Transcript+
Welcome back to another episode of Wake Up Call. Before we get started, please like, share and subscribe to on ramp media channels to receive the best Bitcoin education and content in the industry. And also be sure to check out our latest research report titled Bitcoin the Emergent Asset class has arrived. This is a three-part series aimed at introducing important Bitcoin centric concepts to the institutional allocator world. Part 1 available now and LinkedIn. The show notes explores Bitcoins volatility and why it is a uniquely desirable characteristic of the asset that can boost returns and dampen volatility in traditional portfolios. Wake Up Call aims to educate financial professionals on the merits of the Bitcoin investment thesis. How this asset class represents both a threat to legacy financial service businesses and an opportunity to differentiate oneselves to retain and attract new clients. Hosted by Mark Connors on Ramp's Head of Global Macro Strategy and Rich Kerr on Ramp's President of Managed Wealth, this weekly show seeks to provide financial professionals the wake up call they need, prompt them to have an open mind with respect to Bitcoin, rethink their prior assumptions, become more educated on the topic, and learn from others who are already farther down this path. Wake Up Call is live streamed on LinkedIn every Monday morning and the recording can be found across on RAMP media channels. Now time for the show. Hey everybody, welcome to today's wake up call. We have a special guest with us today and Brendan Warble from Active Capital Partners. Rich Kerr is taking the day off. So it's just the two of us today, but a timely topic. Brendan joins us to discuss the history of convertible bonds and timely because on CNBCI, think about 10 minutes ago, Brennan, we had Michael Saylor talking about his purchase of 55,000 Bitcoin and really how he's manufacturing the purchase of Bitcoin by selling volatility. So that's today's topic. It's, it's a new, it's a new phenomena to have a company buy Bitcoin, but it's not a new phenomena to introduce convertibles into a marketplace. So 1st, I'm going to go and talk a little bit about Brendan's background and, and touch on it. And, and truth be told also Brendan and I've known each other for a long time because we were both in the convert world and, and, and grew up in the same area. So we've been having more stories on, on the markets for quite a while. Happy to have you here, Brendan. So why why don't you go and tell us a little about Active Capital Partners, you know, the boutique that you advise, I think I mean from cap raises to talent to strategy and you know, you're taking your 30 plus years and and then talking to up and coming and maybe not so up and coming firms. Yeah, well, thanks, Mark. Thanks for having me. And yeah, Mark and I have been classmates, schoolmates, friends. Mark was a client for a little while. He was a competitor for a little while. So I've seen all sides of of Mark and and joining this little podcast has been is awesome. So thanks for having me. You bet 3 Active Capital Partners is an advisory boutique investment bank. We we raise third party cap, we raise capital for issuers to raise capital for companies. And so I'm doing on taking, as Mark said, 30 years of experience on Wall Street with some great old friends who I worked with at places in the past and applying what we've learned to help corporates navigate capital raises, cap structure advisory, as Mark said, we do the whole bit. But before I got here, there was a time in my life when I spent 100% of my day on convertible bonds and and the convertible ecosystem. So I literally worked on issuing, distributing, originating, selling and trading convertible bonds for the 1st 1015 years of my career. It was a fantastic time. As Mark said, this is not a new trade. Even this structure, the 0 coupon is the 1st 0 coupon was issued by Waste Management 1985 was called a liquid yield option. Note something that we developed when I was at Merrill Lynch by some super bright corporate finance folks. Merrill Lynch had a very strong Chicago corporate finance team and was able to get some forward thinking CFOs willing to issue unique structures that solve very specific problems. But back to Mark's point about volatility in the commerce market and and Michael Saylor's trades, it is fascinating. And now also with the whole options complex around Bitcoin exploding just in the last four days, which is, you know, options are yet another volatility instrument to trade the underlying. There's just a lot going on in this space right now. So timing is excellent. But taking it back to converse, the reason commercial bonds exist is because there were many usually lower credit quality junkie companies that had risky cash flows or no cash flows. And because they were so volatile, the option that they'd be selling in the convertible bond market was worth a lot, right? Because if if you can, and you'd