The Bitcoin Treasury Playbook With Tyler Evans & Josh Solesbury

Transcript

Do you see these popping up in every single country or nation or geography where there's no Bitcoin ETF? I do. I mean, six months ago, I would have said, "Yeah, we'll we'll see a handful of them start." Now, at the at the rate they're coming, I think we're we're speedr runninging this playbook. I think we're going to have one in in every single capital market in the next 12 months. This episode is brought to you by ZKSYNC. Join the Elastic Network today at zksync.io/mpire. Thanks to ZKSync for making today's episode possible. I wanted to take a moment to tell you about Focal by Falcon X, the AI powered insights engine built for institutional crypto. By leveraging AI, Focal empowers institutional investors to streamline research,

anticipate market shifts, and make sharper investment decisions. You'll hear more about Focal later in the show. Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Block Works. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds or projects discussed. All right, everyone. Welcome back to Empire. A very interesting episode coming up. I think we have received more questions about this topic than any other topic uh right now. uh there's all of these uh let's call it

micro strategy lookalikes happening and we saw this with Bitcoin related companies now we're seeing it with Salana related companies companies like Soul Strategies now we're about to see what the long tale of assets so brought on the two smartest people I think in this space which are Tyler Evans um CIO of UTXO one of the co-founders of BTC Inc. uh board member of MetaPlanet, uh co-founder of Nakamoto, a whole bunch of other things, and then uh Josh Sbury, who is an investor at Parfy. So, Tyler, Josh, welcome to the show, guys. Thank you. Awesome. Awesome to be here. A lot of fun stuff for us to talk about today.

Yeah. Yeah. Pumped on this. Um quick housekeeping. Uh we are now less than one month out from permission list, June 24th through 26th. Get your ticket. Empire 10 is the code. Um all right. So f first I think we can't talk about um this topic without starting with micro strategy right the 800 pound gorilla in the space. So maybe um I would love to just start high level on this topic. Um I don't know if this is a question for Tyler or for Josh either you guys can take this but like why is this working and why should what what did what did Michael Sailor do here with Micro Strategy that was so innovative and how did he how did he kind of kickstart this and figure out this capital markets play here? Uh yeah, to to zoom out with with

Sailor specifically, you know, obviously the wrote wrote the playbook here, the uh the champion, the the 800 pound gorilla. Um I think you know what what he did was really innovative in in a couple things. First, he was very early to take this leap uh when it was not a consensus trade like it's starting to be today. when it was much more uh risky when he was really the first first public mover from the US markets and and uh you know was willing to take the leap kind of bought into Bitcoin intellectually had some um great folks around him kind of educating him about Bitcoin uh and saw you know the the potential of Bitcoin as an asset class but really as a transformative tool for

micro strategy and and there's a whole history to unpack there but with micro strategy kind of being like a a a baby of the.com bubble like writing the early internet days to a massive valuation uh you know what made sailor worth billions on paper like uh in the in the do crash and really how he tried to re reinvent that company um uh over the years and you know I think what what really got the flywheel started for micro strategy was or strategy today you know his his courage to be the first mover but really he identified the need in the US market in this era prior to the Bitcoin ETFs when there was no uh real way for

institutional allocators to express uh Bitcoin view bitcoin exposure um in terms of any sort of regulated exchangeraded product. I mean, you had GBTC live at the time and you had some of the European ETPs, but where where, you know, he was able to accumulate enough Bitcoin on the balance sheet of strategy that it effectively served as a as a Bitcoin proxy, a Bitcoin ETF, uh, in those early days to kind of get the flywheel started for him. And I think you know as he's grown the model as he's evolved the model uh as he talks about it today really the beauty of the model that he has has uh discovered and and capitalized effectively on is how to

take um Bitcoin uh you know as the commodity uh instrument on the balance sheet but not just be selling onetoone Bitcoin exposure to the street instead to be able to effectively securitize that Bitcoin into different financial products, financial rappers, um that appeal to different institutional allocator pools, whether that's the fixed income market, the convertible bond market, uh you know, pensions, insurance funds, folks that even with the spot Bitcoin, even with it being easy to to to buy direct Bitcoin exposure, have no mandate or no ability to access this asset class as you know,

the best performing asset. over the last decade, but who want some some exposure to this trend. And so with with strategy, he's able to package it up and kind of securitize it all those different riskreward tranches um for institutional capital pools. Micro strategy aside actually like why is this even an interesting topic? I mean you guys at Parfy one of the best investors in the space. You could be doing you could be investing in a myriad. You could do tokens early stage, late stage, all these other kind of things. Why are you guys so excited about this kind of treasury strategies play and why should Empire listeners care about this? No, it's a great question. Um, I think there's there's two answers to that. The

first is, you know, we see strategy and and all these other vehicles um as part of like Cambrian explosion uh in the public markets where it's what we call reverse tokenization at Parfi. So, it's tokens coming into the public capital markets in all sorts of instruments. And it's it's pretty like insane if you think about it because, you know, Micro Strategy has been around for a while, but it's really in the last nine months where we've now seen all sorts of instruments from like the prep market to the convertible note market to, you know, equity to pipes like have crypto exposure. Um, and so, so I'll give you some stats on the magnitude. You've had from this January to May roughly 40 companies uh raised capital to have some

type of crypto asset on their treasury uh in their treasury on their balance sheet and that was roughly 17 billion in capital. Um so you know pretty pretty big size. you know, Micro Strategy alone um has issued like six in in six billion in converts and then like another 18 or so. Um yeah, I think even more in um equity since the 2121 plan was announced. So really big numbers is kind of the first thing. Um and then you have these like sleepy markets quote unquote kind of being disrupted by Bitcoin, right? You have the prep market which used to have a wall of like I don't know five or something and now he's trying to deliver an uh for them. You have the

