The Last Trade E061: The Great Deleveraging with Sam Callahan

Brian Cubellis (00:00.158) Jackson yeah, yeah, we can kick it off All right, welcome back to the last trade this week we have Sam Callahan and Mark Connors joining us Sam maybe we can start with you if you just want to give a overview of your background I know you've accomplished a lot in the Bitcoin split in the Bitcoin space. So really if you want to just highlight your journey personally and professionally maybe any of the notable work achievements you had in the space, we could kick it off there before we get into the meat of the conversation. Yeah, thanks. And, Hey, Mark. Hey, Michael. It's great to be here. yeah. So, I mean, my background is, mean, I studied business in Indiana, and then I switched majors to physics and biology after I wasn't really excited about what I was learning there in terms of the Keynesianism. So I switched majors to physics and biology to better understand another complex system, which is the human body. And, you know, I went down that route of healthcare, worked as a sports physical therapist for a number of years with professional athletes, developing algorithms to help prevent injuries from happening in the first place. And so we had a lot of success incorporating that into organizations. Because if you think about the athletes, they're their prized assets. Right? The organizations, if they go down, not only does it hurt their performance on the field, it also doesn't fill seats, doesn't sell tickets. So, gotta prevent those injuries from happening. And so that's what I was doing for a number of years, but I was such a geek when it comes to financial history, investing. I just read a lot. I read a lot of books. And so I had studied financial history, central banking, and kind of understood the problem, I guess, of money printing. And so I was kind of primed to understand Bitcoin when I randomly came about some article describing it. And what really grabbed my attention was Satoshi Nakamoto. I just thought it was a movie. just didn't sound real that nobody knew who this guy was at the time. This was like early 2017. Then I started reading a lot of books on Bitcoin. Then like everybody else fell down the rabbit hole and just became absolutely obsessed. Read every single thing I could get my hands on. Brian Cubellis (02:20.93) podcasts, you know, just constantly thinking about Bitcoin. Then I just knew I had to do something about it. It had to change careers, had to work in it somehow. wasn't enough for me to just hold it and benefit from the price appreciation. I wanted to teach people about it. I wanted to kind of drive its adoption because I just thought it was extremely important. It could solve the problem of central banking and the ability and finally have an ability to save. And so, yeah, I guess it was like the fix the money, fix the world. I wanted to be a part of that. So I started like posting content on Twitter. was on Bitcoin Twitter back then under like a pseudonym ended up doxing myself on purpose just because back then it was kind of harder to get a job in Bitcoin. If you weren't doxed honestly it's kind of changed now. But then ended up at swan as one of the early employees doing a lot of different things but then carved out a niche as the senior analyst. I was doing a lot of in -depth research reports. ended up publishing like over a hundred publications over the couple of years I was there, market updates in more industry specific research, diving into pretty much every aspect of the ecosystem, mining, lightning, different innovations, custody, like no matter it was like a regulatory updates, really anything that I was interested in, that was one of the good things about Swann. had a lot of freedom with where I would research. so yeah, in terms of achievements, mean, I guess I feel like my greatest achievement is just the relationships I was able to cultivate over the years with so many remarkable individuals. mean, it's just so inspiring to be surrounded by these people. So it's really the relationships that I've cultivated is my number one achievement by far. So that's the best part about being at Bitcoin is you're surrounded by really inspiring, intelligent, driven people to make the world a better place. That makes a lot of sense. There's two things that stood out to me that I remember when you kind of came on the scene. I guess it was 21 when the CBDC conversations were coming up, but it makes a lot of sense that you were primed because you had studied a lot of the intricacies. And I think you were kind of one of the first that were really well spoken and understanding the gravity of it. And so that kind of anchoring back to it feels like, you know, decades ago at this point, three years. Bitcoin feels like a decade. But then the other thing that's really Brian Cubellis (04:48.142) transformative. know, you know, Mark jumped into the space with three IQ from Trad Fine. He's been, he's spoken about the notion of getting in and the number of connections you make in Jackson coming over from the private equity space. And myself, I remember back in 2020 when I joined Unchained, one of the things that I've always anchored to when I, when I told individuals is, I don't even remember looking at the offer. Like I remember there was a number and there was equity or whatever, but it was more about if you jump into the space, pays for itself 100x over the connections and network that you make. And I think you're probably, you know, a testament to that with the past few years, the number of doors that are open independent of any monetary value that was gleaned from working there. It's just the channels you can't, you can't put a price on. And so I'd always encourage anybody that's thinking about jumping into space is just like, it because if you're really passionate about it, it's going to work itself out. 100%. Yeah. Another cool thing, Sam, that I didn't realize about your background is really how you started in the science space and nutrition and helping athletes kind of goes to show like Bitcoin really allows anyone who is driven, hardworking, curious to get into the space. You don't need to follow like a cookie cutter kind of career path that typically, I mean, I'm coming from the traditional finance world and it's very regimented in terms of like the steps that you take in your career. So it's cool to see that. then, you know, a lot of similarities just in terms of, you know, low time preference athletes having to care for their bodies and kind of the scarcity of the human body, scarcity of Bitcoin, like interesting parallels there. Definitely, you know, throughout the past couple of years, I followed a lot of your research. I know you've continued to put out research and one of the ones that caught my eye recently was your piece about the yen carry trade and the Bank of Japan. maybe that was only 10 days ago or so. It feels like it's been a lot longer just given the volatility that we saw in markets and a lot of, a lot of, uncertainty at the time in terms of how other central banks would react, implications for financial markets. So maybe you could just give a high level overview kind of breaking down the research you put out recently explaining what happened there and then we can dig a little bit deeper into the global macro. Brian Cubellis (07:01.302) Yeah, I he just what I said, I studied a lot of research and financial history. Well, one of those person does Hyman Minsky. And so what I what I thought is kind of a classic Minsky moment, which is what he always said that periods of low volatility can lead to periods of high volatility. And why that is, is investors get really complacent. And when they get complacent, they start to feel safe. They start to take on riskier bets, take on leverage. And then eventually that leads to asset bubbles and at least eventually that leads to a popping of those asset bubbles and a huge spike in volatility and a deleveraging event occurs. And that's what like a Minsky moment is. And I think that's what happened with the yen carry trade. I mean, it's basically a short vol position. You're basically you're borrowing yen at a super low interest rate, then converting that yen into dollars and then buying. other high yield assets. It doesn't have to be dollars, but let's just say it is dollars for this example. Then you're buying other high yielding assets, say US stocks or US bonds, you make a, the profit is the difference between the cost to borrow the yen and whatever your return is for the stocks or bonds. And so it's basically a short vol trade because though if the exchange rate between the yen and dollar remains stable, you're fine. But if there's a lot of volatility there and say the yen spikes against you, you're going to get in trouble pretty fast. And especially if you take on leverage, it's going to really blow up in your face. And leading up to the summer, we've been in this period of extremely low volatility. When you look at the equity markets and then Bitcoin actually too, we were hitting the kind of historic low volatility. know, and so it was kind of like this period where people I think were taking on more risk than maybe they were expected. And then what happened was, you know, this yen carry trade became extremely popular because The Bank of Japan interest rates were so low compared to other central banks who had risen so fast to try to defeat inflation. Now, Japan hadn't risen rates in a very, very long time because obviously they have this huge debt burden that they have to deal with. And they basically pinned it at zero and even used things like yield curve control