This episode explores Bitcoin's integration with bond markets, highlighting strategies like MicroStrategy's model and sovereign Bitcoin-backed bonds reshaping global finance.
This episode of TFTC explores Bitcoin's integration with bond markets and national financial strategies, emphasizing the transformative potential of a U.S. Bitcoin reserve under the incoming Trump administration. The hosts discuss MicroStrategy's innovative use of convertible bonds to accumulate Bitcoin, the role of bond markets in driving adoption, and how emerging markets could leverage Bitcoin-backed bonds to reshape global finance. They also argue that pro-Bitcoin policies could strengthen the U.S. dollar by attracting capital, positioning the U.S. as a leader in the Bitcoin ecosystem while fostering a multi-trillion-dollar market.
The podcast highlights Bitcoin’s growing integration into traditional financial markets and its potential to reshape global economic strategies. By leveraging bond markets and credit expansion, Bitcoin is positioned for multi-trillion-dollar valuations. The hosts discuss how strategic adoption by governments and institutions, like MicroStrategy’s model, could redefine the financial system, strengthen the U.S. economy, and challenge misconceptions about Bitcoin's impact on the dollar. As nations and corporations explore Bitcoin-backed bonds, its role as a global reserve asset becomes increasingly plausible, signaling a future of economic transformation and opportunity.
0:00 - Intro
0:51 - Strategic reserve
9:00 - Does bitcoin threaten the dollar?
13:06 - Bitcoin began more open than the internet did
16:55 - Bitkey
18:53 - Strengthening America
22:43 - MSTR, buying bitcoin with new money
36:30 - Fold
36:20 - The investor-initiated chain
44:00 - How sustainable is the bond strategy?
52:00 - Bitcoin inside of sovereign bond structure
56:39 - Critics don't see the wider context
1:03:00 - Bitcoin is the best survival tool
(00:00) [Music] there's so much money that can just be created now that Bitcoin is in the bond market it's so bullish Marty the biggest misunderstanding I believe in the outside world is that Bitcoin challenges the dollar to the point where it threatens to kill it the Trump strategic Bitcoin Reserve is going to trigger more strategic Bitcoin reserves his advisers have determined that Bitcoin is a part of making America great again Bitcoin getting to 20 trillion this type of action which could take Bitcoin to several million dollars was not in my
(00:43) wheelhouse a year ago just wasn't thank you for taking some time during the holiday season to do this I texted you last week after watching an incredible YouTube video that you put out you were gracious enough to join me on uh on Festivus to to do to have a discussion about it anything for a friend Marty great to see you man great to see you too and also congrats on the new book launch the Bitcoin age uh number one on Amazon and money and uh what is it money and economics money mon thank Marty it's called Bitcoin age it will be out in
(01:27) February 2025 although I'll put put an asterisk on there because on January 20th or 21st we might be getting some material news regarding Bitcoin and so I am keeping that asterisk there in case I have to write a few extra pages which I to be honest I am planning to do so so we'll see so you're you're bullish on the Strategic Bitcoin Reserve I am uh my position on it has evolved a little bit but I am and I would say now that it is my base case I'm over 50% um mentally you know on that one so we'll see what uh I mean maybe let's start
(02:11) there I mean the the video that I watched reached out about has to do with micro strategy their utilization of the convertible debt market and how the repo Market is affecting inflows in the Bitcoin but before we get to that how how profound would a strategic Bitcoin Reserve by the US government be in your mind it would be very profound it would be probably the largest news event in bitcoin's history from the government perspective obviously we have other events in bitcoin's history that probably matter more for the growth of the network but
(02:58) you know thinking about long term adoption and the hesitancy of so many people around the world both in the United States and outside to say I'm not going to buy Bitcoin I'm not going to use it because I think one day the US government will ban it make it illegal the biggest misunderstanding I believe in the outside world is that Bitcoin challenges the dollar to the point where it threatens to kill it but that is it's not it's not a full picture and if the US dollar and the United States wants to survive very
(03:38) longterm it's beneficial for the US to be involved in Bitcoin not necessarily buy it but not to make it illegal to be a leader to be the home of as it already is the home of the first publicly traded uh company to enter the NASDAQ you know 100 obviously these are American companies but the coinbase being launched on the uh New York Stock Exchange the ETFs Fidelity and black rock these are both American companies the US is already the home for Bitcoin in theory so this just takes it to the next level and it permanently eliminates
(04:18) this idea that the US government is coming for Bitcoin which I think is a fallacy I've believe that's a fallacy for a long time yeah it's been really encouraging to see how the incoming Trump Administration Trump generally has been posturing around this like you said it's our Market to lose at this point the individuals in the United States hold the most Bitcoin uh the companies that have been started here are arguably the most successful in the world and I think it's pretty pretty massive too and whether or not they decide to go out and
(04:58) execute on the plan that since the lumus has put uh in place for example I think that would be interesting I think there's ways in which the US government would have to be strategic about acquiring a strategic Reserve they decide to go out in the market and actually acquire Bitcoin uh with a stated goal of reaching a certain Target whether that's a million Bitcoin or or something else but I just think it having worked in the industry the last four years with the Biden Administration I think the proverbial weight that's going to be
(05:32) lifted off the shoulders of everybody working on bitcoin is going to be so immense that and it already it already has been it already has been you feel that there's a there's an energy in the industry but I want to express my low IQ take on why I believe the spr is going to happen this is not a this is not a thorough analysis this particular take that I have which is that Trump is a Maverick let's just call let's just say that as a mild word we know he the guy is very unique okay one of the things that he does is he says wild [ __ ] all
