Everything You Need to Know About Crypto Treasury Companies With Jeff Park | Roundup

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We all need a little humility on the path dependency for which if you believe Bitcoin is pristine collateral and despite the fact that it might have 80% draw downs but the perpetual value in itself is higher then all investors across that liability stack from the credit to the equity and the press in between are money good and the thing that sailor then has to control for is that he will never be in a position of adverse liquidation against his own will that's the most important thing and I think he's been very thoughtful about ensuring that there isn't a covenant to any of these raises that forces him into liquidation that breaks that covenant uh between his shareholders and his creditors. This episode is brought to you by Arkham. Arkham allows crypto traders and investors to look inside the

wallets of the best traders, largest funds, and most influential players in the crypto markets today. We'll hear more about Arkham later in today's episode. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on bell curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds or projects discussed. All right, everyone. Welcome back to another bell curve roundup. You got Michael's one and two Vance and today we are joined by distinguished guest uh Jeff Park of Bitwise. Uh guys, Jeff, welcome.

>> Hello. Yeah. >> Happy to be here. Let's do this. >> Let's do it. >> When's the last time someone called you distinguished, Jeff, in your intro? >> Oh my gosh. >> Very big name. >> I I uh I That gives me like a little bit of like anxiety in that professorial vibe of ending in like an academic echo chamber. Um which is the path I would love to avoid at all cost, but I am very uh flattered by it nonetheless. Thank you. I I think you're distinguished because you're probably the only person who understands what the instruments that Sailor is issuing are and so would love to cover those. I think to to start maybe um it would be helpful to kind of just like go through not like the entire history of Sailor, but you know he

starts with this kind of dead software company. I'm assuming he does kind of like at the market issuance of equity. you know, he gets bigger and bigger and then he eventually taps the convertible debt market. Like maybe just like a little bit of his path and then, you know, I guess one question that I had at least is when are you big enough to actually tap the convertible debt market and and maybe like some commentary around how that was initially received and how it's evolved would be great. >> Yeah, great question. I think um there's like levels to how you get your equity to be valuable beyond the price action, which is that you have to build like an ecosystem of liquidity and a thriving options chain and a variety of like multi-player dynamics to bring some

energy to to the stock beyond like just being valuable from a market cap perspective. And so that takes time. I think that's why Sailor uh for the most part is the leader in the space because he's been around the longest to create some of that durable moat for the liquidity provisioning that has been very hard to replicate without that first mover advantage. Um and also to the context of the credit market um today we take for granted that most and actually all of sailor's convertible debt are issued at 0% coupon from a cash interest perspective. But that's not true from its history. in its original history when it first tapped the credit market they were cash paid interest rates. In fact, he used to have this subsidiary um called Macro Strategy as

part of the entity that would hold Bitcoin and it was not actually part of Micro Strategy and it was ringing fenced. >> That's all changed of course in the way that Micro Strategy has grown up to fully become a Bitcoin native treasury operation and company. But you're asking the right questions, Vance, as to like how do these evolutions happen and um and at what what are the kind of parameters in which these things are permitted. I think for the credit market in particular, uh there's a certain size for issuances that makes it meaningful for institutional investors. And from my experience of having been a credit investor before joining Bitwise, the difference between 250 as an issuance and above is a pretty material um level from a threshold perspective. And if you

want to imagine issuing 250 million or so where the debt to equity ratio is manageable for what is otherwise a Bitcoin operation, you'd have to imagine the market cap has to grow to a certain level for that to be permissible. And to date, I think strategy has generally wanted that debt leverage to be very low, right? Somewhere in the 10% range, maybe a little bit higher, but but really not your typical debt to equity ratio of like most corporates that access the credit market. Some of it I think is indogenously driven by sailor not wanting to overextend. But I would also imagine the other side is that the convert market too doesn't want to actually tap into a leverage profile where they would actually be at risk and

you want to account for the volatility of Bitcoin's historic draw down to 80% for which some of that debt to equity ratio can be informed. Um, I think the amazing thing is nonetheless, Sailor has been able to retire those old legacy issuances and has now fully transformed into tapping the convert markets to his advantage with 0% cash interest rate and that has actually ventured into a new frontier by accessing what historically has been a very very boring what I call like the armpit of corporate securities uh the preferred market and uh is trying to make it into a much more vibrant ecosystem through now I think he has over four different types of prep equity

instruments since the beginning of this year and that has has never been done before. Uh pref equity is generally not accessed by retail investors. They don't have a shelf registration. They don't have tickers and we have to give sailor some credit for uh bringing upon an era of new financialization where prep equities becoming cool again, sexy again with retail investors finding that to be a worthwhile endeavor. Ju just one one last question. So he he starts with like these ATMs. He's like selling just like normal shares, you know, as he's kind of in whatever year he started buying Bitcoin at like 13,000 and then he does the converts after he's like big enough and now he's kind of gone back to equity, but it's like differently constructed versions of

equity that kind of look a little bit like debt. Is is that right? >> Yeah, that's right. That's right. So I think what Sailor unlocked either intentionally or unintentionally is that the convert investors have a have a very different motivation to playing the game. And uh some of it is that the entire business of convertible arbitrage is founded upon extracting value from very high volatility that can be mispriced. And because Micro Strategy is such a volatile stock based upon, of course, its holdings of Bitcoin itself being very volatile, he was able to give Convert Investors a kind of an absolute yield that historically is not possible without very high undue volatility.

Usually when the undue volatility is high, it's because the company is at default risk. And so as a lender, you almost never want to touch it. But here the reflexive thing being if the volatility is coming from pristine collateral which in itself is a collateral for lenders to feel comfort around you get the best of both worlds. You get high volatility but you also get this asset back credit like profile and having collateral for liquidation. So very unique phenomenon. He taps into it and then quickly finds out that this alignment is actually really good for equity which is that converts are happy to uh become equity at a much higher price. Hence having coined the term a creative dilution around this construct for which they are able to give equity

investors an equally worthwhile push for the monetization of its volatility. At the same time, I think what sailors rec uh realized is there are sometimes adversarial market dynamics that can arise out of these participants. So, for example, let's say you're converted investor, right? That means you're basically long a call option on Micro Strategy that is way out of the money. And if you were to basically hedge that exposure every day from a market neutral perspective of monetizing that gamma, you're essentially going to go out and create dynamics that lead to mean reversion in the stock price. So meaning let's say I'm long this call option and stock price goes up a lot. So my delta

gets really high. Let's say my delta went from 10 delta to 30 delta with a gamma. So now I'm really long the stock. you as a convert manager, you have to go sell the stock now to flatten that risk out. So what that means is as the stock price goes up, you're counteracting that dynamic by selling stock into the market, therefore reducing its upward momentum. And the effect is the same the other way around. If the stock goes down and your delta is going down, you as the convert manager have to buy back the stock. This is called long gamma hedging. And long gamma hedging historically mutes volatility. And so once you become big enough that trading activity in itself can be a volatility impediment and that I think is what sailor has also realized if you make

convert investors too big of your market participants they can also mute volatility which is the exact opposite of the outcome you want to achieve. And so there is a delicate balance at how much convert investors you want in the ecosystem thriving alongside other investors in the pool. Do do you feel like that's why he's switched now to preferred chair issuance as opposed to convert or do do you think that he'll go back to some of these previously utilized methods of notes or ATM or or what have you?