since 2016. But lately, inflation has started to creep back up in inflation, which is a problem. And also the yen has been depreciating pretty rapidly. Brian Cubellis (09:23.36) And so they're getting pressure from obviously the citizenry who don't like inflation like every other citizenry around the world. And they're getting pressure to raise interest rates to try to improve their currency's position. And so out of nowhere kind of last week or was this last week? Yeah, last week, the Bank of Japan decided that they're going to raise interest rates to zero point two five percent, which doesn't sound like a lot, but it's a lot for the Bank of Japan. And that really scared people. know, there's a trend shift that occurred there. And so... wasn't that like an eighth of a point? Like, didn't they only raise it... Like, that's bananas. So, you're right, the headline was a quarter point. But they raised it from an eighth. They decided another eighth. Yeah, like another eighth. It's a lot in percentage terms, you know, but I think it's more about like... you know, the trend that they would even raise it at all after not doing it for so long. And that little change led to a lot of this volatility. At the same time, you had the Fed kind of talking about cuts. At the same time, you had like poor economic data coming in with the PMI manufacturing hitting like an eight month low. And then the jobs report was just garbage on Friday. So you had this like kind of culmination that led to this like volatility blow up, which really like cause a huge deleveraging event with this yen carry trade as these, you know, traders went to basically close that out. And so the yen spiked to a seven month high against the dollar. And that just caused a huge deleveraging event. And to me, it just shows like how fragile the traditional financial system is. mean, have Bank of Japan trying to raise an eighth of a point and it causes a global meltdown across multiple asset classes. mean, Pretty wild. I'd love to hear your thoughts. That's how I'd kind of summarize it. I'd love to hear Mark or Michael or anybody else. Yeah, Mark, I'm generally curious, based on what Sam just shared and contextualizing that, because I would imagine 20, 30 years ago, let alone 10 years ago, that move happening doesn't make that impact, but the leverage is so great of the system now. How do you think about that? The gearing's greater because there are Brian Cubellis (11:44.846) there are fewer banks in any given country. So the balance sheets that can engage in this trade are fewer. Certainly there are hedge funds, but there are fewer of those, and those are concentrated. So the players are more concentrated. The pile of paper they're playing with is larger under any measure, percentage of GDP or nominally. So when you have, as Sam pointed out, right, we said an eighth, but it's doubling. And the reason why that distinction needs to be made or was appropriate that you made sam is because that's the trade they have on. They are borrowing at an eighth and they are then investing at say five and a quarter, whatever the forward curve is in US dollars. And that's a tremendous gearing. Think of that gearing. And then the leverage they have is based on that ratio. So when they when when it when the cost of their borrow doubled, that caused an unwind because their trade is predicated on an eighth, not a quarter, which is absolutely crazy that 12 and a half basis points, you know, that's, we, we did that, we're looking at a piece called chaos theory about the butterflies wings, right? It's the, it's the wings and you know, that little 12 basis points ripped it through. You also said something else about fragility and this is major topic. Why didn't the Fed intervene? Should they have intervened? And what does it mean going forward? And I think what happened here was the shock did not cause any player to break, whether it was like a prop desk at a bank or a hedge fund to be bailed out like 98. And that little Gordian knot of risk is just tightening and someone's going to lay it in half, which is the only way you take care of that knot and something's going to break, is Bitcoin. Bitcoin don't break, I guess, is the point that, you know, my thoughts there. Yeah. And like, I don't know, to me, like connecting the dots of like, well, how did this cause like a crash in Bitcoin and and U .S. stocks, U .S. treasuries? Brian Cubellis (14:09.742) It's because when they put on this yen carry trade, they borrow in yen, they turn around and buy other assets, right? That's what I mentioned before. Well, to close out the trade, they got to sell those assets, convert the, you know, get the dollars, then convert the dollars back to yen, and then close out the, you know, trade. And so that's why you have selling that occurred, whatever they were kind of used with the borrowed money to buy, they had to sell that. And then usually when there's margin calls, they also have to sell other things, you know, to meet the margin calls, even things they don't want to sell. And so that's how you had this like, you know, cross asset class meltdown at the same time, sort of with this leveraging event. And Bitcoin obviously is the only thing that trades over the weekend 24 seven. So it's the first thing if somebody found out they were in trouble like Friday, which there was already kind of shakiness going into the weekend, then they're going to be selling Bitcoin. And that just shows like the liquidity profile of Bitcoin is so superior to other asset classes because it trades 24 seven, it's always available. And then, know, why did the Fed didn't come in and cut? I think it's partly because it would have just worsened the situation. mean, just remember the yen carry trade is more profitable the more that the interest rates between, the Federal Reserve and Bank of Japan diverge from one another. And so if the Bank of Japan was raising interest rates and then at the same time the Fed cut interest rates, you're actually making that smaller. And so you're actually making it even more unprofitable. So you could have even led to more blowups happening and more deleveraging. if you went and tried to cut rates. I I don't know if they're that smart or something, but, you know, I just think I'm kind of glad they didn't do that because I think it would actually cause things to actually get worse, which would have been, you know, even more panic. And that's what these things are. Honestly, it seems like, like Mark said, there hasn't been any major bodies that float to the surface. So potentially this was just like a necessary, you know, deleveraging event. But you did see the Bank of Japan capitulate a little bit. So that's what like that's actually what I expected to see was the Bank of Japan saying, yeah, we're not going to do it as long as things get volatile, you know. And so perhaps like we'll keep a steady eye on them and what the yen does, because if the yen continues to fall now and they have to go in and start intervening again in their currency, they dropped like tens of billions of dollars trying to intervene in their currency this year alone. If they have to start doing that again, you can just see there in Brian Cubellis (16:37.464) they're in a catch -22. They're in a rock and a hard place. Raise interest rates, you blow things up. If you don't raise, your currency is going to keep plummeting and you've got to keep putting Band -Aids over via tens of billions of dollars in currency intervention. So yeah, this is the end game, I think, when it comes to these super accommodative central bank policies. it's why I think we're all Into bitcoin and into some money because we kind of see the path that all central banks are on and japan's just a little bit further down the road Yeah Yeah, and and and look just following that one point up jackson. Yeah What sam was saying in japan? It wasn't a direct impact or reason but you had the resignation of kishida And you know it was because of scandals and you know, we're not the only folks. That's good to know and And it's also because of the economic situation. mean, like they are learning to live on like eight breaths a minute there, you know, back to what you did for a living and keeping that organic body moving, very low growth. And it's hard and it's having impacts on, you know, birth rates and everything else. So so the fact that they cause it is perfect. Like you said, they are the cautionary tale. They're decades ahead of us on how to live in low growth. And it isn't pretty. And now. There's metal on metal as far as accommodation. But yet, Jackson, I interrupted you. at all, Mark. Appreciate that. I was just going to say that now this kind of ties into U .S. fiscal policy, Because, Sam, you mentioned that the Fed cutting rates could have exacerbated the problem that we saw last week because it decreases the margin that the yen carry trade has, right? So now we have a slowing economy in the U .S. We just passed $35 trillion of federal debt. I think it's like up 50 % or so since 2020, the federal debt, right? So it's very rapidly. And now policymakers in the US have to think about not only their over indebted economy and how these higher rates will impact their fiscal position, but now they also have to think about, how will lowering rates impact global financial markets if there's trillions or tens of trillions of dollars tied into the... Brian Cubellis (19:02.092) yen carry trade, right? So any thoughts to any of you in terms of tying this now into US fiscal policy where we're at today with debt and also looking ahead the next couple of months or quarters with monetary policy