(06:17) the time okay another thing that he does because we have four years of his presidency is he actually goes out and does a lot of the things that he says he's going to do so he campaigned on a strategic Bitcoin well he campaigned on a pro Bitcoin Administration he came to Nashville and he spoke then as he was reaching the point of being elected he credited some of the Bitcoin people with giving him a boost let's we don't have to say we we gave him the biggest boost or the smallest boost give me one second my amazing wife
(06:55) is bringing me coffee thank you baby and then he campaigned on the fact that he is going to put in a strategic Bitcoin Reserve toward the end then he got elected with the winning the popular vote and winning seven out of seven swing States then he says I'm going to do I'm going to do something very good for the Bitcoin people after he got elected so my low take is is that he got elected on a Bitcoin agenda and then once he got elected he said he was going to do it so I believe he is going to do it that's the whole
(07:41) take he has shown that we had Steve myON on he just got announced as the uh head of Trump's Council of economic advisors and we asked him what what is Trump going to be doing on bitcoin and he said it's part of his recipe for the success of the country he has determined or his people his sons his advisers have determined that Bitcoin is a part of making America great again he's decided it his whole team agrees with him so they are going to do something for Bitcoin now do I think they should or do I think they
(08:23) will purchase a million extra Bitcoin I don't know and I don't have the strongest take on that that they should be buying but should they be strategically embracing Bitcoin keeping it in the treasury and having Pro Bitcoin policies undisputedly yes and they will make executive action I believe in the first few days to progress toward that I don't know if they're going to buy Bitcoin and it's I just think it's too early to say well over the weekend there was um Nick Carter put out a piece explaining why he doesn't think a strategic Bitcoin
(09:07) Reserve is advantageous for the United States particularly if it wants to maintain dollar dominance in the US curious if you read that your thoughts on that and whether or not Bitcoin could actually help the treasury in this debt situation that we've yeah that's a good question no I didn't read Nick's piece um and here's here's what I'll say Bitcoin from the United States perspective does not threaten the dollar today I just I don't see I see Bitcoin today advancing the dollar so I'm a price guy as you know I'm watching the
(09:53) chart since Trump has been elected the dollar has gone straight up Bitcoin has gone straight up that's all the information I need Marty like I don't try to over complicate game theing 10 years into the future I'll let other people do that I'm looking at the United States putting in policies going forward over the next few years that bring Capital to the United States of America hence the dollar going up the euro is crumbling the Canadian dollar is crumbling the Aussie dollar is crumbling the Chinese one is pushing up against
(10:33) and by up I mean dollar strength Chinese one pair is pushing up against its all-time highs meaning the all-time weakest level of the Chinese one so if you look at other currencies they are performing very poorly versus the dollar in the magga era which we're only six weeks into now so I see the dollar continuing to attract capital from other places around the world that strengthen that strengthens the dollar then I see Americans purchasing Bitcoin starting Bitcoin companies and that will attract what more Capital to
(11:17) the United States and strengthen the dollar so in the short to medium term I see the dollar and Bitcoin performing very well together very well now if the US wants to to prevent Bitcoin adoption to protect the US dollar Reserve currency over the long term I just I think that's shortsighted because somebody else is going to win and if someone else is going to win the Capital flight and attract Bitcoin to their country the US dollar will will fall because of capital flight cap prices are all about about flow that is
(12:01) the only thing that drives price flow can be described as liquidity it can be described as credit creation all these things that we're going to talk about today flow is the only thing that matters so if you put good policies in the United States money will flow here and one of those good policies can be Pro Bitcoin policy in which money still flows here you want to talk about 10 20 years down the line when Bitcoin starts to replace Fiat which it probably does the further we get into the future you know somebody else is going to give
(12:37) you that better answer like let me give you my 20-year vision and I'm going to do some of it in my book but what I'm not going to do is speculate about the entire death of Fiat we'll sprinkle it in there because in a in a hundred years in a completely Digital Society I don't see government currencies having a place but that might be beyond my my ability to project yeah I I completely agree I think biten put it perfectly I think seven years ago now at this point Bitcoin is a game and the only winning move is to play and to think that the US
(13:18) government should sit on the sidelines because of some perceived fear that an endorsement of Bitcoin an allocation to bitcoin within the treasury would um significantly hinder the Dollar's dominance is is just shortsighted I think you gota I want to tell people that in my book Bitcoin age I have a fantastic story of how the United States government helped found the internet we got to tcpip which is a protocol that everybody can use and that led to the open internet but TCI tcpip was 5 years after the first universities had started to connect via
(14:06) the arpanet which was a defense department project they brought in people from the Rand Corporation from uh MIT from Lincoln Labs Lincoln Labs was the was the think tank arm of MIT they brought in people from Sri which was the Stanford research lab and it was the defense department a few top universities basically Stanford UCLA USC Berkeley MIT and and UC Santa Barbara and they linked them all and it was a government not mandated but a government directed project that we need to find a way to communicate and guess what they were