always have to think like a hedge fund, like, OK, if, well, if I can get long that volatility by selling off the bond floor and just be trading an option, which is what a lot of folks did back then. The convert market came into existence because people said, OK, if I'm getting a current income and then I can insulate myself from stock prices by shorting the stock. If your hedge fund, then of course I, I, I can extract the, the volatility and make some money. Similarly, if you were a traditional investor and you said, well, if I'm getting a coupon that's going to pay me back my premium that I'm paying over the stock price, the conversion premium, it's going to be very difficult to underperform the stock on the upside or the downside as long as I've got a long enough horizon. So said differently, if you have a, you know, a 10% yielding security with a 20% premium in two years, you're going to have guaranteed yourself outperforming the common stock on the upside. And of course, in the downside, you always do much better because of these bond floors. And friends, so let's so you talk about waste management in 85, let's put this in perspective. Mike Milliken developed a high yield market in the in the early 80s and it was on the back of, you know, the double recessions that kind of cracked companies down, made assets very cheap. Interest rates peaked in 1981 at 16% in a 10 year and all of a sudden asset value started to go higher from that point. High yield is a great time to do high yield. And then so that was the birth of credit really in a new asset class that he he basically fathered with with. Yep. Drexel and then, you know, a little bit into other companies, but then equity volatile. So this is a new one. So then converts really were born off of that as a as a side chain because they weren't as big as a high yield market. Is that fair? No, the convertible bond market in the, you know, 90s was relatively small. It's very obscure little market. We used to joke there were only like 30 or 40 people that really understood this market because who else would spend their whole day on it? It was too small. But it's interesting you, you mentioned Milken, because some of the folks that came out of that group were big supporters of the convertible bond market. So Howard Marks who went on to found Oak Tree at the time was at Trust Company, the West. And Trust Company was one of these forward thinking firms. And Howard really drove this thinking that if these securities are cheap, then then we ought to be allocating capital to them. And he of course came at it from a credit standpoint, right? Because at the end of the day, even if you look at this most recent micro strategy bond, you know, something like 80% of the asset is going to be the bond floor and then the balance is going to be the option that's embedded in it. So what was interesting about the convertible bond market then is you needed issuers, right? So if a very junky credit couldn't fund itself in the high yield market, it would often come to the convert market because there were there was a different environment and there there might be a way to to raise capital. What really changed the market was when firms like Merrill Lynch went out to corporates and said, hey, just so you know, you've got this asset on your balance sheet, you probably don't know what it is. It's called volatility and there are ways to to monetize it. Now there were some very sharp treasury offices at places like Microsoft that understood their volatility was valuable and they used to trade it. And they usually the most common way to do that was through a put writing program. So if you had high Vol and you had a buyback, stock buyback already in place, you just write a put as a treasure. And then if you got hit on the stock, you were happy because you had a stock buyback anyway. You know, if the stock went down and if it didn't go down, then you realize you're high volatility, right? Because you're selling volatility. That was sort of an early precursor into going to a lot of these corporates and saying, OK, you're a pretty high Vol stock, which means the convertible bond market will pay a lot for that embedded option that's in your convert. And then we can drive down your interest expense. And the 0 coupon was a game changer because it was actually, they weren't paying out interest, but they could deduct that interest against their earnings as if they were. And then if the stock went up a lot, like in the case of MicroStrategy, 55%, most treasurers were very, we're thinking or most CFOs would think, jeez, if my stocks up 50%, life's pretty good. If it ends up converting out, it's I can suffer the dilution and I'd be happy with that transaction. So now, now what's different about what sailors doing is he loaded up his balance sheet with a risky asset to get the volatility. So he almost did it backwards. He said, OK, I'm going to go find a Bitcoin. It's super Vol. I'm going to go buy a bunch