and how the Fed will have to react to that. Why don't you take that, Yeah, you know, I guess, you know, when I look at the fiscal situation, I just think about, I always, I'm not the first person to say this. I just think, you know, the Fed's lever for interest rate policy is like broken, right? This is the fiscal dominance thing where it's actually, you know, becoming ineffective at bringing down inflation or price stability because it increases the fiscal deficit. because of the amount of debt in the system. And so I've always thought that they're actually gonna probably not focus on interest rate policy and actually use other tools in their toolbox to become more accommodative if they need to. So for instance, like the balance sheet, like using QT and QE, they've already like kind of reduced their QT. They didn't eliminate it, but they reduced it. And they're gonna come up with other acronyms and other creative ways. whether that's requirements for commercial banks to buy treasuries or something like this, like somehow changing the regulations. There's different tools they can use outside of just interest rates, but the entire market is focused on interest rates. And so they can't like just cut it and cut cut. And I don't even think it would even do anything. And it would actually probably, know, when Alden brings this up as well, like if interest rate hikes at the fastest pace in history, didn't really do what we thought it was going to do, which was blow up, cause a recession, do all these things, maybe interest rate cuts actually won't have as much of an impact either because everyone has locked in debt at ultra low interest rates for the last 10 years. So whether that's fixed mortgages or corporations that have turned out their debt, perhaps cuts and hikes just aren't gonna be as effective and have this huge impact that people believe. And I kind of, I, that, Brian Cubellis (21:17.538) that speaks to me. I think that makes a lot of sense. And so if I'm thinking about monetary policy and fiscal policy, I'm actually looking at what the Fed's going to do with other tools. So like their balance sheet, like I mentioned, or like if the Bank of Japan got a lot worse, I think they would have done some other thing, like some kind of acronym, some kind of new acronym and liquidity, targeted liquidity program or something like that. similar to the bank term funding program with the banking crisis. So they can get creative and they can like kind of kick the can down the road in a lot of different ways. As we've seen, the Fed seems to work outside of its mandate whenever it wants to. That's what I'll say. As we saw during COVID and other financial crises that they obviously had a hand in creating in the first place. But I think they'll work outside their mandate if they have to and do other unique ways to bring liquidity to the market. that's again, that's why Bitcoin ultimately benefits because it benefits from liquidity conditions. But love to hear Mark's thoughts. Totally. That's I was like nodding when you said fiscal dominance. I remember back in 08 this at that time I think he was with Bank of America. Now he's with BlackRock. Jeff Rosenberg, I think he's involved in credit. And he said America runs on credit. This is, I think he got really picked up in July of 08 when Fannie and Freddie were just flaming out right before Lehman in September. And he said America runs on credit, know, aping off of Dunkin' Donuts. And he said, when the world knows who Sheila Bear is, that's when we'll know we're near the bottom. And I think when people know what fiscal dominance is, it's not as good. We'll to pick up later on other podcasts to get what that moment is. But that's it. It is no longer about the price of money. They have so much debt, they have to figure out where to put it because they have 8 ,000 institutions that don't know how to manage risk. And we saw that. And there are not people who are incentivized to go to these SNLs or these banks. Brian Cubellis (23:39.95) and manage the risk. They aren't able to pay them. There isn't profitability. Citibank, Citibank stock today, all cuts adjusted. If you bought it in 1993, you lost money, not including dividends. It was not a good store of value. The banking system is broken. And the Fed, as you said, is now, the reason I mentioned and belabor that point that many have, including Larry Lepard and others and yourself is that the central banks, like I'm not going to rely on those banks or whoever works there. They now account for 40 % of the money supply and they only accounted for 12. So I think you're right. The price of money is going to come and go. It almost can cause a problem, but the supply of it, it's being centralized. No doubt. They have to control it and again, jam it. Like you said, cost free. collateral free at the banks when they change that SLR. Probably, you know, who knows, but that's the next one. So I agree with you, BTFPs and... I do think the one caveat with what Sam said is like, I think it's been muted or tempered some of the volatility, but things have blown up with the rising of interest rates, like the BTFP program and the banks kind of blown up. And then the Fed speak, something we talk about on the show a lot is like... this notion that recession's finally coming into the conversation. It's like anybody that's been around, know, living in the real world has seen a recession in the sense of looking at people losing their jobs, the housing situation that's happening, whether it's the amount you go to Airbnb, like all these different tailwinds are happening. It's just catching up from the like now standard conversation, you know, layoffs, amount of tax receipts. And so that cost of capital is a big component of it. And how, I think we all probably agree there are going to be cuts because that also is a secondary or that's a factor. Once you start cutting, you can start to increase risk across the board. can start to, you know, start to buy, you start to take out debt. So I think that there are a lot of tools coming in place, but they're one that we all know is the cost of capital has to be reduced or it's just going to be mad. It's going to be increasing pain, which we've seen the past couple of years. The last part of that that I think helped mute it as well as all the savings that happened during COVID. Brian Cubellis (26:02.06) So there was excess capital built up that, you know, we're obviously on the other side of it now. We went from like increased savings all the way down to like we're at like all time highs in debt across the board, missing payments, you know, whether it's mortgages, cars, credit cards. So we're at this like level of where this, you know, Japanese yen situation, like we're almost at a tipping point and it feels anticlimactic what happened with the yen that maybe it's still not, we're not out of the woods yet. I know we're kind of in this retrace with BTC and BTC is usually the Canary and the coal line that maybe there's still something else like out there before this is settled and maybe we still do see some kind of accommodation or something else that takes place. I think that's completely fair. Like I think the longer rates stay, the more things are going to feel pain. then I'm definitely not claiming victory like over this. yen carry trade like you don't see vol spike like that without at least some kind of bodies coming up. And so I do think like we potentially haven't seen the end of it. And it reminds me of like 2008 and 2007 2008. Like there was moments where the market rallied for months on end. Right. And everyone's like you know there's a couple scares. mean Mark you probably remember you were probably there. Right. But like I just I'm very cautious right now, for sure. Very cautious. It was eerily similar to the SBB situation. It feels like, was that 22? I think it was 22. 23. was 23. 23 has been marked. So 23, you remember going in, it was like Friday morning when stuff started to break and then you went into the weekend and everything was just haywire. It was very similar to this like Yen situation. And you came out on like that Sunday night. you know, fed intervention, but that's where it felt very strange with how this kind of transpired last week, but it feels like there's still something else left to drop. So interesting to how it plays out. always, people forget about Credit Suisse with that whole thing. I don't, bro. I don't. Yeah, that would have been catastrophic. That's a globally, systemically important bank. Brian Cubellis (28:29.516) that was basically there was a shotgun acquisition on a Sunday night. UBS was basically forced to require them or else that would have been some contagion. So like you're right. I mean, it was close to blowing things up, no doubt about it. But they somehow, you know, papered things over and it's... What's the... Sorry, what's the sentiment in the TradFi world with your, I'm sure you have peers and colleagues that are still been on the street for a while and are still at firms. We're all sitting here, we understand this thing is not sustainable, right? Like it's like a lens, once you see it, you can't unsee. How do you reconcile it when you're in this system and you believe it's gonna last there and your career's tied to it and your whole livelihood and your reputation? help us understand that, because I don't think us on our side get a lens into that, because we. Once you get this, start in your kind of in an echo chamber, right? We all talk. Yeah, no, that's a good it. It is good to go to new places. You know, just change the scenery, Michael. You're right. And I've learned a lot