Clarity's Make or Break Moment and Strategy Selling Its Bitcoin

Transcript

We got to a point where the bill is good enough for us to pass. It's not perfect for any side, which means it's a good compromise between all the involved [music] parties. I don't know if the leadership needs to come from the crypto side reaching over or it needs to come from some savvy Democrats who realize that this is a losing issue for them, but eventually something has to change on the political landscape. I say that there is a law that every big regulatory milestone in crypto needs [music] to come with a lot of drama. I want the stablecoin world to win and that would be a better world and a more fair and progressive world, but regardless of what happens, stablecoins are going to multiple trillions of dollars. There was a lot of discussion surrounding the

recent statement that strategy will likely sell Bitcoin. As a general principle, they want to accumulate Bitcoin not sell Bitcoin, but sometimes selling Bitcoin is [music] actually the best way to accumulate more Bitcoin over a longer horizon. There is massive gains [music] that you can extract by just tax loss harvesting your Bitcoin. So, you're literally just selling [music] it, harvesting a tax loss, and buying it straight away. Also, I think the board and management at this point is all in. They're going for it, right? This is what they're doing. There's no confusion. Probably they're like, "Oh, I thought we were running a software company."

>> [music] >> As always, note that none of the information discussed constitutes investment advice or any offer, recommendation, or solicitation by Blockworks Galaxy Bitwise or Anchorage or any of its affiliates to buy or sell any securities. Hey everyone, welcome back. I am your host Mark Arjuun and I'm joined as always by my lovely guests Matt Hogan, David Lawant, and Michael Marcantonio.

Guys, how are we doing? How how are we feeling? I'm doing great. Doing good. Feeling good, Matt. Love the new new background. >> [laughter] >> Yeah, I'm I'm I'm visiting back home and I've I've put up the a very badly cropped image of the new Blockworks logo. Um I can Let me actually so that nobody gets upset with me on marketing or anything, let me actually show you what the proper logo should look like. >> It looks good. Yeah, looking good.

Um Beautiful. Who came up with that? Yep. Um that was that's all brilliant um you know, design and graphics team. It you know, it's look it's about you know, you can see the mountains in it. It's like a cave. It's about uncovering data. I I really don't want to butcher this anymore, but it's really lovely and and they did a fantastic job on it. But yeah. I love it. It's also true that all crypto companies with black and white logos are just juggernauts and can't be >> [laughter] >> Love it. Okay. Um Let's get kicked off. I I know we we wanted to start this off. I mean, this is this has been all over my newsfeed.

This is something I'm studying a lot, which is the Clarity Act and the Senate Banking Committee Well, the markup is is there. We have the new version of it. It's due tomorrow, Tuesday, the 14th. Um and I was looking at you know, I've been reading through literally line by line the Clarity Act. I reached like title three. There was six titles. Um and now there are nine titles and they've taken out taken out a bunch of stuff from the original document like the mature the maturity, you know, mature blockchain act framework is gone.

They've removed the CBDC the anti-CBDC legislation and stuff. So, you know, and there's some other changes. So, yeah, let's just kick it off. Like maybe we can run through it point by point and I and get your thoughts on it. Um The first one I I want to ask about is the last thing I just said, which is the removal of the anti-CBDC. Like, a lot of it is gone. Um Uh I'm kind of thinking of it as the, you know, last time we spoke about this, there were a lot of stuff that were in the bill that I was questioning, should this even be in the bill? And I think This is my guesstimate here. The removal of it is because you know, it's not even like the Fed is looking to or said anything about making

CBDC. So, they're like removing stuff about like future potential issues and trying to just get down to what's relevant right now. Um I don't know and I know this one is a controversial take to, you know, to remove this because it's kind of like anti-the ethos of cyberpunks. But, I mean, yeah, what what do we think? Maybe Michael, you could kick it off. Yeah, sure. I think prohibitions against CBDCs in law are as strong and protective as Congress's ability to amend that very provision that prescribes CBDCs to and take it out. Uh in other words, like, if we did succeed in getting a CBDC block in law, if the tide changed or if

Democrats really wanted a CBDC, they could push for an amendment to that law that allows for CBDC. So, it's not like What what really matters is whether the Fed wants to do it or not, right? If the Fed doesn't want to do it, it doesn't matter if there's a prohibition or not. I would I don't want to be too flippant. I do think that if there was a total prohibition on CBDCs, it would raise the bar for the Fed being able to do anything there. But, as far as I know, the Fed hasn't talked at all about it. I actually know someone who used to work at the Fed working on stablecoins. And he said to me that the notion that the Fed is going to be able to pump out their own stable coin is so ludicrous given how technical and complex it would

be that it's just not even it's not even going to happen. So, I think this anti-CBDC stuff is a little bit more politics than it is actual policy. Yeah, I completely agree. Uh I don't think it matters. I don't think it's the core of what this bill is about. I actually like relatively narrow bills. I don't like bills broadly politically speaking that jumble a bunch of junk all together. So, look, I hate CBDCs more than or as much as anyone. Um but I'm totally fine with it being not in this bill. This bill has a lot of wood to chop uh without worrying about that issue.