of it. Mostly issuing stock back then when he first started back in 2020 and then as his stock became more volatile because he had such a large chunk of Bitcoin on his balance sheet, then he could take the next step, which is come to the convertible bond market and issue a really high premium 0 coupon convertible bond. That is a win win for him and for his investors because he's getting that high premium. He's he's, you know, he's getting the proceeds, he's going out and buying Bitcoin. And to this point, it's been a virtuous circle. It's worked. I, I, I know Mark, you've done a lot of work on micro strategy and you know this company, you know much better than I do and I'm not giving any investment advice. I, I I. Yeah, this is not. This is basically highlighting the fact that we've gotten a lot of calls saying what's going on, is this, you know, a forest or is this a game? And it's like, no. And as Brendan said, there's this asset that's latent to most people unless you can structure it. And God knows Wall Street love structure because you create it. And then they're like, now this is what you're giving me as a package. I now have the ability to take that package and harvest the volatility that is in a convertible bond or even in the equity by trading options against it. And, and and that's the real game here, folks, is to to notice that. So this is a different calling we've had in the past. Brennan is not in a Bitcoin focus firm. Brennan brings the the traditional finance history in alternatives and what micro strategy has done is they've created a new alternative, as you said brand, they reverse engineered it. They recognized Bitcoin's volatility over here. They brought it into their capital structure, invited it in their capital structure explodes. Then they sell that that 100% volatility to the market for 50 Vol. So that's the difficult concept maybe for some, but the the $3 billion Brennan of of 0 converts they sold, what was the premium on the equity? So that was a 55% premium versus the last sale when when they issued it? So when a convertible bond, like I don't know who you want to think of in the old days, you know, but those convertible bond traders, they see that and do they get the knife and fork out and get ready to go. The real trick in the in the micro strategy trade to me is because this is a very attractive vehicle to hedge funds. Now there are some traditional outright investors who will want that payoff profile of downside protection with most of the upside, but the initial buyer is somebody who understands volatility really well. So just breaking down the specific bond, right, it's a five year bond. It's got it, as Mark said, a 55% premium and a 0% coupon. So it's paying absolutely no yield, but you do get your money back at the end of five years if, if the stock has gone down. So if you're trying to break it down and say, well, what's this thing worth? You'd say, OK, well MicroStrategy could probably issue straight debt I'm guessing, but 8-9 percent in in the high yield market if they wanted to. And if you did the present value for 0 that gets you like $68 worth of of stock around value of the security. And the balance is, is the option premium that you're paying as an investor. And if you line up the similar strike, there happens to be a two year, 2.2 year call on MicroStrategy. If you line it up and, and look at it, it actually trades around 32 Volt. So, so you'd say 32% of spot, excuse me, not Volt. So that tells you that a 2 point, a 2:00-ish year option is trading at the same price as these guys are buying a five year option. So that to me is a cheap security. So, so the, the tricky part it though is you do need to get your hedge off if you're, if you're a arbitrageur. The great thing is once that security's out there because these convertible bonds are incredibly convex, meaning the, the, your participation goes up as the stock goes up and your participation goes down as the stock goes down. So we call that delta, right? So your delta increases as stocks go up and it decreases, it goes down the the gamma, which is what these guys want to own is your rate of change of that delta. And so when I say think like a hedge fund, if you're a hedge fund and you buy the MicroStrategy convert, you short the appropriate amount of shares and you get these gappy moves. You come in, you know, over the weekend and, and MicroStrategy stock or Bitcoin goes down, you know, 20%, you're supposed to be on a 70% hedge, but you're actually on a 50% hedge because of that gap lower. So you got to go in and buy those shares, which is all pure profit. Similarly, if it goes up, if you have a big gap move up, you're going to have a profit on the upside. But what that also means is, and this is Mark and I were talking about how as Bitcoin matures as a market, it just sucks in new investors and new people with different perspectives and ideas. So imagine, you know, there's a a convertible arbitrager who never had to