(14:55) still 100% reliant on AT&T who had a monopoly on longdistance phone telephone communication so the internet today being this big open Internet that we think it didn't start as an open internet Bitcoin is a very unique project that it actually started open then after 15 years the US government realizes oh this is actually an open project that is very similar to the one we started in the 60s that was closed but ended up being open and by the way one of the most important parts of that story is that a few years after tcip
(15:46) tcpip launched and started to be used by the universities and these research students guess who said we are going to transfer our entire network onto TCP IP arpa so the defense department actually adopted the open standard after creating the Prototype closed standard several years before so the United States being not only pro- interet but actually founded the internet is the Legacy that we should be using for context for Bitcoin adoption and I'm not talking about the us going out and buying a million Bitcoin that's
(16:33) that's the next level it's something that we'll we'll see next year right we'll see if that's something that they're going to do and we can talk about that then but the pro Bitcoin policy taking some of those C's coins and putting them in the treasury's custody these are very important things that have a tremendous historical context so freaks this rip of tftc was brought to you by our good friends at bit key bit key makes Bitcoin easy to use and hard to lose it is a hardware wallet that natively embeds into a two
(17:06) three multisig you have one key on the hardware wallet one key on your mobile device and block stores a key in the cloud for you this is an incredible Hardware device for your friends and family or maybe yourself who have Bitcoin on exchanges and have for a long time but haven't taken a step to self custody CU they're worried about the complications of setting up a private public Heir securing that seed phrase setting up a pin setting up a pass phrase again bit key makes it easy to use hard to lose it's the easiest zero
(17:34) to one step your first step to self- custody if you have friends and family on the exchanges who haven't moved it off tell them to pick up a big key go to bit keyworld use the key tftc 20 at checkout for 20% off your order that's bit keyworld code tfc2 and in the context of America broadly too I think I've been having conversations around this I think the American Empire it's almost 250 years years old at this point that's something bitcoiners talk a lot about is like the history of Empires where it's the Roman
(18:05) Empire Byzantine Empire Empires throughout history that have risen and fallen and I do think maybe I'm a bit naive but Bitcoin provides us the opportunity if we execute on it appropriately to extend the dominance of of the United States as as this experiment in political science with the with the Republic I think it's an opportunity to revive life in to a country that many would argue at least from like a political standpoint and even an economic standpoint is is sort of stumbling right now and I think Bitcoin Satoshi launched it almost 16
(18:48) years ago at this point provides us with that opportunity to see something that we can rally around and and provide New Economic value and productivity to the country moving forward and if we can lead can really set us apart U over the next few decades the Century Two centuries who know and there's no doubt in my mind that Donald Trump understands this and his advisers understand this it is a part of their plan we had we had Trump's new Chief e economic adviser on the Bitcoin layer a couple weeks ago and he said I
(19:29) believe they're going to do this because it's part of that growth plan we have to figure out a way to revive the economy in the United States that has been globalized I mean that's what the whole politics is about today is that you you Outsource the manufacturing you destroy your your industrial base and in that way the global economy might be better off for it but the domestic economy and the people themselves are not necessarily better off for it and the politics then goes toward National polit nationalist
(20:10) politics and that's what the people have voted for this time and in that vote they hope for domestic forward policies and this is one of them the reason it's one of them it's not random he campaigned on it he went to Nashville Baron is Baron is like Dad you you got to do this and you know what Donald Trump said to Baron okay son I will do it and he's credited Baron with the Rogan thing and later on we will understand more and more that he's going to credit Baron with the Bitcoin thing he's got youth in his ear this is
(20:58) a good good thing because the country needs they need a plan for the future they need a plan for young people yeah that that has been I think comparing this campaign with the 2015 campaign and the 2016 the 2020 Administration it seems like he's learned a lot of lessons having been around the block once and this time around really leaned into his family his his young Sons to to help advise him and instead of Getting co-opted By by The Blob if you will so I'm incredibly optimistic and the crazy thing about it is this is
(21:42) just one bullish factor in the Bitcoin backdrop right now I mean I reached out to you because it seems like your base case for bitcoin's potential meteoric rise has changed as you came to understand the micro strategy utilization of the convertible debt Market better and better and particularly how repo markets play into that and credit creation the creation of new dollars to buy Bitcoin uh has added a whole new variable to the flows that can come into Bitcoin and I think it would be really interesting if we just dove into this
(22:24) you did a 45 minute video on the Bitcoin layer that will link to in the show notes that everybody should go read but I think for excuse me go watch but for anybody who hasn't watched that what was the unlock for you and what are the Dynamics at play here in terms of how micro strategy has sort of tapped into this market and is I don't want to say weaponized it but utilizing it to um produce an incredible amount of of flow into the Bitcoin Network that's the key word is flow so let's let's go back you know six seven eight years to my
(23:05) original Bitcoin thesis about why why me and my family and friends should belong this asset for the long term okay the the thesis was that Bitcoin is you know at the time let's just call it 100 billion market cap so uh you know 10 or 20x ago right so about a $5,000 Bitcoin price and I'm looking at this 100 billion number and I'm looking at another number and that number is about 500 trillion okay and the 500 trillion comes from let's just say 100 stocks 100 bonds and 300 in property okay so that's a very crude initial