Can I can I just say one one other thing? There's no political support for CBDCs or said another way, there's not enough political support that if we don't have a prohibition on CBDCs in this bill that somehow CBDCs are going to get on the table in a few years from now, right? I mean, I think that one of the best things I've heard out of Washington is how unified um at least the Republican Party is on its opposition to CBDCs, right? So, um with a it almost entire Republican Party against CBDCs, even if this is not in the bill, I don't see it likely that a Democratic administration in the future is going to be able to come in and push CBDCs. I'm not even hearing that Democrats want it, to be honest. So, um

I I think it's a non-issue. Yeah, I agree. I think there's the issue of politics here. And if there's something that we need to give in in order to get the bill passed, I think this is a great one. To to your point, I don't think there's any support for a CBDC. There has been some studies uh within the Federal Reserve like over 10 years ago. That was like 2015, 2016 era on CBDCs. Since then, I I have never seen a federal official being supportive of CBDCs in any way. I think it's very clear that going through the stablecoin route is a much more American way of digita- digitizing our money. So, I think I'm I'm also totally fine with

that. Um the way I think about this bill is, I mean, we've been discussing this for a long time. Uh market structure has been a topic of discussions uh discussion in regulatory circles for for for many years. This specific bill has been going back and forth and has been gathering input from the crypto crypto uh lobby, from the banking lobby, uh from all sorts of government aisles, and I think we got to a point where the bill is good enough for us to pass. It's not perfect for any side, which means probably this means it's a good compromise between all the involved parties. So, I'm I'm also totally fine with the uh with the CBDC provision

being out. Yeah, I would note on that front. I think I think crypto broadly has decided it's time to pass the bill. Right? There were like 100 influencers who posted the exact same note on a coordinated basis on X saying, "Let's tie Let's move forward." So, there's there's clearly a concerted effort to say this is good enough for crypto. Let's uh let's get it over the hump. I do think it's a shame though, I will say, that if it does pass, and I'll be very happy if it passes, if it does pass though, it's a little bit of a shame that there wasn't enough uh bipartisan support for this bill. It's looking like the Democrats in the Senate at least are going to oppose uh the the uh the bill.

And from my perspective, and we talked touched on this a little bit last week, but the fact that either the Democrats have not been able to come to the table and start to support crypto, or crypto hasn't reached across the aisle to really bring Democrats on board in a big way, I think is a tremendous missed opportunity on both sides. Because one, Democrats should be supporting decentralization right? Democrats have long been for, and even Elizabeth Warren has long been for decentralizing and breaking up the banks, right? Remember her whole thing about breaking up the banks, too big to fail banks? Well, like, she is in spirit very much aligned with decentralization, which is the

entire ethos of crypto. And more competition. So, you know, you can't say that in healthcare there should be more competition, but in banking or in finance there shouldn't be. But yet, that's exactly the position that you're hearing right now out of the Democratic Party, and it's quite disappointing. And I don't know if the leadership needs to come from the crypto side reaching over, or it needs to come from some savvy Democrats who realize that this is a losing issue for them, but eventually something has to change on the political landscape. Yeah. The one thing I'd highlight though is that to to to look at the bright side of things is that there is one aisle, and I would totally concede that it's a very powerful aisle of the Democratic

Party that is very anti-crypto, but I do think that there is also an emerging side that is seeing this not only as a technology that they can embrace, but also seeing all the political advantages that can come with that, right? So, all the super PACs and like all of that. Um I think the a lot of the Democrats learn a big lesson that it might not be the best idea to be against a hundred of hundreds of millions of dollars super PAC um in a topic that is widely favored by society. Um so so I do I don't know.

We'll we'll see how it goes. Um I I don't know when the podcast will be published, maybe after the markup hearing. It's going to take place tomorrow morning Eastern time. And I think the tone of the discussion will be very important. We saw something similar in the Senate Ag markup. It passed on a fully partisan aisle, so all the Republicans voted in favor, all the Democrats voted against, but the discussion was very friendly. So, like, it was not usually the back and forth that we see in today's politics. It was very much a friendly and suggesting, "Hey, I'm looking forward to engaging this during the when this this goes to the floor." I think we might expect to

see something similar, and I think that would be a good sign. Of course, we'll need to see if the bill as is will survive all the amendments that's going to come. I'm sure there's going to be a ton of those when it gets to the floor, but I think just having a friendly discussion between the Democrats and the Republicans at the Senate Banking markup, which is tomorrow morning, I think that would be already a good signal that they are probably ready to engage and find some sort of compromise not on on the other sticking points, right? So, yeah, we'll see how that goes. I think that's right. I also do think part of the blame lies at at crypto's feet. We've done a very bad job of talking about why crypto makes the world better. Um like we've made it we we've made no effort to make the

progressive case for stablecoins and and and wallet infrastructure. We've made very little effort except for sort of uh pretty immature philosophical arguments about why Bitcoin makes the better the world better. Um like we we haven't we haven't addressed sort of pocketbook level real-world non-ideological cases for crypto making the world a better place in any sort of structured format that I've seen in any major media publication etc. I mean, we had a winning issue here with passing the yield on to uh stablecoin holders. This is objectively a good political issue, but we didn't really take it to the people. This is to Matt's

point. I completely agree. We didn't take that case to the people and said, "Hey, listen. You could take some of your savings, put it into just stable coins, and generate 4% yield on it, or you could let the banking committee completely kill it, right? And we didn't really make a big political issue out of that. I guarantee if you ask most average people who do follow politics, they don't even know about this issue. This was a winning issue. Um so, it's just a it's just something that we should uh we need to correct going forward. That's a hugely winning issue.

The idea of stable coins as a projection of power and economic growth for the United States is a hugely winning issue. The idea of stable coins cutting remittance fees is a hugely winning issue with a large number of people. Um we could go on. Yeah. >> But I agree. We've sort of fumbled. No one has articulated There's been no op-eds in the New York Times uh about these issues. Um and that's sort of where crypto doesn't want to go, but I think I think it would be very helpful for crypto to go. To to be honest, it kind of almost seems like the opposite. Um I you know, I think I personally most people the average person is not in this industry still thinks of it as a very scammy or maybe a way to dodge taxes or these kind these kinds of endeavors, right? Um And

and and to that point, in this in the new in the new um markup, they had they added a a kiosk section section 205 because a lot of there's a lot of scammers and they would trick these people into going to a kiosk and sending Bitcoin to to their wallet, and they don't know what's going on. So, there's a lot of scams behind this. And then this this legislation this proposed legislation is about KYC on the kiosks, making sure that you own the keys, so you're not sending it to some third party's wallet. And and I and I kind of like this one got slipped in. It doesn't get This one doesn't make the news.