coming, obviously, over the Bitcoin side from 30 years in TradFi. I would say that the sentiment. In TradFi. Has pi three. Arcs and allow them follow the. path of interest rates. I salespeople got paid for claiming to have, for the sun rising in the east and setting in the west. mean, money was made just having asset prices rise as we went from 20 % down to zero. You just had to show up and press the button. So as far as the current sentiment, and there are, and I loved, there were very creative people in Wall Street. That's overarching. And I loved, The integrity, the hustle, the specificity of when you got an order saying, OK, so you want to sell 2 .5 million, tell sixes of 2004, OK, at par the figure and not held. Great. And then you would repeat it back. There was great exchange. was great community. But right now, technology has ripped away the role of a lot of those people. And so there is an attrition going on. Brian Cubellis (30:50.963) And there's not the same money, as I said, about Citibank. I think people are incentivized to keep the train going wherever they are. And Wall Street needs leverage. Like look at Credit Suisse, Sam, I don't know if you knew, but I was at Credit Suisse for a couple of years up until 2021, I think, yeah, till late 21. I did not. yeah, no, my friend. I was there and saw, I mean, there's a lot. There's a lot that's already written up in a 200 page report by a law firm, Paul Weiss, I think, that explained what happened in the holes and the mismanagement. But when I was actually, I was with Fred Pye at 3IQ. We're in Florida. We're doing a podcast in March and we're about to do it. And I'm in my hotel room and I'm looking at the Saudi prints. I'm like, wait a minute, that's the guy who buys all the stock and we provide leverage for them to buy it. That was public and the Qataris. They're not buying the stock. They're buying it. They're borrowing it. Cash from us to buy our stock. So they basically said, I don't want free money. I don't want free equity. That's how bad the trade got for them. So when we saw that happen, you knew that it was, you as you said, it had to be a forced marriage or it would have been a lot worse. So back to the sentiment on the street. And this is what people say to Bitcoiners is true. You can't have Bitcoin take over the world right now. It would go in flames. Hyper Bitcoinization is a process and it needs to be slowly walked in to serve the financial system over time. And the Fed is, as my friend Zoltan Pazar says, has foamed the runway to let the banks fail but not burn the whole place down. Brian Cubellis (32:55.79) And that's so people on Wall Street, Michael, answer your question. Know that it's not a happy place to be. This is the unwind of a 40 year rally. And that's what it and that's what it is like on Wall Street. know I had a lot of Maybe it's worth talking about. Mark to piggyback on that. Maybe it's worth talking about how did we even get into this mess, right? Because today we're recording on August 15th. It's. historic day for us in the Bitcoin community and mark you broke out your jacket specifically for the occasion So maybe you could tell us what happened 53 years ago that has pretty much gotten us into the situation of over leveraged sovereign nations over leveraged financial markets Rampant current currency to basement and maybe you can talk through what happened back in the 70s for a bit I'll be quick, thanks. Yes, I did. So as Jackson, you just noted, and obviously there was a little prep there for the audience if you couldn't tell. I gave you little heads up about why I'm wearing a jacket when it's 80 degrees here and the AC is not working. It's because Nixon basically wore a jacket on August 15th of 71 to the funeral of sound money. Like getting off a bandstand a little bit. He broke the record. the promise of Bretton Woods on August 15th of 71 by saying, I've instructed Senator Connolly to suspend temporarily the convertibility of gold into dollars or something like that. And I mean, there were ships that were bringing dollars over to take gold out of the Federal Reserve in New York Harbor. This is something, when I talk to my family, when they allow me to talk about this, I don't talk about Bitcoin, I talk about monetary history. because I have a window of time to talk about that, but never for Bitcoin. And no one knows about that, and they're fascinated by the story. So Sam, when you're reading about financial history... Brian Cubellis (35:01.39) We don't talk about it to say, you know, it's terrible. you know, Nixon was basically wearing a suit to the funeral of sound money. And I'm wearing it to the birthday of Bitcoin, you know, to kind of round that square and why I'm doing it. It's more that when doors close and the door and the wind, you know, he called the window, the door closed on those 43 countries that agreed to bring their gold over during World War Two and take dollars back in order to build. the world back up. was really magnificent technology, never done before. That ended. But the banks that then suffered because of inflation and all the loans they made to third world countries, Chase almost went out of business, they had a new business arise. You know, this is where the window opens, store closes, window opens. It was called the FX. The FX market did not exist in full force until Nixon broke the peg and then everyone's like, what do I do now? And what they did is they had to call Citibank, who was a global leader in FX. And that worked for about three decades for them. And then that wasn't enough to carry the bolus of expenses on that, you know, supermarket of a business that they became. So I didn't think that we're going to come here, but FX was a boon for banks. But now it's turned into this like weaponized crazy trade. Yeah. You know. It's a good point. I yeah, my memory is a little hazy of like, but like this is when they suspended the gold standard or whatever Brent Woods in 1971. Suddenly it was like these free floating currencies everywhere and everyone was just like, how do we even do this? And this is actually when like the Bank of International Settlement and the IMF started to get really involved with these different emerging market countries because their currencies were just all over the place. And so the Bank of International Settlements was in charge of kind of keeping things in line. They had these like short term loans. And then in the 1980s, you just saw a ton of blow ups. Latin American blow up had the Plaza Accord in 85. All these currencies were just going completely haywire. And Wall Street, I mean, was probably cashing in. yum. It's like a new market was created for them to play around with. Brian Cubellis (37:27.276) And it was just happened to be that the currencies of arsonist environment. Michael, what does it sounds like, Sam? If we took that clip, which you just described, a bunch of free floating currencies and things blowing up, it just sounds like what we're doing today as bitcoins monetizing. You have crypto currencies that are being created in thin air. They're trying to find the peg. And that's the thing that most people don't get is it all correlates to one when it comes or it all competes with one. It's just the most efficient use. So you ended up at a dollar based currency. And that's the thing that most people don't get that have like stepped in on the financials. Like you have tried five step into this market and they misunderstand. I like to joke and say it's like they read the forge of the Bitcoin standard. They never actually read the book or opened it. So they're playing off in like Lala land when it comes to digital assets and they don't realize like there's only one thing here and everything in around is just blowing up and getting pegged or traded around it because that's the unit ultimately everybody's competing with. Yeah. An interesting point there too is just counterparty risk, right? Like in 1971, there was significant counterparty risk for those sovereign nations. had their gold deposited at the US. And then one day that obligation or contract that existed no longer existed. And for the four of us here contributing to the Bitcoin space, counterparty risk is like always very top of mind. And I think we're at a point now with Bitcoin kind of breaking into traditional finance, like market. ties into what you're talking about. Like people are looking for new avenues and new products to financialize and make money in and how do you keep this old system kind of alive, right? And now we're looking at the proliferation of ETFs within the U .S. and while there's a lot of positives to it, there are a lot of risks associated with that. There's a lot of layers of counterparty risk and you know, we're only, I guess, seven or eight months now, seven months into U .S. spot ETFs and The uptick and interest has been pretty phenomenal, I would say. We just got the 13F data from Q2 today. All the filings had to be in, so we'll start to see a lot more information through the weekend. But counterparty risk is something that we should all be talking about, not only the four of us, but really as an industry, In Bitcoin and traditional finance. This is a decentralized money. We haven't seen anything like it before. The Bitcoin and crypto industry is $2 .5 trillion. Brian Cubellis (39:53.71) nearly half a trillion dollars of losses in 15 years. Like that is remarkable. That's how much 400 billion, almost a half a trillion dollars of losses. and this is just due to a lot of things, right? There's just ramping counterparty risk, with third party custody, effectively trying to map third party custody from