converts. I think micro strategy might be the the largest single convert issue of all time. Um which is crazy. So basically to sum off that first point it's the magnitude of disruption of the capital markets is very interesting to us at Pari where you know you can find fascinating opportunities uh and you can scale them as well because public markets more liquid. Um and then the second is uh you know what's really interesting to us personally and it's actually how I met Tyler and David a while back with the GBTC uh trade is we believe that you can construct a like Bitcoin plus return profile with these instruments where I can engineer you know Bitcoin performance on the downside and then superior performance Bitcoin on the upside um through the right

structure and then kind of entry point from a from an ad standpoint and that's that's super attractive because if you think about it Bitcoin was like the best performing asset, you know, basically every year for the last 10 years. Like there's like one or one or two that that that was an exception. Um so the ability to engineer uh that you know quotequote Bitcoin plus performance is very interesting. Can you can we go deeper on that actually? Um because so um you know I'll pull up this chart. This is just Micro Strategy and and Bitcoin and you can see that Micro Strategy has outperformed Bitcoin. So Josh tell me more about this asymmetric Bitcoin exposure. um both from the angle of how this happens but also why this happens and maybe the uh folks who haven't gone

too deep on micro strategy are asking one simple question which is why can't I just buy why are people buying Micro Strategy why don't they just buy the Bitcoin ETF from Black Rockck or why don't they just buy Bitcoin in the in a Coinbase account or something like that so walk me through this chart there's there's a couple of factors at play but at a very high level to what Tyler said it's the sailor's ability to kind of captivate the capital markets to kind of slice and dice, you know, Bitcoin exposure in different ways and basically through capital structure arbitrage create a a juiced up return on Bitcoin.

Um, is why you see this? It's so in finance, you have this this term, I think Jeff Park spoken about it too, who's who's a great thought leader in this. You have it's called torque and basically like capital structure engineering. Michael Sailor has applied Torque to to Bitcoin performance whereby he can get it to outperform when things are going up because to kind of what Tyler said is you're you're taking on these other parts of financing, but what you're doing at the bottom is you're increasing the amount of of kind of Bitcoin amount of Bitcoin value per share. Um, and as long as your premium is kind of staying at a certain range, you're you're effectively able to create value through that. Um and so when you take a step back like why why aren't

people buying these instruments like why can sailor do that or or you know other companies why are they doing that the reason is and I believe is these instruments are very volatile um and it's this underlying volatility of bitcoin that kind of perpetuates upwards and if you can package that volatility in in an appealing way you know kind of debt investor wants wants it in some way a prep investor wants it another an equity investor wants a lot of it in in in a different way. But if you can package that um and effectively monetize it, which is what you kind of hear when people talk about micro strategy, uh you're able to kind of bring in that capital at a premium to the nav. um and therefore kind of able to grow this

Bitcoin stack in in a less dilutive way and effectively that's the engineering that you're seeing where now that I have more Bitcoin per share when Bitcoin goes up and and my premium over it is is high as well I'm essentially outperforming uh Bitcoin. So if he didn't have any of these capital market instruments like it would be very hard to generate this this outperformance. I don't know if you would add anything to that Tyler. I I think I think that's pretty spot on and you know the the phenomenon here that Sailor's able to achieve um because of this premium is like that that positive growth in Bitcoin per share or you know colloally called BTC yield um in in the strategy and investor circles.

And so, you know, if you look at at buying a Bitcoin ETF, you know, if you if you buy it today, you have one Bitcoin exposure. You actually have like uh.99 Bitcoin exposure the next year because you've got fees, custody, you know, your your Bitcoin balance per share of that is actually decreasing over time. where with strategy they're able to capture this arbitrage, issue convertible bonds, add leverage in intelligent ways and where Sailor has a track record of making the Bitcoin per share go up over time rather than down. And so, you know, public market investors apply, you know, a multiple to that growth profile of how quickly he's growing the Bitcoin on a fully diluted basis and because it's growing, they are

valuing it at more than one Bitcoin today. You know, I was going to add like a really simplistic example which I think you know helps I found helps folks kind of see this is you take a plain vanilla convertible note that's uh has a strike that's at a premium to the stock. So zero interest like no no bells and whistles and you know people have been buying these 0% interest convertible notes which is crazy as well if you think about it. But let's first start with why does that amplify the you know the Bitcoin uh uh yield is because you're effectively selling equity at a higher valuation because it's eventually going to come and convert ideally and so you're taking that money you're buying Bitcoin today and you're exchanging it for less dilution uh because it's not at today's share price but it's at future

much higher share price and so right there you're taking money in you're buying Bitcoin but your share count is decreasing at a kind of lower you know dollar impact Great. Um, and that's exactly like what that torque and and that that Bitcoin yield growth is. But the flip side is why why am I buying this as a convert investor? Well, because the volatility is so high, the kind of right tail of the stock's distribution is wider. And so when you value convertible bonds, like a very simple way is you take like the bond component and like the call option and that call option becomes a lot more valuable because of the volatility. And so then you're kind of, you know, you're willing to pay a premium for that instrument.

This episode is brought to you by ZK Sync. In 20124, ZK Sync took a step toward a multi-chain future by transforming from a single L2 into an everexpanding network of ZK chains, the elastic network. To onboard the whole world into crypto, many specialized chains must be able to coexist, work together, and share liquidity. Institutions and global financial leaders choose ZKSync for unmatched security, scalable infrastructure, better onboarding, gasless transactions, and privacy first design. Join over 20 chains, including Abstract, Sofon, and Kronos in the elastic network. Today, behind ZKYNC is the ZK stack. It is a one-stop platform for building private

blockchains on Ethereum. The stack solves all the typical privacy, regulatory, user experience, and deployment concerns of blockchain without compromising performance or security. Join the Elastic Network today at zksync.io/mpire. Thanks to zksync for making today's episode possible. I wanted to take a moment to tell you about Marinade, the platform connecting Salana holders with the best staking rates on Salana. Marinade unlocks a high-performance staking delegation platform that brings billions in liquidity and security to the Salana market with solutions for both individual traders and global institutions from both DeFi and traditional finance. Use Marinade to earn rewards on your Salana treasuries

