people will say it's flawed, but it's worked, and it's something I'm gonna stick with until it breaks." }, { "speaker": "stephan", "time": "28:59", "start": 1739.0, "text": "See, so I guess the criticism might be that you're not accounting for the preferred aspect, or that, yeah, I guess, and I guess there's the other one I've seen some people mention, the CEBE analysis. What do you, what's your take on that?" }, { "speaker": "adrian_morris", "time": "29:16", "start": 1756.0, "text": "I think it's irrelevant. And that's just my read, because just like Bitcoin per share and Bitcoin yields, I, I don't-- as, as, as an investor, from just for me personally, I don't use them. I don't think that they're, they're anything remotely close to what the market is pricing in. And CBE is, the CBE model, I understand people use it as a Benchmark for valuation, but I keep coming back to the same question that I keep asking. CB, the, the CEB breaks down to another form of Bitcoin per share. That's, that's essentially what it breaks down to. And I, I keep asking people, why would I break down a valuation framework to Bitcoin per share when I have no claim on the Bitcoin? Also, Strategy has been very, very mi-- very, very, very mindful about saying that Bitcoin per share isn't a valuation framework. So if, if they're saying that it's-- if, if the company that creates the metric in the first place is saying that it's an evaluation framework, why am I using it to as an evaluation framework? I think they're doing that because they understand, and this is just my read on it Bitcoin per share is very, very much backward looking because once they issue shares and they buy Bitcoin, any per share metric you get is always either looking at the current moment you look at it back into the future, right? Okay, fine. And you're saying to yourself, \"Well, that is accretive, I'm getting more Bitcoin per share.\" Okay, great. If you sell a share of MSJR, are you getting back Bitcoin or are you getting back cash? Why isn't the Bitcoin per share even a relevant metric? In the case of a liquidation event, for example, you aren't getting Bitcoin back, you are getting the residual value of the, the nominal value of the Bitcoin holdings and the company's entire asset base in a case of liquidation. So for, for me, C-CEBE is just an extension of Bitcoin per share that is accounting for more of the capital structure within it. Fine. People think that is, that's valid. Fine. For me, as someone that's modeled out the statistical correlation between Bitcoin per share and price, I'll just give people some little bit insider baseball is, the correlation isn't good, so I wouldn't be using that as a valuation benchmark for what you're getting in terms of value. Value Is not what you necessarily think the world should go to. That is, that's a forward-looking assessment, but it's a very, very different forward-looking assessment from saying If I pay X amount of dollars today, the, the share price is gonna be X worth, worth Y amount of dollars tomorrow versus me saying the world's gonna go into a Bitcoin standard, therefore Bitcoin per share should be the standard, therefore Bitcoin per share should be the way I value these companies. The one is a very, very, very aggressive assumption. The other is a benchmark you can at least have a relational value to, and I think people are blurring the lines between those. Okay," }, { "speaker": "stephan", "time": "32:18", "start": 1938.0, "text": "got it. So help me understand, make sure I'm understanding this correctly. There's simple MNAV, like market cap, over Bitcoin holdings times Bitcoin price. There's enterprise MNAV, which is incorporating the capital structure, like market cap plus debt plus preferred equity minus cash. Over total Bitcoin times the Bitcoin price. And then there's like the CEBE style." }, { "speaker": "adrian_morris", "time": "32:41", "start": 1961.0, "text": "And, and CEBE, and you can, and then there's the other MNAV as well, which is just multiple net asset value, where you take the Bitcoin holdings minus, you know, debt, and then you get, the, Bitcoin, the, multiple net asset value. CEBE is a, is a valuation framework that's more aligned to saying You have this proportional value per share when you account for the entire capital structure, so it's not quite like MNAV, but you can calculate a CBE derived MNAV, CEBE derived MNAV as well. But we're, we're kind of getting into the weeds of all the different ways of doing it. Gotcha." }, { "speaker": "stephan", "time": "33:16", "start": 1996.0, "text": "Yeah, yeah, yeah. So just refresh me, your, the way you were thinking about it is just in asset value terms, like just, you know, essentially yes. Essentially yes. Yeah, just market cap, market value of the, company. Over the Bitcoin holdings, and you just, and I guess in your framework, you have a lot more, let's say, weighting or bias towards this concept of just sentiment, right? Just the sentiment and just Bitcoin, and so you see it as just Bitcoin going up or down is actually a lot more important here than some of these other factors. Is that fair to say? It is the driving factor." }, { "speaker": "adrian_morris", "time": "33:49", "start": 