(24:02) assessment of like this one pile of wealth 500 trillion existing wealth by the way existing assets not all of it monetized because the 300 trillion in property a lot of that has never changed hands you know in theory stayed within families for for for centuries so we got about 500 trillion in assets and we got this 100 billion doll digital gold asset and gold at the time was about 10 trillion it's closer to 20 trillion now inflation and so I'm thinking about 100 billion Bitcoin and 10 trillion gold and I'm thinking Bitcoin can easily get to
(24:48) $500,000 per Bitcoin and 10 trillion market cap because it's better than gold we know this I mean that's not a new Theory thesis Bitcoin is much better than gold from a global Reserve asset perspective it's digital instantly verifiable so 500,000 is a lock basically I told my friends and family I wrote it in layered money there's actually a sentence in toward the end that says and we should expect that Bitcoin one day will cross gold in total market value so you know 2021 I published that Bitcoin would be going to
(25:26) 500k and Beyond so getting to 100K shouldn't be that dramatic or surprising and it wasn't right I mean if we're expecting these higher prices a million 2 million even 500,000 getting to 100,000 isn't a big deal but when we got to 100,000 and we got to 2 trillion I'm thinking about okay what is next for Bitcoin it got to 2 trillion quite easily from 100 billion and it's probably going to 10 trillion now quite easily right it's going to a million dollar quite easily which would be about 20 trillion or 21 trillion because that's only 10x away
(26:15) right 5 to 10x away Bitcoin does 5 to 10x every few years anyway so we're already we're already there we're bumping up against a million at 100K but the thought exercise came in that okay how do we get there now how do we get to a million what's going to drive it is it the 500 trillion rotation where people s sell stocks and they sell bonds and they sell their apartment buildings and then they buy Bitcoin or is something else happening and I realized that something else was happening and Michael sailor is not selling a assets to buy Bitcoin not
(27:01) only is he not selling assets to buy Bitcoin his investors that are buying his convertible bonds are not necessarily selling other assets to buy those bonds how because if you're a bond investor and I worked at two Bond shops one of them had about four billion under management the other had over a 100 billion under management at the 100 billion uh firm I personally was responsible for the execution trading of about 20 billion of those Securities so we had a lot of treasuries and those were all in my book I didn't make all
(27:39) the decisions I made some of them but I was in charge of trading so I had to know everything about the market as I was trading these bonds some of my treasuries that were on my book the credit guys would say hey sell sell 5-year Treasury I need to buy this 5-year Apple Bond and I need cash so I said okay so I sell my treasuries he buys the Apple Bond and in a couple days the money comes in from my sale and it goes out to to Apple basically and apple gets the money and where did it come from it came from an existing pile of money that in
(28:23) which I own us treasuries but what if I shouted back to to Rob hey Rob I don't have any fives you're just going to have to buy it I'll sell treasury Futures on the other side so you don't take on double duration right because Each Bond has duration risk so I'll sell treasury Futures you buy the Apple Bond you you don't have risk but then Rob says well how am I going to finance it where's the money and I tell Rob call call Morgan Stanley and ask them to finance your bond so he calls Morgan Stanley and Morgan Stanley says we'll lend you 80%
(29:03) of the money or 70% of the money at uh Sofer plus 50 basis points and Rob looks at the screen and he says okay done so now Morgan Stanley has just created 70% of the new purchase from thin air now where does Morgan Stanley get the money well Morgan Stanley repo desk writes that underwrites that collateralized loan because they've taken the micro strategy Bond as collateral they've issued money where do they get the money it's basically the daisy chain of banking liabilities from their parent bank and their parent bank doesn't
(29:45) necessarily have to mark that extension of the balance sheet until month end but their desks are managing how much liability expansion is happening and then at the end of the month they they try to true it up to make sure that it looks good for the books the window dressing that we hear about and at the end of the month they have expanded their balance sheet by x amount and some of that x a proportion of it is due to an expansion of repo financing therefore my entire point about this next wave of Bitcoin price
(30:23) increase is that it is due not 100% to rotation this was the big word that we would all use for years that the bond market is 100 trillion guys some of that money is going to get into Bitcoin but you're assuming that they're going to sell the bonds but that's not how these Bond managers do things yes they sell some bonds to buy new bonds but bond funds Finance positions with repo they borrow money to buy new bonds and they that's how they leverage so they're over 100% in their AUM in Securities Holdings and if you if
(31:08) you have 150% long bonds that means you have a negative 50% role it's a financing role it's a borrow the 50% over a 100 comes from the borrow and that borrow doesn't come from somebody else's borrow it comes from credit extension go back to your Basics on how a bank extends a loan balance sheet a is a 100 assets and 100 liabilities and balance sheet B next month or next day is 2200 because there's a new 100 loan and new 100 deposits that is an expansion of the monetary system the financial system and my whole thesis here is that
(31:59) Bitcoin getting to 20 trillion is not going to happen because there's several trillion of bonds being sold and then buying Bitcoin or bonds being sold and giving it to sailor so that he can buy Bitcoin it's going to be people basically just call it a new company a new company with a lot of cash flow so a lot of credit worthiness let's just say Nvidia Nvidia goes to their let's just say they go to the capital market and say we want Bitcoin as a strategic Reserve now we want it as a corporate uh balance sheet item and the and Nvidia says by the