and holdings. Optimize your Salana staking with Marinade's bestin-market features, including user downside protection through protected staking rewards and optimize delegation via Marinad's automated auction marketplace. To learn more about Marinade, visit marinade.inance or click the link in the show notes. As always, investments in blockchain technology involve risk, terms, and conditions apply. Josh, there were two words that you said that I want to dig into. one was arbitrage and one was captivate. How much of this is driven by financial engineering and what you just explained and uh the ar the arbitrage right the financial side of this how much of is

this is uh of this is driven by the captivate word which I'd largely bucket as Michael Sailor is probably the best marketer for Bitcoin in the history of Bitcoin so how do you how do you think about that and Tyler maybe same same question to you I'm curious how you guys think about that I'm willing to say that I think a large part of it is captivating candidly I I think having that that ability to storytell is something you know critical we look for it when we're assessing other other opportunities and the reason why is in like a steady state you're effectively convincing folks to kind of buy Bitcoin at a premium right um everything else aside like pure steady state when we're financing and I think the ability to to convey what I just said in a much more

effective manner and to tell a story and to say look this is why you should pay me a premium today because of the yield that's generating in the future is is a big part. I think you know putting my venture hat on storytelling is always a big part and I think for this especially uh sailor's communication skills and his ability to to explain things like his recent quarterly earnings deck has so many fascinating slides really well done um to to me that's that's a big part of it. Tyler curious what you would say. Yeah, I mean I I agree on the marketing side in terms of arbitrage, you know, uh there is an arbitrage component, but rather than pure financial engineering, how I would really characterize it is that that you know, sailors identified a

true supply demand imbalance um in the market where there's demand for fixed income investors who want Bitcoin exposure and there's no supply of products that can can service that demand. uh but before strategy started in issuing those instruments and so he's identified these arbitrage or supply demand imbalances where the market is looking for a product like this he's in a unique position with a massive Bitcoin balance sheet to be able to to create a financial product that services that demand and because there's a supply demand mismatch he gets preferential pricing on that which he converts into more you know equity more Bitcoin for that for the common stockholders and Tyler these are You're referring in that

sense not to Micro Strategy the stock but STRK and things like that. I mean I am referring in some categories even to the common stock where there's you know index funds, sovereign wealth funds, other buckets of capital that want Bitcoin exposure that by mandate can't buy an ETF. So he services that need but he was very forward looking to identify the the convert our folks the fixed income investors where they had different needs that he was able to craft a product to to fit that market. One really small thing if you look at his most recent deck towards the end where he talks about like Bitcoin credit risk and and trying to explain that you know with the right engineering you can

engineer an investment grade uh debt instrument. I think you kind of can see where he's trying to go next. Personal speculation. Um, if we can bring a Bitcoin related product to the, you know, large institutional grade debt market, I mean, that would be an accomplishment for the industry and like very fascinating for those guys who can kind of get this volatility package in a way that they can digest it. Yeah. Can we talk about the similarities and the differences to Grayscale? And specifically what I'm referring to is the obviously the the Grayscale NAV premium discount in 21 and 22 and 23 and then obviously uh you know it kind of compressed to zero with the with the

ETF. But how do you guys think about that comparison? There is the comparison there. Uh Josh and I both worked deeply on that trade um for for the course of years. So um wait, can you say more about what it what it means to have worked deeply on that trade? like you were just doing that trade in size or what does what does that actually mean? We were doing this trade in size on on both ends of it. Um you know I think it's public now. We we led a little bit of an activist campaign around forcing the conversion to a ETF gray scale. Um we we uh collaborated with a number of number of funds who were saw the same opportunity we did that eventually you know it would

convert to an ETF and and go to zero. So a product we we knew pretty well at the time. Um you know I think the the strategy stock taps into a similar supply demand uh imbalance in the market which is why GBTC traded at that massive premium for so many years. The key difference here is that instead of you know that you know the it being a trust product where only outside investors can can create shares and capture that arbitrage which funds like ours were doing instead now with the the corporate issuer model. The company is the one who can issue new securities who can capture that arbitrage and and turn it into shareholder value. And so the mechanics

of it are are very different, but it it's created because of a similar, you know, demand for institutional grade Bitcoin exposure um that both of those products were able to service. Yeah, I guess the one thing I would add is my theoretical assumption and there's been an active Twitter discussion between I think it was was actually David and Jeff Park about this. My assumption would be on the the discount case. You should be able to to sell Bitcoin and buy shares back. So there's like a better mechanism of of coming to NAV. Now whether you know CE wait Josh you're saying if the premium drop just make sure uh because if the premium drops below NAV you're saying should

this is about the conversation around should companies sell BTC or soul strategy sell soul and repurchase shares in that scenario. I I think you that would close the nav and that makes sense. You know, Grayscale couldn't do any of that type of activity. Uh um right the question is will a CEO want to do that right there's some people on the ideological side that maybe you know really are positioned around kind of stacking Bitcoin but I think there's an interesting argument to say that from a Bitcoin yield standpoint what Tyler said it actually would be accreative in that case to sell a bit of Bitcoin and buy shares back. Uh, so you are delivering Bitcoin yield even though you're reducing your Bitcoin stack. But, you know, some folks maybe don't don't want to be selling any Bitcoin at all, which would create a fascinating uh

opportunity set for folks like Tyler and myself to then, you know, try and get into those names and see if you can kind of drive it back to to a a premium or to NAV. And then the other thing is maybe in the future you actually see acquisitions between treasury companies, right? It's like if there's a stranded treasury company trading at a 06 dab, instead of me raising money to buy Bitcoin, why don't I do like stock for stock merger and just suck in all that Bitcoin into my balance sheet. So maybe that's the future. I don't know, but it'd be very interesting. Yeah. What kind of assets are good for this? So obviously Bitcoin, Bitcoin is good for this um for this type of structure.