2029.0, "text": "Yeah." }, { "speaker": "stephan", "time": "33:49", "start": 2029.0, "text": "And, I can" }, { "speaker": "adrian_morris", "time": "33:50", "start": 2030.0, "text": "give, I can give even more color into that very, very quickly. I have been watching MNAV in terms of MSTR. I've been watching the correlation between the options market and MSTR. I've been watching the correlation between Bitcoin and MSTR. I've looked at rotation into other, equities such as Bitcoin miners. I've looked into how the rotation to E- the ETFs has impacted Bitcoin per sh- MSTR in terms of price, variance. I've looked into global liquidity. I've looked into nominal liquidity. I've look- I've looked into this Through twenty to twenty-five different variables in all modelings across all time frames, whether I do it at one month, three months, six months, nine months, twelve months, weekly, quarterly, it doesn't matter, the two primary driving factors in price variance are always Bitcoin and the options market when it comes to MSJR. And it's trending the same way when I do the analysis on ESS-T as well. So that is where I, I drove my, my, conclusions from. If the options market and Bitcoin are driving the price action, that means that the market's expectations are wha- are what is driving the price action. And this is something that holds true for other equities as well, it's not just Bitcoin equities. It holds true for Nvidia. Nvidia is being, is driven very, very heavily by the options market. The entire MacSeven is driven heavily by the options market. I've done this analysis on fifty or so equities. Market expectations are driving more price, and, and, outcomes than people think. It isn't something mechanical that companies can go to the market and, and assess. Markets are forward-looking, and if, and if markets are forward-looking, and you accept that, you must accept that sentiment is driving valuation. And if sentiment is driving valuation, that's driving price. And in the current, in the case of Bitcoin-petroleum companies, what is driving the entire value of the company? The Bitcoin. That's the Bitcoin," }, { "speaker": "stephan", "time": "35:53", "start": 2153.0, "text": "yeah. Right. And so I think that's interesting because, look, I mean, if you-- even if you just think about like non-Bitcoin equities, people are thinking about things in terms of how many years multiple, right, profit, or they might think of revenue multiples, they might think of profit, you know, profit multiples, and they are valuing some of these Dozens of times more than what they're earning in a year. but I guess in the Bitcoin context, we're kind of looking things more at like, you know, the balance sheet and how much that balance sheet is going up or down based on the Bitcoin price going up and down. But I guess that brings up another question for me. Now, we've been talking a lot about MSTR, ASST, and maybe a little bit of Metaplanet. What do you think of the smaller treasury companies? And is there a lesson for them in that? Because as an example, does that But then, to your point, if it's sentiment, and let's say we come back into a bull market, who knows when? Maybe it's a year from now, whatever. But if we come into a bull market and Bitcoin price is pumping, then many of those smaller ones will also probably get a multiple on their MNAV too, because of the sentiment, right?" }, { "speaker": "adrian_morris", "time": "36:58", "start": 2218.0, "text": "The ones that survive, yes, yes. so the, the, the role of sentiment in the Bitcoin treasury space is actually amplified, and I have st- I have mathematical and statistical evidence of this, but I also have a Explain this as well. If you have a sentiment-driven asset, which Bitcoin is, and anyone that denies that don't think has been paying attention the last sixteen years. So Bitcoin is very much sentiment-driven It is very much expectation driven. Then you put equity on top of that, you now have two different channels for sentiment that are being expressed in, inside of a capital structure That is, that's another reason why they trade at a multiple. It isn't just the Bitcoin, it is the expectations about what the company can do with the Bitcoin, how much the company can buy, et cetera, so on and so forth. So those are two channels that, of sentiment that are reacting very, very reflexively and amplifying one another to the upside and to the downside. Now, with your question about the Bitcoin treasury companies, the smaller ones, the reason why they ran up last year, and we saw MetaPlanet ran up a lot, SmarterWeb ran up a lot, right? They had a lot of them that are getting disproportionate multiples, is because-- and this is the way I've been explaining it, if MSCR is a beta Bitcoin play. These treasury companies are beta strategy play. That, that's what they, they were. Smaller market cap Buying Bitcoin, euphoric market, they can move a lot quicker, a lot more aggressively because the market cap is a lot smaller. It's much more difficult to move strategy in such a way now, now, because when Strategy first started, they were essentially a small Bitcoin treasury company, right? But now that they've