BTC228: Saylor's Bitcoin Strategy w/ Preferred Stock w/ Jesse Myers (Bitcoin Podcast)
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Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals Podcast. This week I have back by popular demand, Mr. Jesse Meyers. Jesse is the Chief Investment Officer at OnRamp. He's got a background in neuroscience, a degree from Stanford, is an

is an incredible writer in the Bitcoin space, and today we're talking a lot about microstrategy. Recently, the company has issued yet another round of preferred stock, and many people on Wall Street are suggesting this is becoming too much. So Jesse and I dig into the talking points that they have and try our best to talk about all the different variables and what investors need to understand about the stock moving forward. This was a really fun one to record, so I hope you guys enjoy our commentary.

Celebrating 10 years, you are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pysh.

Hey everyone, welcome to the show. I'm here with Jesse Meyers. Jesse, welcome back to the show. Great to be here. Thanks for having me. So I got a little excited when I saw you talking about this new MicroStrategy Preferred. I was having a little bit of a different take on this and that's why I really wanted to talk to you. So I want to hear your point of view and then maybe I'll throw out maybe a contrarian take or whatever. I don't know, but take it away. What are your thoughts?

So this is the second preferred issuance that they're doing. Give people just a real basic overview of preferred stocks so that they can understand the context of that. And then we'll go into the more nuanced financial facts. Okay. Yeah. Well, there's a lot of depth here. Okay. So everybody's familiar with MSTR. That's MicroStrategy. Now, strategy stock is MSTR. And they've been doing the

Bitcoin treasury playbook for four years now. And they've landed on their key metric, which is Bitcoin yield. So their whole goal right now is to use the capital markets in order to raise money to buy Bitcoin in a way that adds Bitcoin per share. So it's accretive dilution. That's what they've been working on for a handful of years now. And they started doing... First, they converted their balance sheet into Bitcoin.

Great. And then they were like, what other things can we do? They've been focused on doing convertible notes for the last few years, raising debt that has an embedded call option. So that's the convert part. You can convert it to equity at a certain price. And that's what they've been doing. And that's how they've been raising money and buying Bitcoin. And recently, they've greatly upgraded their machinery for how they're

raising money to buy Bitcoin. And those two things that they've rolled out now is STRK, strike, and STRF, strife. And the first, strike, it's a preferred stock version of a convertible note. And so they've cleverly packaged a convertible note's features and benefits into a preferred stock offering that is basically paying out like a bond.

and has an embedded call option in it. That's what you get when you're buying STRK strike. And now most recently, they've rolled out Strife. Perpetual Strife is really the name of it, which we can talk about why that's interesting. And Strife is a ordinary bond repackaged as a preferred stock offering. So the whole point there is it takes away the convertible note option portion of the strike offering. So there's no call option.

in strife. And instead, it's slightly higher annual dividend, really effectively an annual interest rate. And that I think is how they're going to be able to access a much larger portion of the bond market. And I think that these two vehicles, strike and strife, are how strategy is going to fuel the next leg of their history.

mission to onboard a vast amount of capital to Bitcoin. Preston Pysh : So just real simply, when I'm looking at these, and just to put these into context, if we look at all of the preferred stock that's been issued leading up to Strife, which is the new one, which he was originally trying to raise 500 million, I guess it's oversubscribed, 711 million is what they're going to raise in this. But prior to that,

The amount of interest expense and also the dividends that were paid out of the first preferred stock offering, which wasn't mandatory that it had to be paid in cash. He could just issue more common stock to make those dividend payments on the first preferred. Preston Pyshenko :

But to try to frame this for people, all of the interest expense that he had was about 50 million on an annualized basis for everything before strife. When we look at the income, just think about, we're using a lot of fancy terms here, and I'm just trying to make this really simple for people to understand. If you look at the earnings, the profit that MicroStrategy is bringing in on an annualized basis, and this is averaged over three to four years,

It's about, call it $75 million, just to kind of make these numbers very round and very digestible. So when we look at the mandatory interest expense that he had to pay from the convertible debt deals and things like that, 50 million and 75 million is the profit. So there's about a $25 million buffer that's left over that's still earnable.

So earnings that they could put right, they could take that 25 million, they could buy more Bitcoin and put it on their balance sheet. They could do whatever they want with that additional 25 million. That's how much was left over prior to this most recent preferred stock issuance, which, and this is a really important point, has to be paid in cash.

I think that's a really big difference between the first one, which is an 8% dividend, and this one's a 10% dividend. The first one, if he doesn't have the cash, he can just basically print some more shareholder certificates and mail those to the people at the interest rate, the 8% that it's at. So this is what- And I don't want to push into my talking point. This is the conversation to have. Let's get into it.