What else is good for this? I think there's a limit. This is my personal opinion. I I you need an asset that has uh size underlying wise to be able to accumulate. Um it needs to have recognition and and quote unquote, you know, trust in some sort because I find it hard to engineer or to convince uh folks to kind of, you know, bring money in in like the convert market or prep market if it's like some random longtail asset that no one knows and it's like moving all around the place. So I think there's a natural limit to this. I I do see an exploratory opportunity to do this with a couple other assets um because they have the vault profile that's actually higher than Bitcoin and

they have, you know, an underlying uh a market cap that can digest kind of large purchases. But I I I I think candidly it's a it's a bit of a a sign of froth in the market perhaps when you have all sorts of longtail assets trying to kind of come to market and engineer their own micro strategy because I just I struggle to see the a the sufficient kind of demand in the capital markets for you know the 58 brand of token micro strategy but there's a bunch of these right so Tether Soft Bank and Jack Mers launched 21 um they're now the I just saw this article um right before this which is they're 21 is now the in in third place quoteunquote among you know corporate

Bitcoin holders uh behind strategy and Mara um obviously your co-founder uh David Bailey I'm I'm guessing you're you're working on this you're working on this one too which is Nakamoto um I think you helped start this one too so you guys raised a $510 million pipe I don't know how much I know this is like a live deal so I don't know how much you can actually talk about this one Tyler but Maybe Tyler, if you could just walk me through how you think about these. To me, they're like it's uh it's micro strategy or it's strategy copycats, but I don't know if these are all and which is fine. Like there's room for more than one obviously in the world, but I don't know how like what's the what's the strategy behind this, you know? I I do think there's room for more than one.

We're already seeing that a little bit with with strategy in terms of kind of how they've tapped out the uh convertible bond market where a lot of convert buyers, you know, the the the institutional funds who are the end buyers of these products have risk limits where they can only have so much percentage exposure to one company or be so much of a on the cap table as a shareholder. And so we already see strategies starting to hit some of those limits. I know there's one big institutional fund that owns 10% of strategy and every time, you know, Sailor issues more equity, they buy up to that. They want as much as they can buy, but they're they're capped out at 10%. So now they've got some more vehicles to um offer that same same viewpoint on Bitcoin through. I think

we're starting to see um a lot of differentiation with the market and you sailor Sailor's done a masterful job. there's a lot of you know levers uh nuance in terms of how you can approach this market like with what 21's doing you know obviously with what we're doing with Nakamoto um which which is a whole spectrum of things piece of that is you know on the operating business strategy has a software business 21 is a peer play uh Nakamoto uh is exploring some operating opportunities and then in terms of you know the the leverage the types of bond fund or um convert or prep instruments, you know, how much leverage and how you apply that on the balance

sheet. There's a whole variety of approaches there. And then there's also the question of what do you do with the balance sheet and and uh you know, Sailor um to his credit has a very firm conviction about uh you know, never sell your Bitcoin and uh keep it in cold storage, max transparency um uh which the market has loved. But you know now there's a whole variety of things you can you can do with Bitcoin. They all come with different risk return profiles. There's ways to generate inkind native yield on on Bitcoin um through let's say onchain activities or lending or you know um uh working with that asset on your balance sheet within

the market. And I think you're going to see some differentiation in terms of approaches there. how how active folks are with the balance sheet, what types of leverage or debt instruments they issue, and then what you know what's the core business or do you have one at all? Does it matter? This episode is brought to you by ZKYNC. In 2024, ZKYNC took a step toward a multi-chain future by transforming from a single L2 into an everexpanding network of ZK chains, the elastic network. To onboard the whole world into crypto, many specialized chains must be able to coexist, work together, and share liquidity. Institutions and global financial leaders choose ZKYNC for unmatched security, scalable

infrastructure, better onboarding, gasless transactions, and privacy first design. Join over 20 chains, including Abstract, Sofon, and Kronos in the elastic network today. Behind ZKYNC is the ZK stack. It is a one-stop platform for building private blockchains on Ethereum. The stack solves all the typical privacy, regulatory, user experience, and deployment concerns of blockchain without compromising performance or security. Join the Elastic Network today at zksync.io/mpire. Thanks to zksync for making today's episode possible. I wanted to take a moment to tell you about Marinade, the platform connecting Salana holders with the best staking rates on Salana. Marinade unlocks a

high-performance staking delegation platform that brings billions in liquidity and security to the Salana market with solutions for both individual traders and global institutions from both DeFi and traditional finance. Use Marinade to earn rewards on your Salana treasuries and holdings. Optimize your Salana staking with Marinade's bestin-market features, including user downside protection through protected staking rewards and optimized delegation via Marinad's automated auction marketplace. To learn more about Marinade, visit marinade.inance or click the link in the show notes. As always, investments in blockchain technology involve risk, terms, and conditions

apply. I want to nerd out for a second. How do you actually start one of these? like how are they structured and how do you like I saw this um so again Tyler I don't know how much you can say but like my understanding is you start a you start a holding company essentially and you probably seed it with like I don't know five or 10 or 20 million bucks then you go raise a couple hundred million and maybe some of that is equity and maybe some is debt something like that and then you got to find a public shell company and then you do some sort of pipe reverse merger type of finagling and get the get the public shell company and then and then now your holding company is public. Uh so now you trade publicly and then you just start using

all that capital that you raised to buy a bunch of Bitcoin. How did I how did I do there? I think you're ready to start one. You got it. Done. Block the That is one route, you know, with with Nakamoto. Uh we we charted a path that's very similar to that one. Um, we're actually seeing a ton of diversity here too though in in terms of approaches. You've got folks who've gone the spa route like uh 21 uh you know merging with Caner Equity Partners. You got folks like Metaplanet who was an existing listed operating business. you know, they were a hotel company um where they already had a balance sheet, owned some hotels, um but needed a new lease on life and so they just raised an

equity round uh into the existing listed company to kind of kickstart their Bitcoin journey. Um we're seeing reverse mergers. We're seeing some folks go the IPO route. you know, we're uh investors and I'm on the board of the Sparter Web Company out of the UK, which IPOed two weeks ago, three weeks ago uh on a stock exchange there who's able to do, you know, a direct listing or an IPO into essentially a a holding company just for the Bitcoin treasury strategy. Um so folks are getting creative with it. It's called the Smarter Web Company, SWC. Is it this? Yep. Yep. And this was a web design agency, it says.