grown, and now that they, like, for instance, when their market cap was over a hundred billion, the open interest in the, in the options market was over a hundred billion. So you have options positioning equal to the market cap of the company. That is a very, very, very reflexive environment that is hard for one Indicator or one aspect to move outside of Bitcoin itself. So if Bitcoin was ripping up to two hundred K right now, strategy would be ripping through the roofs right now, even, even at a, even at a lower multiple, even if they were at two MNAV or two point five MNAV, they would still be disproportionately outperforming to the upside, right? And the smaller treasury companies in that environment, they would run up as well because they have a smaller market cap, and it's easy for players to move those treasury companies. And when MetaPlant was running up, when SmarterWeb was running up I know for a fact that there were people going in and size and pushing the price up because they could, because the volume wasn't there yet, but that was at the beginning. Once it started to run up, and once we started having more players in, in, in, in the, treasuries, it became harder to move it. And then when sentiment shifted, a lot of people got caught to the downside, right? So it's very much the same. Yes, the E-trasury companies will move, but Bitcoin has to move first. And in my view, there's nothing that these smaller companies can do to change that because there's nothing strategy can do as well, unless one of them is willing to take a very Differentiated against the grain model of treasury management right now, and I don't think that they, they have the sentiment or liquidity or, or interest in the space to even take that risk at this point." }, { "speaker": "stephan", "time": "40:32", "start": 2432.0, "text": "So it's almost like just, just tread water and survive until the next bull market then. Yes. That's kind of effectively what you're saying. Yes. And people aren't hearing that, but" }, { "speaker": "adrian_morris", "time": "40:41", "start": 2441.0, "text": "yes. That, that, and that is why strategy is just do your" }, { "speaker": "stephan", "time": "40:45", "start": 2445.0, "text": "best to survive until the bull market comes, and then you'll be effectively bailed out by the bull market. But as you said, maybe it's not bailed out, it's just they are effectively a levered Bitcoin or a levered strategy if they're a smaller one." }, { "speaker": "adrian_morris", "time": "40:57", "start": 2457.0, "text": "Correct. Stratis is, is a, is tethered to Bitcoin. These companies are tethered to Bitcoin as well, but they're also tethered to Stratis because the entire viability of their model is dependent upon the model that Stratis came to market with. So there, there's no future where-- and I wanna be very specific what I'm saying here. This isn't what I'm saying will happen, this is a hypothetical." }, { "speaker": "stephan", "time": "41:17", "start": 2477.0, "text": "Yeah, sure. If" }, { "speaker": "adrian_morris", "time": "41:18", "start": 2478.0, "text": "strategy were to hypothetically fail, every single one of those companies is, is dust." }, { "speaker": "stephan", "time": "41:22", "start": 2482.0, "text": "Yeah, because it would be seen as a rejection of the model or invalidation of the, of the idea, let's say. now I guess that's the other question. We've been talking a little bit about forward-looking and so on, and as you said, you've run your statistics on, the options market and the, let's say, the correlation with the Bitcoin price. Could that change in the next bull run? Could it be that, like, the, you know, the Bitcoin price could run up, but some of these companies don't have that same, you know, could something change in the future? Or do you believe that relationship will hold in the future? Or you believe it's likely to hold?" }, { "speaker": "adrian_morris", "time": "41:55", "start": 2515.0, "text": "It will hold, but it'll be in degrees. So it is possible that treasury companies right now that are treading water could be seen as doing what I'm saying that they should do, because I only think that's-- I, I think that's their largely their only option, by and large. They could be seen as, well, it was fun in twenty twenty-five, now twenty twenty-eight in a real bull market, we're gonna go the winner strategy. Strategy's the one that survived the downturn, strategy's the one that's been buying Bitcoin in the downturn, strategy's the one that has been you know, has weathered the storm, has preferreds, et cetera, et cetera, et cetera, and therefore it won't just be Bitcoin at that point, it'll be the market perception of Strati as being a weathered, tried and true Bitcoin treasury company" }, { "speaker": "stephan", "time": "42:47", "start": 2567.0, "text": "Possible. Right, because they survived the twenty-two bear market, they're in this bear market, and I, they will have survived by then. Let's see. Correct." }, { "speaker": "adrian_morris", "time": "42:54", "start": 2574.0, "text": "Possible. Not probable. In all likelihood, I still think the correlation will maintain, and I think the correlation might actually grow over