Nobody really cares. But I kind of like this because it's it's maybe it doesn't promote crypto in a great light, but it starts to take away from the negative sides of it that are that are eating away at like what what you said, Matt, the all of the great benefits that can come from this industry. And and and and it's these kind of like small modifications that I like, and again it's controversial because there's KYC on the kiosks and whatnot, and there's the freedom, but I think we have to start to be a little bit more practical here. Um yeah, and and that's my take on that. Um so something else in the bill that was removed was the maturity status. I think that one was a little bit too convoluted, like is it mature is it not mature? You had a 4-year deadline to get

there. If you weren't mature, you had to file a recent, you know, semi-annually. I think removing that was good. Um we last episode we talked about the compromise with the yield. Um I I know now the banks are still lobbying for stronger language on it. Um I I I don't I'm not sure exactly what they what more compromise they want. Michael, if if you have any insights there. They want to kill it, right? They they they don't want to compromise. They're willing to settle for a compromise, um but they don't want one.

Um and I think they're looking at the compromise right now and saying this is better than us losing this issue completely, right? Um so but of course they don't want to compromise, and they the reason they don't want to compromise just to for our audience They do not want stablecoin issuers uh to be able to pass yield onto stablecoin holders. They think that's going to take a lot of economics out of the traditional financial system and move it into stablecoins.

Um of course, the obvious response to it would be, well, why doesn't banks why don't banks just get involved get into the stablecoin business, right? If this is such a popular product. Um but they would rather maintain the status quo for the time being um until they can figure it out, right? Um, so I don't see much movement on that one. They are going to try to kill it, but I don't think it's going to work here. Yeah, I I think they're trying to see what else they can get like whatever sticks because I don't know, it's hard to believe that I mean, everybody was not on board. I mean, we know that there has been so many back and forth between the White House and the main representatives of

both the crypto industry and the banking industry to get to the point where we are. So it does feel like this renewed campaign is just let's just just throw it out there and see what sticks, what else we can get, but I don't know, it doesn't seem like a very smart or potentially successful strategy to me. Well, we'll see how how it goes, but it does feel like it's just so late in the game to start throwing these types of games. I don't know. Um, let's let's see how effective it will be.

>> Yeah. I also said like who cares? I mean, it's good that we're fighting it and I think stablecoins should pay yield directly to investors, but in the end that is not the killer app of stablecoins. Right? It's not the killer app of banks. The average checking account pays an interest rate of one basis point. That's the national average. People use checking accounts. Right? When someone is sending a stablecoin to a contractor in Argentina the interest income doesn't matter. It's it's not the like the most important thing is we get the the the law passed. We can we can figure out this interest thing later and over time. It matters to a few select companies.

Uh and and it's the right thing to do. But it's far less it's actually not from my view what's going to determine if stablecoins get to a trillion dollars. I think they're they're on that pathway, interest or non-interest, because it's convenience, efficiency, and speed, and global access, and 24/7 rails, and instantaneous settlement. Those are the stack of things that matter to the vast majority of people. And you you you know that because I mean, look, Tether has paid no interest forever. People are using USDT in huge amount like it's just not the killer app of stable coin. So, um I want stable coin world to win, and that would be a better world, and a more

fair progressive world, but regardless of what happens, stable coins are going to multiple trillions of dollars. I agree. I think you can also make the prudential argument that in this transition, as we move from, let's say, analog money to digitally native money, you probably don't want to shift the country's deposit base too much, too quickly, right? I think he you can make this argument that we can get clarity passed as it is now. We'll get these other things coming over time, and I would argue that a smooth transition is could be potentially better than just flipping a switch and changing things too much. Uh we do know that the architecture of our financial monetary

system, it it it it's it's a it's a relatively tied equilibrium here, and we don't want to disturb that too much. So, I I am in favor of a smoother transition transition, honestly. Uh I I think that's that's yeah, probably now the better decision, and the one we should get, right? Our window is closing. We don't have like another year or another 6 months to discuss this thing. I think now is time to start passing the bills and getting it to the president's desk by August before the Congress recesses, ideally. What I'm looking for on Thursday is to see if any Democrats out of the Senate Banking Committee vote for this bill.

Um they don't we don't need any Democrats to vote for it out of the Senate Banking Committee to be clear for it to pass committee, but it does not bode well for passing the Senate if none of the Democrats vote for it. So, I'm looking to see if Warner votes for it. I think he's the most likely. I think that would be a very strong signal that it's going to get out of the Senate. So, so tomorrow does I'm seeing it as this four parts after after the hearing. There's it passes, it goes through with no amendments, not likely, right? It It It has to make some amendments before it goes through and merge with the previous document and the sec um and it's agricultural whatever Secretary of Agriculture what's what's what is it

called Senate? Anyway. Senate. Yes, exactly Segag. It's gets delayed again or just fails, right? And I think where where I mean the second one I said um where it does get some modifications and then passes through and then what are the next steps after that? Then it goes to a floor vote, right? >> [snorts] >> And then to the president. Well, no. Then it goes to a floor vote to get out of the Senate. Then it gets reconciled with the house.

Then if it gets reconciled with the house, then the whole then both chambers vote for it. Then it goes to the president. Yeah. There There's definitely a a reconciliation with the house process that needs to happen. I don't think this is going to be too hard though because it does feel like um a lot of the discussions and a lot of the points that have been added on the original bill, the one that was uh or let's say the bill that that came from the house. I think everybody's more or less on board on that. So, I wouldn't expect the reconciliation process to be too rough. Uh but of course in crypto I I have this um I say that there is a law that every big regulatory milestone with in crypto needs to come with a lot of drama. This

was true in the spot ETF launch. This was true when the genius bill was approved. Um I don't expect it to be different for clarity and I think maybe this is this is our destiny. Uh but I think we're I think we covered or well I think we surpassed a lot of the main sticking points. We'll see. I'm positive. Do you think that's true, David? Don't you think the the the end boss is ethics? Yeah. It's the ethics. Um I don't know. I Would you say like in the sense that ethics is a bigger issue than um than than the the yield stablecoin yield? Yeah. The

the those were like skirmishes and the Democrats are sitting on the sidelines and they can either like lob the ethic grenade over the wall or not. But if they lob the ethics grenade, uh I do think it will rile up the Democratic side and make it very hard uh hard to get through. Yeah, that's that's definitely the next big sticking point. Um let's see how it goes. Um I think um I think probably the Republican side has also counterarguments to give. So, things like um the CFTC nominations, right? Remember that the CFTC is now being run by one commissioner. A great commissioner, but just one, right? So, like there's the let's get the