Yes. Okay. Web design agency turn turned Bitcoin treasury company. So, okay. So, Okay. Tell me more about this. So, you find a web design agency and I'm guessing they're not doing too well. Like MetaPlanet maybe not doing too well as a business and they're like, "All right, we either shut it down or we pivot and become a Bitcoin company." Like, were the smarter web company f are the smarter web company founders involved? Are they done? Did you buy the company? Were they Bitcoiners? Like maybe tell me a little more about this. Yeah. And in terms of the the backstory there with Smarter Web, you know, I I got to know uh the CEO Andrew um you know, probably about a year ago, we started talking about the opportunity for a micro strategy in in the UK

market. uh where he's based, you know, his background is in the the tradey world there with one of the large um online brokerages and he was a a strategy investor, big Bitcoin investor, knew the playbook. So, he wanted to start a pure play Bitcoin um company for the UK market and and basically go the UK go the IPO route um in the UK. And you know, as he navigated that listing process, um some of the regulatory components, it became clear that it was going to be easier easier to IPO the company if it had an operating business outside of just a balance sheet. And so um he ended up folding in the web

development company that he he'd run um for the last 10 or 15 years uh as a part of that transaction to get it public. But the the focus and the vision was always around how do we build a a Bitcoin treasury um in the UK and and you know this listing path the the web development company were just around to accomplish that end. Yeah. Do you see uh do you see these popping up in every single country or nation or geography where there's no Bitcoin ETF?

I do. I mean, 6 months ago, I would have said, "Yeah, we'll we'll see a handful of them start." Now, at the at the rate they're coming, I think we we're speedr running this playbook. I think we're going to have one in in every single capital market in the next 12 months. So, yeah. I So, I was after So, we had D in March and I we had a dinner one of the nights and I sat next to to Sailor and he's like, "There will be a micro strategy in every country in the world in 12 months." And I was like, "12 months?" I was like, "That's ridiculous." And uh I mean the rain is happening. It's going pretty. You might be right about that per usual. So um Josh, how do you think about structuring these deals?

No, it's a great question. I mean, you know, there's there's different entry points, right? So we we started the episode with strategy where it's already public company size. Uh these are very uh kind of elaborate processes of building an instrument whether you want to raise a billion plus from. So I think that that's separate bucket. Um where you know Tyler and I have have kind and I have rolled up our sleeves and and have worked together things in the past and you know definitely kudos to Tyler and David on on doing this you know with MetaPlanet and several others. Uh is you know smaller opportunities where they're still private or they're just public. Um and here you have I think a lot more room to be creative and you know our objective as an investment firm is to

provide the best like riskadjusted return for our LPS. And so what we'll do is we can look at you know the different instruments uh that that we can arrange to essentially build that uh bitcoin plus uh return profile. And so what generally is at disposal for kind of folks like color and I is you can come in with with a straight equity investment. You come in with a convert. You can add warrants. Uh you can put a put put option on that convert. So I can essentially uh fund the convert into like bankruptcy remote SPV and hey if things go really bad I can I can bring I can redeem my Bitcoin and get it back.

Um which you know that's true Bitcoin performance downside. Um or you can maybe do something on the equity side but you say look if we work together you have someone like Tyler adding value on your board probably get some warrant kickers uh where if this thing gets to a certain level we get more equity at kind of a fixed price. Um, and what you're effectively doing there is you're you're you're finding ways to kind of reduce that downside, increase that upside, and build that asymmetry. Like I think that's that's the ideal uh uh mindset to kind of go into these. Uh, now you have to be careful because, you know, there's a lot of moving pieces. Like sometimes when we're looking at these before they're public, you you probably want to

consider like, okay, like what if they can't go public or like what if macro just completely changes? So there's there's probably another put option in there on hey if the if the company can't go public um you know we we we get uh you know Bitcoin on the downside for example. Um, so we're we're actively trying to think through these, trying to work with these founders on these. And then also just, you know, what really helps is when you have a founder sitting across from me that has some capital markets experience, it's it's much smoother because you can like think about, okay, not only how are we structuring this round, but how should we think of future capital, you know, issuance? How do we want to make like a a standardized kind of path to to going public? because you don't want to do

something very wonky at the first round and then no one else wants to kind of you know either take it public or come in after. And so I think that's when you know having folks like like us or or or Tyler kind of being able to just sit with you and like explain how we've seen these in like 15 other markets should hopefully be be of assistance to to these founders. Um probably a dumb question, but you you're you're seating it and then you're getting warrants. you're essentially getting this nice call option on the company, but if they're not able, feels like there's two bad things that could happen. Either they can't list, in which case I'm assuming you just build in these like provisions where you get to reclaim you get to rec claim the assets that you put in. Um whether that's in Bitcoin or or

in just US dollars or they trade and for some reason they trade below NAV or some something like that. they actually can list, but then something bad happens and then I'm assuming you build in yeah some sort of again clawback or put up puts or whatever it is. Um if it feels like a good deal as an investor or what am I missing there? Our objective is to try to get the best uh risk adjusted return possible. So, you know, I want to get as close to a uh heads we win, tails, we break even scenario. Uh again, in Bitcoin denominated terms, right? So, there are most of the capital in the world is dollar denominated. For Tyler and I, it's a little bit easier to wrap our heads around, but for other folks, and I've seen this in rounds, they're

like, "Oh, I can't put money in this because what if Bitcoin price goes down?" And it's like, we're we're we're afforded the ability to not have things. So, they're still thinking in US dollar terms. I see. Correct. Right. So that's your that's almost your edge is that you think in your Bitcoin denominated. Yeah. Where this is coming like the pool of capitalist is coming from internally at our firm is is our Bitcoin pool and and so it's you know how can Bitcoin plus return on that pool and and I have seen friction with other investors who come in from a dollar standpoint. You know sometimes they can't hedge the Bitcoin side or like they're just very worried. Um and so you know they could lose in that scenario. And I think you kind of alluded to, you know, one of the other risks is once this is public, you know,