traditional finance to Bitcoin and crypto with digital bearer assets. And then of course, a lot of challenges with people learning how to use this technology and secure it themselves. So Maybe we open up the conversation there like Wall Street's embracing a new asset finally this year. We thought it come sooner, but there are trade -offs associated with these products and people should be aware of it. It's a great place to start, but maybe there's some other things worth considering. Yeah, one thing to throw out is I don't know if Sam, I know Jackson, we're on a lot of calls to bring this up, but curious here, Sam and Mark's feedback on like this whole notion of like money is a product and Bitcoin is the best product, right? And if you think about Bitcoin, Like, talk about product market fit, that you have an asset right now, so it's at like one, 1 .1 trillion dollars, that you tell somebody you can get the trade right, but the next day you wake up it may be completely gone, and it's still got to a trillion dollars. Because that's effectively what we're talking about. For 15 years, individuals have allocated, and they've had to get comfortable with the fact that it can just go up and smoke. Whether it's, like the directional versions are each side, it's like, could end up by North Korean hackers or end up in a landfill in a hard drive. That's how people think about it. And the analogy or where that ties in, if you leave it on an exchange, somebody may get between your phone and that exchange. You leave it on a hard drive, it may end up in a landfill because somebody goes in and cleans out, your wife's cleaning out the safe for that annual cleaning, throws away your little USB stick because you haven't touched it in three years. And that's how people have allocated, and we still got into $1 trillion. And I liken it to that product market fit, but it's also how early we are that the market structure is fully not figured out yet. And so there's still a lot there. The ETFs are obviously a big deal, they're, you know, in the Bitcoin circles, it's like the least sophisticated thing you can ever imagine about putting a wrapper around Coinbase. So hopefully that's a little bit more meat on that. Brian Cubellis (42:13.292) Yeah. And Sam, when you've done the work and talking to folks is, is what Michael and Jackson just talked about, about owning it and versus having economic impact. Is that at all appreciated by investors who aren't, let's say on the pub lord pop cast or, know, or, or is, know, normies or people in trad father you've spoken to. Yeah, I mean, I just think that the ETF is kind of top of funnel for somebody who just wants exposure to Bitcoin. And then the idea of counterparty risk and using it in a sovereign way, that kind of is farther down the rabbit hole and the funnel. And then they realize, like, I can I should actually own this. I should actually take self custody of this. And I think that's just a little bit farther down the funnel for a lot of people. And that's natural. I mean, that's my journey as well. think a lot of people's especially they're not very technical. I think the ETF say you know they're more suitable suitable for institutional investors who for whatever reason can't can't buy spotback going due to like investment mandates or regulatory requirements. You know that's like that's what I see them really getting a ton of uptake. And I think these 13 F's are there. They're kind of a lot of noise in them. because if you look at the top holders, they're these large hedge funds that are actually just like our trading trades. They're huge, like Renaissance tech. mean, they don't even care that it's Bitcoin related. They just see an ARB opportunity and their Eldo's picking it up. Or you see with the major banks, and I brought this up before, it's like the major banks are authorized participants for the ETFs. so, The Fed has basically prohibited these banks from holding Bitcoin straight up. The Fed prohibited them. But they are allowed to do crypto related activities like being an authorized participant or market making. so I think like when you see these big banks holding it, I don't think it's really an indication that they're suddenly bullish and putting it their balance sheet. I think they're just market making. Brian Cubellis (44:30.094) And then they're involved with the creation and redeeming of ETF shares as authorized participants. Now, that's what Sab 121 was all about because the American Bankers Association actually wrote multiple letters saying this is, you know, we want this overturned because we want to custody Bitcoin and Bitcoin related products, aka ETFs, on behalf of our clients. And obviously, Biden vetoed it and that didn't go through for them. But now the SEC is quote unquote making exceptions. So we don't really know like what, who got those exceptions and if they are able to custody. So maybe things have changed and they are custodying now on behalf of clients. But I just think there's a lot of noise with the 13F. Now it's like the financial advisors and some of these like multi -asset strategy firms and some of these, like there's certainly firms that are. into Bitcoin and bought a substantial position. It's just hard to kind of delineate which ones are which. You got to a little bit of research to see what their investment strategies are. If they're an Elgo Arb trading firm or if they're like a macro firm that's like, know, yeah, we're long Bitcoin. So anyway. Mark. Yeah. So you mentioned SAB 121. Can you for the audience go back in just because Yeah, so I'll just give where we're we are seven months into the ETFs 50 odd billion, maybe a little more fastest growing ETF for the guys, Balcones and Seaford at Bloomberg. And they feed the system for banks because they can do the AP business and they can get into the plumbing. So that's been a huge plus. But SAV 121, what does that prevent and who did it? Because I agree that that's a big deal for Well, SAP 121 was basically set up by the SEC. They didn't have any kind of comment period when they laid it out. They didn't go through any kind of congressional procedure. They just laid down this rule. And this is the exact kind of thing that Chevron deference will prohibit in the future. But the SEC just laid down this rule basically saying like, OK, you you banks can hold Bitcoin, but they made it prohibitively expensive for them to do so. Brian Cubellis (46:54.03) They basically had to treat it as an asset and a liability on their balance sheet and it just, became incredibly expensive for them to do it. Basically it was a ipso facto ban for these banks because it just didn't make sense economically for them to do it. And so this is the thing that eventually went to, I believe the government accountability office declared that yeah, this was a rule that should have went through Congress. And so eventually it hit the congressional floor and it made it all the way through the House and the Senate to overturn the rule. And then it went to Biden and Biden vetoed it. And so now we're in the situation where it's probably going to hit the floor again, but maybe a new administration has to come in to eventually overturn this. the fact is, is that the banks want it. And then when the banks, when the bank lobby wants something, eventually they're going to get it. And they're just saying, you know, this is ridiculous. This asset class is being treated differently than every single asset class for no reason whatsoever. And we want access to it. we want, you know, basically they're saying that the Federal Reserve and the SEC don't want Bitcoin and traditional financial system integrated with one another. They don't want that to happen too fast. They're scared. They're saying that it's going to create financial instability. This is exactly what happened with the custodial bank, by the way, if you read the actual lawsuit, they say they don't want Bitcoin or crypto related activities to be intertwined with the financial system due to stability, instability concerns. But the funny part is that if you... They've a great job with instability in their own. anyway, go ahead. Yeah, I know exactly. But then you would want the most trusted and largest and most regulated financial institutions in the world to be able to cuss at this on the behalf of their clients, the state streets, the BNY melons who are building out their own infrastructure for years. But then they had basically can it. I think they've kind of restarted it now, but they've canned it because... they couldn't get through and they couldn't get regulatory approval to do it. And you would want them to be able to hold it because if you wanted that would provide more stability rather than have this stuff offshore or with less experience, let's say, firms. And so it just doesn't make sense. it's all about just another example of, let's say, Operation Chokepoint 2 .0, as some people call it, of trying to prevent. Brian Cubellis (49:17.784) the integration of Bitcoin into the traditional banking system. But as I said, the banks want it now. So they're going to get it eventually. Thanks for running through that. I don't think it's talked about enough or broken down, like how much of aberration that is from the highest level, knowing the folks at BNY that were working on building a custody product, to your point, how to just like kind of sunset it because of the capital requirements to the local level, knowing that local banking entities, credit unions, or looking for ways to generate revenue and not be disintermediated by the big four banks. It's kind of funny because you said they're afraid of the concern