You know, my personal belief is that the convert investors are still the most accreative pools of capital for equity investor alignment in the term uh creative dilution where uh higher stock price is good for everybody and you're fully aligned in that mission. I think some of the pricing dynamic can become a little bit more predatory if uh you don't have enough um leverage over the pricing to which there could be some utilities to not always being in the market. You also have to be a little bit thoughtful about lading the issuances along the path dependency of the stock price too, right? Because as we've talked about like when you strike these call options for the converts, they're

fixed dollar strikes. So for example, I think one of the uh latest converts, the fixed strike is somewhere around like 650 or 660. That's a fixed strike. If you want to ladder these, you have to wait until the stock price gets to the right level for which the percentage base out of the moneyiness allows you to have another strike that is a lot higher. So you have to kind of ladder these what I call pin risks uh to create momentum around like the reflexivity of these stock price action that could arise and not like overly concentrate too much like too low where you create these like inertia. So I think that's part of the calculus. The exogenous factor of course is demand and uh whether there's enough uh kind of uh capacity for the market to digest these

issuances. These are really large issuances even by convert market standards uh and they're single issuer risks and so that's another thing that's a little bit open-ended which is has the convert market investor been tapped out uh I think we're learning actually it's not tapped out the reason we know it's not tapped out is because we see a bunch of new private bitcoin treasury companies also coming online with some creative engineering around these convertible structures I think what that means ultimately is that these investors on the other side also look for issuer diversification At some level, these are not the same thing as like a Bitcoin ETF or an ETH ETF where there's a trust product that allows for fiduciary guidance like look through exposure. These are corporate

operating companies managed by an executive team which always means there's some idiosyncratic risks which means that issuers have to lead with some diversification for investors to find interest in the sector as a whole. Arkham was created to make blockchains human readable and simplify blockchain data so that it is meaningful and useful to the average crypto user. With their new exchange, users can see what the top traders are buying and selling with Arkham Intel and then trade on that information with Arkham Exchange. To get started, follow the link in the show notes below. We're entering crypto's cloud era and IEG layer just launched Igen Cloud to power it. Just like AWS transformed the internet, IEG cloud is a full developer platform that gives developers cloud-grade programmability

with cryptograde verifiability on any chain. To learn more about how the IGEN token is securing a new class of verifiable apps and how to get exposure to this growing class of crypto infrastructure, follow them on X at IGEN layer. As always, investments in blockchain technology involve risk terms and conditions apply. Do your own research. One question for you is just like on the demand side like who are these firms? Are they like you know like like the ARM armpit of finance? Is it is it like uh are there fir are there firms that just do junk issuance? Like are these even rated? Is it like the pimos of the world looking for a little bit of flavor on top of what's a pretty vanilla usual allocation? Like how do you think about who who's on the other end? Like

there's no I think 13F so like how can you even tell? Are we talking about the converts or the preps? >> I guess both. Yeah, the converts and the preps. >> Yeah, sure. I think the converts is actually more institutional than we think. Um, there are insurance companies that lean into diversified baskets of these high yielding instruments. There's also hedge funds that generally do come into these offerings as a way to play the arbitrage. And the folks that I've gotten to meet are um pretty legitimate institutions that are involved in these endeavors. uh and it's a whole institutional category. I would almost call them at this point the most institutional money in crypto uh through the lens of credit. Um it doesn't mean

it's you know the Harvard endowment or the MIT endowment creating these things. One day we will get there, God willing, but uh these are still kind of the crossover funds that are able to bridge some constructs towards public equity and credit in a thoughtful way. Uh and and and from my lens of looking at hedge funds, these are fairly blue chip players. Um the prep equity side's a little bit different because um historically that's not a hedge fund business. Uh it's actually um not really many people's business. Uh and and the reason prep equities in itself exists is usually because they're purposebuilt um for reasons that most investors don't find interesting. So, so oftentimes what

you see with pref equity that is interesting is banks like bank cap banks need relief on capital ratios uh opportunistically and they'll issue these two to three year non-all preps to help fulfill like a credit gap uh and then eventually the notes are retired. So it sits kind of as like a regulatory buffer that is uh occasionally necessary. Otherwise, it could be big capital expansion plans of like almost sovereign like type infrastructure credits where they need to raise money to like, you know, let's say you're American Airlines and you need to build a new fleet of things that's going to go into capex, but you've tapped out the credit market, but you know, you're like strategically like an important company, you can access the prep market for like

uh opportunistic financing in between. So what I'm trying to communicate here is that preps are usually transitory capital. Like most of the US capital markets don't release press as like a way to build a permanent foundation of a of a of a corporate capital structure. The unique thing here of course with Sailor is that he's turned that upside down because his issuances of these preps are perpetual. All to say there's never been perpetual preps in the history of American capital like securities market. And and that I think is uh is is one in which not only is it outside the box cuz it's crypto, it's outside the box for most people because permanent like preps like that have never existed, right? We're talking

about like Argentina once upon a time would have issued like a hundred-year bond uh and and we don't do that uh in in in in the US with like not even with our sovereign debt perpetual is like a very very unique thing. Um so for now I think the biggest investors for those are retail investors because retail investors are most interested in accessing these kinds of new financial primitives that are mission aligned and excited to experiment with some of these financial engineering. Eventually I think you'll find these preps enter some of the mutual funds as well but I haven't historically seen any yet to date in meaningful size.

>> Okay. So he does the converts, then he moves back to the private to the to the pre the pref equity, and then I mean there's there's there's strike, there's stride, and then I think the new one, what was the new one called? >> The new one's called Stretch, which doesn't rhyme, >> right? I guess I guess I guess like to your point, it's like he's really innovating on the capital structure here. Um, but like even today like you know it was going to be 500 million now it looks like it'll be two billion. Like is that like a major thing that we like people should be considering in terms of like it's a new capital uh you know funnel that he can tap and it's like he's actually like moving the needle.

It's not just incremental. It's like a step change in terms of the capital that he can access. >> It's a really interesting moment for what it means to think about Bitcoin financialization through the lens of credit. Um, and I say this with a little bit of humility towards not knowing exactly how this will play out to the extent that we don't know anything about some of the some of the ways that um changes in the financial markets could occur until it actually happens. Uh the the thing about preps ultimately is that even though Sailor and the uh general narrative around it paints it like a debt-like instrument or credit like instrument, it's not credit. It's

literally the name. It's preferred equity. Uh and and there really is something that you have to respect along the lines which is in the case of a bankruptcy there is a known priority waterfall as to who claims assets and priv equity is not an advantageous position to believe there's really any meaningful seniority to common. They're usually jumbled in altogether and and um and uh and kind of normalized and really you have to attain that credit creditor status and and prep equities are not there. I think that's the first thing that we have to be a little bit earnest and honest about. Um, at the same time, what this means is that it gives sailor an incredible amount of financial flexibility to navigate things that credit instruments generally cannot. So

even though STRK, STRF, STRC, STRD, all these instruments uh intimate a coupon and an interest payment, the reality is for some of these sailor can turn them off without there being any ramification that you couldn't otherwise with credit instruments that will lead to a default unless you cure it. So the kind of mental inongruence here and the part that is a headscratcher for for me and all of us is we just don't know yet what will happen if there ever were the case in which sailor would have to turn it off because of either Bitcoin's price action or because of the overextension of leverage and whether the market will react positively or negatively towards that as a common equity shareholder.

