BTC235: Jack Mallers on XXI (21) and Strike Borrowing and Lending (Bitcoin Podcast)
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Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals Podcast. On this week's show, I have one of the most exciting and influential Bitcoiners in the space with Jack Mallers. Recently, Mallers announced a new company called 21, which he plans on taking into the public markets via SPAC, which is going to be seeded with 42,000 Bitcoin, which is worth about $4.4 billion today. And he plans on running the same playbook as MicroStrategy.

And if that wasn't enough, his other company, Strike, has recently announced that they are going to be offering borrowing and lending on their platform. So to put it simply, there's a lot to talk about, and there's a lot of questions I have for him. And I have no doubt you guys are going to enjoy this chat. So without further delay, here's my discussion with Jack. 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 the one, the only Jack Mallers. Welcome back. Jack Ballers, as they say on CNBC.

What's going on, brother? Thanks for having me, man. How you been? Doing good. Doing good. Long time no see. You're up to some stuff, right? A few things. Just a couple things. Yeah. Just a couple things. I was preparing for this.

And there's so much going on in your life right now. I don't even truly know where to start. I'm more curious, where do you want to start? Because we're going to get to all of it. It's just a matter of the order that you would like to kind of chip away at it. You know, it's funny. I've been listening to your show. I tell you this every time I see you, but just for all the new listeners and the new Bitcoiners, I've been listening to Preston's show for years.

it was your birthday in Costa Rica. And part of your birthday toast, I had to say, you've been a material part of my macro and my career, just my understanding of the global financial system. So I actually have really enjoyed all of your shows and tracking the macro stuff. So yes, I am the CEO of two companies, distinct companies today, but

Even we're living in the most fascinating macro time, maybe ever. The fourth turning, the collapse of what seems to be a currency and monetary regime post-World War II. So I don't know, we got strike lending, we got 21, and we got macro.

Do you have a preference? I don't care. I think you got to start with, and I know people are going to roll their eyes when I say that, you got to start with the macro just real generically so that people can kind of understand the much bigger picture of what it is you're doing. I think most people are familiar with you and Strike, but I think the 21 News is really big. And I think a lot of people are looking at it and just kind of scratching their head and they're saying, I just don't understand how this is possible. And I think they're going to say that because...

Unless you understand how capital markets have been bid for 40 years-ish and how everything has this huge premium in fiat terms-

you're never going to understand the whole thesis behind 21 and what Sailor's doing and other people. And it seems like we're at this critical moment in time where the world is starting to figure this out. I think Wall Street is looking at what's been put on display. They're scratching their head and they're saying, hold on, I'm missing something. How is this possible with this guy that's like his revenue hasn't grown in five years, but yet he's outperforming Nvidia. How is that even possible? Right? Yeah. So let's start there. The

Jared, give us your take on that thing and why this is even possible. Jared Ranere : Well, I think, and again, you let me know if this isn't the direction you want to go, but my macro lens and my personal mental model is that we're living through the unwind of the monetary order, the world wars, post-World War II. I think

for the audience to understand, after World War II, the world was decimated. Everyone outside of America, to be quite frank, America had the most gold, the

the strongest manufacturing base, the strongest economy. Everyone else was in ruins, Japan, Germany, China, Russia. And a lot of the monetary alignment and agreements after the World Wars was the US was to help everyone get back on their feet by exporting their strength. So take their strong manufacturing base, take the fact that they had so much gold, the most gold in the world, take their strong economy

and somehow export that to other countries to get back up on their feet. And what that actually looked like was taking on the role of what we now call the world reserve currency. And so we can export our strength through the dollar.

And so the job that we took on was we will export this US dollar instrument, which at the time was backed by gold, in exchange and import real goods and services from other countries. So other countries got to produce stuff. So Russia has become the biggest and greatest natural resource producer in the world. China, the greatest manufacturer of goods and services in the world.

Germany makes really good cars, right? Japan saw some of the highest growth ever out of any domestic country. And so they're producing all this stuff. They had someone to sell it to and get it back on their feet, which was the United States consumer. And the US was able to export their strength

through the US dollar. Now, unfortunately, when you divorce from the gold standard, when you print money as a reaction to the 2008 great financial crisis, you end up in a situation where you're just quite literally printing pieces of paper in return for energy, for oil, for food, for precious and natural metals, for iPhones and cars. That's not a very sustainable relationship.

And the actual trade, the numerical trade, Preston, is that the US is structurally designed to run in what Trump calls a deficit. If you were to use business-like terms, we run unprofitably. We run in a deficit. We are just printing pieces of paper and shipping them all over the world because the world needs this world reserve currency, and we're importing the real stuff that you and I need to live our life. We need a two-car garage to

with a bunch of energy to consume and we need food and we need materials to build these big houses that our girlfriends and our wives want us to live in, right? And we need all this stuff to live the American dream.

Okay? Now, countries like China, they've grown structurally in a massive trade surplus. So in business terms, you would say they're running extremely profitably. They're now running in a trade surplus of over a trillion dollars a year annually. When someone like China is running in a trade surplus, they actually don't take their profits and invest it locally in the country for a variety of reasons. But the most obvious is because it would strengthen the local currency

and weaken their export business. To have strong exports, you actually want a weak currency because a weak currency gives you cheap labor. And so if you strengthen the currency too much, the labor becomes expensive and it gets hard to be competitive in exports. So China is making all of this trillion dollars through trade and they have to put it somewhere. They have to invest it and store that time and energy, that effort, that labor, that trade. And so what traditionally backed the dollar was gold.

and maybe trade partners would run a surplus with the United States by gold, and we were on what was known as the gold standard. But then we divorced from the gold standard and the dollars weren't backed by gold. And then you can make the argument that the dollar was backed by the US Treasury,

and these dollar-denominated fixed income instruments. But then folks like China, they stopped buying those in 2014. After 2008, and the reaction that the Federal Reserve and the central bank wasn't going to hold the best interest of its global trade partners and those that were within the dollar system, and they prioritized Wall Street and their voters, and they acted as politicians,