Democratic nominations for the CFTC happening. If we want to talk about ethics, maybe we make this about something broader, right? It doesn't make sense to have the an ethics provision only for crypto, like singling it as one asset class. Or maybe let's think about when the start date here could be. So, I don't know. I think there's enough wiggle room, but yeah, fully agree. This is This is the next big sticking point. >> Well, Gillibrand said it at Consensus last week that the Democrats will not move on this bill without the ethics provisions in there. Now, the question is what do those ethics provisions look like?

Um so, here's one version that's unpalatable to the Republicans. It just targets the president. Right? That's a non-starter. That won't go anywhere. But of course, that's where the Democrats probably will start cuz that's the most political juice. I think it will start there and then it will eventually be rolled back to a broad-based sort of ethics regulation targeting elected officials. Um and I don't see a reason There's not a good political reason why that shouldn't be in the bill. I'm not saying it's There's a good reason for it to be, but there's not a good political reason um to say, "Yeah, we we can't have an ethics provision in the bill, right?"

Sort of like one of those things where if you say we don't want an ethics provision, you look unethical. Um so, I see that probably getting resolved, but who knows? We'll see. >> Yeah, agreed. I I think there's a way that everybody will be able to claim some sort of victory on on the topic, like both sides. Um let's let's see how that goes. So, you don't see it as a big as a grenade as Matt called it. Um I think it's the next big milestone that we need to surpass. But I I also, if I had to give odds on the Clarity Act passing this year, I would say we're over 50% now. We're at like I don't

55, 60%. I don't even know where Polymarket is. >> Polymarket has it 60, 70 between 60 and 70%, right? Last time I checked. No, that sounds right to me. I think it's more likely that it's going to pass. Not without drama, for sure, but I think we're going to see it happen. Yeah, interestingly, it dropped as soon as the new as soon as the updated version of the um Act was was was released to the public. So, I thought that was fascinating. I don't know why, just probably more things to mull over and just more fun, I suppose. Yeah, we'll see. Maybe maybe it was the renewed banking lobby efforts against it, which kind of also at the same time.

Yeah, hard to know. I think it's going to make it. I think it's going to make it, but I I think it's going to be tense. Okay, well, hopefully hopefully there's some more there's some positive news next time we we convene next week. Um next I know we we, you know, we we spoke about this maybe a few weeks ago, uh stretch. Um the I don't know, flagship product almost right now for MicroStrategy, aka strategy. And the reason why we wanted to talk about this is because there was a lot of discussions surrounding the recent statement that strategy will be open and will likely sell Bitcoin. Something that was vehemently said they would never do. But

now they're opening the doors towards that and there's a lot of mixed reactions about it. I know Matt, you have a you have a good take on this. I mean, look, I I think it's good that they're willing to sell Bitcoin. I I think the history of MicroStrategy suggests that you can't take we will never statements as gospel, right? They were never going to raise capital except above a 2x MNAV. They were never going to sell their Bitcoin. Uh in 2013, I think Michael Saylor hated Bitcoin. So, I think you should always take those statements as true for a period and then untrue. The way I think of MicroStrategy is that they have all these levers. They can issue stock, they can issue convertible bonds, they can issue uh preferreds that

expire, they can issue perpetual preferred, I bet there are other instruments they can issue. At various stages, those are priced at different places. And I think the way to think of it is to think of like Michael and Phong sitting behind a giant dashboard and deciding which of those levers to pull to maximize the growth of Bitcoin per share, which no matter how much you hate MicroStrategy, they have grown Bitcoin per share over time successfully. And sometimes the lever to pull will be issuing stretch. Often, I think that will be the lever to pull. Sometimes it will be issuing common equity to buy buy Bitcoin. Sometimes it'll be selling Bitcoin. I think the flexibility of it is good. That's why I think the

market sort of shrugged. It was like, "Yeah, that makes sense. Sometimes you can sell Bitcoin so you can buy more later when conditions are more favorable. You should do that." Right? God bless. So, I think it was great that they announced it. I think it was great that the market digested it and didn't freak out. We don't have to be absolutists. We can be realists. And the way to judge them is do they grow Bitcoin per share on a fully diluted basis over time. Yeah, and you know, look up stretch has just gotten so popular. Last time we spoke about it it was around 6 billion, now it's 8 and 1/2 pushing 9. And you know, my instant my instant thought when I when they when they put out the statement that they will sell Bitcoin, I was like, "Okay." Cuz I was starting to

get worried because as stretch got more popular, the cash on their balance sheet for these dividend payouts, that timeline, you know, at first it started at we have 2 and 1/2 years worth of of of of cash to pay out all of our dividends and obligations. And now that stretch has gotten so popular, that's dropped to like, I don't know, eight like 17, 20 months somewhere around there. And you know, so I was thinking and I was thinking maybe they would go back on something they said, maybe not to sell Bitcoin, but maybe earning yield off of the Bitcoin, you know, through option selling or you know, a carry trade. But, you know, selling Bitcoin I think is a little bit just easier, plain vanilla, and makes it a lot less complicated. And then also, Max, your point, like the net accretive you know,

