#1522 Tim, Dan, Ben, Jeff | Could Microstrategy’s Bitcoin Strategy Blow Up?

Tim Kotzman is the host of the Bitcoin Treasuries Podcast. Dan Hillery is an analyst and trader. Ben Workman is the Founder of NumerisX. Jeff Walton is the Founder of $MSTR True North. In this conversation we talk about Microstrategy's bitcoin strategy, potential risks, options market, metrics to keep an eye on, why bitcoin companies stocks trade at a premium, and what could be the next phase of the bitcoin treasury strategy? =======================Core is the leading Bitcoin scaling solution, enabling you to lock in yield by locking up your Bitcoin. Simply lock it on the Bitcoin blockchain to secure the Core network, and get rewards. No bridging. No lending. Just holding. Still your keys. Still your coins. Now your yield. Start at stake.coredao.org/pomp.=======================BitcoinOS is bringing Bitcoin into a new era. For the first time, Bitcoiners can access real DeFi across the entire crypto ecosystem, powered by revolutionary zero-knowledge technology. No more trusting sketchy bridges or giving up security. BitcoinOS reunites all of crypto around the chain where it all began. Follow BitcoinOS on twitter @BTC_OS and Be early to Bitcoin again.=======================Pomp writes a daily letter to over 265,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/=======================View 10k+ open startup jobs:⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://dreamstartupjob.com/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Enroll in my Crypto Academy: https://www.thecryptoacademy.io/

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode.

• 0:30Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 0:54Anthony Pompliano?

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• 1:36Anthony Pompliano?

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• 2:20Anthony Pompliano?

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• 3:05Anthony Pompliano?

  Again, that's @BTC_Os, and be early to Bitcoin again. How does it not work? That's what everyone wants to know, right? Obviously, it's been working, all of these Bitcoin treasury strategies. What is the scenario where it doesn't work? What is the doomsday scenario? What do you guys see as the biggest risk or the biggest threat?

• 3:28Speaker 02

  I think you obviously see Strategy, Metaplanet, Semler working. You see some of the others kind of, it's so early, but they're kind of, "Boo!" So I think it's just too early. And if somebody collateralizes their Bitcoin, if they take on too much leverage, I just think that's what I see.

• 3:48Speaker 03

  Yeah, it's going to be if companies really try to compete aggressively on the leverage side of the house. What you watch with what Strategy's been doing and with what the other ones that have entered have done is they've kept really strong control over their leverage ratios. So you've never really seen them get into this scenario where they're overly leveraged in a risky position. And a lot of people think about liquidation points when it comes to companies like Strategy, but because this is non-recourse debt, those aren't really a thing. So everyone's looking for what's the Bitcoin price where this all falls apart. It really doesn't exist right now.

• 4:21Anthony Pompliano?

  Describe why having non-recourse debt is so important for an asset underlying that is so volatile.

• 4:27Speaker 03

  Yeah, and this one was really important to me. My early career was in commercial banking during the financial crisis and I was in the troubled loans group. I was doing all the credit underwriting there. So, the first thing I saw when they first did have secured debt was that made me really nervous because it can take some of your own destiny out of your hands. And particularly when you're tying your company to a really volatile asset like Bitcoin, if you've got loan-to-value or you've got debt service coverage covenants in that loan, you can get into a point where if Bitcoin becomes volatile enough and you get into one of these major drawdowns, it could cause a liquidation just on the value of the asset decreasing. So getting into non-recourse where you don't have any ties to a loan-to-value really frees you up and takes a lot of that risk out of the equation.

• 5:11Anthony Pompliano?

  Guys, anything to add?

• 5:13Speaker 04

  I think something with Bitcoin would have to break in order for, you know, these, at least strategy with how they're managing their asset and their risk profile of their company. I think it would have to be something with Bitcoin would have to break.

• 5:27Anthony Pompliano?