What I mean is generally when creditors don't get paid the stock usually goes down and it's a bad sign. there's adversarial interests that ultimately are coming to fruition. But in strategy's case, you could make the case that actually the best thing for everybody in the cap stack is to not pay these coupons because actually that in itself protects the flywheel and the mnav and the common shareholders that in an adverse scenario you can almost imagine not paying the coupon will lead to a huge rally in the common which is so unorthodox and so strange that most Wall Street investors, the Jim Chainos of the world will literally to get the f out. Like that doesn't make any sense.

That's like literally garbage and like financial like you know dreaming. We all need a little humility on the path dependency for which if you believe Bitcoin is pristine collateral and despite the fact that it might have 80% draw downs but the perpetual value in itself is higher then all investors across that liability stack from the credit to the equity and the press in between are money good and the thing that sailor then has to control for is that he will never be in a position of adverse liquidation against his own will that's the most important thing and I think he's been very thoughtful about ensuring that there isn't a covenant to any of these raises that forces him into liquidation that breaks that covenant uh

between his shareholders and his creditors. Um usually creditors don't want this which is why they're not credit investors but prep equity is this unique hybrid thing that uh could could live in this uncomfortable zone uh and maybe be the unlock for sailor but it is not intuitive I think for most market participants. Jeeoff, uh, we've really been doing the 401 course here on financial engineering. Um, I would love to maybe ask you, uh, you know, more on the level of like my own 5-year-old brain here, but, uh, I think a lot of people still, even if you've been following the story, look at Sailor and ask the question, how is this possible? This guy buys a bunch of Bitcoin, put puts it in a box, and the box trades far above the value of the Bitcoin in the box, like roughly.

And the way that at least I've told the story to myself and I want to try to distill what you're saying um down into something a 5-year-old can understand is uh he's exploiting um inefficiencies in different types of investors of being able to get exposure to Bitcoin. Right? So the early you know uh the early uh you know market dislocation he was taking advantage of is people just wanted equity investors just wanted exposure to Bitcoin. There weren't a whole lot of options right? So, Silvergate stock, you know, Galaxy stock, Coinbase stock, and Micro Strategy was all part of that. Um, and then he, I think more so than anyone else, figured out that, hey, there are other, uh, types of investors outside of this particular, you know, part of the

capital structure that also want exposure to Bitcoin. And so, you know, convert investors and now, you know, investors in preferred equity. And it's kind of what might be subverting the rules of how these um these different asset classes have performed in the past is because there's this kind of bubble of speculation around it. And so I guess the the two like one, is that a decent way of thinking about it or not? And then two, how long can we count on this bubble of kind of specular fervor here to, you know, keep these dynamics uh different? And then I also would love to get to like how the introduction of other treasury vehicles might impact this dynamic. Uh because Sailor is no longer the only show in town here.

>> Yeah. Yeah. Totally. It's funny. I feel like the bewilderment that people have towards these Bitcoin treasure companies reminds me also of the same bewilderment that I experienced when Bitcoin was introduced for the first time to Wall Street investors back in the 2017 era. Um, and Wall Street's blind spot was this notion of where's the cash flow? Like where's the cash flow to Bitcoin, right? Like how can I even understand something that doesn't have cash flow, no balance sheet, no, you know, EBIT multiples, it's not productive, it's not yielding, um, you know, what does belief systems and network effects even mean in understanding monetary policies? And it

just looked like a speculation. And so they couldn't value Bitcoin. And it was because the question they were asking is where's the cash flow? And likewise, I think the thing that's happening now with other investors maybe even coming from the tech world that don't understand Bitcoin treasuries, but once upon a time would have understood the Bitcoin protocol so well is they're asking this question of what's the actual product like where's the product of this thing? Uh and and the reason is because when Micro Strategy is building a balance sheet strategy, it is actually building a product, but the product is a corporate capital allocation play, which is different than what otherwise Silicon Valley investors would imagine the traditional product looks needs to look like. And I think that's exactly what you nailed on, which is products that

investors can access for Bitcoin exposure that fits their mandate and their boxes in a system that allows them to participate in this big movement that otherwise you wouldn't be able to. So credit investors were able to get Bitcoin like risk in a yield deprived world through the Bitcoin converts and micro strategy converts and they can't buy Bitcoin. They can't even buy the Bitcoin ETF. But here is this credit instrument that allows you to do that and that is definitely a part of a structural arbitrage that is happening here. Long term though the the bigger uh question is how sustainable is this as you've asked you know how much capacity is there for competition if other copycats arise and uh I think we have a lot of reasons to be optimistic about

this because ultimately um competition uh begets innovation and what we're now also seeing beyond strategy is a whole slew of new companies coming to challenge the fundamental opportunity beyond what we just talked about which is product placement. I actually do think there is a world in which a permanent capital vehic uh vehicle of Bitcoin itself could be extremely valuable in the ways that it supersedes what the ETF rapper could look like especially perhaps maybe for altcoins especially for non- Bitcoin assets as well and the reason is this most investment products have to really focus on the primary importance of asset liability matching right like Vance you

know this like inside out when you're running a venture firm part of the benefit and the beauty you have is you have closed-ended funds for 10 years of deployment where you have no liquidity needs to manage. ETFs have to manage on the other head daily liquidity, daily creates and redeems. And the whole business of financial rappers is you have to play asset liability matching thoughtfully to create a robust and anti-fragile product. altcoin ETFs. We're at this era now where we're talking about staking, for example, and staking has obviously a period of bonding which doesn't permit immediate liquidity the way that otherwise some of the products exist today without staking. And so once you move into this venture of like duration risk for which the broad network uh

value that is possible with bonding for altcoins becomes more material. This is where the ETF rapper starts to have challenges. Um, so for example, a spot product that wants to stake ETH or Solana will have to not be able to stake all of its product or it's going to have to have a lending credit facility above it to fulfill the daily liquidity. But there's like a VAR model now that you have to run for what it looks like if everybody redeems at the same time and do you have enough margin and it becomes a credit margin business. A permanent capital vehicle is actually exactly what it says. you have no asset liability matching because the capital just owns the assets for which retail investors can buy and sell equity shares without