But I also, you had some framing around this. So before we go any further down that path, because the dividend amounts to, and the fact that it's oversubscribed at 700, if he issued at the amount of 500, there's 50 million that he's got to come up with on an annualized basis, which now instead of being 25 million in the green, there are 25 million in the red on an annualized basis.

which means they have to come up with more profit somehow, some way. And there are some ideas around how that can happen. But I want to stop talking. Jesse, I want you to frame this. And you did a little bit of that framing when you said that you think it can eat into a lot of the fixed income market and the demand that's out there. So talk us through that and what Michael's trying to do here. Yeah. So this has been very interesting for me, partly because part of how Saylor is thinking about this is

referencing a chart of mine. And so a lot of people have seen that $900 trillion global asset landscape chart that Saylor likes to include in all of his presentations now. And the point of that is to show how small Bitcoin still is, about $2 trillion out of $900 trillion of global asset value. So about 0.2% of the world's value is in Bitcoin and everything else is an analog

store value buckets. $300 trillion of that is the bond market. And those are numbers that had to go do the legwork to figure out how big are these different buckets in the global asset landscape. Because there wasn't really a picture of that, a starting point of here's the lay of the land and how much value there is in the world. And I wanted to do the exercise of

figuring out what's the full potential valuation of Bitcoin. And that has to start with, well, how much value is out there and how much could Bitcoin siphon away from existing store value buckets over time? That was the exercise I did and put out in Bitcoin's full potential valuation article a couple of years ago that Saylor liked a lot. And he started using that chart and then also that valuation framework in his Bitcoin 24 valuation.

evaluation model. Yeah, great. We've got it right here. So this is the endpoint that Preston pulled up, but this is what- Preston Pysh : So this is the original chart. I'm sorry, I did bring up the later one. So this is the one that Jesse built that Michael has been using, which I also used in a presentation

I think everybody's using this. A lot of people have been using it. I mean, it's a helpful starting point, I think. For sure. For sure. Yeah. So with that starting point, Saylor has been thinking in terms of this framework, I think, for the last few years. And I see him talking about it and thinking in that way in his interviews. Most recently, he did an interview just a couple of weeks ago where he

He specifically talked about, "Look," he said, "We're tapping into the fixed income market. There's $300 trillion in fixed income, and so I want 1% of it." That's very revealing about what these recent steps have been designed to enable versus

for strategy. I think that these vehicles, Strike and Strife, the point of them is to be able to receive up to $3 trillion of capital from the bond market because strategy is able to offer a more attractive deal than what you get really anywhere else in the fixed income market. So if you're a fixed income portfolio manager, and you're trying to figure out how do I outperform, how do I deliver yield to

to this portfolio that I'm managing that has to be fixed income, has to be bonds, basically. Well, now there's a vehicle that's offering Strife's effective starting offer is 11.8% of annual dividend, basically annual interest to buyers. Robert Leonard :

That's pretty incredible, especially if you understand that MicroStrategy is very over-collateralized and has a much stronger balance sheet than I think people realize. And also, that Bitcoin is less risky than people tend to believe. So if you're a portfolio manager and you wrap your head around, "Actually, this is mispriced risk. This thing shouldn't be 11.8%. The actual risk here is more like 5%," then you've found alpha, basically.

And that's your way to outperform your peers and get a promotion basically. So I think that there's a ton of capital in the bond market that's constantly looking for the best risk-adjusted returns out there.

because of the Bitcoin treasury playbook that strategy is deploying, they have an edge, they have alpha that they're offering to the market. You can participate in this. You can basically ride Bitcoin and outperform everything else. And all you have to do is hand over your dollars

to strategy, and they will convert that into Bitcoin for you and be able to service this debt at a mispriced risk rate, basically paying you more than the risk you're taking because it's actually less risky than people realize.

Something else that I find interesting about doing this preferred, but it performs like fixed income, is that if he wants to issue more shares, he can just keep issuing more shares and raising the cash that's generated from issuing those more shares. And then he just has a bigger dividend, I'm calling it a dividend expense, as he issues more of those shares. And so the amount, correct me if I'm wrong here, it goes up to $21 billion.

dollars worth of preferred stock that he can issue total to continue to just basically issue more stock, get the cash, buy more Bitcoin. Preston Pysh : You're talking about Strike specifically, right? Yeah. So there's been a fast sequence here of things that have rolled out from strategy. They launched the Strike preferred stock not that long ago. They got it off the ground with a couple rounds of initial investment into it. And then they

recently announced that they're doing a 21 billion at the market program, meaning that telling the SEC, "We're going to be issuing up to $21 billion worth of new shares of Strike over time. And we're going to sell that directly into the market." And this is really, I think, what people should know about these vehicles is this is why they exist because

strategy to date has had to go through individual convertible notes. And that takes time. You have to draft the document. Robert Leonard : And money. Yeah. Nick Huber : And money, right? There's a lot of friction involved in an individual security issuance, and it takes time. And I think that the time part is a big part of the frustration for strategy because they would announce a

a convertible note, they'd work on it, they'd announce it, they'd price it, they'd go sell it to the market, they'd close the round, that they'd take those funds and buy Bitcoin. And that would take a month or two or three, and you're not able to capitalize on market conditions if you're on that kind of timescale. But at the market program, if MicroStrategy's stock suddenly spikes, or more particularly, if Strike is being traded at a market price that is favorable to

to strategy to issue more shares, they can do it. And they can just create more shares out of thin air, basically new promissory notes to that shareholder, that new shareholder, and take those dollars hand over fist up to $21 billion for now. And that's just an arbitrary threshold. They can announce to the SEC that they're going to raise $210 billion next through these same vehicles. And so I think that's what they're doing. That's what they plan to do.