Then China pivoted to maybe the NASDAQ and the MAG7, and you saw this perpetual bid that no matter what, stocks only go up. And you started to see foreign flows into US real estate. And what I would say is what was initially a reaction to the world wars, it wasn't supposed to last this long. None of this is a sustainable system. Printing pieces of paper in exchange for real stuff doesn't make any logical sense.

running a country in a persistent deficit that's compounding on itself. So you're unprofitable after unprofitable, after unprofitable, compounding losses with a massive negative balance sheet. And then other countries like China, they're

the reverse, none of that is ever sustainable. And so the world we're living in today is the United States has hollowed out its middle class and its manufacturing base is entirely gone. And now it's in China, it's in Russia, it's in Germany, it's in Japan. And what we're left with is a massive wealth gap, actually the biggest in our country's history, where if you own financial assets and you're on Wall Street, you're getting ungodly rich

just by owning the right things, because all the trade flows from China, from Japan, from Germany are being reinvested into the stuff that you own, like the NASDAQ, like the premier awesome penthouse real estate in Manhattan. Because there's nowhere else to go with the capital. There's nowhere else to go. And if you are in the middle of America, if you're in the Russ belt,

if you are in the lower class, you're getting unbelievably poor at a rapid rate because the assets around you that you're trying to acquire, like a car, like a house, like an education, they're getting more and more expensive. And so when you hear the current administration and Donald Trump say things like,

We need to fix our deficit. We need to restore the middle class. I want to work for Main Street, not Wall Street. This is not a political podcast, and I don't actually care if you think he's working on it or he's not, or if he's going to do it or if he isn't. That's the problem. The problem is an unsustainable monetary order that was set up after devastating world wars is unraveling. And where we see Bitcoin at 21, and myself personally, is...

is a inelastic neutral reserve asset that is the best performer to store time and energy, global trade surpluses, a place where you can self-sovereignly hold, custody, divide, exchange, transport at any size and scale. I think the fixed income market in the United States, so my expectation, what we've seen and my expectation going forward is that real rates have to be negative.

in the United States. And so my conversations on Wall Street, Preston, I don't want to lose your audience, are a lot of the 60/40 portfolio is no longer. Preston Pysh : Amen to that. Yeah. Robert Leonard : Yeah. Some of the conversations we've been having at 21 are folks that are interested in the 55/5/40 portfolio or the 60/35/5 portfolio and measuring Bitcoin sharp ratio and at what allocation can you turn

negative real rates into real returns because you have this asset that seems to be the best expression of currency debasement, that seems to be the way to monetize chaos, to monetize a monetary transition, to monetize and take the other side of currency debasement.

And so we have a fixed income where we're selling, we have this convertible bond product. And then on the equity side, obviously, our goal is to have our equity listed under the ticker XXI on a stock exchange if the merger is to be approved. And our goal there is to offer a public equity that we feel is valued publicly.

more honestly, and that we can monetize any premium or dislocation in the NASDAQ or in the public equities market through this real returns instrument that we consider Bitcoin. So I don't know if that was long-winded and where you wanted to go, but that's very high level. I think we're living through a great turning and change of monetary era, and this goes back 100 years. Well, what I think is really important with everything that you described is there's this

that the US gets by getting first bite at the apple of printing all this money, it flows into the US first, we're able to spend it the way we want, we get all these things that we're over consuming, right? But the liability or the thing that is the consequence of that

is you are basically exporting all your jobs to all these other places, call it China or wherever else, and you run this massive trade deficit that builds and builds over time. And what that has done is built this, and this might sound strange, but there's a reason I'm describing it this way. Think of like a water bladder that you go camping and you hang it from a tree, right? And like all of these activities for decades upon decades has grown this thing

to just a massive, massive size. The bladder is ready to explode because they've stuffed so much into it. You're hanging it on a tree because you want to harness gravity to pull it out of the bladder. What I think MicroStrategy 21, it's about to go do, MetaPlanet, all these other companies that are publicly traded businesses have figured out is that this bladder is ready to explode. And if you just tap

a little straw into this thing, the gravity alone is just going to pull that liquidity out of this overcapped public market, global public market, whether you're talking fixed income, preferred stock, common stock, all of it has been bid to such a level that is just of epic proportions in fiat terms. But if you can tap into it because you're a public company and you can allow that liquidity to just flow straight onto your balance sheet and you transmute it into Bitcoin,

What's going to happen for these businesses that are figuring this out and performing this activity?

is that it's just creating ridiculous amount of value to the shareholders, the common shareholders and the preferred shareholders and the convertible debt holders. They're benefiting massively. I want to throw out, and I'm sorry I'm talking so much, but I think this is so important to just illustrate the point. When we look at microstrategy as an example, Michael, over the last...

five years is when he started doing this Bitcoin strategy. He's made his company, his profit, his take-home is 400 million approximately, somewhere in that ballpark. And this is non-gap accounting. I'm just looking at it from... This is the operations of his business. He makes 400 million. And so you would think that after five years, he would have $400 million worth of Bitcoin on his balance sheet or whatever that 400 million has appreciated to. But that's not how much he has on his balance sheet. He actually has

58 billion on his balance sheet in Bitcoin, okay? Which is 146 times, let me say the number one more time, 146 times more than the 400 million he made.

And so when somebody is looking at that, they're saying, "Well, how is that even possible?" Well, it's possible because of this overcapped public market globally that we're talking about. He's sticking the soda straw in there and the water is just pouring onto his balance sheet and it's being transmuted. One other thing that I think is a really important highlight with all of this is it's not like he did it in a way that his company is less healthy.

The debt to equity on the company is better today than it was back in 2020, because your typical person would hear those numbers and be like, oh, he's levered to eons in market cap size, and that's how he... And he did. He did these things. But what people don't realize is the company is healthier than it was, at least in the debt to equity ratio terms. So I'm going to shut up, but this is where I want you to take it over with why you're doing 21. Well, I couldn't agree more. And there's so many takeaways.