there being any discrimination of the price beyond the execution. So these treasury companies can actually do more thoughtful things with duration in ways that might be overall good for the development of the network and the ecosystem that the ETFs will always be a little bit kind of rangebound by having to provide transparent liquid price exposure uh based uh outcomes. The other thing too is like the tax and regulatory compliance side where uh if you're an operating company as as you've seen with Sailor, there's just a lot more things you can do uh without the guard rails that are purpose-built for investor safety on registered investment funds like the ETFs. Jeff, uh, could I, um,

uh, maybe if I were to poke at that for a second because there are definite advantages to a permanent capital structure, but on the other hand, you know, ETF issuers could just say, "Hey, you can no longer create and redeem here. This is a one-way street. Uh, the capital comes in and then the price of the ETF is going to trade at some premium or discount to NAV and they could just eliminate uh, you know, the the ability to withdraw. what you would get there is it would cease to be a rapper and the risk that you would be taking is on the actual instrument itself to go way up or down, right? So, it feels like that's the risk that you're taking as an investor here. It's it's like you are yeah, you're less constrained because you have permanent capital, but the swings in the

instrument, right, that you that you've issued should be much much higher uh and or much more reflexive, right? >> Yeah. Yeah. Yeah. That that's totally the trade-off here. And at some level I think the opportunity for investors have to arise not just out of the financial arbitrage of the liability management for acquiring more crypto assets per share as a construct which is a big part of the value proposition. It's really the left side of the balance sheet too which is if you can actually make your assets a little bit more productive for which there's native yield then there is of course a premium for that expansion as well. This is actually quite easy to imagine just even thinking through your >> you know IBD DCF model days which is like if you have something that acrru

value 6% a year perpetually and you apply a terminate discount terminal discount factor to it the multiple on that is already you know three to sixx anywhere in between if you believe it's durable and and permanent and longlasting um so so there's other I think levers that um the yield generation of these assets with productivity has to contribute to the buyin as you're describing for that uh illi liquidity and that lock up in ways that there's no fungeibility the way that ETFs very cleanly offer like ETFs are very good because it's pure you really get price exposure safely uh and constructively the treasury play is a little bit of that where you're seeking potentially an additional factor that

has components of optionality and active management involved in it that will bring value to you as shareholder by the executive team of an operating entity in the constructs of like more looking like an asset management business perhaps than a passive endeavor. >> Over the years, we have seen a multitude of hacks, rugs, and bundled launches. The number one way that crypto traders can protect themselves and the wider community is through onchain analysis, knowing who is moving funds and where those funds are going. Paired with their new exchange, users can see what the top traders are buying and selling with Arkham Intel and then trade on that information with Arkham Exchange.

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>> One question for you is, you know, we we went to, uh, an investment bank just to kind of get their take on the whole, you know, uh, craze. And, um, these guys have done probably a number of these. They're pretty reputable bank. And and, you know, their take was like, you know, every the the verbatim was every Johnny Banana, which is like a I guess an East Coast like a finance term of some sort, like every Johnny Banana wants to do a Bitcoin and ETH treasury company. and like we're not doing those anymore because unless you're like really really really well sized relative to the market. Um it's just hard to get that that cache and so I think a lot of people have said the bare case is there's going to be a thousand copycats here. It just feels like that is just not what we have heard

and and I think people are more excited about the midtail, the longtail productive assets kind of what have you. Um but just like on a broader sense what what is the investment bank's role in all of this? Are they really pounding the pavement raising the capital? Is it mostly Sailor and Joe Lubman going doortodoor or like like how does the traditional finance ecosystem interact with this uh on like an intermediary level where you know maybe not the kind of investors at the end state but like the banks that are kind of around the table and how they kind of create the value. Yeah, I mean banks have multiple ways of creating value ultimately on a very liquid uh stock and so you know the strategy is really valuable for many people in the ecosystem because they

bring a lot of business to the Wall Street machine right it's not just like the ATMs where there's a fee per issuance there's also the capital markets for the debt side you know really billions of dollars of capital that are being raised in formats that just feed the investment banking uh machine if you Uh and then on top of that you then have like the options market that's very vibrant and the underlying stock for which ETF issuers go out and they create their own products around it. It's almost like you know a derivative that for which then you get to participate off of. So like you know strategy now has a bunch of ETFs that track the stock with different flavors around it. You know, we at Bitwise have one where we

run a cover call strategy on Micro Strategy to deliver a yield premium on top of the underlying stock performance. There's others who do that. There's 2x levered Bitcoin ETFs and 2x levered Micro Strategy ETFs and inverse levered ETFs. And so, you know, the the you can't underestimate what like an incredibly volatile, high value, high volume stock can do for Wall Street. So the the question is can you create more of these things and the reason I think we can be a little bit optimistic is because of the general hyperfinancialization we're already seeing with most of the market structure. uh and I think this is not like a statement that I endorse as a good thing necessarily for society but

the reality is like we are moving to a world where like most of the trading is being done by market makers where they're doing a lot of arbitrage between these products too and that also feeds like the alternatives asset management business it feeds the Jane streets of the world when they go out and see these products and so if you have 20 of these Bitcoin treasure companies 40 of these Bitcoin treasure companies where they're all have implicit beta to each other but can be uh showing different kinds of basis risk across time. There's a lot of like flows in trading that will emerge from a technical basis less so than a fundamental basis. And these things are all just driving commission, driving order flows, driving uh financial product innovation. And I think that's

kind of the soulless almost Wall Street like machine which keeps gobbling itself up for like more uh more trading. And I think more broadly, every Bitcoin treasury company will not look exactly the same as others too. And I think we're seeing some narratives unfold here where people are comparing Micro Strategy to 21 Capital to Metaplanet to uh all the all the other entrance where people are expecting different value propositions. And I think there is a little bit of this impossible trilmma construct as well with these Bitcoin treasury companies, which is that there's three things you can try to optimize for to run a successful Bitcoin treasury company. But of those three things, you can only have two and you

can't have the third. And this trillemma is you can have a really high volatility, you can have a really high yield or you can have some downside protection. Those are the three levers in which you can only choose two but not the third. which means that there's ways in where people are going to live on different spectrums of that triangle and deliver value proposition across different points of the market cycle. Uh and so for example in strategies perspective I would say they're optimizing for volatility and they're optimizing for yield. They care very little about downside protection. uh and and you might say on another side uh perhaps um you know strive from from uh from from MO's leadership might be focusing more

on downside protection as a construct that could be valuable in a bare market uh in addition to the yield generating capacity. So, I think we're just going to see some permutations of these trade-offs, which means that um it's just going to be a really more vibrant market of choice for investors where they don't have to have just one representation of the kinds of risks they want to take adjacent to Bitcoin. >> And and then there's also the the uh the overseas ones and you know, nobody does a bubble like the Japanese and and the Koreans. Um, and like it it seems like you've spent some time out there and and there's really rapid demand like MetaPlanet has done phenomenally well and is also innovating with things like