And so I think the next step would be to roll out an at-the-market program for Strife, probably a $21 billion one, because it's a meaningful number for Bitcoiners. And then they'll just keep selling into the market. And meanwhile, they're educating the institutional investors, the credit agencies, and trying to get the word out about like, "This is mispriced risk. We're giving you a great opportunity." And the reason we're doing that is because

We know we're going to make 30% to 60% a year by buying Bitcoin, and we're willing to give you 12% a year to do that. And you're not going to get that anywhere else. So I think that's the machinery that they're setting up here, which will allow them to sell directly into the market with no time lag. They can do it same day whenever conditions are favorable to them and get dollars. And those dollars can be used for working capital. So this gets back to...

the question of how are they going to pay the interest expense going forward? And I think, I don't know this, but I think my speculation is that I think we've reached a milestone for what strategy can do using its existing business and existing cash flow. Robert Leonard : Yeah. Nick Huber : And so I think that they are comfortable with, we're going with servicing debt using newly issued debt going forward, or whatever other

instruments they have. At this point, they have four different ways they can get dollars through capital markets. And in Strife and in Strike, they note that the funds from selling new shares into the market can be used for either acquiring more Bitcoin or for working capital. And so working capital is an umbrella term, but it can include servicing debt. Robert Leonard : Yeah.

Yeah. So the four ways that you're effectively referencing is they can just issue more common stock right on the face of it and collect cash. They could do more convertible debt deals to raise cash, which is more time and more expense to do. They could go out on the strike, which is the-

Preferred is the first preferred that they did at 8%, that they can either pay in cash, the dividend, or they can pay in more common stock, or they can go out on the fourth one, which is the second preferred, which they have to pay in cash at 10%. So those are the four different ways. And basically what you're saying is, and I identified earlier, that they basically call it a $25 million hole on an annualized basis to cover...

just their interest expense and this cash dividend that's going to exist. And what they can basically do is just tap one of those dilutive actions. And Bitcoiners will tell you it's a creative dilution, and I'm one of them. And so what they'll say is they're just going to tap that, and that'll offset the 25 million that's in their delta. And as

As long as Bitcoin continues to grow at, call it 25% to 50% annualized, this is something that the market is never going to have an issue with because that pace at which that's growing is going to outpace all of this gap in their earnings capacity. Preston Pysh : To me, this seems like they are absolutely maxed out as far as what they should take on from an interest expense standpoint.

this is basically the play. And then you had mentioned that as they're looking at tapping the "ATM" of these four different sources, all they're going to do is they're going to look across the breadth of those and say, "All right, which one is most undervalued to us as the issuer of these stock certificates and debt certificates? And let's just lean into that and take advantage of whatever one's priced most appropriately to our advantage." Preston Pysh :

Exactly. And he talks about this in a recent interview of he views these four levers as what he's going to be pulling. And I think one important note in there is that he is totally comfortable with issuing new MSTR shares at the market in order to whenever the premium gets too high, quote unquote, in their view, such that they can raise capital by selling new shares into the market and driving down that premium.

Now they've got working capital that they can use to service this debt. And it's all part of this game of pulling the different levers at different times in order to raise more capital to turn into Bitcoin. And all this capital is coming from the bond market, ultimately. So I think the key mental image that I have now of strategy is that... And I think Saylor's quite aware of this. He's thinking about that $900 trillion chart.

And he's thinking about, "How do I accelerate capital flow from these buckets into Bitcoin?" And what he's built with strategy is a pump to take capital from the bond market and pump it into Bitcoin. And I think this process was organically happening and will continue to happen.

Slowly, this osmotic pressure of there's a lot of capital sitting in bonds, getting not great returns. Bitcoin offers better returns. So organically, osmotically, capital flows as people realize, maybe I should sell some of my bonds and buy Bitcoin. But strategy is now designed to accelerate that flow of capital from the bond market and into Bitcoin.

because they're offering deals that you can't get elsewhere in the bond market. And what's powering those deals, what's fueling that is that Saylor understands that Bitcoin's going to appreciate in value 30% to 60% a year, and that's going to power all of this. Let's take a quick break and hear from today's sponsors. Ever feel like managing your business's finances is a full-time job on top of your actual full-time job?