From what you just said, 21 exists because we wanted to give the capital markets a new type of entity to participate in the Bitcoin story. So our core KPIs, we have two, is Bitcoin per share and Bitcoin return rate. And that's our way to encourage those both in the capital markets and then around the world to judge us in Bitcoin terms.

We actually, we have a tagline, we don't care to beat the old system, we're here to build a new one. And we encourage the world to measure us in Bitcoin terms. And we intend, we're already, as we go to market here, the third largest corporate treasury in the world. And we intend to rapidly grow that both with existing backers, access to the capital markets and more. But then also we're a technology company, we're a Bitcoin financial services firm. I think the fact that

The business was founded by myself and Paolo and Tether. I mean, these are technologists at the end of the day that have been able to identify and grow high margin, high growth cashflow generating opportunities in this sector and in this space. And we think that there's a lot of opportunity given access to the capital markets and access to this really unique asset on our balance sheet that is Bitcoin to be able to bring products to the financial services world. And so we said as much in our filing, we're not shy about that. And

we think that's a really unique opportunity. We think we are blue chip credibility with startup upside. That's what SoftBank actually was our first outside investor. I don't know if people know this, they weren't part of the founding group. Masa got word of what we were doing and said he needed in. And it was because that's where I built

that tagline was, Masa saw it as blue chip credible founders with startup upside and access to the capital markets, the ability to grow Bitcoin per share and the ability to develop Bitcoin financial services within the capital market sphere and access to this much capital. So that's the idea. And Preston, you're absolutely right in that we at 21, we see Bitcoin as the best money in human history. And for us, money is the market good that you

that you don't consume.

I acquire a cheeseburger because I'm hungry and I need to eat it. I acquire a house because I don't want to be homeless and I need to live in it. I acquire a plane because I don't want to walk to New York, I want to fly. I acquire money not to actually eat it or fly in it or live in it. I acquire money because I'm looking to take time, energy, work, effort, labor, value I've created for others, and I need to store it and then later exchange it for other things. So it's actually the one market good that you don't eat, you don't drive in it, you don't fly in it.

you save it, and then you later exchange it. That's how we view Bitcoin. We think Bitcoin competes with all the other things that people use to save and exchange wealth, whether that's a Hamptons house, a stock portfolio, a US treasury. And we think it's the best at being able to do that. And we think things like traditional equities, like Preston, the

The Trump administration came out in February with an America first policy, and they basically told China, "Take your money and go home. Get out of here." Which was effectively, "Take your money out of the Mag7, take your money out of the NASDAQ, take your money out of the US real estate market. We need these assets to be affordable for Americans. Kick rocks, go invest in something else." So why the NASDAQ? Why a tech company would trade 50 times earnings if they're not getting a persistent bid from

the country that's running a trillion dollar annual trade surplus is beyond us. And we think that there's a massive capital reallocation. I mean, capital flows are being reordered right now. We think Bitcoin is the best way to store and persist and save the effort and labor and value you're providing to the world to later exchange that. And we want to bring a really unique vehicle to be a part of that story in the capital markets. Stig Brodersen : Let's take a quick break and hear from today's sponsors.

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All right, back to the show. I want to talk about this Bitcoin per share and Bitcoin return rate, the BRR. It seems like this is just earnings per share, but Bitcoin per share and return on invested capital, ROI, your rate at which you're able to grow it is the other. I get it. It makes total sense. But for people on the outside that maybe aren't into the accounting or the

or the investment terminology, help them understand why these two things are important for the shareholders to know upfront and to understand that that's what you're optimizing for. Yeah. So I think first, before we get into the details, just humanizing all this stuff. So when I decided, Tether and I decided

we really thought something like this vehicle should exist and who better to do it than us. That took us a second to get there. We were just Bitcoiners cheering Sailor on. And eventually it was like, you know what? We should be the change we want to see. And so then I got to work, came up with the name 21, ticker XXI was available. I thought it was awesome. And I wanted to design some KPIs

that really let the market know who we were, what our personality was as a company. And I'd heard a lot about how Wall Street had arrived at Bitcoin. We've heard this how many times, Preston? BlackRock is here. Larry Fink is Bitcoin's chief marketing officer. And that guy took all of our jobs of educating the world on Bitcoin because he's got the bigger suit and the bigger balance sheet, blah, blah, blah. And really, the approach that I've taken at 21 is to

To me, this is Bitcoin has arrived on Wall Street. Maybe iBit is Wall Street is arrived on Bitcoin, but now I have shown up on Wall Street in my hoodies. And so I took the

The classic Wall Street metric, which was EPS. And I took the E out and I slabbed a big old B there. So EPS was traditionally earnings per share. So how much fiat earnings are you getting per share as a shareholder? So if I buy one share of Google, how much fiat pieces of paper is Google earning me by being a shareholder? Preston Pyshenko You need to start calling it FPS when you go on CNBC.

Yeah, there you go. It's the fiat per share, which is obviously a highly manipulated metric. If the currency unit, the dollar that that's measured in is

is constantly being debased, Google can grow the fiat per share, but in real terms, I'm still losing because it's being inflated. And so my goal with these metrics not only was to make sure that shareholders understood that we were providing them the most pristine level of growth and performance, which was Bitcoin, but was also to make a mockery of the fiat system. So I took their EPS and I put BPS because what we want our shareholders to know is

is that if you buy a share at 21, you invest in the company, it is not an ETF. It is not static exposure. You're investing in an operating company. You're investing in performance from leadership, guys like me. And my job is to go out, let's say in a hypothetical sense, Preston, it was 0.05 Bitcoin per 21 share. And so you buy a share,

There's 0.05 BTC on our balance sheet representative of fully diluted share in the business. We go out, we do deals, we do partnerships, we launch our products, we grow our cash flow, we acquire Bitcoin. We're able to grow that in a hypothetical sense to 0.6 BTC per share, 0.7 BTC per share. And what we want our shareholders to experience is a creative exposure to Bitcoin. What SoftBank realized and why they were our first outside investors, Masa said,

This is a vehicle that takes my dollar the furthest when it goes to Bitcoin exposure. If you have 0.05 BTC and iBit, you end with 0.05 BTC and iBit. It is a static vehicle. In a business like 21, you're investing in an operating company to grow that. And that's the KPI we want to be judged on. I do not want the world to judge me on a manipulated fiat metric. It's not hard to outperform the dollar. This microphone has gone up in dollar terms, Preston.