moving strike warrants or moving strike I guess conversions um >> and they've done it kind of all debt but like maybe your take on the the uh the abroad ones and and their kind of advantages or appeal or just adoption would be awesome. >> Yeah, for sure. Um I think uh you know it's so funny. I feel like so much of the learnings of like crypto trading can be applied for Bitcoin treasuries, which is to say like what makes Bitcoin treasury companies successful and the lessons embedded in there are are there's a lot to learn from the original mission of like just general venture crypto too, which is like do you have like good distribution? Do you have good you know what I call tokconomics version

of Bitcoin treasure companies which is layering that financial engineering. Uh do you have like a roadmap for that integration of that product into like other parts of the ecosystem like having partnerships with other issuers to have 2x lever ETFs or securizations and things like that. And so all to say like every geography has different rules around like what is permissible. For instance, in Metaplanet, as you described, the reason they use moving strike warrants is because they can't issue ATMs. ATMs is not a thing that is possible in the Japanese market. And so the moving strike warrants is a clever way to kind of get around that um in in shortterm kind of credit instrument like exposure. and and uh you know Korea is a

unique market too because in Korea um there's generally a little bit of a lockup for duration for these types of investments that doesn't permit like immediate liquidity like the US market does. So you have to kind of navigate that and so there's there's these uh geographical domain expertise that come into play and understanding like the local markets but the other part is the investor base is wildly different too across these markets. And so one of the reasons I think Japan and Korea are really important markets for Bitcoin is because those demographics are like very attuned to the opportunity of what like a high volatility monetization scheme could look like. And Japan in particular having essentially lived in a negative

rates world for a long time now to a very small almost nominal rate world. they are the most kind of starved for yield where their credit market is a lot cheaper than the US credit market. It's a very strong um I think proprietary advantage if you're Metaplanet and you can access the Japanese credit market that even Sailor himself could not. And that means essentially you're going to see some like geographical convergence of these factors too which is like you know we talk about Bitcoin being like the egalitarian thing that flattens the regulatory arena where everyone has to have a race to the top to permit more regulatory opportunities to win that market share. So you see like the US is now leading which makes you know the UAE

feel a little more anxious and they have to lead and we we call that like a flattening effect for regulatory. It's the same for Bitcoin treasuries too because ultimately you're leveling out the capital markets access points when you do things like this where in US American investors are now buying MetaPlanet uh and that's creating like a different capital formation uh in crossber flows. So I I think it's it's it's it's incredible to me that so much of the ethos of like Bitcoin as we talk about in bringing like a flat world is exactly the kind of same thing that we're seeing with treasury companies.

Yeah, I've I've uh I've seen some Twitter commentary on, you know, this this is not what Satoshi would have wanted and and I think in maybe in some ways it isn't, but but in many ways it is. It's kind of like this flattening that you just spoke about that that kind of transcends jurisdictions and geographies. Um maybe just a quick one on on MetaPlanet. So, it had this crazy run, you know, it's down a little bit, whatever. like like I've noticed these treasury companies have these like these ups and then they have the down and then they they put in the higher high and and it's you know it's all driven by retail interest. Bitcoin obviously priced kind of being a retail magnet. I mean just like what what are your thoughts on MetaPlanet? uh obviously not like buy or sell financial advice, but um are they

kind of, you know, cooking something up and and kind of preparing to go back out in the market or or like what does MetaPlanet do from here after this, you know, huge blowoff and then a little bit of just like kind of accumulation and cooling? >> Yeah, great question. Um I mean there's three levers to drive value for these treasury companies, right? One is the volatility creation itself. Uh which um the Japanese market is probably not as developed as the US capital markets for some of those engines to work. Uh there's the there's the yield creation element too which I think MetaPlanet actually has led the way even ahead beyond Sailor because they engage in

what we know to be cash covered or Bitcoin covered put selling so they can earn income off of the inevitable Bitcoin acquisition they would ra they would be doing nonetheless. uh so they're monetizing I would say you know aspects of volatility and time through that endeavor and the third thing is you can create some optionality value too by pivoting the narrative of the long-term future of what these treasury companies can do in the future so you might have seen Simon had mentioned some time back that perhaps if the treasury assets arise to a level where they can use that to acquire cash flowing businesses that are adjacent to the Bitcoin ecosystem that becomes a little bit more like a private equity equity play within a permanent capital rapper that is

actually kind of productive and creates value. All to say, no one knows exactly yet like what can be done with this permanent capital vehicle. But I think the optionality that retail investors are underwriting is that if this is going to acquire a lot of Bitcoin, Bitcoin being capital, then there should be some optionality value for this for which an an executive team that knows how to monetize that should be paid a premium for it. I think nonetheless it is very sentiment driven at some level.

I would almost argue it's also very technically driven at some level based on kind of the volatility uh creation techniques that exist. Um and that can create opportunities but also um some some some abilities for retail investors to suffer in navigating that environment. You know, one thing I would note too is you've seen a lot of these new companies come online with these pipe transactions and there's some violent price action that can happen with these unlocks. And I think we've seen it through some Ethereum companies now and Salana companies. No doubt it will happen to the Bitcoin companies too. And it's not because there's anything wrong with it. It's just that the market structure is also uh fairly asymmetric where the liquidity event itself is not um arriving to otherwise

the investors that are most sophisticated being barred from accessing those markets today because they're precisely over the wall for that exact reason. Um and so you have this dynamic where until these deals are approved, you have low float shares that are being traded by the least informed market participants and the people that can actually set the price correctly are are not able to trade it because they're restricted and that creates some funny you know market environments. So I do think there is a need for caution but over time as it is digested and the price uh discovery happens with uh with better information and better market participants the value acrruel thereafter I think is is a is is a knowable path.

I've got a question um actually on maybe something a question that I've just had in terms of what are these treasury vehicles allowed to do in terms of like touching chain uh and doing more things on chain to actually generate yield maybe outside of Bitcoin maybe this is a little bit more relevant for ETH or soul treasury vehicles but there have been a lot of uh Michael advance you guys would know this better than me but restrictions um on asset managers like you have to use a qualified custodian and things like that and you've been limited in terms of maybe the investable universe Um, do those same restrictions exist for these treasury companies? I've anecdotally heard that they might actually have a little bit more freedom in terms of what they're able to actually do within DeFi to generate yield. Accurate, not accurate.

>> Yeah, I I think I think it is accurate. I think it's accurate because at the end of the day, these operating companies are not uh RAAS. They're not registered investment advisors and they therefore follow a different set of rules. um the qu the the QC qualified custody rule itself is really a factor that specifically hit registered investment advisors that wouldn't necessarily pertain itself to um those that are not managing client capital if you will and in this definition of our shareholders being your customers they're not typically called clients as the SEC would define it even though you might think they are as shareholders so I think that's one aspect for sure you could appreciate uh at the same time there are uh some unknowable risks to

these conversations on DeFi 2, which is tax. We actually don't have a lot of clarity on how to think about tax for staking, for example, that will also hit operating companies just the same as it would hit uh private funds. And depending on how they treat that cost basis of the event for which you you you realize those staking rewards, it could motivate these treasury companies to do different things that we don't we don't really know yet. And I think there's also other aspects of regulation that could hit like companies where a certain amount of unrealized profits for example could end up being taxed which then ends up creating the effect of needing to sell assets to pay for those taxes. Uh those things are in motion. like I think

there's a lot of it that is up for debate um up for fine-tuning and uh it it it is still a risk factor for the things you're describing that is unique to like a treasury operation that wouldn't necessarily matter for these ETFs but I think broadly speaking the ability to go on chain the ability to experiment a little bit more is absolutely more possible within operating companies and we've actually seen these happen in private uh Cayman and co that are operating entities that do these things of course they're not publicly listed. Um, so there's a different kind of threshold there from a disclosure perspective, but by and large, you know, they've gone ahead and they've done these things.