Bitcoin yield per share. If the $100 is used to buy Bitcoin, then and that is sold to to to fund these dividends, you know, let's just say the dividend was 10%. That's that That's that Bitcoin for 10 years being sold, assuming Bitcoin doesn't go up in price at all at 10% dividend. So, you and you can continue using these funds. So, it's not like it's It's not like they're selling all of the Bitcoin that they're buying immediately. It's They're going to still continue to accrue Bitcoin and you know, con- you know, conversely, selling Bitcoin is probably one of the best ways to continue to accrue Bitcoin. That's exactly right. As it As an investor, either in MicroStrategy stock or

stretch, do you want them artificially constrained? Do you want them to have closed the door forever that they will not open? The answer to that is objectively no, right? Because if you were in your shoes, you would want as much flexibility as you could possibly have. All this does is increases the flexibility. So, I think it's just I think it's just strictly good. I'm not an absolutist on this one. I agree. I would say it's an evolution of MicroStrategy's kind of stance toward the market. I agree with everything you guys said, and I would add on top of that, there are a few very legitimate use cases for selling Bitcoin. For example, tax loss harvesting. Matt and I wrote a paper,

when was that, Matt? Like maybe 4 years ago, about how effective tax loss harvesting is for Bitcoin because of the profile, cuz it it goes up for for many years in a row and then it has these massive drawdowns. Even if the drawdown, the more recent one was not as big as the other ones, right? Maybe it was more like in the 45-50%, not like the 80% that we would see before. There is massive gains that you can extract by just tax loss harvesting your Bitcoin. So, you're literally just selling it, harvesting a tax loss, and buying it straight away. So, I I think this doesn't change MicroStrategy story. I would say if anything eating proves. I agree with everything you guys said and

there are instances where selling Bitcoin actually makes sense in a long-term accumulation strategy. I I yeah, I just think it's strictly better to Yeah, Michael Saylor's playing chess, not checkers. In chess, it's a good rule to not lose your queen. But sometimes it's the best move to make to lose your queen. Sometimes it's the only move to make. So, um you know, that same principle applies I think to to strategy, right? Yeah, as a general principle they want to accumulate Bitcoin not sell Bitcoin, but sometimes selling Bitcoin is actually the best way to accumulate more Bitcoin over a longer horizon. So, I think it's

I don't think we should be super dogmatic about it. I do wonder what you guys think about how sales of Bitcoin from Saylor will impact Bitcoin as a the Bitcoin market, but um but I do think that just my take on it is I think it matters what the reason is for him selling Bitcoin. Matters tremendously. And I think this is a fairly good reason to sell and so I don't think it will have a negative impact on the market. >> [snorts] >> I assume that he would sell over OTC so it wouldn't from probably the same OTCs he buys from. So, I don't think I don't see any like actual market impact.

Any market impact would have come from the announcement of it. I know they they make an announcement every time they purchase Bitcoin. I wonder if they will do the same thing when they sell. I I doubt it for some reason. I don't know if how transparent they want to be, but I'm not too I'm not too worried about like the actual market impact just because I think it'll be OTC. Yeah, I mean I think they'll have to be transparent cuz they report their Bitcoin holdings, right? So, you'll you'll see that down. The internet is full of sleuths who who notice that. So, >> to. >> have to at least disclose it, right? Oh, they they will disclose, but I'm I'm I'm saying is Michael going to re- record the tweet of him selling Bitcoin like he does with when he purchases. That's more what I what I meant, but yeah.

>> Probably right. Probably right on that. I'm sure the internet will will catch this one. Uh and also Michael, to your point, um I think the amount of potential sales we're talking about here, the Bitcoin market can totally absorb that, uh especially if they're done properly, right? The question is, if you want to sell 1 2 3 4 billion dollars of Bitcoin, the question is how much time do you need that? If you want to sell that within 30 minutes, yes, there's going to be a big market impact. If you want to do this throughout a day or two, then you can spread that in the market and you're not going to see any market impact. Um so, yeah, I'm not I'm not worried about that at all.

I wonder if sometimes it makes sense to even use some of the ATM using the money market and that perpetual machine. Instead of using those funds to buy the Bitcoin, use some of those cash to pay up the dividends. So, you don't even need to sell the Bitcoin in the first place. But then, I don't know if that would require I don't know what that requires board approval or just >> No, that doesn't require board That wouldn't require board approval. No. Okay, so you can they can just do that. >> What what requires board approval is the authorization of new shares to sell. Once the board approves, and the board approves them in like big tranches, right? They don't say like every time they tap the ATM, they they they have to get another board vote, right? So, the board will say, "You've got I'm just

making up a number, but you've got another 40 million shares that you can that we're authorizing you to sell." Right? But then, it's the business judgment of the managers, namely Saylor, to figure out once they sell those shares and receive USD in exchange for those shares, what they spend that USD on. Right? So, they could spend it on buying Bitcoin as they historically have done, or they could spend it on issuing dividends, right? Yes. >> Yeah. Also, one reason why MicroStrategy is a very special case in this Bitcoin kind of big Bitcoin company accumulation strategies that I think has a big sway over the board. Uh I haven't seen the composition recently, but last I

checked, uh Michael Saylor has something like 75% of the voting shares. So, um I Yeah. Not sure. I I I think he has a very good grip on on on the MicroStrategy board and management. Yeah. I think that's right. Also, I think the board and management at this point is all in. Uh They're going for it, right? This is what they're doing. There's no confusion. It's not like they're like, "Oh, I thought we were running a software company." Uh I think I think they're all in on it. Agreed. I mean, we we we've been praising um you know, Saylor and Strategy a lot, and and and credit where's deserved. I I do think I I want to highlight this risk here. So, I'm just going to put up a chart showing Strategy's price over the last 30 days.