This water bottle has gone up in dollar terms. My mouse has gone up in dollar terms. So of course, Google's earnings per share is going to consistently go up. It's a highly manipulated metric. We challenge

the capital markets to measure in Bitcoin. And if every business was measured in something that had a hurdle rate of 50% compound annual growth rate, that would be a much better world. And so that is the story. And I think a lot of the ethos of who we are is we're Bitcoiners. This is a business built by Bitcoiners for Bitcoiners. And so

the BRR, the B-R-R, the Bitcoin return rate metric, that's a play on money printer go BRR. So at 21, we make sats go BRR. We don't want to be judging fiat. We want the market and the world to judge us in Bitcoin. Preston Pysh : One of the things that I think is lost on Wall Street right now is they might be looking at this and they're saying, "Oh, okay, great. You're going to go out, you're going to acquire 42,000 Bitcoin, or you've already acquired the 42,000 Bitcoin. It's on your balance sheet." But what I think is lost is

the replacement cost, if you wanted to go into the market and let's say you wanted to go toe-to-toe with Michael Saylor today with his 500,000 plus Bitcoin, it's not 58 billion or whatever the number happens to be today. I think the number is astronomically higher than that. If you wanted to take on a similar strategy and become a Bitcoin bank of the future or whatever the

turn that into. The price tag isn't the market that's bought. The price is something way higher than that because Bitcoin is the only thing that literally is completely inelastic when it comes to the price. So is the real value of that 500 billion? Is the real value of that? And here's the other thing.

The higher the Bitcoin price goes, let's say we go to 200 or $300,000 Bitcoin, the acquisition cost to come up with that much Bitcoin on your balance sheet isn't six times or three, in that case, two or three times. It's probably 30 or 50 times or some crazy number. And nobody, I don't hear anybody talking about that cost of acquiring that much and what that means moving forward.

And the number just continues to blow out the higher the price goes. Yeah. So we view having a large percentage share of a fixed supply network as a unique asset on our balance sheet. It is, to your point, very different than someone owning $50 billion of US treasuries on their balance sheet. Saylor's $50 billion of Bitcoin is a different class of asset because it's- 100%.

it's exponentially harder to go out and replicate that. To your point, it's increasingly expensive.

I think that that also goes really back to the founding story. I've known the Tether guys for a really long time. I don't know how many of the newer Bitcoiners know this. I've been in Bitcoin for almost 13 years. I know the Tether folks and the founders just because there weren't that many Bitcoiners around back then. I mean, my stepmom actually started the first Bitcoin meetup in Chicago ever.

And I'll never forget them because we would buy pizza and she would get a keg of beer just to see if anyone in like a 20 mile radius also knew how to spell Bitcoin. And there are nine people at the meetup, right? And so I've known them for a really long time. I think our most famed overlap is probably El Salvador. And I love that story and that I was a material part of El Salvador's legal tender journey. And then Tether's now headquartered there, domiciled there. They have

have a strong relationship with the country, big believers in what they're doing. And I like that story because that shows our philosophical alignment. But long story short, we had been cheering Saylor on, just as Bitcoiners, because we're all on the same team. Everything's good for Bitcoin. We're like, man, how clever is this guy? Bitcoin inspires the most creative thinking ever. And then I would say a

A few years ago, we saw the institutional appetite. Oh, look at that. That's me and you. This was right before you went on stage with the El Salvador announcement. We were- 100%. I had to pull it up. I'm sorry. Go, keep going. I'm sorry to interrupt you, but it was just like, I remember this like it was yesterday. Yeah. So we, yeah. I think Tether and I, Paolo, myself, the whole Tether team, I would say our philosophical alignment for what Bitcoin means to us and to the world is

is very strong in there. We both uniquely, as my other business, Strike and Tether, we serve products in Latin America and Africa. We have a strong philosophical alignment for El Salvador and these emerging markets and these countries adopting Bitcoin. And so friends for a long time. And so over the proverbial campfire, right? My analogy, we're like, wow, this Saylor guy, so creative, so clever. Bitcoin always inspires the coolest ideas. Put

But then I would say maybe a year or two ago, when we saw all the institutional demand through the ETFs and through real rates becoming negative, the bond market becoming so fragile, this post-COVID world we've been living in, Preston, and the capital markets and the appetite that they seem to have for Bitcoin, we thought that something with strong blue chip credibility was startup upside, something that we felt was big enough to win, small enough to grow.

and had the technology founding that both

Apollo, Tether, and myself could bring. We thought that it was a unique vehicle that adds to Bitcoin's story within the capital markets. And that was a lot of our story is that we wanted to take access to this unique asset on our balance sheet, which is already over 42,000 Bitcoin and access to the capital markets, which is a unique asset within itself, and actually build products and build tools and be able to monetize that and tap into the network that is Tether, tap into the experience that I've had at Strike,

and carry this Bitcoin treasury story, what we believe is further and in the right direction and able to monetize with cash flow. And so that was a lot of the founding, to be quite honest, is it was campfire cheering on Saylor, which Michael's a friend to this day. He deserves all the success and the credit and the money that he's made and the Bitcoin he's acquired. But the

That was the founding is 100% right. We think that there's a really unique opportunity to add to the capital market story and help a lot of people, help those that want to own public equities, help those that are in the fixed income market and help large institutions. I mean, if we are one of the largest owners of a fixed supply network, who else are you going to call if you need Bitcoin, settlement, financial service, credit lending? We're very confident between our past experiences and our technological expertise that we're going to be able to be a service provider and

in this story? Preston Pysh : The chat that I saw online after the announcement, there was a lot of confusion over this point of like, "Well, what are their operations? Are they just literally tapping public markets and stacking Bitcoin?" And I think initially it is kind of this. And I think because of the setup that we described at the start of the show, it is completely possible. And I think Michael is a perfect example of why it's possible when you just look at how much Bitcoin he's accumulated relative to the operational profits.