>> One one question I have kind of broadly is, and we touched on this a little bit with what you're describing with these entities being able to stake or participate in DeFi, generate a yield, whether it's token denominated or cash denominated, I think is the question, the tax ramifications, you know, we're still sorting that out as an industry. Um, and it'll it'll pertain to these companies as well, but I'm I'm just wondering if you have any insight or perspective, Jeff, on what happens when these things start to actually trade with a native price to earnings as opposed to an MNAV. Um, you know, in Bitcoin with with strategy and and Sailor has traded basically on an MNAV, being able to access and and productize, you know, their offerings to, as we've described, touch on different market

segments. But what happens when you know SBET, Sharpink Gaming is able to generate a 4% yield um which then the company itself is reporting earnings each year. Um you know how do we start to think about the financial metrics or the the capital formation? Um does that materially change kind of the way that we look at this industry or or you know the productization of the industry? >> Yeah, great question. I think um I think that these treasury companies will end up having its own set of rules from a way that people want to understand competence and success and KPIs and it'll be not dissimilar from how banks and financial institutions follow different 10Qs and 10Ks in the ways that

they report their earnings to be not related to uh otherwise like operating companies in the way we understand like non-financialized businesses to be. And I think those standards will have to emerge. Um I think Sailor's trying with variants of it too. When we hear things like Bitcoin per share and Bitcoin yield and Bitcoin gain, all these stuff, uh it's it's a little premature, but it it's it's it's planting the seeds for these jarens to set the tone for what a financialized business in itself will matter its KPI out of. So um the precedent here really is like the the financial services companies don't report the same kinds of uh of of of 10QS and 10Ks as the rest of the companies. Um because it's a it's a

capital business and I would say treasury companies are at the core of capital business. Uh so it'll go back to the idea of like asset liability matching right it'll go back to concepts of net interest margins as a kind of a way to put you know native yield on top and just the value acrruel of that construct in itself. Um and then eventually I think these treasury companies may end up wanting or having to pay dividends uh in the way that uh that's what banks do. Banks pay dividends and that's why investors find value in it and and that's kind of the perpetual money machine. If you can buy a Bitcoin treasury code that actually pays dividends and it grows with you, leveraging the power of Bitcoin, channeling it back to fiat in the ways that fits into your traditional IRA and your Roth accounts, those things can be

valuable uh and and you of course have to write multiples on it, which will make it cyclical based on the market environment. The big chunk being Bitcoin price, which is why I think in the end these will continue to always be volatile. so much of it being based on Bitcoin denominated valuations, but I think um you'll see those metrics flow through in ways that people think about it from like a yield perspective. Um maybe just on the ETH treasury strategy side, you know, if you were obviously it's path dependent where a a lot of the heavy lifting for Sailor got done because he was buying at 13,000 and then he kind of constructed this really powerful, you know, strength to strength type idea where he was doing the ATM, then he did the convert, now he's doing

these prep equity and it's like you're he's winning and Bitcoin's winning alongside him and and it's all it's all looking great. Um, I guess if you had any like advice to like the Joe Luben or the the Tom Lees of the world, like like what would you say, you know, that their best path is? It it feels like, you know, the really powerful combination is you've got ETH going up, you've got them buying, and you've got the Black Rockck ETFs just firing behind you, but I mean, anything more tactical or or kind of interesting that you would kind of, you know, tell them to to think through or or, you know, understand?

>> They should partner up with Sydney Sweeney. Oh man. Yeah. No, that's a winner. >> That seems That seems to be the uh the one shot for every business these days. >> The most profitable commercial of all time. >> So good. So good. Yeah. Let's get that in the works. Um um it's funny. I uh you guys may have seen Once Upon a Time. I did a webinar with Sailor and I had specifically asked him what he thought about these treasury company strategies coming for non- Bitcoin assets. And he like you could tell he's like visibly frustrated. I asked him that question and he's like oh Jeff like why don't you understand what I'm doing here and and you know he made the point to say you know I'm building a skyscraper with steel and what you just are talking about is a skyscraper made

out of balsa wood. Okay, Jeff, it's rubber. Those things can't stand ethereum as fossil wood. Paper from MJ. And um it was it gave me a good laugh, but but I was genuine and sincere in my asking which is that I do think there is a possible value play here too for these altcoins. And it comes from two factors. One is if you believe that the ultimate uh proprietary value of these treasury companies is to be a volatility machine where you're increasing volatility per Bitcoin per share or Ethereum per share based exposure.

Let's be honest, all coins are more volatile than Bitcoin. So they already have a starting advantage regardless of what you think of the asset. If you're just quantitatively monetizing volatility, ETH and Salana and all coins have a better shot at providing yield. uh whether you believe on the actual fundamental or not is it being irrelevant and then and then the second thing is um proof of stake by definition require active management. It's different from Bitcoin. And you know, in my business of running alpha strategies at Bitwise, I get a lot of inbounds as to how people should consider investing into crypto beyond Bitcoin. And oftentimes they'll just buy Ethereum as a way to diversify.

And they'll be very upset when they realize Ethereum is down and they actually didn't make money on it. But then I always tell them, you're down because you just put Ethereum and did nothing with it. Like that's the same thing as like buying like a highMP compute computer and putting it under your mattress and watching it depreciate over time. Like no, the whole point was you have to use it. Like you can you can put gold under your mattress and it's fine because that thing is not productive the same way you can do that with Bitcoin, but with Ethereum you got to use it, man. Like you got to actually participate. You got to go out there, stake it, restake it, go play on IGEN layer, go play on Renzo, go on Pendle, like do things with it to get extraction of value as an ecosystem participant,

run market neutral hedge strategies. And then what you realize is even though ETH is down, you've been able to capture the total value of the ecosystem to generate a worthwhile outcome. And that's active management. And uh in some sense what this implies I think to all of you is that treasury companies can potentially be a better vehicle to extract that value for most investors that they don't want to spend time on uh clicking buttons through um Athena and whatever else that they want to learn about but they can't be bothered and you just want to outsource it to somebody. So my advice I think to Joe and Tom would be um to lean in to the narrative of these assets being not only very useful with utility that is worthwhile in the

mission of crypto but that you also do need a professional to operate it competently for you that they are the folks who can do it safely uh and and honor the ethos of all the things that crypto stands for and the nature of decentralization and self uh custody. and and uh and and and and then I think uh this narrative of it being digital oil which I think is what the leaning energy today is will be sensible like people will then understand that because oil again by definition is only valuable because it's used. You don't keep oil under your mattress and think that it's going to actually do things for you. In fact, the whole point if you do that is you lose