  All right. What happens if they sell? Right? All these companies are built on the idea that they're never going to sell their Bitcoin. What happens if Meta Planet goes out and Simon tomorrow says, "I want to, or I have to, sell. If I have a convert and everyone says, 'Hey, look, I want to actually get paid back versus convert the into equity,' does that break this kind of like soft, you know, kind of pact that people have with their shareholders? And all of a sudden that leads to a different behavior change?"

• 5:59Speaker 02

  I think there's two scenarios. You saw back at the beginning where Saylor actually sold some for tax-loss harvesting something at the end of the year, but he also bought a bunch at the same time. And there was a little bit of noise, but it was largely, you're like, "Yeah, that makes sense." But if someone, if a company actually sells, then they're done as far as the strategy and people rallying around them.

• 6:23Speaker 03

  Yeah, this is a strategy that's built on trust, right? You're telling the market what you're gonna do, you're telling your shareholders what you're gonna do, and that they want to see you do it. So if you're gonna pivot like that, and you're gonna sell out of your Bitcoin, one, you've got to be ready to explain why your thesis has changed. Are you all of a sudden bullish on the US dollar and you think monetary debasement's gonna stop? I mean, you're gonna have to communicate that. And I think a lot of these companies now, they're viewing this a different way, because it's this long-term accumulation of capital. And capital brings optionality down the road. And so, selling it would seem very counterintuitive to positioning yourself strategically amongst any of your peer groups. This could be one of the best competitive advantages you could build up against your competitors.

• 7:07Speaker 03

  It's gonna give you in five, 10 years, a massive war chest on your balance sheet, and with the amount of products coming to the market where you're gonna be able to actually tap into the value of that Bitcoin without selling the Bitcoin, it puts you in the ultimate position of optionality for your company. And I think that's a position that companies should really want to hold on to.

• 7:26Anthony Pompliano?

  Dan, you are a nightmare for certain people in this room, because you basically said that you were trading options on the hyper-volatile strategy stock. So there's people in this room that are like, "Oh my god, that guy scares me." What's going on with the options market of these companies?

• 7:46Speaker 05

  Sure. I think it's really interesting for equity like Semler as well. If you saw the most recent convertible debt offering, they have a capped call provision on that convertible debt. So, if the stock price runs up way past the strike of that convertible note, then Semler's dilution is effectively capped because of the functionality of the options market, right? So they waited until the options market came online to go out and do this convertible offering, and now they have hedging mechanisms effectively in the options market to create shareholder value. So, I think, aside from me kind of trading the options, it gives companies a lot of different ways to play the market.

• 8:26Anthony Pompliano?

  What's the most interesting thing that you've picked up in the options market? There's always little edges that people start to unpack. What's one that kind of gives people an idea of how this is trading maybe differently than other options?

• 8:37Speaker 05

  Sure. At the beginning, when I started trading it, there was a lot of mispricing around the volatility increasing of the underlying Bitcoin and MicroStrategy as the price went up. And that's not typical of traditional equities. So for those buying long calls or leaps, betting on outsized moves to the upside, we got quite lucky and fortunate as the prices kind of mooned during those euphorics.

• 9:00Anthony Pompliano?

  Free alpha for all of you. All right, who wants to take MTSU? I think is the ticker, is that the 2X Strategy ETF, right? MSTU. MSTU? I almost got it right. All right, that's down a lot, obviously. With the introduction of these kind of levered plays on top of what are really essentially levered plays on top of Bitcoin, how does that change the market dynamic? And does that capital flow into the 2X levered? Or I'm sure people are trying to get 3 or 4 or 5X levered. Does that take away from the underlying stock as well?

• 9:34Speaker 03

  It certainly draws capital into those products that probably belonged in the stock. I've never been a big proponent of the 2X because I look at a company like MicroStrategy that essentially has had themselves in like a 1.5x leverage to Bitcoin position. And you've got to ask yourself in your investing life, how much leverage do you really need? Like this is more leverage than anything you've got. It's got more volatility than anything else you can trade in the market. I mean, we all love volatility up here. It's kind of the game that we play. But you do have to ask yourself at a certain point, do I want to introduce additional risk into that investment? Do I want to take on things like NAV decay out of some of those holdings? And the answer for most people should probably be no. They're great trading instruments.