But I've also read that 21's operational plan is like a three-phase plan. Step one is accumulation. Step two is education and branding. And then three is this BTC-focused finance. That's the one that it seemed like you had mentioned right before I started talking,

a lot of what it is you guys have in mind for that, but can you get into a little bit more details of that? As much as I'm allowed to. So for the audience, what was announced was a filing in an attempt to go public through a SPAC deal with Cantor Equity Partners. So you've probably heard Cantor Equity Partners and Cantor and the CEP. Jack, explain SPAC. It's real simple, but for people that don't know the terminology, just explain what a SPAC is. I mean, it's a reverse merger into the public markets for

very, very high level. Cantor has a SPAC business. They have an entity that is on the NASDAQ now, Cantor Equity Partners, trading under CEP. And we've entered a proposed deal where we merge with that business, take over and list our shares under the ticker XXSY. For the audience, that's all you really need to know. But the important part in what guides some of my conversation with Preston today, and I'd love to come back on,

in some months is that we are in what's known the approval process. So we filed, but that transaction has not been approved just yet. And so I want to be a little careful. I don't want to guide investors to make an investment based on some hypothetical future that I cannot guarantee. So some of the way I talk about our products and our future is always guided under hypotheticals. And I want to be a little protective because first of all, it's ethical and it's

principled approach. That's just being a good person. But then also there are rules and I want to get the transaction approved. Shout out my lawyers, shout out the SEC. So that is what is going to hamstring my answer that I'll give today, Preston, is that in our business filing, which is all public and I encourage everyone to go check it out. That's true. We first want to highlight to the world that

we consider our first product is the equity itself, meaning our ability to enter the capital markets and acquire accretively in this Bitcoin per share sense. We had a lot of success raising capital, raising this convertible bond instrument, a lot of interest from massive, massive pools of capital that recognize the Tether, the SoftBank, myself, this blue chip credibility that gives them the upside of

but they consider a startup, someone that's just getting going and that's entering with 42,000, but believes they could have the largest Bitcoin position in the world. And so that's our first product is getting the equity stood up, getting the transaction hopefully approved

and being able to grow Bitcoin per share. We think we can do that, some of the best in the world, Preston, if you're measuring the Bitcoin growth in Bitcoin terms, Bitcoin denomination under this BRR. Shortly after that, we plan on launching Bitcoin financial services. In our business filing, we specifically reference lending, the credit markets. Those are two that we specifically referenced. But out

But outside of that, we'll leave it there for now. But listen, what I'll tell listeners is use your imagination. The business was founded by myself and Tether. And if we have one, two, three, four, 5% of the Bitcoin network and the Tether network, and a lot of experience and lessons at Strike, and my life lived there, we think the combination of all, it's going to be really interesting. There's a lot of good we can do for the world.

All right, let's transition to Strike because you have some major announcements that are happening there, specifically on the borrowing and lending side of the house. Now, for anybody in this space, they hear borrowing and lending and they immediately respond.

run for the hills and are scared to death. And for very good reason, we look at BlockFi, Celsius, FTX, and the name of the failure of at least the past cycle and cycles before is rehypothecation. It's people that... And just on the BlockFi side, you had...

a retail that was over collateralized and they were mixing that with institutions that weren't. And guess what? The systemic effect of that for the entire platform is that it blew up. Help people get their head around what it is you're doing from a borrowing and lending standpoint, your thoughts on rehypothecation, how important it is to be over collateralized for everybody on Wall Street that I think is going to start playing in this space. I'm an advisor at Debefy. The reason that I'm an advisor at Debefy is

I know Max, I know how he's run things through these past cycles. He hasn't had a default because he understands the importance of not rehypothecating things and everything always being over collateralized and it works, especially in 24/7, 365 markets. So help us understand your point of view on some of this. Preston Pysh : Yeah. Okay. Well, first of all, no rehypothecation at Strike. In fact, by the end of the month and, you know, making product promises like this is

is a little dangerous, but within a reasonable timeframe, we plan on launching some form of proof of reserves lending. The point for us is it's an over collateralized loan. That's a super important point. There's no rehypothecation, which adds to another point that should be obvious hopefully, but is worth clarifying. There's no yield. So on a lot of these other platforms, they're combining this idea where there was yield and collateralized lending. There's no yield. Depositors don't get anything at strike

other than a good user experience when they use our wallet. It is a collateralized lending product. So you deposit Bitcoin onto Strike. We will give you a loan against that Bitcoin, 50% LTV. So you could take half the value out in cash. And then your Bitcoin sits in a segregated wallet and it never moves. It is your collateral for the duration of your loan. And we're going to go to further and further extents to prove that out. I think for us, the journey to getting here, first of all, at Strike, we pride ourselves on two things. One,

is customer focus. I've really learned through firsthand experience that taking the ego out of being a CEO, out of being a product builder, it's not about you. And you don't know what's best for other people. They do. And you should just shut up and listen. And the other is transparency, is that earning the trust through transparency, not through words and not through promises, but through proof of work. And so that's what actually got us to this point, Preston, is that nobody in Bitcoin's

and journey so far had done this product the right way and achieved an immense amount of scale. And so we at Strike, we published some of our numbers recently. We did over $6 billion of volume last year in 2024. So we're operating at a pretty immense scale. Our fastest growing customer cohort is doing 50 to $500,000 of volume with us on a monthly basis. And they're coming to us saying, I want a loan. And what we realized is I think debt is...

is a misunderstood term. Uncollateralized debt, to me, is debt slavery, student debt, credit card debt, payday loans. That's debt slavery. That's bad debt. Collateralized debt, like collateralizing Bitcoin, that's actually making the money printer work for you. That's because these assets are growing faster than the interest

it costs to borrow against them. That's becoming a Jeff Bezos and an Elon Musk. And what we learned by listening to our customers is,