And it it looks like a huge drop, but the numbers are on the screen are between 100 and 99, basically. But But the point still stands, right? Because I mean, when you're you know, you're looking at yield, and maybe you're looking to sell, 1% 1% is is 1% off of your 11 and 1/2, which is 10% less, right? Thereabouts. But you know, normally it takes uh on average 14 days ex-dividend date. And that's why we saw this initial fall here um on the 14th uh ex-dividend date is normally around the 13th, 14th, 15th, depending on the month. Uh coincidentally, that's that's like tomorrow. Um but this one took nearly nearly the full month to recover back to par at $100. Um and you know, I did a correlation

analysis on this, and a lot of this was actually a lot of the drop was the first initial drop was the ex-dividend date, and that just makes sense. That's corporate governance 101. But, the next drop we see here in the middle was due to Bitcoin's price falling. So, I mean, this instrument is still somewhat correlated to Bitcoin on the downside when it falls, and that is one risk that, you know, depending on what your you know, your duration risk with this investment is that is or timeline, that's one risk that investors should be should keep in mind. Right. Yeah, I think that's I think that's well put, and we've definitely seen that in the data. But, shouldn't the the theoretical expectation be that it hits par exactly on ex-dividend date if the market's in balance, right? I mean, like it it's effectively building in that dividend,

and then exes and then goes back. The fact that it was getting to par in 14 days suggests that there was excess demand at this interest rate. Um which I think is why they were able to raise. So, so I think I think I think that should be like the neutral market expectation is that it ramps to the exact point. Maybe I'm not thinking it through correctly. I'd be happy to be corrected by Mike or David. But, but your point that it reacts to negative uh moves is definitely right. Um you'll see those dips over time. I I think what's happening is people want the dividends, and so they will hold it until the ex-dividend date. And then, once they have it, they will sell, and that's what causes the initial drop. And

then, and then all they need to do is purchase it again before the next um the next ex-dividend date the next month. And so, I mean, and and and we've seen this literally every single month. Um it wasn't getting better, but this as the dividend yield increased, it was hitting par more quickly, but this one was, you know, longer than usual for the recent data set. Yeah, 100%. The one thing I would highlight is um I think both points are are very right. Uh that's I exactly the rationale why moving from monthly dividend payments to biweekly dividend payments to kind of reduce the cycle a little bit. Also, because there's uh STRS stretch is not the only such vehicle in the market. There's also

Zeta which is issued by Strive. It's a smaller company. They pay bigger yield. They pay like I think 13%. So in theory you can kind of swing from one to the other and just play the X dates and and and get a much bigger yield. I think both MicroStrategy and Strive are moving towards bi-weekly payments which I guess try it smooths down a little bit this process. And then in terms of the STRc price reacting to to to the Bitcoin price. That's that's a very interesting mark. Mark yeah.

But the one thing I would highlight is that we are talking about a 20 bips variation here. So it does seem that at a 20 bips drop there's enough demand that the effective yield gets attractive enough for folks to come back to the market. So it's it's still pretty tight I would say. I like you you brought up Striva. I I was thinking and by the way the the the move to two weeks I think it's going to start in June. Um You if you have depending on if you have Striva and and Stretch you can be basically getting paid out every single every single week because you get paid out two weeks from one two weeks from the other depending

on the timing of it. So it's almost you can really just get like weekly passive income. But on that note they wanted to do it weekly but apparently you cannot pay out dividends on a weekly basis. The min the minimum number of days is 10 and that was just too odd for them. So they they settled with the bi-weekly instead. And and that and again I mean if this was if this was all on chain if these were tokenized public equities that would be no issue at all. But this is just one of those little drawbacks of the little the chart five systems that's creeping up when when this new financial engineering comes. Was the issue at the transfer agent level?

Good question. I don't know. That's interesting. Yeah, no, that's a good point. And And it's a beautiful I mean, this is a beautiful chart to see the market mechanism working. So, like if you look at the left side of the chart here, uh strike was trading at 100. Uh post-tax date, I think it went a little lower, 99. If you buy strike at 99, you're effectively getting a much better yield. So, so so that is what attracts demand and bring things goes back to balance. So, yeah, I I I I very nice to see the mechanism working here.

It's very cool. Uh it it it also has a pretty good sharp ratio still, even even despite that quote-unquote volatility. I mean, we're still looking at 2.5 2.6 sharp. So, I mean, that that kind That's unheard of in in in most preferred equities. >> It's a crazy chart. I haven't seen this. Damn. You got to tweet this, Mark. Okay, yeah, I'm [laughter] going to I'm going to tweet it after this episode. Thanks. I like it. Um so, I think unless anybody has any other last points on strike, we can close it off there.

Um and wanted to talk about some other exciting news, um Bitwise and Superstate. So, maybe our in-house Bitwise resident can give us a little bit more clarity on what's going on there. Yeah absolutely. Um look, Superstate's an incredible firm. Uh they're a leader in the tokenization space. Uh we're going to be taking over management of USCC, which is the carry yield um offering that they have. It's about a $250 million fund right now. I think it has substantial upside. Uh carry trade has been fatter in the past, and I imagine there will be times when it's fatter in the future.

Um and we're excited to do it. It's our first major tokenized fund. So, it's a part of Bitwise's increasing move on chain. You can see the the direction of travel. Um Uh I think it'll be a great learning experience. But look, there aren't that many quarter billion dollar tokenized funds out there. There are only so many. Um particularly once you get outside of just straight treasuries. I think this is one of the more interesting ones. We're excited to do it. And thrilled to partner with Superstate. I think they're a great uh innovator in this space. Definitely one of the leaders. So, yeah.

That's what we're doing. Um every day a new announcement it feels like. Um but this was a big one for us. This one's extremely bullish, Matt. I'm I'm quite jealous. I think uh I think the uh I have so many questions if you if you wouldn't mind me asking you. Um So, so like can you explain for our our audience like the carry trade how it will work out of this on-chain fund? Sure, yeah. And uh unfortunately, you're asking them when I have like 3 minutes to go before I have to join in X Spaces on this very topic.