(32:45) way Marty do you know how much cash Nvidia has on their balance sheet I have no idea by the way this 20 billion do that we have in cash on our balance sheet just making up the number we're not not going to use any of that we don't want to use our cash and so the market says well how about you issue a bond and Nvidia says great idea because the carry meaning the interest expense will be 5% and our expected Bitcoin return will be 30% perom and so that is a a return on investment invested Capital that we Embrace so let's make
(33:28) that decision it goes to the market IT issues bonds the market buys the bonds finances them through additional repo financing if you don't want to think about repo just think of it as credit it's just a credit line so investors say hey can I have a credit line they go to City and they say hey Nvidia just issued some new bonds I want to buy them will you lend me money and City says okay here's a new loan for $100 million the the bond fund takes the 100 million and buys uh Nvidia bonds there's no repo there just another random bank
(34:08) that lent you money now you have a loan to City you have to pay interest you know expense on that you have a a long asset Bitcoin and the long asset Bitcoin is 100% leverage because you borrowed the money from City and is City's balance sheet larger today than it was yesterday yes so where did the money come from from for new Bitcoin demand it came from thin air it came from nowhere and that's credit that's balance sheet expansion and that is what I believe drives Bitcoin going forward not some Grand rotation that's a that's an obsolete
(34:46) narrative it doesn't mean that you and I aren't you know taking some earnings that some company you know paid us and taking that money and buying Bitcoin that's existing money that will continue to happen for sure but you have this entirely new segment of demand that is credit expansion to buy Bitcoin and that's what takes Bitcoin to a million dollars and Beyond and quite easily because everybody who has Bitcoin that will sell it I believe then the money that comes to buy will be new money from the financial system so freaks this is a
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(36:21) com Mary another fascinating aspect to this is if you've listened to sailor in his presentations within the last year specifically it seems like it seems like the credit funds came to him recognizing the volatility of micr strategy stock and sort of if I understand correctly listening to the presentations and sort of made him aware like hey as Bond investors as convertible note investors really like the volatility in your stock maybe this is how you should go about your accumulation strategy and that correct me if I'm wrong but that that order of operations of how micro
(37:02) strategies Bitcoin accumulation strategy has evolved over the last four years is fascinating because it's almost like the traditional Bond shops recognize the opportunity to get a higher return on their their debt exposure via these convertible notes and have planted the seed which I think is extremely bullish because it's not bitcoiners going out and pitching this strategy to this type of investor it's this type of investor who really understands the market particularly for debt better than anybody in the world recognizing this opportunity and
(37:43) bringing it to Market and if these bonds keep performing the way in which they have over the last few years you can imagine that demand for this type of product isn't going to be driven by the Bitcoin companies that want to acquire the strategic Reserve but it's going to be the other way around these Bond investors who want a higher return on their credit portfolios and let me tell you how it works we're looking at now I'm back on the on the desk and you know my portfolio manager says hey can you can you uh run a report and tell me
(38:19) run a Holdings report and give me our allocations across the account and I'll give the allocations I'll be like we got 25% in treasuries 50% credit and 25% in structured and the portfolio manager says Hey 25% in treasuries is too high that means we're not taking enough credit risk you need to rotate some of that you need to get it down to 20% okay so that means I have to sell 5% of my treasuries and buy some credit with it well then I go to the 50% credit allocation and and then my credit portfolio manager says hey can you give
(39:00) me a sector breakdown and I said you're you know 5% energy 10% Transportation blah blah blah and they said hey there's not enough technology exposure in there so what can you do about that and you know I called I call my credit desk and the credit guys say you know there's not a lot of Apple Bonds in the 10-year part of the curve that's available so then then you'll say well let me call them and I'm giving you an example of Apple just because it's a recognizable company but this this is actually what happens with mediumsized companies like
(39:39) micro strategy so let's pick a smaller company actually um so let's go with um let's go with a smaller company that is or let's go with broadcom broadcom is a company that just crossed 1 trillion in market cap so it's an enormous company broadcom is a chip manufacturer broadcom is a big Tapper of the debt Market they they they come and they borrow these huge amounts of money from the debt market so if I'm lacking technology exposure and we look at the line items and I'm lacking some broadcom tickers in my portfolio my credit guy
(40:24) will actually call Barkley's who he knows runs the deals for broadcom and he'll say hey Barkley get broadcom to do an issuance and make sure that they issue a fiveyear a seven-year and a 10year because we want all three of those teners because we need D we need credit spread duration across the portfolio we don't we have too much concentrated in five we need a little bit five seven and 10 so my credit guy calls Barkley Barkley calls the C o of broadcom and says the market is ready well actually Barkley starts calling they call Pimco
(41:04) they call wamco they say hey if we brought 15 billion in broadcom bonds would you be a buyer would you be a buyer of fives would you be a buyer of sevens 10 20s 30s would you buy 40s they're thinking about a 40-year Pimco says wave it in uh we'll buy a 40 we'll buy we'll buy every tener so Barkley's calls broad comeback says Hey the market is ready we think you could come with 10 billion you could probably hit them with 15 billion but as long as you do it in every tenor that they want and will help you structure the deal few days later