This asset class has gone from $0 to $2 trillion, meaning there's $2 trillion of new wealth created for people that have bought and hold Bitcoin. They want access to that wealth without having to sell it. They want to be able to borrow against that and allow the money printers to work for them, monetize currency debasement, be able to monetize chaos, monetize where Bitcoin is in its journey.

and that we were the trusted Bitcoin company around the world that Bitcoiners looked to do it the right way. And that was really when we kind of set out on this journey to understand the past mistakes, the right way to do it, identify the right partners, and come to the market with what we believe is a great product today, but one that will only get better. I've also said, before this month is over, we think we'll be able to offer a single-digit

APR, Bitcoin Collateralized Loan Product, which is the best in the world by a long margin. So that's kind of the high level. I have a lot to say, but I don't want to rant and put you to sleep. But I think it's a huge deal and it can change the world. Robert Leonard : Let's take a quick break and hear from today's sponsors. Want to land a job in investment banking or private equity, but feel like you're stuck on the outside looking in? The competition for finance jobs has never been tougher.

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That's shopify.com/wsb. Preston Pysh : All right, back to the show. Trey Lockerbie : Part of the challenge with getting that interest rate down is the person who's on the other side of this most likely understands Bitcoin and they just want to own Bitcoin instead of being on the other side of that trade. That's why they want the high interest rate. Preston Pysh : Yeah.

Help us understand how you're able to get that interest rate down with that being the dynamic, at least as it exists today. It seems like there's more people maybe entering the space that are willing to lend that don't understand the opportunity cost of just owning Bitcoin. And that's why they're willing to maybe increase the volume, which drops the rates, but help us understand this. Yeah. So for, I mean, the ordering of this podcast is fun. I mean, I've made some really good relationships with large pools of capital that I'm just orange pilling one by one.

For the Bitcoin collateralized lending space, I'm really a man on a mission here. I've kind of taken this one a bit personal to solve. I think what BlockFi did, what Celsius did, what Sam Bankman-Fried did was a shame to the best asset and the most pristine form of collateral known to man in the history of our species. And I've taken it a bit personally to go out and really right the ship here and offer Bitcoiners a product that they can trust and that serves them.

And so what you're referencing and for the audience, what Preston's saying is, "Oh, I can't offer this product for 1% or 2% because someone could just buy a 10-year US treasury bond and get over 4% risk-free." And so you're competing with other places capital allocators can allocate capital. And so the question is, if they understand Bitcoin, at what price are they willing to lend dollars for fixed real return or dollar terms, but they're sacrificing the ability to buy Bitcoin? And so

we've been able to find large pools of capital that are entering the Bitcoin space that do own a tremendous amount of Bitcoin, but are setting aside funds and pools of capital to lend to Bitcoiners. And I'm really excited about that. And some of the relationships I've been able to build over the last 12 months with some of the biggest pools of capital on planet earth, I mean, just orange pilling them is starting to pay dividends. And I think this is just such a deathly important product because at Strike, the vision that I have is

name another financial institution that can give a loan to a billion people, no credit checks on a mobile device in a minute. The answer is there's no such thing. I mean, how on earth would I be able to give a loan to someone in Ghana? I'd have to have them take a picture of their Ghanaian real estate and I'd have to assess its worthiness and its liquidity profile. And if I'd be able to sell it in a Ghanaian market crash, I mean, there'd just be no way. There's no way. But the fact that

someone can post physical collateral on a mobile device to our balance sheet, and that asset is growing in CAGR, compound annual growth rate at about 50% a year. And I'd be able to let you draw against that capital source

at a single digit, something 8%, 9%, that is letting the money printer work for you. That is monetizing the old financial system. Anyone can be Elon Musk. Anyone can be Jeff Bezos. That's how the rich afford to be rich, is they don't own dollars. They monetize debt. They take advantage of the debt system. They borrow against assets.

And so democratizing access to that idea, democratizing access to that opportunity, doing it the right way, being trustworthy, working hard and finding the pools of capital to make this a reasonably priced service, I mean, that's a lot of the work that I've taken on

And I want to do for the Bitcoin community. Preston Pyshenko One of the things that I think is going to be an interesting dynamic when we talk about yields or interest rates that people are going to be able to get in this new free and open market, a real free and open market in the coming five years. When I look at Stripe, this preferred issuance that Saylor's done, and you own this, you're getting a 10% cash dividend. Preston Pyshenko

and you're looking at a company that is extremely healthy, especially from a balance sheet perspective, that's going to just be able to continue to make those payments. So if you're a preferred buyer and you're just looking for interest rate yield, or in this case, it'd be dividend yield, but with a very high probability of payout, 10% is, I think, going to be normalized in the coming five years.

I think when I look at Strife, this is like an atomic bomb for long duration fixed income markets. And I don't think that's hit Wall Street yet, but I think it will here in the coming five years in a major, major way. Because people are going to be tripping over themselves to own these issuances with that much health on the balance sheet. So I'm just trying to think of that dynamic as it relates to Bitcoiners that are wanting to borrow against their stack and what the interest rates, because it's

all this giant competition of opportunity cost of how can you get interest rates at the lowest risk possible? And then what does that mean for the interest rate you're going to pay if you want to borrow against your stack? How do you think through that moving forward? Well, I mean, the sell to... I'm providing a market where I'm finding pools of capital that want some return in dollar terms, and I'm finding them Bitcoiners that are willing to deposit Bitcoin and draw against their pool of capital. And the sell to the

The capital allocators is, there's no risk here. This is 24/7 collateral that we can sell at any point and it's infinitely divisible. So this is the least risk you can take. This compared to a real estate or a house, I mean, it's not even comparable. If something were to go wrong, how do you sell like the fourth bedroom in a home? You can't do that. For Bitcoin, the analogy carries that you absolutely can.