time. Yeah." }, { "speaker": "stephan", "time": "43:06", "start": 2586.0, "text": "Yeah." }, { "speaker": "adrian_morris", "time": "43:07", "start": 2587.0, "text": "Because as Bitcoin's market cap gets larger and larger and larger, and strategy gets larger and larger as a result, what are they getting larger because of? It's still Bitcoin. Now, the way they can break that, and this is something-- or, or the way they can challenge that, and this is something I've been talking about, is coming back to my distinction about Internal capital structure leverage versus market facing leverage, if they introduce new market facing leverage levers, so lending Options trading on their Bitcoin holdings, differentiated Bitcoin products that are more market-facing that people can take bets on and take positions on, and navigate more into A true Bitcoin financialized model, I think they break that distinction, and I think they can break that somewhat. If they were to-- and this is something that people just kind of discount, but I don't think that they should-- if they were to take some of the capital that they've been raising the last few years and, and invested it back into the BI business and looked for mergers and acquisition opportunities, looked for growth opportunities, looked for other opportunities in that space, they don't need to challenge Microsoft, they don't need to challenge the- The Leviathans in the space, they just need a larger market share. A larger market share requires the market to forward assess that, doesn't it? And that will change how the market has to forward, has to forward model the equity as well." }, { "speaker": "stephan", "time": "44:37", "start": 2677.0, "text": "Interesting. So you're saying like they would sort of gobble up some of the smaller players to kind of take up more of the market share in the BI and maybe AI industry as well in that sense, yeah?" }, { "speaker": "adrian_morris", "time": "44:48", "start": 2688.0, "text": "Correct. And they haven't been able to grow in the past, but that was before they had tens of billions of dollars of, of capital to work with. That was before they may, may eventually at some point have hundreds of billions of ca-capital to work with. That was before the options, the, the volume. So for instance, MSJR has traded Two point seven seven trillion dollars since the BSE era. If that continues to grow, even with this bear market, so let's say it does continue to grow, right? Where in twenty twenty-eight, twenty twenty-nine, and it's going up again, and they're trading over one trillion, one point five trillion. In those years, they-- if they go to the market with the exact same model they have right now of issuing equity, raising capital, they can raise a lot of capital, they can still buy Bitcoin, they can still pay the dividends, and they can still invest in the BI business They don't need to become Microsofts. There's a lot of room for growth that they didn't have the ability to take advantage of because they didn't have the capital The, the, the hundreds of millions of dollars they were playing with before, that's not gonna move the needle. Tens of billions over the course of five to ten years, yes, that moves the needle That, that attracts, that attracts, people that wanna work for your company. That attracts interest, that attracts, that attracts new opportunities. They can scale in, in a variety of different ways that will then challenge the strong Bitcoin linkage, but they're gonna have to be willing to break the model that they're going with right now" }, { "speaker": "stephan", "time": "46:18", "start": 2778.0, "text": "I see. Yeah, as I recall, last I heard Michael Saylor speaking on this is, I think maybe not on the BI side of it, but people have asked him, \"Would you acquire other treasure companies?\" And I think his answer was like, \"No, that would complicate things, and it's not the right move for them.\" But notably, ASST did, acquire Semla, and, I think H100, in the Nordics, they have done some acquisitions also. so we are starting to see at least some examples of treasure companies But I wasn't talking about, in the case of-- Yeah, and you weren't even talking just of acquiring other treasury companies, you were just talking about the BI side, right? Correct, correct. I don't think" }, { "speaker": "adrian_morris", "time": "46:55", "start": 2815.0, "text": "they should acquire treasury companies at all. I, I don't think that, I don't think that benefits them. I think that the- The reality of it is, unless they're gonna get all that Bitcoin at an extreme discount, why take on the structural, organizational complexity to make a merger and acquisition work? Work, it, it worked in the case of Strive because Strive was smaller. So Strive is doing a differentiated model, right? They're, they're going about things in a different way from MSCI, which is why I think that they have, they have room to grow and they have, they will succeed, is because they're doing different things. They're going the M&A route instead of having multiple preferred offerings, they have one. And this is something that, you know, Ben and Jeff have talked about, that their model is more