(41:40) broadcom comes they issue 15 billion of bonds every Bond manager gets called from Barkley's they put in their orders they put in 25 billion of orders everybody only gets half the bonds they wanted and broadcom is like licking their chops because in three months or six months they can do it all again and so what I'm what I'm telling you is confirming what you're saying micr strategy bonds have an attractive risk Pro profile so the bond managers are looking at the returns of their competitors that bought the early ones and they're saying
(42:14) we need to chase that call our dealer tell them to call Micro strategy and tell them to issue we'll take down 100% of the deal well the dealer says h that's not going to be healthy for the for the bond issue so we're actually going to call a lot of your competitors and see if they want in to and they call everybody everyone says yes they pencil they uh pencil in their orders and uh it's called like a soft order you know you and so the dealer knows exactly how much demand is going to come so they're not surprised when they bring the bond
(42:52) and the bond gets the orders because why they've already taken the orders and so the bond managers driving the bus here and saying we want those returns is not something I saw coming I didn't see that coming and it doesn't mean that I it actually means that I wasn't bullish enough on bitcoin and that's what I had been struggling with over the last few years I mean sorry few weeks because I have always been very bullish on bitcoin but to realize that I wasn't because I actually missed a fundamental that has to do with
(43:32) my industry in the bond market it it's been a trip it's been something that I've I've embraced and I just want to be honest and transparent with people that hey when I told you that Bitcoin was likely to go to $500,000 in my book in 2021 that was that was not bullish enough that I could have said more but at the time that's what I said so we'll say in the next book hard to believe that you weren't bullish enough considering how bullish you have been since since 2021 probably earlier but back on this this I don't want to call it a hack but
(44:15) this opportunity that Bond investors are taking advantage of via micro strategy use Nvidia as an example earlier how sustainable do you think a a strategy like this is moving forward is it specific to micro strategy will anybody have similar success are there different ways in which in which this will manifest across different companies and different sectors different market caps like I guess the simple question is like how long can this strategy run um and is it as long as Bitcoin adoption continues to increase and maintain the pace that
(44:53) it has for the first 16 years is this the strategy that is that is very sustainable moving forward well I don't know what I what I still believe is that Bitcoin is probably headed for another overdone price move and then correction so that's still my base case is that we're still going to cycle up and cycle down and so perhaps as we get into the other the other side of the cycle call it 2026 or I don't know but then you might see a change in the way that their issue because flow is what matters right and so if interest rates get hiked or there's
(45:41) some liquidity contraction and the first few bonds stop getting issued then prices go down then the flow is out then actually people are selling the bonds and you can't fight flow so that's that's the way I'm thinking about is that flow will continue until something makes the flow stop and then it and then the price goes down and then the flow reverses so I think something like that will probably happen again and it'll be interesting to see how the corporate Bitcoin bond market operates in a bare Market um you know sailor was
(46:19) buying during the bare Market but he was issuing Equity to do it right I mean mostly he was issu issuing notes as well um but the energy and the phone calls from the you know Bond managers to the dealers probably wasn't there we'll have to see I do think that this speculative attack type of issuance and purchase is going to be replicated in The Sovereign market so we might see countries in the Middle East Eastern Europe Asia Latin America issue Sovereign bonds in part to build a strategic Bitcoin reserve and that is something
(47:05) that the Trump move will the the Trump strategic Bitcoin Reserve is going to trigger more strategic Bitcoin reserves and I believe that those countries that are going to be triggered into doing this are going to say hey let's just tap the bond market and nothing gets repoed more easily than a sovereign Bond even em bonds they get they get repo the haircuts are expensive the rates are expens expensive but the borrow is provided because those euro dollar Banks love I mean so em bonds Emerging Market Sovereign bonds
(47:57) are for the most part issued in the euro dollar market it's the Euro bond market it is a London issue so when I would buy bonds when I buy treasuries from City or from Merill and I get delivery of my bonds my bonds come from the DTC account of Merrill's New York desk and I know that because I do all the I mean when you know seeing the settlements you know what DTC account it's coming from and you you send the ticket to your Ops Skies you know everything where the money is going when you participate in an SSA deal which
(48:33) stands for Supras sovereigns and agencies this is like when World Bank issues bonds under the ibrd ticker or when the European Investment Bank eiib issues bonds or afdb African Development Bank or what about the country of Indonesia what about South where do they issue their bonds out of the London desk so when I have to send funds and get bonds I have to actually check that my wire is going to London and my bonds are coming from London so the the point here is that when the EM desks so like let's say the Goldman desk in London when they run a
(49:30) bond deal and they call everyone and say Hey you know are you going to participate in this in in this Indonesian Sovereign Bond what does the manager say yes but you have to finance me the position or else I'm not going to do it I don't have the cash but I'll take it if you do if you do good financing and what does that mean repo so the repo Market is Central to domestic Bond issuance international bond issuance and specifically London Euro doll eurobond issuance that is and that repo financing is done in the Euro Doll