it can be it can be volatile. Maybe they they couldn't quite engineer like a a sizable volume or float that you might be actually very liquid and your ability to get out might be harder. So we try make very sure that we can you know derisk these scenarios and work with founders uh to kind of make the process smooth and uh I think we can get close to that heads we win tails we break even and the founder does as well like we're generally kind of first money in or or sometimes right right after right after Tyler uh and we're coming in at the ground level with these these founders so we're all aligned on creating a a successful outcome and one that can essentially provide institutions and

retail that market with Bitcoin exposure in a better format than they can currently get right now where you know it could be restricted it could be disadvantageous from a tax standpoint so ideally bringing Bitcoin exposure some of these foreign markets is it's kind of a nice objective to have you know I'm going to pull up this tweet so uh this is Dan what is Dan's name Ardle I think he's one of the co-founders of Misari OG Bitcoiner um and uh so there's this news as we're recording this. Basil Medical Group, BMGL, announces plans to acquire a billion in Bitcoin. And Dan goes, "Uh, look, this corporate treasury stuff is annoying and it's probably going to end badly at some point. I wish it would stop. Let this tweet serve to disprove

all the statements we'll get from journalists to the effect of quote, "Bitcoiners all praised the corporate treasury strategy and now it blew up on them." Haha. Um, what would Tyler, what would you say to Dan? And really I'm asking a question about kind of the risk of the risk of all of this whole strategy. Yeah, I think I think Josh put it very well in terms of how how we try to structure these to to avoid uh as many of the risks. I think you know from my perspective the main risk here uh that that's going to come is really with the use of of leverage or converts by um these companies. you know, uh, strategy can issue them at very favorable terms, but where you've got companies, um, as

we've got more in the playing field trying to speedrun this playbook that take on excessive leverage, and we saw this with the public Bitcoin miners in the last cycle to the exact same disastrous in some cases effect, but take on take on financing on predatory terms, take on too much leverage, they actually encumber their Bitcoin, um, which strategy doesn't do, you they have the luxury of issuing just straight common corporate obligations where um Sailor has every option in terms of issuing more equity, refinancing the debt, servicing it from the cash flows of his software business to um to pay down that liability. But where companies actually will encumber their Bitcoin or

put it as collateral, there's a lot of ways that you can add risk that will probably end badly in this cycle. um for those that get out over their skis. But I push back on on Dan a little bit in terms of like uh this being good for for Bitcoin. This is like a um a vehicle that's really served to onboard uh you know uh billions of dollars from trady institutions into Bitcoin. That's made Bitcoin accessible in their portfolios. that's made them uh ask the question, get their investment committee to learn about whether they should have a position on Bitcoin. Um and and where like we mentioned Sailor's one of the best spokespeople and marketers for

Bitcoin. So yeah, I think it's a net positive for the space. I think uh people are going to have to take on more and more risk as they try to catch him. Um and that's where I would I would buy or beware. Yeah, I think that last sentence is spot on, which to me it feels like what's going to happen is there's going to be a lot of really legitimate things that happen here and that come very legitimate players who come into the market like Jack Malers's thing or Nakamoto or Meta Planet or um the London one that you're doing. I'm blanking on the name right now. So, there's going to be all these legitimate players, but the more players who come in, the more risk you have to take on.

It's like um it's like when we had uh you know one lender in the industry in 2020 and then or 2019 and 2020 and then you get you got BlockFi and then you got Nexo and then you got Celsius and then you got Genesis and then they're all trying to compete with each other. So they start offering better rates and they push the terms out further and then they start trading their own book and then and then it blows up. And so it feels like what will happen is you've got these pretty legitimate players now. But, you know, when the 65th Bitcoin treasury company comes into the market, I actually think there's a idea today that a lot of the companies run hot, um, they're actually pretty low leverage from what I understand, but eventually as the six the 65th company will run hot and will take on too much leverage.

Um, anything else that you guys think is like misunderstood about this strategy? Well, I think, you know, for us, the the biggest thing, you know, is just to understand what you're buying from a from like a a Bitcoin perspective, too. Like the what we call the MNAB multiple, like what what the market cap of the company is divided by their their Bitcoin stash in dollar or euro terms. Um that is kind of like the key valuation metric that investors like me and Josh are are very sensitive to. uh but those uh so we're we're very sensitive from that on the private side as we're structuring these deals on the public market side especially on things

that are newer lower liquidity higher volatility. So we've seen some of these companies trade at a 10 to 20x uh valuation of their Bitcoin stack. And so if you're out shopping these on Robin Hood like uh you should understand that metric. Know how much Bitcoin is behind the company. you know, how much you're paying for $1 of Bitcoin on the balance sheet. And if you're paying 10 or 20 bucks, uh, maybe that's not a good deal. If you're paying two or three dollars and they're growing it 100% a year, maybe it's a fantastic deal. Josh anything?

I would add just, you know, there's there I think there's a bipartation over time of sound operators who have a very something we look for like a really deep understanding of capital markets. um who understand right now it's a great time to raise but like they're being very thoughtful about how they do it and then those that kind of chase they see the narrative and I think execution will just become very difficult because you know there's there's small things you know as a smaller operator you probably don't realize but you know micro strategy can strategy can issue STRK because in the worst case they have such a robust ATM program such great volume that they can issue your shares, bring capital in,

finance the the prep dividend. But if I'm like a small operator and I was just looking at the deck and thinking I can do this, you're going to you're going to run into some some serious problems. Uh because there's an advantage to, you know, some of these more shrewd operators, some of these bigger companies where their access to capital markets, um and their quote unquote like mo allows them to get financing from many different areas. uh and you kind of start to behave like them but you don't have that access to financing uh it could be a a perilous result. So definitely want to underscore like the thoughtfulness on capital market side um as something really important to look for when you're you're assessing uh

folks that are trying to build strategy out. Yeah. And I don't want to uh dance on any grapes, but we've already seen one company that's uh run this pretty disastrously um in the US capital markets where they were selling uh ATM shares in the market below a a one asset value like at a discount where they took on a lot of leverage and encumbered their Bitcoin and that's been in a death spiral. So that that is something that that could happen here. I I don't want to celebrate any anyone's demise, but yeah, just those are the risks that come come with this strategy.