of instability and I think this is what stabilizes. It's the opposite because now you can have the ability to not only offset inflation from the individual but then you can build capital markets around it like we all know the lending side of Bitcoin and that you can now naturally start to If you don't want to incur capital gains, you can have the ability to lend against the asset. Well, who's the best lender? It has the cost of capital, the bank. The bank can actually see the assets that are sitting within the clients, depending on the custodial relationship. There's a whole slew of things that can be built around that asset once it's sitting right next to somebody's deposits. And I've been having these conversations with banks since like 2021. I've just, in everybody's, like there's a little known, it doesn't get talked about enough, but USAA, member -owned bank for the military, insanely large. really forward thinking on technology. They owned the patent for back in the day. Now it's just standard where can take a picture of a check. We don't even use checks anymore, but at the time, you could take a picture of a check and do a deposit. So they would patent it out to other banks. They invested in Coinbase's Series B in 2000. And I don't know, but it's going to be between 14 and 16. And it was really neat because you could have a drop down. where you could see your Bitcoin balance right next to your checking account balance. And so this was back in like mid teens and then they sunset it because they got spooked by like everything related to all the blowups, all the offshore stuff that you're talking about. And now they won't go anywhere near the asset because of all the kind of antagonistic behavior by the big four letter, three letter agencies. Brian Cubellis (51:26.476) So hopefully there is something that changes because I think this is like the big dead end. Once it gets intertwined, now you start to normalize that asset as a savings vehicle for everyday Americans or treasury balances and all the things we talk about. And you can see it proliferate. You can see a path to that soft landing that we're going to need ultimately when things start moving and the volatility picks up. Yeah. Yeah, the OCC did a lot too. mean, Brian Brooks was the head of the OCC and did a lot of good things. then everything he did was immediately overturned when he left. And then the OCC after FDX blew up and everything, the OCC came out to all these banks who were offering, you know, services to, you know, Bitcoin businesses and Bitcoin users. And they said basically, you know, you have to suspend it and then we're going to provide supervisory feedback. and we'll get back to you on your internal controls and risk management. And then you could resume those activities. But of course they never got back to them after they made them suspended. And that's what the Coinbase lawsuit is about. They sent a letter. I think they sent a lawsuit to the SEC and the FDIC. This actually might be the FDIC. actually might be mixing up the OCC and FDIC. They're all the same. They're all. They wrote letters altogether, the FDIC, OCC and Fed after the FTX blowout, is extremely rare. So they temporarily suspended it? Quote unquote, temporarily suspended the crypto. I've seen that movie. Sam, not to put you on the spot, or anybody, like, do know if the credit unions are on the same like SAB 121? appeal to the credit unions? the reason why I'm asking is I saw recently, I think it was today or yesterday that there's a trend happening in the markets where credit unions are starting to buy banks because of the requirements. Because credit unions are non -profits and there's just certain requirements that you don't have to adhere to and so that there's this trend where they're purchasing private banks. And I'm just curious if credit unions, the SAB rules appeal to them. Does anybody know? Brian Cubellis (53:40.558) I don't know. I don't know. That's a good question. Yeah, I'll look into it after because I was something that's like popped up around that trend, but then also credit unions wanting to get involved, given their localized nature and the requirement. Like they're right there at the tip of the spear, right? They're dealing with local Sally and Mary that comes in and they're trying to work to get their deposits passed to the generation and keep them within their bank. And Bitcoin could be, know, fixing a of things. That's one of I would have to look at the language of SAB 121, if it's specifically names like federally chartered banks or something like maybe not because credit unions aren't banks. But if it's something more broad, maybe they fall into it. That's a good question. don't know. And I think SAB 121 is going to go away because what I believe and that was 2021 when it came out. I believe that it was specific almost to Coinbase. That's why they did it because they said that your separate business cannot, your custody business has to be conflated with your operating business and that we can't say that you would be as separately, that your assets in the custody business would not be a general unsecured creditor because there's not enough bankruptcy law. I maybe I'm conflating two different events, but I thought that that was also, and now with all the bankruptcy proceedings, we do have that law. So I agree with you. think it's going to be undone. And the courts, like Judge Rau's decision, taking a newspaper to Kensler's nose and whacking him by saying arbitrary and capricious eight times in a 21 page report and just getting really basic in how he just delayed and she didn't understand why. So I do think that there's going to be progressions on this, you said, Sam, there have been more successes as we saw the people screwed things up, like Sam Bankman free, but the protocol did exactly what it's supposed to do. And so you just need to clean out, you know, the bad actors and let the good protocol run. And I, I think that's coming to the surface. Yeah, it's, it's really a shame how much Brian Cubellis (56:01.358) spot Bitcoin access has been stymied within the traditional finance system because those are the exact people who need Bitcoin as a savings technology. Like 50 % of people in the United States don't own investable assets, right? They may own their home or they may rent it, but they don't own equities and fixed income and investment properties. And at end of the day, at a very fundamental level, these are the people that need access to a better form of money that will actually protect their purchasing power. And it's really a shame, especially like, you know, to think more on the left side or the progressive side, Bitcoin is a very progressive technology. It enables everyone to have access to a savings technology free from debasement and censorship. And really I'm hopeful. And I, I will be curious to hear like what you guys are paying attention to now, kind of looking forward, federal level, state level regulatory, like what are some things we should all be paying attention to from now through the end of the year and into next that could either be more favorable for the industry or could maybe even present more challenges to getting Bitcoin in the hands of more US citizens. Before jumping in it, just to add a chilling notion to what Jackson shared that had popped up right before we recorded that it came out 14 % of adults have saved over 100 ,000 or more for retirement per GOB banking rates and then 78 % of Americans have saved $50 ,000 or less. Wow. It's not good. Yeah. It's problem. That's a problem. I don't know. I mean, in terms of what I'm looking at right now, mean, you don't want to get political, but I mean, it's naive to say that the election outcomes won't have an impact on specifically this industry. I mean, Biden administration, Biden and Harris administration has been extremely hostile to this industry the entire time. I mean, by either those that they appointed in regulatory positions or through some of their proposals, like the tax on Bitcoin miners or when they tried to get information from Bitcoin miners and that was deemed to be unconstitutional. Right. Brian Cubellis (58:24.302) And all the different, just the consistent narratives, mean, it hasn't been positive. And I'm not saying I, know, will another candidate would have to prove itself, come through on promises and stuff like that. you I do think that if there isn't a status quo change, then our industry is gonna have more barriers in front of it rather than the other way around. And so I am looking at the election. think it's important. I think it's important for our industry. Now Bitcoin is global. So it would just be, you know, the United States shooting itself with really bad policy if that happens and other countries around the world will benefit. So it's like the game theory. But that is something coming up that you can't really ignore as much as I'd like to ignore politics. know, policy is important if you have really good policy and that embraces this new technology. that can bring all these benefits to the United States, that's gonna be good for Bitcoin adoption, there's no doubt about it. I it's the largest, wealthiest country in the world. Or one of them. And then in terms of just like in general, like I look at liquidity conditions a lot, and so if we do see some, we are seeing kind of an uptick in global M2, which is kind of starting to. break out a little bit if we see that continue. think Bitcoin is a very pure measure of global liquidity conditions. And so I think Bitcoin would actually really benefit in those situations. And then, you know, I am looking at corporate