• 10:17Speaker 03

  If you're a really sophisticated trader and you really believe you have an edge to time the market, those people love it. It's the people that decide that they're going to hold a 2X leveraged position here for a long-term hold. That shows a fundamental misunderstanding of how the product works, and a lot of those people are probably very upset at the moment.

• 10:35Anthony Pompliano?

  Jeff, when you look at all the different metrics, there's some that I would consider traditional financial metrics like revenue, EBITDA, multiples, whatever, then there are things, you know, Bitcoiners are great at inventing shit, right? And so we invented all kinds of things like BTC gain, MNAV, all these things, right? What do you, when you wake up in the morning, what do you go check first for each one of these companies that you feel like is the best signal as to how is the business doing outside of just the stock price?

• 11:00Speaker 04

  Oh, that's a, that's a difficult question because for me, I'm thinking so long-term. I think this is going to be the largest.

• 11:06Anthony Pompliano?

  Oh, come on, just tell us what metrics you check.

• 11:08Speaker 04

  No, I like, when I think about the conversation around MNAV, which is a common conversation, and you brought it up in the past, it's, you compare it to other equities that are trading in the market, and there's no, you can't compare it to Google, or JP Morgan, or Berkshire Hathaway, like, it, it, strategy fits in its own bucket, in its own realm. And you start to think about what they can do with these assets, and the balance sheet's strength is, is power, right? Like, that's monetary power. They, what other company has $35 billion of unencumbered capital on their balance sheet that they could do something with? And that's, you know, when I look and rationalize the price of other

• 11:52Speaker 04

  equities, you look at P ratios, you look at MNAV, you look at asset-to-liability leverage ratios, all of these things, and the only homogeneous comparison tool is market cap. And so I've posted daily for the last 260 days in a row of MicroStrategy's market cap, because it's the only comparable tool when you're, you know, looking at other companies that it can trade around. So like, the MAG7, for example, they're in their league of their own, but they're all fundamentally different business models, use finance differently, right? Like, they use debt and leverage differently. They are built of different revenue streams. So then, you know, you start to think about the architecture of the market as opposed

• 12:36Speaker 04

  to these fake metrics that TradFi tends to lean on.

• 12:41Anthony Pompliano?

  So I think that one of the big questions people have is around this, what most people are calling a premium to NAV. I tend to think of it more as like a BTC gain multiple, but can somebody up here smarter than me explain what is going on with why these stocks trade at a higher valuation than just the Bitcoin that sits on their balance sheet?

• 13:02Speaker 04

  Yeah, I'll take it. So in my opinion, the architecture of the equity market is one of the primary reasons that these stocks trade at a premium to their equity value, right? This isn't a, this isn't a holding company, right? They're an operating company that can do things with that capital. And that's the primary distinction. And like I said earlier, like, how many other companies have $35 billion of unencumbered capital, which is now collateral on their balance sheet, which they can earn additional Bitcoin in the future? IBIT isn't earning you additional Bitcoin in the future. And we've only scratched the surface. A lot of people think that the capital is running dry. We've only scratched the surface of strategy being able to leverage

• 13:43Speaker 04

  their balance sheet as collateral to raise additional capital.

• 13:49Speaker 05

  And to add to that, I'd beg the question. So how productive is the Bitcoin collateral on the balance sheet? And much like a different company, you'd value them at a very high multiple to their net asset value because their assets are productive. I don't think we've seen the full extent to how productive BTC can be on the balance sheet, right? We've seen some of the BTC yield, that's a function of convertible notes, but we haven't seen any sort of lending, any sort of, you know, ideas that we don't even know yet. So I think that's really where the multiple is kind of mispriced.