And so that's the sell and that you're taking virtually no risk and that's very attractive. And that's where we've been able to win some of these capital allocators and build a capital base that we're not going to have any upper bound limits. I'll make my announcement when it's due. I don't want to

blow my whole announcement on the show, but I think I'd be able to give someone a billion dollar loan. We're talking about really serious size here. So that's that. I think just to get everyone's head around the product and the vision, I'm going to paint a picture here with just some simple math, just to get them directionally thinking in the right direction. This is not financial advice or tax advice for that matter. This is more to paint a picture in your brain to think

Preston, let's assume there's an individual that's making $100,000 a year salary and majority of their net worth is in Bitcoin. What I want everyone to think through and the terms

of the loan real quick. So let's say Bitcoin is at 100K, so that's the BTC/USD price. LTV is 50% of this product, and this is a payment at maturity product that we offer. So that means you don't make monthly interest payments. The interest rolls into the principal and you just owe the APR at the end of the duration, at the end of the 12 months. So once a year you owe the money, so you don't actually have to make monthly interest payments. So we've got someone who's making an annual salary of $100,000,

and majority of their net worth is in Bitcoin. Let's say they take out a $100,000 loan, Bitcoin collateralized loan. So they post to Bitcoin, $200,000 worth of Bitcoin, and they take out a $100,000 loan. We're assuming that Bitcoin is performing at 50% compound annual growth. Again, these are round numbers, don't take it as financial advice, and a 10% payment at maturity APR. Okay?

So what this person is doing by taking out a $100,000 loan is they're pulling forward their year's worth of salary in a loan form now. So they have $100,000 of cash to live on. That's the proceeds of the loan. They then take all of their paychecks and they don't need them to live because they've pulled forward...

the loan, right? They got $100,000 from the proceeds of the loan. They're living off that. So every single paycheck, they're getting paid in Bitcoin. They're effectively DCAing through each paycheck and just stacking sats, stacking sats, stacking sats. They still own the two Bitcoin. They still have the two Bitcoin. It's posted as collateral with Strike, but they still own it. It's their property. It's sitting, no rehypothecation in a segregated account, eventually proof of reserves. Okay. A year goes by, let's do the math. So at 10% payment at maturity,

That means they owe the $100,000, which is the principal, the actual loan, and then 10% of that is 10 grand. So they do 110 grand. But if Bitcoin's compounding at 50% on average, their collateral that was $200,000 when they posted it is now worth $300,000. And their $100,000 salary that they've poured all into Bitcoin by getting their paychecks in Bitcoin is now $150,000. So they're

$200,000 is now 300,000. They're 100,000, now 150,000. So they've gone from 200,000 to 450,000 through working hard, earning a salary, and just hodling and stacking sacks. So then what you do in Strike is you're able to roll over and refinance these loans.

And so you take your 450,000, you open a new loan, which now if 50% LTV is $225,000, 110,000 of that closes out your old loan. You're now left with a little over a hundred grand to live the life that you've been living and you continue to stay humble and stack sacks. And this now, this is not financial advice. The way people get wrecked is Bitcoin actually doesn't go up 50% per year. It

And then it has a bear market and then people over lever themselves. Debt in this sense is like fire. It can heat a home and change your life, but if you use too much of it, it could burn your house down. So we leave that responsibility to the individual. But what I want everyone to recognize through this story is that

If you're able to productize the ability to take out debt against collateral that's performant, the most performant in the world, it could change your life. That individual earning $100,000 a year that I just walked through, they didn't ever sell any Bitcoin. Their net worth is going up 50%, 60%, 70% a year by ways of allowing their income to be directly invested into sats by never selling. They're financing themselves through debt.

And that is the type of empowerment. I mean, we've had customers that instead of selling Bitcoin and incurring a taxable event and giving 20, 30, 40% of their realized gains to the government, they're borrowing, they're starting a business. They're borrowing, they're putting a down payment on a home. They're borrowing, they're financing a new medical emergency surgery, whatever that need is in their life.

And so that's the vision that I have is really if we can productize this, because Strike is a financial services platform. So we have instant cash outs to your bank. We have customers that are borrowing 100 grand and it's in their Chase account in seven seconds.

We have direct deposit, we have bill pay, we have remittance. So we have a slew of products where you can actually, and we slowly will integrate this more and more in refinancing these loans, rollover these loans, integrating it into bill pay, where we can allow you to use debt and never sell a set. Hopefully that makes sense. And I think people really greatly misunderstand collateralized debt versus uncollateralized debt. This is not like student loan debt. This is not an 18-year-old trying to go to Harvard.

This is like what Elon Musk and Jeff Bezos do, but democratizing it for everybody. Preston Pysh : I love the point of the differentiation between collateralized versus uncollateralized. The one thing that I will say that I think people have to be very cautious with if they're doing something like this is the duration of the contract. So

Preston Pysh : So because it's one year and because it's short duration, you are going to re-up whatever the terms and conditions are after that one year term. And so let's say you put this on and Bitcoin was raging right as you put it on, and then you go through, historically, we've had 70% to 80% downturns.

Let's say that happens while you put on the loan product and immediately after you go through one of these 70% to 80% downturns for the next year. If you have enough Bitcoin, you can keep adding collateral in there and you don't get liquidated. But because it's a one-year duration contract, at the end of that one year, wherever it's at, you're now going to realize whatever that is. You just can't keep adding Bitcoin to it because it's a 10-year duration vehicle.

Because it's a one-year duration, that does introduce risk to a person that's using a product like this.

And the only reason I'm bringing this up, Jay, I think it's super important that people that are anytime going to your example, which is perfectly set, it's like fire. If you're playing with fire, it can heat your home. You're doing it very responsibly and you actually understand the risks and what it was that I just described. If you didn't know that, you probably need to do more research and more homework before you step into something like this.

But if you do it responsibly, you can be exactly what he just described. Robert Leonard : Yeah. And I actually really appreciate you bringing it up because I don't want to sell myself as like selling a silver bullet on this podcast. To carry the example that I just gave in a bad scenario, what sometimes happens to people is you got someone making $100,000 a year, they post two Bitcoin, 200 grand, they borrow it. Bitcoin doesn't go up 50%, it goes up 1,000%.