treasury adoption. I just think it's fascinating what's happening there. And I think the timing is really right. And I think there's been case studies now. like with MicroStrategy and now Semor Scientific, it's like that meme you see where the guy's dancing and then another guy joins and then everyone starts to join. That's where I think we're at and I think the infrastructure's in place now where these corporations can really come in and there's a playbook and to get their legal accounting, the auditing all right, reporting, and have the proper vendors and partners in place that have Brian Cubellis (01:00:45.698) they have the internal controls that they need as well to make it all happen, actually execute on the strategy. And so I think you're gonna see more corporate treasury adoption, which is exciting. then institutional investors, looking at like, I'm looking at RIAs. That's where I think there's gonna be a lot of RIAs and specifically probably more in the ETFs, but RIAs, pension funds. I think those are interesting. think advisors are interesting because I've always thought of them as like a one to many orange pill, you know, because if they understand Bitcoin, they're teaching all their clients about Bitcoin and then, you know, a portion of those clients get orange pill and then they start talking to their friends. So if you can just convince those financial advisors to start allocating a small percentage and, you know, it can make a meaningful dent in driving Bitcoin adoption. I'm looking at the 13F filings for like RIAs, big investment firms like that. yeah, I think that's what I'm looking at right now, think. Yeah, I'll stop there. Yeah, that's a great recap. think the 13F, you probably hinted a little bit at that, like how much is actually signal versus noise early. earlier in the pod and that's kind of where I felt like anecdotally there's not too many buy holds yet we're still like it's early days there's a lot of requirements from the SEC with these RAs making them jump through hoops and the natural education and then the corporate adoption you referenced is really fascinating because I thought about last night seeing that oversubscribed bond offering or debt offering for was it Mara and yeah we can talk about that a little bit yeah it's kind of scary because I like sat there and I told I'm up here you know visiting the in -laws and told my mother, I was like, think you need more Bitcoin because she's been thinking about mine. like, I could see like, you know, we all know this is going to get to six figures sooner or later, but you can see how this gets accelerated once, you know, these bond investors seem to love these converts and it's known in the market that they're just going to be oversubscribed. now it's just, you're basically talking about free money at this point. Like how long, how much more downward pressure can you put until the thing rips? Cause everybody's seen this. It's like what you just referenced the dancing. So I think that's going to be a fascinating thing to play out at the corporate level. Brian Cubellis (01:03:03.586) Yeah. I want another one that went under the radar was Bitdeer. There's a hundred million dollar convert. Same deal. And I mean, could maybe we can talk about this a little bit. I actually just wrote on this today. It's fascinating to see like a miner go down this route because there's obviously a little bit more risk. know, micro strategy is core business is like a profitable business that's kind of separated from Bitcoin. You know, good cash flows, but miners, I mean, they are all in on Bitcoin and they have operational risk to consider. And so there is more risk on their side. But then you think about it and you're like, well, it makes a lot of sense because I think Marathons convertible offering was like 2 .1 % or something like that per annum until 2031. Bitcoin's returned like 40 % per year over the last five years. And so it's a home run. Yeah, the because think of it your your your points well taken that That miners have Miners are long and long and they also have daily liabilities. They have current liabilities Yeah, then they need and if Bitcoin gets halved that doubled that current liability just doubled Effectively because they had to sell twice amount of Bitcoin But they term out you said 2031 if I'm remembering yeah marathon. Yeah, they're they're usually five years or longer, sometimes seven. So that is, that's a home run. They term out, they don't have to worry about that. Maybe that gives them more flexibility to manage a tighter treasury, you know, on it. and this is another podcast, but I grew up in the convert market in the nineties, watching Merrill Lynch. had a friend who worked there, just print money, easiest trade. is to say to someone, you have a lot of volatility on your firm's equity and you think it's bad. I got people that really like it. Yeah. And it's the easiest trade in the planet, my friend. And that's what's going on here. Yeah. I mean, it's nuts. It's. I'm sorry, but the convertible debt market, the convertible debt market doesn't see this kind of volatility, right, Mark? they just rule with it. Like micro strategies. Brian Cubellis (01:05:29.056) Not anymore. And the company that had it, the funny thing is it's a flywheel. When you bring the Bitcoin on, guess what happens? Your volatility goes up. then the second convert could be even easier to sell. you break down, Mark, just the convert trade and why they like the volatility? so everybody understands. I never go into it, but it'd be good. So if, and this is what, what traders try to do is beat time. They could hold a stock, buy it at 10 and at the end of year it goes to 20 and they'll double and that's good. But that's 12 months and you know, double's still good. What a trader might do is buy it at 10, if it goes down to eight, buy more and then sell some at 12 and try to. actively monetize what they call gamma, rate or delta or the change. Now in convertibles, since you have a bond, there's something that arises out of the relationship. Let me back up. got the visual in my head from my 101 trade. A convert trader will belong the bond that will go up and down based on the stock as well as the credit worthiness of the company. Two things drive it. The bond is not that big a deal unless things start to go south and the equity goes down. But it goes up and it goes up on a curve. I think I'm on a camera. So convexity. It follows like what fixed income, what Fobosy talked about in his books and why US treasury market became such a big component for pension funds because you have more upside than downside. The rates of change have a changing dynamic like acceleration. Convertible traders are able to then trade the stock short against the embedded equity that's in the long. And because it's so volatile, think about that thing about $10 or $20, they can trade that thing six, seven times in a week and make money. Again, along this funny little curve called a convex curve. Brian Cubellis (01:07:49.358) Convex curves are wonderful because they have an asymmetry that trading equity alone doesn't have. The bond, equity inside a bond gives you convexity, yum yum. That's why they get to buy it and they'll buy it all day long and they'll short the stock against it. I hope that got people close to kind of understanding the uniqueness of what that bond does to an arbitrage audience. Is there an oversimplified version of like the convertible that gives you the downside protection of the entity? repaying that note and the upside of the warrants and the appreciation of the equity. Is that over -simplified? Like, terms of why they're over -subscribed? Over -subscribed? Yeah. I think that, I think you can say that the size of the equity market is now $45 trillion. We are pretty high on valuations and the convertible market has been capped. don't know if it's 300 billion, 500 billion. I could be off by a little bit, but it's a much smaller market, Michael. So just like how we think Bitcoin is going to, know, osmosis and be pulled in because it has so many good attributes, the convert market does not have enough good product and there's a growing demand. So that's how I would say is that there's a lot more equity than bonds and a convert gives you both. And that's unique. Brian Cubellis (01:09:17.454) That's my story. The thing when Sam referenced, was salivating over the bond markets and the research he was writing about, which I'm interested in reading, is thinking about like, can, know, Mara and MicroStrategy are specifically interesting because they have large treasuries in Bitcoin. So even if like the price moves against them, they can hold their, like they can hold their breath underwater because they can lend against that asset if they're paying 2 .1 % or whatever. You know, I think MicroStrategy is like, the point that you're talking about. Yeah, exactly. 