• 14:21Speaker 03

  There's another thing that I think a lot of people overlook when you look at the strategy. And I think it's something that makes it really attractive to a wide range of companies. And that's if you look at a corporation, it's got to be in this living state of transformation all the time, right? If your company stops innovating and you stop pushing the envelope, you start to die off. And once that growth goes away, the market will take that out of your equity as well. For a lot of companies that are finding themselves in that position right now, this type of a strategy essentially gives them the chance to buy time while doing something innovative. If you're looking for what that next evolution of your business model is going to be, but you've got a strong core business that you've spent decades building, that's throwing off good cash flow,

• 15:03Speaker 03

  this is a perfect match for you because it becomes that active accumulation of capital that's building your war chest for when you see that next opportunity and you'll find a way to integrate that into the future of business. So it buys you that time to really continue to transform yourself. And I think that's really important for a lot of companies to consider.

• 15:21Anthony Pompliano?

  I want each one of you to answer this very quickly. What is the company that you want to see do this next? We saw Strive Asset Management recently come out and write a letter to GameStop, tell them to do it. Ethan Peck is probably here somewhere. He's the guy who went to Amazon and Microsoft and all them and said, hey, you guys should buy this. Who do you each think is kind of a prime target, given everything you guys understand about the strategy, to go ahead and do this next?

• 15:45Speaker 02

  I think it's GameStop. And I think it's because being a Bitcoin equity meme stock could be the most positive thing. They already have the community. And I mean, if I was Ryan, I'd be waiting to kind of almost enter a momentum trade, even though I'm going to hold forever, and then be on CNBC and say, oh, our stock price went up in a quarter or whatever, and just like bomb out that $8 billion. So.

• 16:17Speaker 03

  GameStop was a great answer. I think Eric made a really good pitch for Zoom as well. I think this fits where they're at very well. What I'm actually looking for, though, is the next evolution of it. I want to see a growth company actually adopt this. And I would really like to see a growth company that ties into Bitcoin as a part of the core business, because I think there's this overlooked component that could be used where using the Bitcoin Treasury vertical could really become a force multiplier for driving business into the other side and actually growing your core business as well. So now the market has to digest a growth company that's also actively working the balance sheet to accumulate capital. And I think that makes a really interesting value proposition.

• 16:56Anthony Pompliano?

  Jeff?

• 16:57Speaker 04

  Yeah, I completely agree with that. And I think there's been some other companies that have risen very drastically over the past decade, where this could be an opportunity when they've seen their stock fall. One of the most, one of the companies I'm most excited about that has potential to do this is Nike, in my opinion. Just do it.

• 17:15Speaker 04

  They've been innovative their entire lifespan. And I think this is a really good opportunity to take, you know, take a chance.

• 17:25Speaker 05

  And my pick would be a company like Robinhood, a financial services company, that somehow could integrate the Bitcoin Treasury strategy into their financial services platform and potentially. Enable that Bitcoin to be more productive than just sitting and accretive value.

• 17:41Anthony Pompliano?

  Now, one of the things that none of you said was Tesla, which has Bitcoin on their balance sheet. But they only bought one time, and I think they sold a little bit, and it kind of stopped. And so, does that mean that actually the strategy is not the buying of the Bitcoin? It is the continuous buying of Bitcoin, and the continuous part may be even more important than the one-time buy?

• 18:02Speaker 03

  Well, I think that there's a model that fits most companies, right? So, everyone who's holding a treasury, and if you're holding any portion of that in US dollars, you should be considering Bitcoin on the balance sheet. Whether you're buying it as an insurance policy, or whether you're really getting rid of all of your cash and saying, "Our treasury sits in Bitcoin. We really believe this is the best hedge against monetary debasement." That's great, and we should champion all of those approaches. The leveraged approach, I think, takes a unique type of company. Because it doesn't fit as well in companies that are highly capital-intensive. If you have constant investment needs, and you don't generate enough cash flow on your own to fill those,

• 18:44Speaker 03

  you take away some of that accretive nature of what they're doing with these leveraged strategies. So, I don't think that the leveraged approach is a fit for everybody, but I think that the treasury approach has application to every company that's out there.