money because the storage cost on the carry is actually positive. So if you just did that, it's a negative EV outcome. And that's kind of what the problem I think to date ETH has been, which is most people don't know what to do with it. So you got to let uh other people kind of navigate that journey for you professionally. >> That's very that's very well put. And I guess um one thing that recently happened on the ETH Treasury side is that uh BitMine, which is Tom Lee's company, and I would assume this is coming for ESB as well, got uh an options chain. And um I guess how how does that change the trajectory of these? Like it feels like only the most legit ones get the options chain and then like what does what does the options chain get you in

terms of you know path dependence on a positive trajectory? >> Yeah, options chains in my opinion is the most important thing that these treasury companies needs to set up. uh and and and uh the there's many ways it happens but really it's pretty rules based based on CB SIBO and the market makers which is that market makers have to request it uh and uh and uh there's some exchanges that have like slots for which like it's it's it's fixed so maybe like another company has to leave for a new one to come in but generally when market makers request it and there's a test for how many shareholders actually own the stock and there's a threshold I think it's like 2,000 investors 2,000 unique investors have to own the stock.

Um, and those like criterians are met, then you can get an option chain. Um, and you need it because the option chain then permits product innovation like the 2x lever ETF, which can be volatility engines. Uh, you know, one of the reasons I do think strategy has been more volatile than others is because of these 2x lever ETFs that create these technical flows that contribute to that price dynamic. I'll give you a great example. These 2x lever ETFs, if you really think about it, are rules-based where every day they have to trade something to give you 2x exposure of the stock the next day. That's all it does.

And so if you have a bunch of creation units that come in because someone wants to get 2x lever micro strategy exposure, the APS then have to create these stocks where they have to go out and buy the shares at 3:00 before 4 p.m. so that the next morning at 9:30 it'll have the 2xbased exposure which means based on those create flows, you have to go out there and just buy the stock. It's priced in elastic. You just have to give the exposure. So I think what you can then intuit it here is if you have creation units on these 2x levered ETFs, it creates a momentum. It creates autocorrelation of that stock price then going higher with more volatility as those 2x levered ETFs have more shares.

And embedded in there is a hidden leverage, right? It's almost like a coiled spring of why the stock price might be higher than its natural state because these 2x lever ETFs had to go out there and indiscriminately buy the stock. Now, of course, it can hit the other way. If there's redemptions, you have to indiscriminately sell. But the point is these financialized products, they're technical in nature where they can be a source of volatility. And the only way these things can really work really uh is is by having the options market available because that's ultimately what these uh these uh products depend upon uh options markets and the swaps behind it that also then use options behind it.

I I have one uh one question on uh I think one of the criticisms that has been aimed at some of these vehicles especially for the non-bitcoin and ETH and even soul vehicles are uh you know there are vehicles for like way less used chains that like some uh you know old you know VCs might have large uh bags of and been able to been not able to get rid of them and so there's the ability to to contribute in kind right so my understanding of the mechanism roughly is let's say I'm sitting on a big bag of um you know like a dinocoin, right? And I'm just unable to move this and I have way too much of it to ever sell into the market. So one thing that I could do is I could contribute this to one of these

treasury vehicles that is accumulating polka dot or something like that and then I could essentially get this stock that might pump for a little while and I could sell into retail. Um, so that's, you know, maybe one of the criticisms of these vehicles that retail ends up getting rinsed here because they don't understand the game that they're playing. I mean, how much does the like the ability to contribute in kind impact the viability of the equity of some of these vehicles? Mhm. Yeah. It's um it's case by case I think as to the motivation as you're describing where it matters really quite a lot as to what the retail investors end up feeling like they're uh they're buying into um

at some meta level. It also reminds me of when the foundations go out and sell discounted tokens with lockups to certain investors for the ability to participate in some value accretion that we don't know who the end permanent buyer might be for those assets. But nonetheless, there's a marketplace for it. Um and uh and we've seen how that could be a creative we've also seen how destructive that could be uh from like a price discovery perspective. And so if you apply the same principle with treasury companies, it's a little bit similar in like just moving the buyer base to to a more regulated market. So if you if you do inind contribution, but

your assets were acquired at a discount with a lockup and those kinds of things kind of carry with you. I mean, you can make the case that you're giving retail investors a chance to buy uh tokens at a discount that they historically couldn't access at a discount before. uh those used to be kind of more OTC deals for known players that otherwise would I would say disadvantage the general public who are participating in the secondary market for the spot price for which the assets trade that day. Um so there could be an element of it which uh if done correctly would be a little bit more egalitarian and like the ability to give that discount to everybody like in the retail business that is the stock market. Um, but I

think the cynicism you share is is is roughly the cynicism that people generally have with like um things that don't like bring new capital in like very clean way that people trust is like is honest price discovery. So I think as long as like these things are being done with like honest price discovery where there's like new cost basis being established by new investors coming in that's probably the most important signal. It's it's really why I think people look at Ethereum as one of the most resilient um layer ones even today despite the tech because the distribution of those cost basis at a at a very decentralized level was possible

at that moment in history that it's been very difficult to replicate ever since. Uh and and so I think those things ultimately would play a little bit into how these Bitcoin or digital asset treasury companies come online. one uh maybe we've we've been very generous with your time, so maybe like a couple of final ones. Um one is just on the altcoin. So like let's say in the downside scenario, you know, let's say like um for for BTC and ETH, if hedge funds ever get, you know, really short and maybe they push it below NAV, I think the ability to sell the Bitcoin or the ETH and then buy up your own shares is, you know, it's relative liquidity, Bitcoin ETH versus your share liquidity.

and like you'll be able to get it to NAV, I think, you know, or they won't sell and issue more instruments, whatever. Um, on the smaller tail side, it feels like the doom loop scenario is, you know, I there's a small altcoin treasury vehicle. I start shorting the shares, I push it below NAV, they start selling the coins to get to NAV, the coins start going down, the market cap starts going down, the liquidity starts going down. Like, you can see the doom loop. And one way around this is, you know, you like you have a foundation partnership where the mandate is like we'll never sell. So, so don't even try it. Um, and then, you know, maybe they try it anyways, but like I guess how do you think about that reflexive down? Um,

maybe not as much for Bitcoin or ETH, but for the lower tail, longer tail liquidity assets >> or or or it could be an asset that has fundamental productivity um that you use to buy back the shares. >> Yeah, I think um the doom loop is real. I actually think that for most treasury companies the idea of selling the assets in itself is is uh is going to create some insurmountable and permanent damage because the entire thesis of the value cruel technique is to acquire more of that asset by dilution that is thoughtfully done. So so reversing that gearing is uh is is fatal. Uh the only way you could do it though if there was an exception is um you believed the roe by selling the Bitcoin allowed you to