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All right, back to the show. Preston Pysh : Jesse, I want to show folks with this graphic that we keep popping up, just kind of what Sailor's laying out as far as where he sees the current asset allocation from a global context to where he sees it going in the next two decades.

and how you're talking about tapping into this. So this is the chart as of today, 900 trillion total global assets. And Jesse, you've referenced this 300 trillion just for bonds and that that is really what he's going after. If you go to this slide, this is where he's saying we're at in 2045. And what I would like the person to kind of look at is the total global value isn't 900 trillion now, it's 4,000 trillion.

is the number that he has listed for everything collectively here. What I find fascinating is if you take the original 900 trillion and you compound it at 8% through this

21 years that he has laid out from when he did this presentation. You come up with exactly 4,000 trillion. So what he's doing is he's just showing the expansion of global M2 or US M2 and using that as, hey, these fiat monetary units are going to continue to grow. And if they do, this is how I think these major buckets of asset values are then going to be priced.

And what's interesting is bonds, it goes from 300 trillion to 840 trillion. But if you're looking at it as a ratio from the total global amount of 900 to 4,000, what you see is that it's a reduction in the ratio.

And what I did is I took these two charts, the one on the left right there is the first one we're looking at. The one on the right is what this is 21 years later. But then what I did is I showed like a multiple of each one of these categories to show where things are leaking and where things are being basically propped up or life basically being breathed into them.

And just the total number of units going from 900 trillion, and this is this top line total units, 900 trillion to 4,000 is a 4.4x multiple over those 21 years.

So, anything under 4.4 is something that's losing value over that period of time, and anything above that is gaining value or getting more valuable over that period of time. And what you can see is down here at the bottom, his projection is that Bitcoin's going to go 140X as opposed to what every other category… If everything just remained neutral and everything was just being inflated by the monetary units, it'd just be 4.4.

And where you see everything basically coming out of is gold and bonds. His bonds only go 2.8 X on the chart here. So it's a really, it's interesting to me how he has taken your chart and really kind of just expressed and talked about it in a, in what I think is a really thoughtful way. And he's basically in his whole thesis as to why is this all accumulating into Bitcoin and not going into fixed income? And it's like,

Well, there's no tax ramifications if you never sell. You don't have to sustain it like a property. You don't have to do all of these different things. You listen to any conversation that he's having.

he's laying out all these pieces. But when you look at a chart like this, that's very holistic as to his whole grand master plan of how he sees Bitcoin playing out, all those little sound snippets and all those little sound bites really help you to see this and visualize it way clearer as to why he thinks that so much of that value is going to come to Bitcoin. And these four things that we just talked about within his company,

are... How would we describe them? Almost like volatility capturing legacy pumps. Yeah, perfect. Pumps of legacy financial tools to pump that value into Bitcoin from what Wall Street... All this jargon and all these terms that we're throwing around, he's using those mechanisms to point all that buying power towards Bitcoin. It's really fascinating. Yeah, you nailed it there. I

That's this whole understanding what's going on is that bonds and gold and fiat money will lose some of their monetary premium. Basically, in the economic conditions that we are in now and will continue into the future, they will underperform, bonds in particular. And so capital will flow out of that in seeking greener pastures. And there's no more

appealing place than Bitcoin because of its increasing scarcity, terminating an absolute scarcity in an era where you have abundance with fiat money printing, and the fact that it's early stage in adoption of this technology. So you can expect 50% CAGR, and that's what he's built into his model. So I've been doing a series of threads breaking down what's in the Bitcoin 24 model, which is Saylor's

iteration built on top of my full potential valuation framework, where he shows you all of his assumptions of like, he expects that 8% inflation, real inflation 8% per year for the next 20 years. And that means everything's going to grow 4.4X. And all these other assumptions about how different asset categories will demonetize and where real innovation will drive value in equities. And so he

he's showing you his entire brain, his entire expectation of how the future will play out just in his assumptions in this model. So I've been having a lot of fun digging into that, continue to show what I've found in there on Twitter and in videos. Yeah. Something else that I think is important just for context is looking at the balance sheet itself, because we've been talking a lot about the income statement and that $25 million gap and things like that. And when you look at the size of that...

Relative to the equity sitting on the balance sheet, I think it's a really important highlight to talk about the health of the balance sheet and what he can do based on Bitcoin's current value. And I think that that's an important highlight. Today, just for context, the company has about 44.2 billion in assets, and it has about 10.7 billion in liabilities.

But the balance sheet that the assets, 42.5 of that 44 is the value of the Bitcoin sitting on the balance sheet. So you have an enormous, enormous amount of, just to put this in comparison, $400 million is 1% of the Bitcoin sitting on this balance sheet. Just to kind of put that in context, how big these numbers are. $400 million is 1%.

of the balance sheet. And so when we talk about a $25 million delta on his income statement, can that be made up with the Bitcoin if he wants? Absolutely, it could be. Does it mean he's going to have to sell? I don't think it is going to have to mean he has to sell because he can just roll the common stock as cash to offset that difference. Trey Lockerbie : And that's where the name perpetual strife, I think, comes in.