(50:13) Market so we can't even measure it and that by the way is why liore used to exist is because they would need to have a rate to Center their balance sheet around in the international market so that's why they use liore l in liore for London it's a London rate now they use Sofer worldwide because the financial system discovered that uh anyway we don't have to get into the death of liore today but to answer your question sovereign debt issuance for strategic Bitcoin Reserve purchases financed by the London Euro dollar repo Market is something that I
(51:00) did not see coming and I couldn't have seen it coming where the politics was 12 months ago in the United States but we had the shift I guess the shift was always there Marty I mean if we think about the conversations that you and I have had over the last four years we've visited in Texas together the understanding that the politics is Shifting towards where it did in November we understood that but to still say that this is my base case that Trump gets elected puts in a strategic reserve and then you know random sovereigns are
(51:39) issuing bonds to stockpile their own Bitcoin all getting finan in the repo Market I just didn't see it coming there's no shame in admitting that this type of action which could take Bitcoin to several million dollars was not in my wheelhouse a year ago just wasn't and in terms of sovereigns issuing debt to buy Bitcoin I mean I think that was it's core to many people's cases that would put forth that acquiring a strategic Reserve would set off some chaos and treasury markets because you're almost explicitly saying I want to hold this asset and
(52:23) Bitcoin as a reserve asset over these government bonds over these treasuries would incite a collapsing confidence in treasury Government Bond markets overall and so when it comes to issuing bonds to acquire Bitcoin this has been floated around by Luke Roman Preston pish and others over the last six months since um the fervor around Trump's campaign began to pick up and people became more confident that he would likely win the presidency again do you think with these bond issuances to acquire Bitcoin there needs to be a
(53:05) component of the bond that actually has Bitcoin in it as well so you raise cash for a 10 year 30-year Bond you take 10% of it hold it in Bitcoin within the bond structure and then uh share with the the Bitcoin appreciation when that Bond eventually comes to term something like that necessary or completely that sailor is doing that he's he's trying to get that emotion with his convertibles uh give the people the upside right because it's in the name you get to convert so then you get to participate from the common side and
(53:46) that's my understanding of his converts and the upside that he's giving his investors because he is focusing on the common shareholder and he said that in the last few weeks he's kind of hammered the table there that we're focusing on the shareholder so I'm not so it it would be I think it would be a good thing for a sovereign to issue that type of debt structure I think it would attract I think it would attract capital I think it would work but I don't think they need to at the beginning I honestly think they could
(54:22) say in the prospectus we plan to take 10% of these proceeds and put it in a strategic Bitcoin reserve and that would be enough to to get the demand because embedded in that sentence is the understanding that if the bond is heading for a default the Strategic Bitcoin Reserve can be liquidated in order to satisfy the debt holders that's potentially embedded in that type of language so from a bond desk perspect perspective unique structures that don't fit in with the typical operational cash flow of a semiannual coupon paying Bond
(55:06) it's not fun for a bond manager to get involved in that type of thing they literally have to reinvent some of their operations to make sure that they can even account for their performance because if you have 10% upside on a on a bond or you have 10% of the Bitcoin uh your Holdings let's try this again let's say you own a bond and 10% of that bond has a variable price due to a Bitcoin component your entire risk system isn't set up to model that security it's set up to model duration convexity coupon and yield and spread like the basic Bond
(55:50) thing so my initial reaction would be I don't think bond funds are going to want a totally unique structure right off the bat but do I think it's a bad idea no I think it's a good idea it might happen in the future but I don't think unique structures are essential to get this Bitcoin Sovereign Market going um we'll have to wait and see the first country to try it out but I I anticipate more just they'll have some language in the perspectus that said some of these funds are going to go to bitcoin purchases that we plan to hold
(56:30) for the longterm strategically something like that fascinating that's I I think I'm trying to tame my bullishness here because when the critics whether it's a micro strategy or the US government um positioning that they are going to go out and acquire a strategic Bitcoin reserve lambas the strategies they're almost looking myopically at I mean we're seeing it obviously with Jason calanis and others on on fin twit who are saying that micro strategy is completely lever they're going to blow up and it it's obvious to me they don't
(57:09) understand U what's happening with the converts specifically I think they're all neglecting to acknowledge the fact that a lot of the debt that's been acquired by micro strategy has already converted to equity and if Bitcoin goes up in micro strategies share price goes up the the debt that they still hold will likely convert to equity as well sort of delevering them in the process of their stock price going up uh and they're all looking at it myopically like oh micro strategy can't do this forever like they can't push the the
(57:41) price of Bitcoin up and then similarly with Sovereign Nations the United States like if the government does this they're they're looking at it similarly not factoring in all the other demand sources for Bitcoin which are individual businesses we beginning to see Bitcoin uh Veer its way into uh private credit markets with commercial real estate being underwritten and dually collateralizing commercial real estate debt with the properties and Bitcoin and that's one thing I think a lot of people are missing when they're critiquing