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Learn more at askvocal.com, or check the link in the show notes. Thanks to Focal for making today's episode possible. As always, investments in blockchain technology involve risk terms and conditions apply. Let's pivot from Bitcoin. And this is I think where you guys I think you guys have agreed this whole episode. Maybe you guys start to diverge here because I I I Tyler I get the sense hardcore Bitcoiner. Um probably very focused on the Bitcoin strategy. Josh, um I'm not I'm not saying you you're pro doing this with the long tale of tokens, but maybe you guys are a little more comfortable doing it with non- Bitcoin assets. Um, how does this work, Josh, with non non- Bitcoin assets like someone like a soul strategies? Is the

uh or we don't have to talk about soul strategies specifically, but non- Bitcoin assets, is it the exact same playbook? Is that is anything different? There's there's there's a lot of similarities. Um, again, we we apply the same rigorous framework, right? It's like what is the structure? How are we, you know, get how are we investing in this? What is our plan from a capital formation standpoint? How high quality are the operators? um a lot of those similarities uh prevail. I think the biggest difference that yields about there's probably two. One is you know public markets access to these other tokens might not be there at all like there is no sole ETF. Um so maybe that's an argument for hey there could be retail interest in this. Um the other one is uh the yield from a POSOS asset

uh is interesting because like effectively you kind of can have more accretion because you're you're not only stacking but you're getting more assets because you're stacking and it kind of compounds a bit. I think there are folks in the institutional side that are interested in that. um and you can maybe create some type of instrument where that's used to pay the the dividend or the interest versus having to sell your assets in a in a negative scenario. But uh look, I think it really is like a similar story. It's a different story to like Tyler's earlier point where there might be some funds out there that like like Salana or Ethereum and they say, "Okay, I've got my my Bitcoin uh set of of treasury plays. like let me add one

of these because it's maybe higher ball and a little bit higher up on the risk curve or the piece of paper that they gave me has this interest component from the POS staking and so they they may go in and um want that exposure. Uh so I think there's a lot of similarities but those would would be the couple of the differences that come to mind is public markets access to these tokens and um the nature of staking and those cash flows and how they might affect the profile of of instruments you can issue. I've talked to a lot of like L1 and L2 founders recently um who are like oh I need a I need a public entity to go start buying my tokens basically um and they're doing it and there's basically like services now they're they're

bankers and advisers who are putting together these deal it feels like uh you know the new market maker deal it's like yeah I've got a shell company I've got the shell company to sell you I'll put it together I'll take 2% and I'll go help you raise the capital and you know yeah boom we'll get this public public entity live where we're buying your tokens. You know, you insert insert L1 ecosystem. Um, what do you think about that strategy? You know, someone's always trying to sell you something to make money, to make fees on their side. So, I think you have to be really careful of expectations versus reality.

Um, I I fundamentally believe that the best thing, best ROI on their time is probably building like type a really good L1 or technology or an ecosystem. But um where I why I say that is you know you you might get out now when there's when there's some kind of heat in in the capital markets but if this thing turns it becomes more uh fundamentals based and is really looking at you know how how much capital is there how much demand is there uh what are what are the types of instruments being created what does the options market look like how can I hedge this I think all these other tokens start to become extremely unappealing because you can't go and do that. And so that the access to pools of capital

could dry up really fast. Um, and you know that's that's kind of the risk you're undertaking I think. So the appetite in the markets for these assets I I think is you know for these longtail assets is extremely temporal if it's there is my personal take and uh while you might get out the door you know if if markets kind of become uh they change in a couple quarters and you can't raise any more financing then you're kind of just stuck. um and you spent all this time kind of doing that versus something else that had a better ROI for for your L2 or L1. So yeah, my my personal feedback is that I think the demand for these isn't actually there in especially

in the long term and you have to be extremely thoughtful about you know what you want to do with this vehicle because there isn't just infinite demand to like issue ATMs and converts. Uh it is it is finite taking its toll. I think there was like by the way 25 billion in ATM uh of like shelf findings of like stock that didn't come into the market in the last couple months. So like there's a lot of money coming on with these and at some point it gets a little exhausted for that long term. I think it it really comes down to that institutional bit where you know uh I like to say like 24 was the first year of the institutionalization of Bitcoin. So you know Bitcoin's been around a decade

plus. Last year is the year it really started hitting the institutional scene. Uh but to to run this at at scale and long-term and sustainably, you're ultimately servicing an institutional buyer, institutional bid and um where that clearly exists for Bitcoin today, if that exists for the next asset or the longtail assets, uh much more dubious and and probably is too early for that stuff today. And so if there's no institutional bid and there's no um you know convert fixed income, there's not these massive capital pools that sailors figure out how to attack um who ultimately want access to your product, then you're just dumping on retail through the public markets in a highly

scrutinized, regulated, surveiled way um could go poorly. Let's say someone did this. It feels like the most important piece is finding the Michael Sailor. This is the thing that people don't understand is that you can't just run the playbook without a good operator and CEO running it. It's like, oh, I'll just get a a shell company to start buying my tokens. Like boom, voila, token number go up. But yeah, you kind of need this like amazing someone who's brilliant on the financial side and brilliant as a marketer. Um, which is an incredibly tough person to hire. Yeah, we call that the the director of Bitcoin strategy role. And every one of these companies needs a good one. So for for uh MetaPlanet, that was uh Dylanair from

our team. We we put him in place there. He's done a phenomenal job. But kind of being like the evangelist to the Bitcoin community on the podcast, telling telling the story of what you're doing. Um, and if you, you know, just have the financial engineering but not the community, not the excitement, not the narrative, um, not the market presence doesn't translate into the flows you need to get an ATM program or something rolling. So, that's a a very critical piece of it. Not not just buying the Bitcoin, but making sure the world knows uh, you're committed to a long term.