Because that stuck out to me. So when they announced this latest preferred stock offering, they called it Strife. And they had named the prior one Strike because it had an embedded call option and that's got a strike price. And so that's a relevant term. But Strife is not a term in finance. Perpetual Strife is certainly not a term in finance.

So it's a play on words, and there's a big wink-wink significance in there of, yeah, it's an adjacent word to strike, strife. It's cute. But I think what he's really getting at is they're calling it perpetual strife, and that is a nod to the speculative attack that we talk about in Bitcoin. He has talked previously about with that $900 trillion global asset landscape chart, he has said that we are in a constant continuous war between asset classes. And

value flows to whichever asset classes make the most sense at any given time. And that's what perpetual strife is hitting on here. This is a speculative attack on bonds to convert a huge portion of that capital, the $300 trillion sitting there, into Bitcoin because it is a more attractive asset at this point in time.

So, I typed in perpetual strife into Google and it immediately was auto-filling perpetual strife in the Bible.

When I click on this, it says, in the Bible, perpetual strife refers to ongoing intense conflict and discord, often stemming from bitterness, anger, and lack of love and unity. Yeah, that's quite a wink wink. You know, Saylor's very good about not, you know, he's made the point of like Bitcoin and the dollar can coexist. And he doesn't think that Bitcoin is a threat to the dollar. You can sort of read between the lines there about like, how much does he genuinely believe that versus how

How much is that just good politics? And you can make a case either way. But with this, I think that if you were having a few drinks with Saylor in a private place and you asked him, "What do you think about holding bonds?" I think he would say that people holding bonds are setting their money on fire. Yeah. And that you'd be much better off holding Bitcoin. And that's what he's helping people do now. That's what he's designed strategy to do. He is

creating a better home for capital than the $300 trillion in the bond market currently have. And yeah, it probably has a certain amount of contempt for bonds in general, given his expectation about inflation. I mean, US treasuries are paying 4.2%. The 10-year US treasury is a 4.2% yield right now, but he's expecting 8% real inflation. So you're losing 4% in real terms every year that you hold US treasuries. Robert Leonard : Yeah.

But I think that perpetual strife is about as direct of a battle cry as you're going to get from Saylor. Preston Pysh : Yeah. And I think this is another interesting way to look at it too. So let's say he wants to raise another $500 million by issuing more common stock or issuing more on this preferred, the first one, the strike.

So, he takes the stock to market, whether it's preferred or common. He raises the $500 million of cash, he goes and buys Bitcoin. In the one, just going into the straight common stock, the dilution of that stock is

is realized immediately. In the other one, the value of that stock, which has no impact on the common stock, which is where I would imagine the majority of his interest is at, is in the common stock. But it does have this lag of diluting the common stock, assuming that's what he's choosing to pay it in, which I would assume that's what he is going to pay it in because of the lack of earnings power on

on a relative basis. So he's diluting the common stock by 10% on an annualized basis. So instead of diluting all of that 500 million worth right then and now, he's doing that through 10% increments on an annualized basis to get to the same dilution factor that you would have. And I think that that is a really important way of how to look at this and looking at

which one is he going to tap? Which one is he going to raise the cash from? And so let's play this out again. Let's say Bitcoin's roaring. Let's say we're at $200,000 a Bitcoin. And now instead of having $44 billion for assets, he has close to 80 or $90 billion of assets on the books and the stock price hasn't doubled, it's quadrupled. This might be a scenario where

It makes more sense to tap the common stock than the preferred stock because maybe the preferred stock hasn't moved as much because it trades a lot more like fixed income with respect to the price premium that's put on it. So these are all the choices. These are all the things that he has at his disposal to really kind of tap into to just continue.

just continue to take these financial tools and transmute the cash that he can generate from stock certificates and turn it into more Bitcoin on the balance sheet. I think it's fascinating. Preston Pysh : It's genius financial engineering. And I think it's the biggest story in finance. And we're going to look back on this as the defining genius move of this era in

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All right, back to the show. Let's take this scenario too, Jesse. If let's say Bitcoin's at 200,000 and everything that I just described as far as like how strong the balance sheet is, because remember, it's not like his liabilities have gone up that much. They've gone up a little bit depending on which one of these mechanisms he's tapping. But you go from a four to one assets to liability to probably a six to one under that scenario or a seven to one under that scenario that we just described. And he's

He's not buying $500 million of Bitcoin in each one of those monthly deals. He's now going out and buying 1.5 billion or 2 billion in each one of them. The sizing is four times more powerful. What does that do as the Bitcoin's getting more and more scarce? And we haven't even mentioned nation states leaning into this. This is just one company. Preston Pysh : Yeah.

source and deploy $3 trillion of capital into Bitcoin. And currently, Bitcoin is only $2 trillion total. When did he say that? When did he say that? I haven't heard that. Oh, that he wants 1% of the $300 trillion in fixed income. Yeah. And he wants to buy Bitcoin with it. Yeah. So there's $3 trillion of buying pressure from strategy alone. Yeah. Bitcoin's only $2 trillion. And he fully expects...