• 18:56Speaker 04

  And if you start as a treasury company, let's say you start at 1%, it's naturally going to become a greater portion, and every company will eventually become a Bitcoin treasury company at some point. I mean, there's no reason not to. The risk-return metrics on the Efficient Frontier improve the return and reduce the risk of your entire portfolio.

• 19:18Anthony Pompliano?

  Dan, you mentioned earlier lending the Bitcoin on the balance sheet. Usually Bitcoin and lending, those two things don't mix well with the people on the internet. Do you all think that lending, yield generation, option selling, you know, we can go through all these different things that people could do with their Bitcoin. Is that kind of the next phase of this? It's not just, "Hey, how do we use the traditional financial products to raise capital to go buy Bitcoin?" But then, what do we do with the Bitcoin itself? And do you guys have thoughts of what is going to be inbounds or out-ofbounds for these companies?

• 19:48Speaker 05

  Yeah, to Jeff's point, I would say it's about whether or not that Bitcoin's productive. And I think there's a huge frontier of making that Bitcoin on the balance sheet productive, whether that be just borrowing against the Bitcoin to acquire, you know, an additional company, or to make some sort of strategic acquisition.

• 20:05Speaker 04

  Yeah, this topic of collateral is the most exciting to me, right? Bitcoin is a pristine asset. It is the most pristine asset the world's ever seen. And now you've got companies that are holding it in droves. And, you know, when you think about the future productivity here, it may be, it may look different than lending. Yes, lending is going to exist, but the future of collateralized finance is going to explode. So just to give some perspective, I'm a past reinsurance broker. I used to sell insurance to insurance companies. And the collateralized reinsurance market grew from $30 billion in 2015 to about $100 billion in 2025. That could go from 100 to 250 billion of it could come from BTC treasury companies.

• 20:48Speaker 04

  So if you're holding Bitcoin, you can price long-tail liabilities better than anybody else in the market. And there's, you know, in fiat terms, there's nobody else that's going to be able to price that risk better than you. And there's going to be a lot of opportunities in that landscape, likely in the insurance world.

• 21:11Anthony Pompliano?

  Can I make a pitch to you guys? I think you should change your names. True North is a good one. We're just volatility bros, because you guys love volatility.

• 21:21Speaker 03

  We were shaken when they changed the name. If they changed the ticker, we were out of business. We were going to have to reinvent ourselves.

• 21:27Anthony Pompliano?

  I mean, if you really think about what you guys are talking about, right? You're talking about you're buying a stock that has volatility on top of one of the most volatile assets. And then we're talking about lending on top of that. There's obviously all these derivatives and stuff. And so is that just a function of like, that's where finance is going in general? And you guys are kind of out in front of it? Or do you think that this will remain kind of a corner of finance? And, you know, we won't see the kind of constant chasing of the volatility that you guys are very comfortable with?

• 21:52Speaker 02

  I think as far as products, services, lending, insurance, you're going to see all of that. But one thing that I think you'll see in the future is you'll see companies on a Bitcoin standard, not just with their treasury, but with their operations. And I don't think you've seen that with a public equity yet. You've seen Saylor talk about it as far as his mindset, as far as the Bitcoin CAGR being the hurdle rate. You've seen like early riders being a Bitcoin-denominated venture fund. But you haven't seen an equity company come out and say, and you probably won't until the CAGR goes down, like, hey, we're going to judge the hurdle rate for, like, should we be in this business line operationally against Bitcoin?

• 22:27Anthony Pompliano?

  Amazing. Everyone, Tim, Jeff, Ben, Dan, thank you guys so much. Thanks.

• 22:44Anthony Pompliano?

  Thank you.