simplicity, right? They don't want several preferred, they're gonna focus on one. They're gonna, they're gonna have a laser focus on one. Is it possible that that can change as they grow? Absolutely. But right now, they've got their one and they've got what they think is their silver bullet, and they're going with that. They've gone with a merger and acquisition route with Semler, they may go with mergers and acquisitions with other treasury companies as well, that's entirely The, the str-strategy, they can do a differentiated treasury model if they want, but they can also do a differentiated business model as well. I" }, { "speaker": "stephan", "time": "48:11", "start": 2891.0, "text": "see, yeah. So, I guess this is kind of another common question in the space of, how many companies like this do you think there can be that are- doing this kind of Bitcoin, financing and Bitcoin op- this kind of strategy style or ASST style or Metaplanet style, do you think there's room for many globally to be doing this, or is it sort of like only a handful will, will be able to successfully do this, or other people have said maybe it's like a few per region? What do you think?" }, { "speaker": "adrian_morris", "time": "48:42", "start": 2922.0, "text": "I think it's possible that the future ha-is a world where you have thousands and thousands of companies with Bitcoin on their balance sheet. The Bitcoin treasury model, I think that's gonna be Far, a far smaller footprint. So, so if we take a regional approach, I think that makes sense. You can have Smarter Web and Capital in Europe, you can have MetaPlaners in Japan and Asia Pacific, you have Strive and, and, Strategy in the US, and maybe some smaller ones in the US as well. I don't see a future anymore where there's thousands of Bitcoin treasury companies doing this, this model. The, a model that's dependent upon share issuance, a model that's, in my view, very much exchanging one form of capital for another and growing through that. I don't, I don't know if that's, gonna be the case anymore, not because it's not a viable model, but just because what is gonna differentiate? How are you gonna differentiate? In the case of, of MetaPlanet, you've got the Asia PAC Japan angle, great. In the case of SmartWeb and Capital, you've got the European UK angle, great. In the case of some of the other companies, you may have other differentiated angles. So in the case of, of MSDR, they're the eight hundred pound gorilla. In the case of Strive, they're the nimble, adaptable one that's gonna, that will grow through M&A, that will grow through whatever means they can, they're gonna adapt, right? So that Companies, whether you wanna go further down the list, that will find room to grow because of Bitcoin's growth. But that said, I don't see that the current model is gonna expand to thousands of companies. I just don't see it anymore." }, { "speaker": "stephan", "time": "50:22", "start": 3022.0, "text": "So it's more like a handful, maybe dozens of these around the world will be kind of successfully able to do that model, and then others may just end up getting acquired or they'll pivot and try to do something else because that model doesn't work for them, let's say. And of course Yeah, or, or the," }, { "speaker": "adrian_morris", "time": "50:40", "start": 3040.0, "text": "or the, or exa- the other example I gave as well, I think there'll be thousands of companies in the future with Bitcoin on their balance sheet. They just won't-- It'll be more like a--" }, { "speaker": "stephan", "time": "50:48", "start": 3048.0, "text": "Yeah, they'll just be holding it, and they won't be like doing, yeah," }, { "speaker": "adrian_morris", "time": "50:51", "start": 3051.0, "text": "yeah," }, { "speaker": "stephan", "time": "50:52", "start": 3052.0, "text": "yeah, they'll be like SpaceX or Tesla style, just, you know, or Block, let's say, like they're just earning Bitcoin and then just buying Bitcoin," }, { "speaker": "adrian_morris", "time": "50:58", "start": 3058.0, "text": "right? That's just-- It is a company asset that is on the balance sheet companies to have Bitcoin in the balance sheet, and people fail to realize this, and this is something that Sailor mentioned, we do very much have a magnificent eight right now with SpaceX's inclusion. Two out of the eight companies in the MAG eight have Bitcoin in the balance sheet. If you had told me this fifteen years ago, I would have never thought, it, it, that when Bitcoin started, that this would, this wouldn't be possible. if you had told me when I got into Bitcoin in twenty twelve, that this is possible, I wouldn't have said so. So we have Tremendous, tremendous, tremendous growth in Bitcoin right now that shouldn't be done away with just because we're seeing a downturn in price." }, { "speaker": "stephan", "time": "51:50", "start": 3110.0, "text": "So I guess, any thoughts on, I, I don't know if you've run any, stats or analysis on things like just bear markets and bear market length and things like that, do you have any thoughts on where we are in this cycle?" }, { "speaker": "adrian_morris", "time": "52:03", "start": 3123.0, "text": "so I have, and I, I have a few different, analyses that