His model expects that one Bitcoin will be worth $13 million in 20 years. Preston Pysh : Jesse, this is where I think we need to go. So somebody who's listening to this that is flirting with the idea of Bitcoin, hasn't been orange pill, but they're just like, they're hearing all this and they're just like, what am I listening to right now? That person.

If they were sitting here with us right now, this is the question that a person would have. They'd say, this is all based on you just believing that Bitcoin's going to go higher. What if it goes down 75%? None of this is guaranteed that Bitcoin's just going to keep going up. So how do you respond to that person that's thinking that right now as they're listening to us? Yeah.

We sound crazy on the surface, and that's just how it is. But when you dig into it and you run the numbers, well, it starts to come out to this sort of picture of the future. And I think that the most important thing to keep in mind for somebody new to Bitcoin is that this is, well, it's a once in a species invention of digital scarcity, a perfection of scarcity. It's the invention of absolute scarcity. And by that, I mean, we've never had an asset ever

that has an absolutely finite supply. It's just not possible in the physical world. And it is possible if you create that system in the digital world, and Bitcoin is it. And of course, we have a bunch of copies of that system, but you can create a bunch more copies and each incremental copy of the original instance of digital scarcity is itself not scarce. So the only thing that is scarce here is Bitcoin, and it's absolutely scarce. And the entire story of human history is

people searching for the best store of value asset to propagate their value today into the future for future use. And what has historically won is assets that have very low supply dilution every year. In terms of monies, that has meant gold. Real estate, it's hard to make more real estate. So that's become a

a savings vehicle for people. They store a lot of value in real estate. And here is this digital perfection of these properties that humans have been seeking forever. And it's tiny still because it's only 16 years old. But if you're thinking about where can you store value safely for use in the future, and there's only one asset that has zero supply dilution after we get to 21 million Bitcoin, that is going to be where value gravitates towards. Value is going to

can osmotically flow towards that optimum solution of value transmission through time. And then the question is how much value is looking for a store of value asset? There's $900 trillion of value out there. Saylor has kind of put a stake in the ground and said half of that is just looking for a store of value. So $450 trillion is your total addressable market. What's possible for the store of value category? And then here's the

the one asset that has a finite supply ever in human history. And it's going to keep siphoning away, store of value capital from other asset buckets to this, as Trace Mayer used to say, the infinitely expandable blueberry. This is a tiny little blueberry in the global asset landscape, but you can hook up a water main to it and it can expand in terms of its total value. And we're in the early stages of that. So it sounds crazy that we're talking about 13%.

$13 million per Bitcoin in 20 years, but that amounts to 7% of the world's assets in Saylor's version of how things play out. So 7% of the world's assets in 20 years, it's basically the second wave of the internet revolution. We've digitized

We digitized information with the internet, and now we're digitizing value with Bitcoin. And how much value is out there? Half the world's value. And Bitcoin in the next 20 years, as Saylor expects, is going to take 7% of that 50%, of that 100%, a chunk of the 50. And that'll be where Bitcoin is 20 years from now. And it won't be done at that point either. We won't have reached the full potential of what Bitcoin can become because it can take the majority of that $450 trillion.

the majority of that half of the world's assets that's just looking for the best store of value out there. So that's a little context of how I see it. And I'm pretty sure that's how Saylor sees it as well, when he's thinking about what Bitcoin is and what it's on track to become. Yeah.

have you been paying much attention to Howard Lutnick and Elon and everything that they're doing from a government standpoint? I just recently listened to an interview that they were interviewing Howard Lutnick, and he basically framed his role as basically watching the top line or improving the top line where Elon is really trying to

manage all the expenses to really balance the budget. What are your thoughts on some of this? And then more importantly, what are your thoughts on how it relates to this discussion point that so many Bitcoiners will throw around, which is that the M2 growth rate of call it 8% on a global scale, it's more like 12% for M2.

that there's no way that that growth rate in M2 is going to slow down. It's just going to continue to persist moving forward. How do you think about that in the face of the current administration that's trying to bring in a budget that's balanced? Yeah. I think it's a noble cause. The idea of trying to cut in order to get back to balancing the budget is long overdue. We haven't balanced the budget in 23 years now. We've normalized multi-trillion dollar deficits every year.

And I don't think that it's possible to get that much out of the budget because so much of it is entitlements. And so I think the reality of red tape in Washington will prevent them from cutting $2 trillion is what they need to cut in order to balance the budget. Really, like a third of government spending, if you think about it that way. And that's just not going to be possible because so much of it is entitlements and military spending. And all of that is very sticky,

contractually. So I think I, and it's just the us we're talking about. I think that's the other point that's important for,

The other side of this argument, not to butt in, is just we're only talking about the US. It's not like Europe's got anything under control. It's not like the UK or Japan or China or anybody's got any other budgets under control. It's truly a race to debase globally relative to the US that's trying to be responsible. We've seen like two months of- Yeah. After two decades of just blatant irresponsibility.