(58:17) these individual strategies is that they're looking at them myopically and completely neglecting all the other demand forces that are drawing flows towards Bitcoin and I think that is a grave mistake for many uh because at at this point in bitcoin's life cycle 16 years in it is a brand name I think unless you're living under a rock it is hard to admit that Bitcoin is most likely not going to die it's been up and down so many times and it simply hasn't died it's only gone up and to the right over time and that is one thing as we head into 2025
(58:59) that really want to articulate the people out there who are critiquing these individual strategies and looking at them in in isolated fashion is the demand drivers toward Bitcoin are so multifaceted at this point in bitcoin's life that if any one were to um were to sort of slow down whether it's micr strategy convertible notes or governments acquiring Bitcoin they're still a number of other demand factors that that cannot be ignored and it it is just insane to watch it all play out in real time right now yeah and I'll give you
(59:37) I'll give you one more bullish uh scenario in the bond market as well but I can already tell Marty that if there's a hill that you're going to die on it's going to be the I only look at the 200 we moving average price of Bitcoin Hill um because when you think about up and to the right people they they have a tough time understanding that with the observed volatility they can't get past the swings um the scenario I wanted to walk you through is let's say let's say Saudi gets involved in a strategic Bitcoin Reserve right and they come and
(1:00:18) we get a KSA bond that hits the market in the euro dollar market KSA being Kingdom of Saudi Arabia is the ticker that they issue under so let's say we get a KSA Bond and you get a big Bond manager that comes in and buys the bond because they like the return profile they don't borrow from the REO Market to buy the bond they just let's say they sell treasuries and buy KSA couple weeks later the bond is performing well it's in the money it's trading at $12 price the bond manager goes to their broker and they say hey
(1:00:56) we'd like to borrow some money against this KSA Bond broker says okay we'll we'll Finance you 70% so they wire let's say you bought 100 million of bonds now you're a bond manager you have 100 million of KSA bonds and then you pledge them as collateral and you borrow 70 million so now you have the economic ownership of 100 million bonds and you have 70 million in cash you also have an interest payment right on the 70 million borrow but you have 70 million cash now let's say this fund it's not a bond fund it's like a multi-asset it's
(1:01:35) like a macro fund let's say that macro fund says hey we actually now have a strategy of buying Sovereign bonds and then using repo financing to buy Bitcoin to leverage our position so now you are buying bonds that are explicitly meant to go purchase Bitcoin so you know this KSA Bond they're going to take the proceeds and buy Bitcoin then the bond manager takes the bond puts it on collateral and the Dealer by the way likes the bond because the bond is good collateral first of all it's a KSA Bond second of all it's got some Bitcoin
(1:02:15) behind it okay so the dealer lends 70 million to the macr fund the macr fund says let's put that extra cash in Bitcoin and basically have a sovereign Bond Bitcoin overlay strategy it's so bullish Marty there's so much money that can just be created now that Bitcoin is in the bond market did did did I really expect my worlds would Collide like this where in 2024 I would be breaking down this Bitcoin Sovereign Bond overlay on Marty bent no I I I didn't I didn't think that I would be and do you think wrap it up with this because I've got to jump here
(1:03:04) um hop on a call but I I think just to end it like do you think these Bond investors see this as a way to catch up outperform The Benchmark and obviously since covid or a couple years after Co bom markets have been significantly um hindered uh the returns are not as as great as they have been historically do you think they're viewing this as a way to close the gap and some of the shortfalls on returns there's there's two parts to your question I'll make it quick number one the bond market in general is in trouble
(1:03:44) because we're in an a more inflationary era so the asset class itself is not the best asset class to own with that being said the bond managers themselves are focused on Survival they're just focus on beating the Benchmark and not getting fired because if they get fired their competitor takes the money whether it's an equity manager or another Bond manager they're just trying to not get fired so they're trying to make sure that their returns are good that's it it's pretty simple and and that's it's funny because we've been talking about
(1:04:15) Bitcoin fix the money fix the world they can help recapitalize all these markets and create somewhat of a safe landing a soft Landing a bridge from the this inherently fragile Fiat debt system to a new era which Bitcoin is a reserve asset and as you said you never thought your worlds would Collide this way but it seems like the market is naturally coming to this conclusion and leveraging Bitcoin to do this whether it's um whether they explicitly understand that they're helping themselves manufactur soft Landing or just taking advantage of
(1:04:56) the potential return profile that that has been introduced because of of Bitcoin and these these debt markets that have emerged um it's just fascinating that it seems like it's happening in real time absolutely it's uh it's going really quickly and Bitcoin is a volatile asset class so you know as we get more bullish and more bullish Bitcoin is sure to make us look like idiots and have a big crash you know to get all the the recent people that adopted sh you know shaken out forever and they get scared so Bitcoin is one of those things where
(1:05:34) it's always trying to make a fool of us so we have to do our best to stay humble and not try to make too many predictions but it's hard to contain the bullishness for sure yeah well I appreciate you doing this uh during a holiday week and if you're listening to this go go pre-order Bitcoin age you can find it on Amazon we'll link to the book in the show notes and I'm sure this is the first of many discussions we'll have around this topic because I think it's going to evolve pretty quickly and there will be ways in
(1:06:13) which companies Sovereign Nations individuals even leverage some of these debt markets to acquire more Bitcoin that that will materialize in the years to come and so next really appreciate you doing this and can't wait to do it again my pleasure Marty appreciate you all right peace and love freaks okay