I've done that are rather detailed in the sense of they are looking at, various aspects in the model. So, so I have, I have an algorithmic framework that I use to look at the, at the markets, and I have, I have adjustments to it for big and treasury companies, I have adjustments to it for, for traditional equities, I have adjustments to it for things like ETFs. So if I'm looking at, SPY or VOO or, USO Or BNO for oil, right? I have, I have a model that I adjust where, when I'm looking at the market in terms of Bitcoin and Bitcoin Treasuries, based on historical trends and realized volatility, based on historical trends in trading volume, based on seasonal trends, based on a, a few other factors, I think we have a period where we can see a little bit of, of a run up, maybe into July But overall, I think we're not gonna be out of the woods. Just again, this isn't me making a prediction, this is me looking at the data. We're not gonna be truly out of the woods until November. A lot of people are saying October, the data showing me it's more like November. And out of the woods doesn't mean we're gonna get 60K in November. Out of the woods means that we're not gonna be in a constant chop. Range, right? We're gonna, we, we might break out to ninety again, end of November to end of year, that, that's what I see. But from now until end of October, I can see the Fifty-four to eighty-two being a range that we're living in." }, { "speaker": "stephan", "time": "53:42", "start": 3222.0, "text": "Interesting, yeah. and on the AI side of the house, I know you're really into AI. Any tips you can share for people like if they wanna do AI analysis, what are some tools that you're using? Any, methods you can share there?" }, { "speaker": "adrian_morris", "time": "53:56", "start": 3236.0, "text": "Oh well, so I'm not using, AI tools to do my analysis. Everything I'm doing is very mathematics, statistics, driven. So it's kind of hard to point out one, on tool, what I will say is Claude, GPT, Gemini, not so much Grok, sorry Elon, but it's consistently one of the poorest performing LLMs that I use, whether I use it for coding, whether I use it for, different kinds of analysis, it, it, it just Isn't as strong as the other models, so that's one bit of advice I, I'll give. And in terms of how to use LLMs to model To make financial decisions, don't rely on the LLM to pull the data and analyze the data for you. Gather the data yourself, come up with some assumptions, and then use the LLM to model out those assumptions. That, that's the, the best advice I can give. There are lots, there are a lot of people that are going to market, with an analysis that is very much, they've gone into an LLM, they've given the LLM a set of parameters, the LLMs come back with data and come back with analysis based on that data. But LLMs hallucinate and LLMs make mistakes quite often, and the amount of stuff that I see that's getting promoted on X and even in business journals is alarming in the sense of when I actually do the analysis myself and I Actually dig into it, their conclusions aren't only wrong, they're modeled entirely incorrectly. So I would say that the people that use LLMs that are, that are still willing to do some light work, gathering data Testing assumptions, they will do well. They'll find ways to make money in the market, they'll find ways to assess how to invest as well, they'll know How to play the market. They may not get as scared by the market if they've been looking at trading volume and options positioning over the last several weeks, seeing that it's been trending down and now that the price is catching up to that trending. They may not be as shocked, the market moves may not shock them as much. I, I'm just trying to put across that there's no one silver bullet for anything. You really need to dig it in, dig into these, the, into the data. LLMs help you do that, but the LLM shouldn't do the analysis for you, and I hope I made that distinction clear." }, { "speaker": "stephan", "time": "56:23", "start": 3383.0, "text": "Yeah. and yeah, any other closing thoughts just on treasure companies and where you think things are going? yeah, any, anything else you wanna mention there?" }, { "speaker": "adrian_morris", "time": "56:32", "start": 3392.0, "text": "I would say that, you know, I did a post about this yesterday. I know that a lot of people are frustrated, a lot of people are nervous, a lot of people are anxious, some people are very, very angry, right? But These treasury companies are very, very much tethered to Bitcoin. As Bitcoin goes, they will go. So if you are, are, justifiably, you know, not pleased with the price action, there is a root cause. It's not anything that Strategy's doing, it's not anything that Strive is doing, it's not anything that Metaplane is doing. Bitcoin is driving this, and that's what we're seeing right now. So that's what, the advice I'll give for the Bitcoin treasury companies. For the broader market, since twenty twenty-three, there's been over one hundred and eight trillion dollars in trading volume in just thirteen equities that are tied to the, the AI trade. If I broaden that out to twenty, the number gets closer to one