So I'm just old enough to remember in the 90s, both sides of the aisle would fling at each other about balancing the budget. This was a major point of pride that like, "Oh, we're going to balance the budget." And you haven't heard that in politics for 10, 20 years. They're asleep at the wheel. Everybody likes spending. And the electorate hasn't cared enough to demand fiscal sanity from their politicians. Instead, we've been

Fed wedge issues to rile up both sides of the aisle. Spending accumulates in the wake of Ron Paul voices actually getting the floor. And that's been going on for long enough that you can't rein that back in. If you look at the math of where we're at with the national debt, $36.5 trillion, we're close to 130% debt to GDP. I love the anecdote of 51 out of 52 times since 1800,

that a country has gotten to 130% debt to GDP, they eventually defaulted, soft defaulted or hard defaulted. And the one example is present-day Japan, which is sort of spiraling deeper and deeper into eventually having to default. So once you get to that level of debt burden, it's game over. And we are heading in that direction at a pretty rapid clip overall. Yeah,

Yeah, they've managed to sort of pull back from the balance sheet expansion that happened in COVID briefly, but now we're seeing that brief moment of austerity ending. And we're going to have the next leg up in balance sheet expansion. We'll go over 130% in the next few years. And this only goes one way. It heads towards the big print. Larry Lippard talks about this is nothing stops this train. Like Lynn Alden says, there's only one direction this goes.

that's what Saylor is baking into his expectations. We're going to print more money. We're going to print more money, that's soft defaulting, to service our debts and devalue the debt that we owe. That's the burning platform for why people would exit bonds and seek greener pastures elsewhere because you're losing in real terms every year that you hold bonds if real inflation is 8%.

and they're paying for 4 plus percent. So that's the climate we're in, and that's the backdrop for Saylor's expectations about why Bitcoin is going to expand rapidly over the next 20 years at the expense of bonds in particular. Preston Pyshenko Jesse, in your opinion, for people that are maybe listening to this and a little skeptical, it

It just, I guess your overall view of where we're at from the stock market and just the broader economy, what is it that you see happening right now that everybody else is missing? What's the so what that you're looking at and saying, if people could just understand this one thing, I think it would really help them out a lot. Yeah, I think it's that. The entire financial sector is predicated on the idea that interest rates are what US treasuries are paying.

are paying out, that's the risk-free rate. And that if you receive the risk-free rate, you're treading water on inflation. And I think that- Robert Leonard : Amen to this point. Keep going. I love this. Nick Huber : Yeah. And so, when I think about my chart, $900 trillion of value out there, a third of it is sitting in bonds, which the whole point of that is tie up your capital and you'll receive the risk-free rate plus some small additional percentage. But if

But if the true inflation rate is M2, which I believe it is, if you ask a working class family, do they think that inflation is 2% to 3%? Or do you think it's been more like 10% every year for the last few years or more even? They're going to choose the latter.

When you get your groceries and that receipt tells the story for you, that's real inflation. And they can massage the numbers however they want to, and they do, to make it look like things are not like that. But the reality of it is that inflation is, the real inflation is 8%, maybe 10%. And if your investment is not generating 8% to 10% or more, you're losing value.

And that's like the entire financial sector is predicated on US Treasuries being a fine place to store your value, park your value to tread water on inflation. And all the bonds that are on top of that

all the bonds between 4% and 8% are also destroying value. And that's probably the majority of the $300 trillion sitting in the bond market. So I think the alpha that Bitcoiners have outside of Bitcoin's properties is that there is a burning platform of you can't just park your money. You can't have a 60/40 portfolio where you've got 40% of your value parked in fixed income. You're

you're destroying value in real terms every year that you do that. And I think Bitcoiners have come to understand that in part because of Jeff Booth's perspective on the price of tomorrow and the escalating amount of debt printing needed to drive any real GDP growth and how it's four to one and getting worse. And so Bitcoiners understand you can't take that proposition. For other reasons, you also come to learn why Bitcoin is extremely attractive on top of not being bonds.

But I think that's the story of the next 20 years. And I think that's what Saylor's keying in on. In some ways, I see how he thinks because on this particular point, because he locked on to what I was seeing and thought he's onto something here. And so I think that that's his roadmap of what happens going forward is we demonetize bonds,

most of all, and that AI and other technology will drive real value for equities. And so equities will be winners over the next 20 years. Pretty much everything else is a loser or treading water. And then Bitcoin is the massive winner over the next 20 years. I think this is important too. It's a winner in terms of fiat.

but not in terms of Bitcoin. Because going back to that comparison of the chart here, I'll pull it up. If we look at this chart and we say the baseline is that the fiat itself is going to grow at 4.4X and

and we look at equity and it does a 7.39X, it's outperforming the fiat growth rate. Right. Yeah. Right? So it's a winner in terms of fiat. But when you compare it to the 140X that we expect Bitcoin to do, and if you're using Bitcoin as your unit of account, you just got bludgeoned. Right. You're losing in Bitcoin terms by holding any equities over the next 20 years. And I think that's how...