earn something higher than the Bitcoin rate of return. So here what I mean is let's say you have like a a business within the treasury company. Let's let's say like a like um like a bit wise for example, right? We're we're a private company of course today, but our business valuation is very much dependent on Bitcoin price at some level and a multiple of that. We're a business that has operating leverage to Bitcoin. In a way, actually, Bitwise valuation could look like a Bitcoin treasury company. And so if you said, "Hey, in this moment you would sell Bitcoin to reinvest those proceeds to invest in a business like Bitwise where the ROE of that thing is higher than the Bitcoin itself and it's authentically credible, then I think you can escape the doom loop." Maybe I'll share a little alpha

here in the way that I've been thinking about um Stretch for example as a construct of this doom loop. Stretch is going after what you call the money market funds because they're trying to offer a floating rate coupon that is a money market fund replacement and that is the whole pitch. Uh these floating notes are generally short duration uh and and they have a reference to a benchmark. And so here there's a couple risks which is because it's a fixed coupon that sailor gets to nonetheless move based on the ability to target a $100 par. What he's implicitly doing there is adding credit spread. It's not just like a floating uh rate premium off of the US interest rate.

The credit spread isn't baked in there. So uh for that to be a 100 par note at times when sailor might be experiencing a huge draw down on strategy to stock which would then imply a certain credit spread on top. you would have to pay a lot of interest then to get that back to 100 which creates a certain kind of a doom loop right because the time you want to pay the least amount is exactly when the stock is down the most uh and I think that is a kind of thing that is a little bit of a corner case in some of these financial engineering we're seeing you know the other part I would note is historically like uh floating rate instruments are senior to fix because they're short duration and uh part of

The uh thing that happened here is it's uh STRF is still more senior than ST strc by indeer which means that the perpetual fixed thing is actually still more senior than the floating that's unconventional as well. Um and so there's these different kinds of uh doom loops that I think could exist in ways where uh we're still going to imagine and figure out through the engineering efforts. But, you know, I think the long-term case is if you believe in the price of Bitcoin and these altcoin treasuries having backed by sound collateral, then it should be it should be valuable without that that dependency.

>> Vince, I know you got one closing question here, but but I just want to um one one thing Jeff I would love to get your take on is the last cycle we saw GBTC, right? And that was this like closed end vehicle that traded at a premium to NAV and then a discount to NAV. And I don't know if you people kind of memory hole themselves in crypto all the time. And there was all these reasons why it could never trade at a discount to NAB and then it just did. Um, and then what it ended up being was this massive pile of assets that needed to get sold, right? Like as soon as I came to market, there was a massive overhang on prices. And it feels like there could be a similar scenario here.

Like I get that these companies are permanent capital, but I could also imagine some kind of enterprising, you know, Elliot management style hedge fund guy being like, "Hey, there's a bunch of assets that are sitting in this box and the market, you know, the um there's they're trading at a massive discount to NAV and I'm just going to go through the legal system and I'm going to try to liberate these assets and then sell them." Um, and I wonder if we're just creating another version like I You don't have to squint too hard to see the similarities. So maybe you know talk about the similarities between GBTC here, why it might be similar, why it might be different.

>> Sure. Sure. Um I think the biggest um the biggest uh difference is that these treasury companies are not meant to be tracker funds of like the the the price base exposure to begin with. So there's a lack of like fungeability that otherwise was expected of GBTC. So it really felt like GBDC trading at a discount was something that could be broken and unwrapped and redistributed. Um but right now if you do that with strategy you would end up with much less because it's trading at a multiple of it. You would never want to do it. Um so so so that is a part of it um where people's expectation is generally different for what that discount factor is in the arbitrage bound condition for it to not exist. Um the other part too I think is for you to enact that strategy.

I see it more, yeah, as you said, like a lending strategy, a loan to own strategy, the kinds that Elliot's uh and the fortresses would do. Um, and those things can be really expensive. Like there's just a lot of costs associated with uh campaign to actually um go through with those. And you would also have to become a lender. So if you're a Bitcoin treasury company that is trying to navigate away from that outcome, you would just never accept money from those types of organizations. Uh and so you know I think this idea that you can just go buy these stocks at a discount and then run an activist campaign is a little bit misguided. It's it's actually not in my opinion an equity story

because you can't replace really I mean unless you thought you get enough shares to replace the board itself and change the entire governance. the the the better play is actually you approach it as a lender. Uh and maybe maybe to your point there will be some desperate investors who take money from bad uh loan to own type dynamics like the Apollo of the world. Um but but you know then that's your fault. Uh and and you you know you you've exposed yourself to that. Um and uh others I think could imagine navigating that with a with a different mindset. >> Skill issue as they say. Um, >> so I guess like la last last actual question is it's been really uh crazy to see the pace that these treasury

companies are at. I think they bought 1% of BTC year to date and I think maybe it's like you know similar for ETH even though they've been around less. Um, but just at Bitwise I know you guys have like price targets for ETH and Bitcoin. not going to ask you to like you know give us a price target uh denovo but do do these treasury companies figure into your demand forecast and has that demand forecast changed just like seeing how how just fast these are moving? >> Yeah, great question. um we we do try to incorporate those flows into our models and the part that is really really tricky is um we don't know the timing of it and uh and the actual kind of magnitude of it to the extent that it's

still alive. Um you know for example like GameStop has raised $4 billion or so and hasn't deployed it in Bitcoin. If it did it would move it pretty meaningfully and it hasn't. Uh and so there are some aspects of it which you have to handicap for. Um but but there is actually a graph that we put out some time ago where most of Bitcoin's price action is really driven by a supply shock dynamic where there's an incessant price inelastic buyer base that uh is unabiding and um you can almost track that pretty close one to one and the view we have at Bitwise is that these Bitcoin treasury companies are those price inelastic buyers. they're actually probably more price and elastic than the Bitcoin ETF buyers because they've

literally been given the pool of capitals where their mandate is to go by. Um, so I think that sets up very nicely for a very strong price action uh for the second half of the year. Uh, and the other dynamic too is there are uh folks who are actually short Bitcoin on their side of being part of the pipe transactions and whatnot where they're trying to run it hedged. So, if you think about that dynamic where the shorts will have to uncover as the pipes are registered to then go buy Bitcoin, you can imagine there's like a double whammy effect there that could actually lead to something of a of a pretty historic squeeze, if you will. Um, so I think our base target is 200k at Bitwise. Um, that's our official target for Bitcoin. Um, I think it could be

higher. >> That's so bullish. Let's leave it there. >> Hell yeah. Love it, guys. Uh Jeff, really appreciate you coming on. >> Yeah, thank you so much. This was so good. >> Where this was super fun. >> Where can folks, if folks want to find like follow you on Twitter, find out more about the work that you're doing at Bitwise. What's the best way to get more info? >> Yeah, I'm pretty active on Twitter. Um my handle is DGT100011. You can catch me there or uh you can find me on one of the many Bitwise events throughout the country and the year.

>> Hell yeah. All right, Jeff, good to see you, man. Thanks for coming on. Thank you. Thank you. >> All right. [Music]