And then the 200 grand of collateral is now worth 2 million. And then they take out another loan, but they don't borrow just a measly 100 grand to continue to live the life they've been living. They borrow a million dollars because chicks love yachts and yellow fast cars are cool on Instagram. And then all of a sudden the market corrects and they've positioned themselves in a way where their income and their lifestyle actually exceeds their means.

And so I absolutely do not want to pitch this as a silver bullet. There is risk. Of course, there's risk in life everywhere. There's risk in an Uber, there's risk in on an airplane, there's risk using this product. And that is the sad version of this story is that people get ahead of themselves. At the end of the day, picking on debt against collateral does not allow you to exceed your means. My advice to anyone, whether this is my product or not, is to live within your means, stay humble, meaning earn

earn more than you spent. You should be bounded to the lifestyle that you've earned by contributing value to those around you. That's kind of a principled way that I like to view it. And that's my advice just as a friend to people.

But yeah, that's true. And the other thing I will say for the Bitcoiners that there's a lot of people that don't like this product even existing. And that's kind of the part that I took a bit personally is that because there's folks that have been historically irresponsible, it shouldn't rob this market the opportunity of being able to borrow against God's gift of an innovation when it comes to money.

or Satoshi's gift, I guess. And so that is really like, I can appreciate that. And we don't encourage irresponsible behavior, but those that are irrational and irresponsible shouldn't rob those that are of the opportunity of using Bitcoin in ways that are

are magical and liberating. Preston Pysh : I think another important delineation for people that are listening to this and seeing it is they see Michael Saylor go out there and get a convertible debt deal, but he's getting it at 0% interest, right? And he can pay things back in more, he can issue more stock and come up with the cash and make whatever payments he needs to in order to do this in a way different way than this borrowing and lending

that you're putting on strike. If you go out and do this, you are not Michael Saylor based on the number. The numbers are not the same. And what you're going to be doing at 21 as well, Jack, I mean, these things are very different and people need to understand that differentiation. Not even just the numbers, just the duration alone on like the convertible debt offerings is a five-year thing. This is a one-year thing.

That produces completely different risk profiles for people. And you have to do your homework. If there's one thing Bitcoin has taught me, it is the big boy club. Like nobody's coming to rescue you. Nobody's going to come. Like,

You have to do your own homework. And this is a real free and open market. And this is the one thing I do want to say, Jack, is in the past, I think the reason this has such a bad name is because the platform operators themselves were doing super shady things and they were rehypothecating the Bitcoin and people lost their money, not because of

It was definitely part of their lack of understanding of how things were doing, which is they got to take ownership for that. But it was also the way that it was conducted at the operator level of the company that was offering these products was beyond shady and illegal based on what they were doing. So it's very exciting to hear you make the announcement that none of it's going to be rehypothecated. And I know you also said that you were looking at doing

we're coming up on our time here, but you were talking about doing a proof of reserves is on the roadmap. Talk to people real fast and then we'll close it out right there. Yeah. I mean, we want to be as transparent as we possibly can. And so the Bitcoin, for example, today I can see it. It's just sitting right here, not literally in this room, but extend the analogy, it's just sitting on the blockchain. And we're building products in a way where you can see it yourself because

For today, Strike, again, I referenced our volume. We do a tremendous amount of volume. Over 80% on an average month of Bitcoin purchase on Strike is withdrawn to cold storage. And so we do a ton of volume just from our Bitcoin wallet. And if you want to prove that you have your reserves on Strike today, you can withdraw the Bitcoin for free. That's the ultimate proof of reserves is owning the keys yourself. What I think is unique about this product is you can't withdraw the Bitcoin, Preston, because it's collateral. Preston Pyshenko

And so I almost feel responsibility and owe to Bitcoiners out there that because I'm disabling your withdrawal button, because I need the collateral to give you whatever it is, a hundred grand, a million bucks, a billion bucks. I need that collateral. That's the deal. That at the very least, I can try and give you transparency and to show you that it's sitting right here. And that's the product we're working on. And there's variations of that where I could just post the Bitcoin addresses and say, here, take a gander, look.

Now, obviously, I think the difficulty in this industry is everything on the Bitcoin blockchain is provable cryptographically. Proving out liabilities, there's no such thing. You can't actually prove that. You can try and make different trade-offs and different trust models that some people might find more appealing than others. And that's really, I think, going to be a journey for us. And we're all ears and we're listening. We can have

quarterly or monthly audits we can do. There's other companies that have done different variations of stuff that have different trade-offs, but that's the direction that we're talking about and really just extending that level of transparency to those that want to loan and know that their collateral is just sitting there. Preston Pysh : Yeah. Alex Leishman has done a fantastic job in this camp. And I

And if we have any policymakers, elected officials that are listening to this, my takeaway for them is that is really important to become somewhat of an industry standard. And also the no rehypothecation in the borrowing and lending space has to be a

non-negotiable thing from a policy standpoint. I'm assuming you agree, Jack. Jack Kornfield : Yeah, of course. Again, for a lot of other Bitcoin products, you can withdraw the Bitcoin. This one is so unique in that you cannot touch it.

And so if you're going to say, give me your Bitcoin so that I can finance your life, your down payment on your house, your business, whatever that is, at the very least, work to give me transparency that it's not going anywhere. And I can accept that request and that ask. And so that is what we're working. So there's that, there's single digit rates.

There's, right now our loan minimum is $75,000. Any day now that's going to drop in some states to zero and in others to significantly lower. And then there's just more access. At Strike we're unique in that we already serve products in over a hundred countries and there's no reason that this product can't exist globally. And

we want to be unique in that, like I said earlier, how many financial institutions are like, "Oh, you need a loan to finance a new business or a medical emergency or a house or finance your life? Yeah, just download my app. We'll give you a loan in 60 seconds, fully collateralized against an asset that's compounding at 50% a year." That is the coolest finance story in the world and we want to be able to tell that story confidently. And so broadening the access is also coming as well. So we're just getting started. Pretty exciting. Robert Leonard :

Love it. Jack, thank you so much for your time. I love having you on. It's always a blast. You're the best, man. I'm excited to see where you take all of this. I appreciate it, brother. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com.

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