Bitcoin maximalists end up looking like crazy people is because you get deep enough into these details that we've walked through and you start to realize, wait a second, the best asset, the only asset that I really want to hold is Bitcoin because I don't want to be losing in Bitcoin terms by holding anything else that's going to get absolutely bludgeoned in Bitcoin terms over the next two decades. And that's how you end up going from a 1% allocation to Bitcoin to maybe it should be 5%, 10%. I'm

I'm comfortable with 25. Actually, you know what? I think I should have at least 50. I want the majority of my portfolio to be in Bitcoin." And then suddenly you're a Bitcoin maximalist. And I think that's the path that so many of us have gone down. Trey Lockerbie : Jesse, it's how you go from just issuing a bunch of common stock and buying Bitcoin, doing convertible debt deals and buying Bitcoin and doing two preferred shares issuance

and saying you're going to do $21 billion worth of preferred share issuance. I think to the outsider, I think to somebody sitting on Wall Street that's done this their whole life, they're looking at this and they're saying, "This is the biggest Ponzi scheme I've ever seen in my entire life, and I can't wait for it to all blow up." And I think they take their short position.

I mean, those short positions are just rocket fuel for the common stock of MicroStrategy when Bitcoin even moves 20%. Preston Pysh : Yep. Yeah. And that accelerates everything for MicroStrategy. Trey Lockerbie : It just keeps the flywheel going, right? Because then you can just keep doing more of it because they went short and they blew up and like, we could talk about this all day. All right. Final question for you, Jesse, what are you up to these days?

Anything exciting that you want to tell us about? Yeah. I've been putting my management consulting skillset to use lately, doing a one to two sort of slide threads every week on Twitter. A lot of it has been on strategy and their various vehicles right now and Bitcoin 24 model. So I look forward to doing more of those. I've been also writing an article that I'm quite excited about, about a topic that you and I talked about on this show in 2021. Oh.

It's been just rattling around in my brain ever since, and I'm finally putting it into an article. And in the course of that research, I've found some pretty cool stuff that I think helps explain the significance of Bitcoin for us, and I think for Bitcoin maximalists in particular, part of why we get so excited about Bitcoin when you really understand it. Trey Lockerbie : Is it going to be better than your Yuppie Elite article? Because I don't even know that that's possible. Nick Huber :

I don't know how people will receive this one. At the moment, it might be my favorite thing I've ever written. Oh, wow. Yeah. I have to... When's this coming out? Probably in the next couple of weeks. Okay. All right. And it's kind of interdisciplinary pulling together of anthropology, neuroscience, and Austrian econ and Bitcoin into something that I'm pretty excited about.

One anecdote that I've come across that I found pretty cool that people will enjoy is I thought that the oldest use of money was 75,000 years ago. We've found shell money from cave sites that goes back 75,000 years. But I didn't know that in the last few years, there have been a bunch of discrepancies.

discoveries that are even older. And now the oldest documented use of shell beads is 142,000 years old, which is half the time that human beings have existed, homo sapiens, sapiens have existed.

that goes back 300,000 years in East Africa. And so that probably means that we've been collecting shell beads for our entire existence as a species. And some of the other findings that I've come across on the neuroscience side of that may confirm that, may speak to that as being core to who we are and how we think, which then helps explain why Bitcoin is so exciting, because this is the fulfillment of what we've been searching for for 300,000 years, potentially. Robert Leonard

Preston Pysh : Oh, that sounds super interesting. You got to make sure that you share this with us when it comes out. Anything else that you want to highlight from the business standpoint before we close it out? Kevin Kennedy : Yeah. So I'm also a co-founder of OnRamp and we've been pioneering multi-institution custody. And

So multi-institution custody is a form of multi-sig custody where institutions hold the keys on behalf of the end user. So in that way, individual doesn't have to set up and maintain any keys as part of this multi-sig setup. Instead, you have three separate institutions doing that on your behalf, and that removes all that technical and security burden from the individual. So we're very excited about that product. It's been very well received.

people like using it. And the team has been doing a great job kind of rolling out what's possible there with the properties of multi-institution custody and scaling up that awareness of that as an option for individuals who are looking for self-custody or other custody options out there. Well, Jesse, thank you so much. We'll have links to that in the show notes.

Love having you on the show. You're such a deep thinker. And honestly, I think these charts that Saylor keeps using that you generated here are just, it's so easy to visualize and see it and just kind of really make sense of it all. And I'm using them in my own presentations that sometimes I'm giving talks at. So really appreciate having you on the show and just keep up the great work, man. Yeah. Thank you. Thank you, Preston.

I'll be updating that chart for 2025 numbers soon. So I'll be putting that out on Twitter at creases underscore BTC for anyone who wants to get that. All right. Well, until next time. Thanks, Jesse.

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