We got to have another one then. We Yeah, maybe we'll dig into this uh in depth. Yeah. Um You know, but the the the idea of a crypto basis trade is is you know at a at a simple level uh to go long uh the the futures contract and short the crypto asset to uh arbitrage the spread, right? Futures often trade in a state of uh of contango where the futures price is above the spot price. And so, you can create a yield by by structuring that way. Um you know, right now uh let's see. I'm looking at the fund uh mostly in ETH and and SOL. Um Uh Are you taking the funds out of the

vault to buy futures? Or is all of this happening on chain? Uh let's uh I'm getting pinged right now. No, no problem. They they have they sent the 5-minute warning. So, I'm going to have to let's go in-depth on USCC next week. Yeah, yeah, for sure. We'll get to the We'll get to the details. Very exciting. Awesome. Very exciting, Matt. Congrats. Love to see you. I appreciate it. That's awesome, dude. It's awesome. I'll be back. Good stuff. See you later, Matt. So, I guess my questions on this just uh just to not be abrupt to the audience here is um So, you put funds in a vault that lives on chain, right? We've talked about vaults before. Just to recap, vaults are

smart contracts, computer programs that live on public blockchains. And you put let's just say USDC in a vault. My question is uh and then of course Matt at Bitwise is the curator of that vault and will deploy those assets according to a predefined strategy that is consistent with the rules of the vault. The question is do those rules allow for them to take some of their assets or all of their assets out of the vault on chain and put it move it like Binance, let's say, right?

Or or all of the activities going to remain on chain? Meaning you're going to be able to track all the flow of funds every single day. Because one of the advantages of a vault, but it's only an advantage if you actually have the markets to move it in. One of the advantages is you can actually track not just the funds in the vault, but the deployment of the funds out of the vault. If those funds are deployed in on-chain protocols. The limitation of course is that there might not be sufficient on-chain protocols to do a carry trade like what Matt is describing. So, in that case, they would move some of the funds from

the vault to Binance or CME or somewhere else, right? Now, you'd be able to track the flow of those funds from the vault to Binance or to CME, but thereafter you would not be able to. Um so, just that's that was my that was my big question. Um but wait, uh there's a difference between a tokenized fund and a vault. Um am I am am I correct here? Like uh the fact that the fund is tokenized, it means that there is a representation of that token that lives on chain. Right.

Uh right. Now, the vault construct would involve like all the curation mechanism and all those like structures that we did a whole episode about. Uh cool. Yeah, no, we need we need to have I mean, I had the impression that this was just a tokenized fund, specially because the basis trade lives mostly off chain. Like if Yeah. I mean, I guess it depends very much on how you define the basis trade, but typically it is a the difference between a dated future contract and the spot price. Yeah. Dated future contracts, I'm not familiar with too many of them on chain. These are usually CME futures, Yeah. Binance, OKX, some of these offshore exchanges, they also have

dated futures. On chain uh vehicles usually navigate with perps, which is a different type of a future contract. It doesn't have an expiry date, and here you're dealing with funding rates, which is a different mechanism. You can also extract a yield from it, but it's it's a lot less certain, right? These funding rates, they are reset every few hours, every day, depending on the venue. So, if we're talking about funding like the basis trade, like let's say the plain vanilla one, I would I would bet that these are off chain trades. I agree I agree. Uh maybe this was my confusion, David. Um that I thought the Superstate Fund OS

platform was all on chain. So, these were effectively vaults. They might not be. They might be traditional funds that um you deploy capital into and then you receive a deposit token and that's the tokenization piece of it. Um It'd be great if we had Matt um to answer that, but we'll we'll figure it out next week. But these are the questions I have right now. >> Maybe we should have the Superstate folks come in as well as guests one day. One of the most innovative companies in asset management nowadays, I think. I'm such a fan of the work they do and love to see the collab with Bitwise there.

Oh, yeah. But I think it's a really exciting move by Bitwise. Um I think Bitwise is making a big bet, a bet that I actually very much support and and I share this view that all funds are going to move on chain uh eventually and they're just getting ahead of it. I think it's very very interesting. Well, I guess all of us three of us need to tune in next week, too, to get all to get these answers. So, that's going to be fun.

Um the last thing I just wanted to talk about here and I I I wrote about this in our newsletter. I just I feel like it's not maybe getting enough attention is that big tech's stablecoin play seems to be for creators first and what I mean by that is I'm looking at YouTube and I'm looking at Meta, aka Facebook or whatever. Um these are the These are the two biggest, you know, social media platforms in the world and YouTube, I don't I don't know if anybody remembers or knows, but they announced in December last year that they were going to start to pay out US creators in PayPal's PYUSD, right? And I mean, and then um

announced Meta announced, I think it was last month in April, yeah. They announced that they were going to start to pay out their creators from Philippines and Colombia using USDC. Right? And, you know, just for context, and as we remember, Facebook also tried to create their own stablecoin Libra and then DM and then regulators shut that down in 2022. But it's interesting that they're going now with using a third-party Circle's stablecoin to pay out their creators, at least some of them, and they announced that they're going to do a global a more global rollout of this payout creator system. And And it makes sense, right? Cuz creators, it's

you know, faster settlement, it's few intermediaries, it's dollar denominated, and you know, if you're living in the Philippines, you're probably going to get correspondent banking fees, you know, compounding at every leg of it and taking away from your end result. And so, I mean, this is, you know, this is an obvious no-brainer. Not to even mention, you know, the FX spreads might be one of the issues. Um, hopefully that develops a little bit more on chain. But this is a no-brainer. But then Meta also said that they're not looking to create a stablecoin of their own. They put that statement out.

I don't believe them. I You know, I I've never believed Meta. They lie about everything. Um, it's when it comes to like ad tracking and everything. I'm a shareholder of because I I I believe in their bottom line, but not not their ethics. So, I don't I don't necessarily believe them when they say they're not going to create their own stablecoin, or maybe maybe they do a partnership. But I But But for me, and I'll summarize it here, it's like what I said in the beginning, it seems like stablecoins are being used first under the radar through by creators with the big tech companies. Yeah.

So, I think that's right. I think if Meta is correct that they're going to expand their Columbia and Philippines uh um uh distribution to 160 countries worldwide. Um I think they have something like Uh I think they paid something like $3 billion to creators last year, right? >> Yeah. Um >> [clears throat] >> so if they do that with stablecoins, that would be arguably the largest distribution of stablecoins ever.