hundred and twenty-five trillion. I say that to say that AI is sucking the air out of everything. so we are very, very much in a paradigm shift in terms of what is going on in the markets, and a lot of the attention that should-- that would have gone to Bitcoin Has gone to AI and has been trending that way for quite some time, even though Bitcoin went up to one twenty-six, that wasn't Bitcoin taking anything away from AI, that was just people looking for a different play. And until the AI trade normalizes, until the market really understands where this thing is gonna go, I think we have to understand that Bitcoin now has a Fundamental liquidity narrative challenge to its appeal in terms of growth, in terms of outperformance. We no longer can just rest on Bitcoin is the best money when you have AI Potentially building out the future on the other side of that equation, and I think that we may have to temper some expectations going forward. That said, I still think Bitcoin's gonna outperform many, many assets, many, many equities. I still think Bitcoin's gonna go, grow, grow. I still think Bitcoin's gonna do very well. It's just that we may have to be more accustomed to A slow stair step up versus run ups and crashes." }, { "speaker": "stephan", "time": "58:52", "start": 3532.0, "text": "Interesting. Actually, while I got you, I, I guess on the whole AI thing, we're seeing a lot of different views there. Some people think it's being over invested or over built, and then maybe the others who are, let's say, really super bullish on AI, yeah, you know, they might say, \"No, it's gonna be justified.\" But bottom line, there's been, you know, hundreds of billions of dollars of money spent on building out the infrastructure for this stuff. And maybe not that much revenue for the AI companies yet. What's your take on that? Do you think it's kind of overbuilt or no, it's, you're, you know, you're like still bullish on all these AI companies?" }, { "speaker": "adrian_morris", "time": "59:27", "start": 3567.0, "text": "Well, I'm not bullish on all of them. I'm bullish on a lot of them, and I think that, I think it is justified. So in terms of the point you raised about the AI companies themselves not being profitable, we have to make a distinction between the Nvidias and the hyperscalers, the- ASMLs and TSMCs and Microns, and then the Clouds and the OpenAIs, right? Those are the ones that aren't profitable yet. Do I think they have a path to profitability? Yes, because a question I ask people all the time is, \"Okay, let's say they increase the, the, Cost of Claude or GPT or whatever, ten percent. Are you gonna stop using it? If you are a developer, let's say token cost goes up by ten percent, are you gonna stop using the tokens? I, I don't think so. I think that all of these companies are gonna increase costs and they're gonna bring in more revenue that way because they have to. As it stands right now, what we're getting in terms of compute versus what we're paying for it isn't equal, what, what, whatsoever. Right, like the" }, { "speaker": "stephan", "time": "01:00:28", "start": 3628.0, "text": "early subsidy days of Uber kind of thing. Correct," }, { "speaker": "adrian_morris", "time": "01:00:30", "start": 3630.0, "text": "correct. We're, what we're getting Is far outstripping what, what we could potentially get is far outstripping what we're actually paying for it. So I think what, what we're seeing right now is very much, as you adequately just noted, is kind of like a subsidy for phase right now, where the companies are growing in terms of user base and in terms of interest and in terms of usage, 'cause usage isn't the same as user base, right? You can have extremely high usage with a concentrated user base. That phase, I think is, is, is going up. and I think the IPOs for Cl- for, Cl- Clouanthropic," }, { "speaker": "stephan", "time": "01:01:06", "start": 3666.0, "text": "Clouanthropic," }, { "speaker": "adrian_morris", "time": "01:01:07", "start": 3667.0, "text": "OpenAI, and OpenAI, even though OpenAI didn't, delayed theirs, I think that is the path to profitability because we saw what happened with SpaceX. I don't see a future where these companies could successfully IPO and they're not hugely successful. And in the IP, in the IPO process, in those early days, I see them issuing equity to raise capital. I see them doing all kinds of things to raise capital from that initial IPO. I mean, SpaceX was able to do it, I don't see why they couldn't do it. So I think the profitability concerns are a little bit overblown." }, { "speaker": "stephan", "time": "01:01:35", "start": 3695.0, "text": "Yeah. Now, the other big one is the, I'm going. I'll see. The other big one is Yeah, yeah, you're going, you're going." }, { "speaker": "adrian_morris", "time": "01:01:43", "start": 3703.0, "text": "With regards to the build-out, I think it's justified." }, { "speaker": "stephan", "time": "01:01:46", "start": 3706.0, "text": "Yeah, fair enough. And then I guess the other big question is the local models, right? Open weights models. We're seeing, as a GLM five point two and, you know, DeepSeek and Kimi and these different models. I guess the argument we're seeing