0 .75 or so. So if the rate of inflation, you know, inflation is 10, 15 percent you're lending against like there's the problem that is kind of scary, which you're referencing Sam, is if you're a miner, your cash flows are tied to BTC. You can't issue debt or you're not having the revenue. And now that's a problem if you don't have a treasury as well to be able to lend against and you owe, you know, two percent on. you hundred million dollars that's where all the things like if you i mean what mark said is true it's a means turned out i think i don't think they have to like yeah it's twenty thirty one but anyway but this is a situation where like if they have to pay operational costs or you know the debt obligations if they get bad leverage you know there's good leverage is intelligent leverage is not to intelligent leverage so like the miners of the last cycle kind of learned the difference in the hard way But if they do, if they use it to buy Bitcoin, then it could be a situation where they had to sell the Bitcoin at the worst time and then they're hurting the, you know, adding sell pressure to the very thing their entire business revolves around at the same time. You know, and so it's an issue that like MicroStrategy or Semmler Scientific doesn't really have to think about. Now, I think Marathon is using intelligent leverage here. But in Marathon, what's interesting is that like they're utilizing their size and the liquidity of their stock, which is what differentiates it from a lot of other miners, especially smaller miners. These large publicly traded Bitcoin miners have access to capital markets and other miners don't, or not so easily. And so they're basically leveraging their ability to raise capital in the convert market, in the equity market, which is what they've been doing. And if they turn around and start buying Bitcoin, Brian Cubellis (01:11:43.342) And if they get the timing right, so Marathon owns double the Bitcoin in the next minor, think Hut 8 owns like 9 ,000 and they own 25 ,000 now. So if they get the timing right on this thing and Bitcoin goes up like we think it is the next couple of years, they could really separate themselves from the pack. And so it's a bold strategy, but at the same time, like the math, what Mark was mentioning, the... It makes a lot of sense. And they're just going be able to do it again because again, it's just going to add liquidity to their stock. This is what we've seen with MicroStrategy. just increases the trading activity, which adds liquidity, which like wakens up the options market and the debt market, allows them to raise again. And then they buy more Bitcoin and that adds more volatility. it's just like this liquidity flywheel that ends with more Bitcoin on the balance sheet. or guess Bitcoin per share going up. It's accretive to shareholders. Yeah, that's a thought. I'd like to read what you wrote, because that's huge emergent dynamic that would be, I think, to have investors appreciate. it's, yeah, it's a thing. Michael's, can we call Michael's sale the Lou Raniere of Bitcoin, right? Kind of, yeah. As taking mortgages. to Bitcoin and it was one guy. It wasn't an industry. One dude did it solid. Mortgage -backed securities? Yeah, he created it. Yeah, I mean, it's going to be wild. again, it's very interesting thinking about the competitive advantage that these large publicly traded miners can have with that ability and whether it will last. So like if we do go down into a big downturn like Will their ability to raise become a lot more difficult? And then they come into trouble that way. Because right now, the market loves it. I mean, not only are they raising equity a lot at ATMs, just like they did that a few times, but now they're hitting the convertible debt market as well. And they're just turning around and buying Bitcoin, which is the big difference now too. They're just literally adopting a Bitcoin strategy. Brian Cubellis (01:14:07.32) Yeah, fascinating, fascinating stuff. think final thought or question would just be like, you think Sam, this is an inflection point now because Sailor was on an island for a while, executing the strategy, obviously insatiable demand for the strategy. Now, you know, we're talking about public miners getting involved. I didn't even realize that Bitdeer did as well. I just had seen the marathon news, but do you think now it's kind of an inflection point for publicly traded miners specifically? Do you think that we're going to see more companies like MicroStrategy or just like tech companies in general or other sorts of publicly traded businesses adopt the strategy or do you think there's still maybe a little bit more, do we have to see some more time pass before that really, you know, before we hit that flywheel? I think, I mean Michael and I have talked about this too. It's just, there's a, mean, Sailor talks about this as well, like, Zombie companies are typically described as companies who take on a ton of debt that can't pay back the interest on their debt for, I think, three quarters. That's like the traditional, can't even pay the interest on the debt for three quarters, I think, with their current revenues or something like that. That's how traditional people think of zombie companies. But Saylor has a different kind of definition of it. A zombie company is just a company that's solid, good growth. are not good growth, good cash flows, durable cash flows, lot of cash, but they're not growing, they're not innovating. They look out 20 years and their share price is just boring, nobody cares about them. They're zombies, they're just waiting to die. They're trucking along and Bitcoin offers this adrenaline, it's just orange adrenaline, pop it in the... not only does it have benefits to the balance sheet, it transforms the culture and identity of the company. And suddenly the stock sees increased trading activity and things start to become alive. you know, miners, know, tech companies, you know, those are obvious choices for, you know, adopting a Bitcoin treasury strategy. But it's these like, these like mid to small size public companies, like the Brian Cubellis (01:16:32.27) bottom like the everything in the Russell 2000 outside like the top 10. Like anything that has like good cash flow and is cash rich and is just trucking along waiting to die. They should probably think about adopting a Bitcoin treasury strategy. In my opinion it could just change their entire identity. And so that's what I'm looking for. And then the other thing is just like corporate board. You know if this Saylor had a lot of control, as we know, with the voting rights of the company that allowed them to easily adopt it. But if you look for things like how much the corporate board members own the stock themselves, that could be a good sign, actually, because they actually care about increasing shareholder value. Eric Semmler talked about this in Nashville, and I thought that was a really great point, because a lot of these boards, they just collect a paycheck every quarter. But if the board is full of people who actually own equity in the company, then they're more likely to think about how do we maximize shareholder value? there probably isn't a better way to do that than adopting a Bitcoin treasury strategy. It's really the underlying question is like, you have to come to the realization as a treasurer of a corporation or a CFO or CEO, that cash is no longer an asset, cash is a liability. and you gotta make that distinction, it's a complete shift, but you have to understand that and then ask the question, what do I do with all the cash? And that kinda starts you down that road and that's what Michael Saylor did in 2020, end up with Bitcoin, but now it's much easier for them to do that, because he's paved the way, Michael said he's paved the way. Yeah, it's fascinating on the incentive. On the incentives as we wrap up with thinking about it was little known. There's a really good podcast. Allocators forget the exact name, but they had the CIO from Wisconsin pension and they have a unique, incentive model at the pension level to pass through posts like a certain performance or benchmark goes to the, fiduciaries that run that pension. And so you naturally have this outperformance because they're not sitting on a flat structure. Yeah. So it's a, it's interesting model. You see the incentives and you kind of see the out. Brian Cubellis (01:18:56.046) It's probably why it's like one of the best funded pension funds in the country. Best run. Incentives are powerful. Everyone said, they're the ninth largest state pension in Wisconsin. How's that? Michael just told us incentives. Yeah. Yeah, well, Sam, maybe now's a good time to wrap it. Really appreciate you hopping on this week and joining us. Fantastic conversation. I learned a lot too. There's some topics that I want to go deeper in and excited to read that new research report you'll be publishing soon. Maybe just if you want to give a handoff, feel free where folks can find you and see what you're working on these days. Yes, I've been writing a weekly market update. called the NewsBlock so you can subscribe at thenewsblockatsubstack .com where I just kind of give an overview of developments that I think are important in the macro and Bitcoin landscape. And so check that out. I'm on Twitter a lot at Sam Kalla, S -A -C -A -L -L -A -H. And then I'm actually throwing a event next month in St. Louis for all the Midwest Bitcoiners. Natalie Brunel, Matt Dines. from Build Asset Management as well as myself. We're throwing a half -day seminar. It's called Bitcoin Lunch and Learn. come, learn about Bitcoin, grab lunch, networking. You can find more information at bitcoin -lunch .com. Love to have you there if you're in the Midwest. We're just trying to educate people about Bitcoin and meet some Bitcoiners in the community. Build a Matter of Good Friends of OnRamp. So I encourage everybody to check it out. Sam, would you even get into Tether and Bitcoin and bonds and tying the whole financial system together? feel like you have man. It's based on all C &P stuff. hopefully have to have you on again and get to do a deep dive as that gets to a larger treasury holder. look forward to hopefully. Totally. Yep. Let's do it. Thanks, guys. Thanks for having me on. Mark, it's been a pleasure. Michael, Jackson. Loaded fun, Sam. Thanks. Thanks, Jackson. Thanks, Michael. Thanks, guys.