Yeah. Yeah, putting like my the venture investor side hat on. I agree like a storytelling is critical. Uh it's critical to to convincing folks uh not just on the capital side but you know on the hiring side on the regulatory side on the partnership side and uh we see that as well in these public companies too. um whereby just being able to effectively communicate what you're doing, how you're doing it, transparency is is all beneficial. And I think you know my personal view is you kind of see this like phantom premium exist with some other founders of public companies like you know Elon Musk uh or Jensen and Nvidia uh where the way they interact

publicly with folks I think does like in a way that relate to the I'm not going to say that the share price performance but there's some type relationship where I think they can garner a premium because they're they're really effective storytellers and communicators um and you know people do also invest in people side of product. So I think there's there is that element there. Maybe we can zoom back out of like the structure of these things and all that. And I actually just want to hear like the grand vision for all of this. Like questions that have come into my head are um like Bitcoin like just Bitcoin corporate treasury strategies like will all like I think right now the people doing this are end up being um you got these kind of like shell companies.

They're public. They didn't really make it but like what's Apple gonna do with their Bitcoin strategy? What's Amazon gonna do with their Bitcoin strategy if anything? So maybe let's go zoom way back out, go big picture. Tyler, I think I'd throw it to you first. Like what's your grand vision for all how all this comes together? Capital markets, public markets, and and Bitcoin. Yeah. On on a on a long time horizon. Well, I think uh I think the answer is hyper Bitcoinization. You know, it's about Bitcoin uh becoming the the reserve asset. And I may sound like the crazy token Bitcoiner in the room, but you've seen other companies kind of uh tiptoe in into the waters here with Tesla putting Bitcoin on their balance sheet,

Block holding some a number of of companies who are treating this. They're they're not running the same playbook as as Sailor. They're not trying to be a Bitcoin um strategy company. It's purely a responsible uh treasury management strategy where just like Black Rockck is recommending a a 2% Bitcoin allocation in their model portfolios, they're choosing to put some percentage of their cash balance um in into Bitcoin, particularly these these large corporates that have no no productive way to spend the capital that are are just starting new share buyback programs or dividending out of share. it means they don't have any useful way to deploy that capital. Uh so the best thing

they're doing today is just returning it back to shareholders. So Bitcoin as a monetary asset um can be can be an answer to that. And I think you know once we now we've got Coinbase in the S&P 500, we've got Strategy and the QQQ um looking ahead to S&P inclusion for it too. You know, now because of those companies, Bitcoin exposure is a piece of every index, every mutual fund, every retirement fund in America is backtored their way into Bitcoin a little bit. And if it's your job as a money manager to match that index or outperform that index now, you know, the benchmark that you're competing against or the peer set that you're competing against um has

some Bitcoin exposure and uh you know uh if you need to catch up to them, you your investment committee has to be asking themselves the exact same thing. So I think we'll see a proliferation on this. You know, by my count, we've got more than 80 publicly listed companies worldwide that have Bitcoin on on the balance sheet in some form or fashion. I expect that'll that'll double or triple um in the next 12 months here. Uh and then you'll have a few like like the strategies and Nakamoto of the world that are really all in and trying to build the biggest uh Bitcoin war chest where Bitcoin is the business rather than it being a diversifying component of Apple or uh Tesla's business. Reverse

tokenization um it it it means a lot to us at Paraf. It's actually a term that Benco coined um you know from the start of Parite till now we've we've not at all ever seen the level of activity at the intersection of public markets and crypto assets that we're seeing today. And so there's treasury plays, there's, you know, IPOs and spaxs, there's companies buying assets, there's ETFs. And uh this is just a one, it's something that as an industry we should really celebrate because I think it means that we've hit a certain milestone where institutions are now engaging with these assets. It's becoming more normal, becoming more legal to do so. Um, and that's great for the adoption of our

industry, but two, it it it really is just bringing, you know, pools of capital that that were never there as a marginal buyer into the fold um, and into interacting with digital assets. And so for us as a firm, that means we have, you know, several more investable opportunities uh different instruments, public markets tend to be deeper, so we can engage in size. Um but as an industry while it makes me happy is it it means that the quantity of of people interacting with us in some way is now like shot up exponentially uh whether that be you know someone's retirement account index money manager or public company officer and I think it just brings a lot of legitimacy and uh

will unlock doors you know for us on the technology side as well because if people become accustomed to bitcoin and there's bitcoin going through the pipes. Why can't stable coins go through the pipes as well? Why can't we do more payments to stable coins? Why can't, you know, we make it legal to to effectively uh uh engage with these assets in in in terms of our bank plumbing. So, I think there's a lot of offshoots that we're not even considering that come from public companies interacting more with our space through these assets. Yeah. Nice. Tyler, is there anything that you um outside of Bitcoin, is there anything in the rest of the crypto land that gets you excited?

You know, at at UTXO, Bitcoin, BTC, Inc., we're all focused on on the Bitcoin ecosystem. You know, I I take a pretty wide view. I'm angel investor LP and in funds that are specialists in other pieces of it. uh within the Bitcoin ecosystem. We're we're still uh very excited about kind of the Bitcoin L2s programmability, you know, DeFi ecosystem being built on on Bitcoin. We've got um a venture portfolio that includes a lot of the leading projects kind of building in that space and and we see a huge opportunity with like again these treasury corporations being like stage one to Trojan horse fratfi flows into Bitcoin where now once they come to Bitcoin they they learn about it

a little bit. uh there's a whole new financial the nextgen financial ecosystem that we've been talking about that can be built on top of it as a collateral asset and just trying to uh settle the shares we've invested in in uh some company in Japan compared to settling the payment for that in Bitcoin is such a uh night and day difference that reinforces the case for Bitcoin every single time. So I'm I'm hoping uh people can fall further and further down that rabbit hole. um as a result of this. Yeah, 100%. Uh Tyler, appreciate you. Josh, appreciate you. Um this was a Yeah, enjoy enjoyed this conversation immensely and I think it's a yeah, very

interesting topic that is feel like we are like inning two of this and it's about to heat up very very very quickly. So thanks for providing the knowledge. Thank you. Thanks. Enjoyed it fellas. [Music]