there is that maybe, maybe an individual wouldn't run those yet, at least not at the full scale, but a corporate might. He might, if you're a corporate and you can spend, you know, Pressure on the anthropics and, OpenAI's of the world." }, { "speaker": "adrian_morris", "time": "01:02:16", "start": 3736.0, "text": "As it stands, I'll say no, because one of the, one of my day jobs is I help companies onboard AI tools, and I can tell you that every single company That has tried to go the, the open weights route and the open model route has eventually pivoted back to more of a closed model, and it's because the open models are very, are, are amazing right now, but it requires much heavier lift internally to make them work. And they are still not frontier scale. So the, the, the reality of open models is they may work for you running a local agent, they may work for you as a developer, they may work for you, doing what you're doing day to day, but trying to scale that to the corporate level and having everything in your corporation feeding into a local model, whether that be through Document repositories, whether that be through code bases, whether that be through what have you, they're not there yet. Now that said, I think the future is local in many ways. I think that We are gonna have a future where an AI OS is another OS in your computer. I think that, that, that's where things are going. That's one of the directions things are going. So instead of us having the frontier model that is cloud-based that everyone has access to, whether it be GPT, whether it be Claude or what have you, right? There's gonna be a bifurcation. There's gonna be pay-to-play Of people that are getting a certain level of access that's extremely high in the cloud, paying month to month, then there's gonna be the premium access, the truly frontier next level models that, that are coming that have More parameters that have better, that have better, assumptions driving the annou- the, overall weights, that have better, structure overall, that have cleaner data sets, because remember, what's driving a lot of the hallucinations in, in the data, in the, AI models isn't because the, the statistical regression and all the modeling that they're doing to guess point A to point B in the response is bad, it's because they're operating off of crappy data. As datasets get more refined, as synthetic data gets more refined, and as the parameters grow and as the models grow, the hallucination problem will become less and less. And as computers with RAM and with, with, overall, storage get better and better, in two to five years, I see a reality where someone has a Frontier model that they pay two thousand dollars for, three thousand dollars for, that lives on their computer, that is their model, that is their assistant, that is their second brain, that they will update, just as you update a phone today. Some people wanna update a phone every single year, some people wait five years, it's gonna be the same thing. Someone like me, I will update an AIOaaS every single year, and I'll gladly pay for it because of all the things that I do. So the, the path to profitability for these companies is multivariate And I think that people that are calling for a bubble and saying that the build-out isn't justified, they're, they're looking very, very short-term. So local models are fantastic, but I think the future is local, but in a very differentiated way." }, { "speaker": "stephan", "time": "01:05:29", "start": 3929.0, "text": "Gotcha. And I guess for the corporates, you, I guess how I'm reading you there is the convenience factor, right? They would just pay for the convenience factor of it, it being easier to integrate into their systems and their workflows that the employees are already doing right now, contrasted with doing local OpenWaits stuff, at least for now in the short term." }, { "speaker": "adrian_morris", "time": "01:05:47", "start": 3947.0, "text": "Yes. and I'll, and a lot of the challenge with that comes into security, internal compliance. I mean, when I go on one of these engagements, I'm spending-- if it runs nine months, I'm Having a lot of meetings trying to get them to the point where they can do two things, assess whether they're even ready for a, for a local AI model or for onboarding AI tools, which many of them aren't And assessing the, the security risks. With a local model, a lot of that security infrastructure has to be built up by the company itself. Using something like Copilot, Microsoft has a lot of those guardrails built up for you. Or OpenAI, enterprise, a lot of the guardrails are built out for you, so the convenience factor is huge." }, { "speaker": "stephan", "time": "01:06:32", "start": 3992.0, "text": "Gotcha. Yeah, look, fascinating stuff. I really learned a lot of interesting stuff, and I think, you have a, an interesting take on these, on the treasury company side and on the AI side. so, listeners, check it out. Go and check out Adrian on X. the Adrian's handle is underscore adrian, and, the True North website, it's, t-north" }, { "speaker": "adrian_morris", "time": "01:06:56", "start": 4016.0, "text": "Thank you for having me. It was a pleasure." } ] }