You can just start to see the mass scale that when social media companies and tech companies start using technology as finance, um how big of an impact that would have on the stablecoin market and crypto generally, right? I actually think it's tremendously bullish that they're using USDC to start. I agree with you, Mark, that they don't know if this program's going to be a success or not, so why create their own stablecoin in in in order to find out that it's not a success? Might as well use USDC for the time being, and then if it is a success, they can, you know, flip it to uh Libra 2.0. But um I think it is bullish that they're going to be using um Solana and

Polygon for this. And you know, I think that this going to be a massive amount of uh capital that's going to flow on chain. Now, where that capital goes, um whether it goes directly to wallets and then to uh to you know, uh USD, um we'll see, right? Might It might just be a net transfer and then re- it results in them converting into USD anyway, but it might not. It might stay on chain. That's a big opportunity for businesses to start providing services to these people that are going to be receiving curator uh rewards in um USDC on chain. So,

quite quite exciting. And it's also I'm I'm I would add it's also on the heels of a bunch of other announcements that sort of if this was like 2022, these would have been the biggest announcements ever. Yeah. >> But, you know, but they're like not even they're not even making news now, right? Like so, DoorDash and Western Union and Shopify and all of these other companies are going to be using USDC and stablecoins or launching stablecoins and um you know, it's it's it's a I think it's really it's so obvious to me that this is going to be the new norm.

Yeah, I I think this points a little bit towards what are the new, let's say, or the fastest growing use cases that we might see going forward. Because today we see all those big numbers of how many trillions of dollars stablecoins uh turnover in a year. This is all great, but a lot of that is trading activity, right? So, 90 I don't know, I want to say like 95, maybe maybe 99% of all that volume is actually trading activity that happens because stablecoin is the quote asset of crypto. Both in CeFi and DeFi.

Now, we have this payments use case that is starting to emerge and I think the genius act helps with that. All the traction that we are seeing with companies also helps. And I think this is a major Yeah, I think this will be a major growth driver for stablecoins um especially in the US. Yeah, exactly. That's uh that's very much the the chart that you're showing here. Uh Mark, I I have to say I have a small quibble with with some of these analyses because ACH and Visa and remittances are strict payments. Yeah. >> Stablecoins are mixing trading and payment. Like if you include Nasdaq volumes here or NS uh New York Stock Exchange volumes, we're going to see that this number is in the quadrillions, not in the trillions. Uh which great. It

means we we have a long, way to grow. Yeah. but uh the point I want to say is take for example I was at Anchorage. Uh we've been uh issuing stablecoins for a number of players, right? So we're we are the issuers of Tethers, uh um uh genius ready stablecoin in the US, same for Athena, same for Western Union, uh and and and same for for others as well. So that kind of shows the uh broad like the breadth of players that are coming to this industry, and I love to see this. I think I don't see why uh uh content creators should not be paid in stablecoins. It just seems like

a much better uh experience, not only because you can do this with fewer intermediaries, but you can also probably start to streaming these payments a little more. Overall, I think uh stablecoins used for payments are going to be growing immensely. Especially if you add on top of that, there's this whole agentic commerce, right? Maybe agents using more stablecoins as their preferred rails as well. I think this is a market that is just going to grow from here. I think the met the meta story here also is bridge or Stripe's acquisition of Bridge and how good of an acquisition that was.

Yeah. You know, behind every stablecoin payment that Meta makes, there will be Bridge. Um and so I think that's an untold story or a a smaller story, but still very important. Yeah, and and I would say that everybody in the fintech industry or in the even in the tech industry more broadly is paying a lot of attention to that. Uh Stripe held a conference called Stripe Sessions here in San Francisco just I think 2 weeks ago. Um I didn't go. I just met someone there. So it was I was there very quickly, but it it was amazing. The the number of people and the vibe is like you would be I I think everybody here would be surprised at how much excitement there is Um about stablecoin as this fintech rail.

>> I mean just to just to tie this whole conversation together that you know bring it back to the beginning for a second of what I said. I I believe that these stablecoins um according to Meta um and according to some of these other uh fintechs are going largely to unbanked regions right now, right? Um so the the the recipients of these stablecoins are in lower banked or unbanked regions. So we are bringing unbanked regions into the global financial system here, right? With stablecoins.

Um this is a massive story, right? Uh There's a reason there's many reasons why Meta wants to do this, but one reason must surely be that it is difficult to pay out creators in Colombia and the Philippines outside of stablecoins. Um and so this is banking many people around the world and if they can actually expand to 160 countries, this will be step one of a multi-step process of bringing uh the unbanked populations within the world into the global financial system and under the dollar, which I think is another story that is really important, right? This is one of the strongest

projections of US power that we can make is by having countries that otherwise would be unbanked using US dollars via stablecoins. 100% Michael and I I like that you use the term banking there because that's what I'm that's what I'm talking about for these these creators and then even like the Deliveroo drivers, they're going to get a stablecoin wallet, essentially a bank account and then we can start to provide services to them and then Meta's not a foreigner to that. They have WhatsApp payments. They have the they have those other they have the capability to do this. Like David said, Anchorage is the supporting infrastructure for Western Union stablecoin US USDPT. They have the CEO has openly talked about

becoming almost like a pseudo neo bank and they would the terminology of neo bank has changed a lot recently, but this is an exciting opportunity and it doesn't get a lot a lot of coverage, but I it will impact people's lives directly in a in a in a tremendous way and I'm I'm looking forward to that happening in a in a bigger way and in a more global scheme more global scale later down the line. Um crypto is making fintech cool again. I love it. >> [laughter] >> 100%. Um so yeah, that's where we've we've come up on time there. Um thanks Michael and David for joining me as always and for those at home if this is the second time you're you're listening to us, then you obviously like us. So please like, subscribe, follow, five stars, all all of the all of the good

news and share with a friend, share with your family who might find these this this content interesting. And thanks for joining us and see you next week. >> [music]