have an opinion on Bitcoin up until Michael started issuing all these converts. And now all of a sudden they've got to get up to speed and understand the asset class. And as life goes on, these guys move on and they go be a risk manager at a pension or endowment. And then somebody says, I want to add Bitcoin to their strategy and they say, well, jeez, I actually understand this asset. So and this is just how you move an asset into other markets. So you start in, you know, purely Bitcoin, then you move into the equity market, then you move into converts. Now we've got a whole options complex and each one of these nodes brings in a whole additional group. And so to me, that's also what smooths volatility and brings it down because there's not only the natural incremental buyers that you've brought in from different asset classes, but you've also have that very technical selling and buying of a convex security. As it goes down, you've got natural buyers, as it goes up, you've got natural sellers. And that dampens volatility over time. And and does what I think most people hope and expect will happen with Bitcoin is that it eventually will become a more stable asset. Yeah, that and that, that concept, I know that Brian Cabela is our Chief of strategy is going to cut that out and put that on a snippet what you just said, because that is what everyone's saying. Is this cycle different for Bitcoin? And it's going to be a function of, well, has the constituency changed And absolutely it has. As you said, we now have people who aren't just outright, not just punters, not just, you know, buy and hold, but we have people who are trading on a conditional basis because of the new instruments. Now back to the micro strategy, specifically what he's really doing, Mark, is he's trying to outrun his dilution, right? So he's saying, I know you had some slides and you read the the most recent quarterly earnings report, but you know, here's a company who lost $18 million on their core business in the most recent quarter, right, but somehow has been the best performing stock. And the S&P 500, it's up, it's up over 3000%, while Bitcoin's only up like 700% since he started buying it. And so you'd say like, well, how can that happen? And the answer is he is outrunning the dilution. So I'm just going to read you a quote from his earnings report. This is Michael Saylor. He said our objective continues to be to accumulate Bitcoin holdings at a faster rate than we issue shares. We've demonstrated a solid track record of doing so. To assess our performance and achieving a strategic objective. We've introduced a new key performance indicator last quarter, which we refer to Bitcoin yield. To reiterate again, we define Bitcoin yield as a period to period percentage change in the ratio of our total Bitcoin holdings to our assumed diluted shares outstanding. So that is by definition, he's saying, as long as I keep buying this asset and it keeps going up, it's not going to be dilutive, especially if I'm selling high premium convertible bonds, because I'm getting that gap between spot and and the premium. And eventually it will convert out if the stock goes higher. If it goes lower, there's a, you know, there's a bill to pay, right, that you get to put the bonds back to him. But that also will create a fascinating ecosystem for, for the whole, you know, Bitcoin and and MicroStrategy and then the options all around it. So it's wonderful that we've got all these options about now, Mark, you've got, you know, literally you've got two times ETF's, you've got spot, you've got convertible bonds. Now you've got, you can buy puts, you can sell calls, you can take advantage of tax mitigating strategies. If you're long one of the ETFs, you can, you can create income by selling calls against your position. Or if you, you know, are worried about the downside, you mean you don't want to pay your tax bill, you can buy puts. So it really to me, as I said earlier, it's just this incredible maturation of a market that's happening in real time, like since a year ago. Think of all the instruments that are available now when it used to be, you know, for a lot of folks it was like, well, I could buy Grayscale and worry about where my coins are or, or, or I could buy physical, you know, I could actually buy Bitcoin and store it. Then I got to worry about where my keys are. Yeah. Now you know you can buy an ETF in a Fidelity account and you can sell calls against it and you can create yield without having to worry about any counterparty credit risk. You're selling calls that are backed by the options Clearing Corporation OCC zero credit risk. It's it's just. Fascinating and phenomenal to see this market continue to to move and. Fast, Brendan, the the I bid options came out just last week. Is that right? And then on to FBTC and the other ones. Yeah. And So what was really interesting about that? Sorry to jump in, Mark. Yeah, yeah. We've only got two or three days of data, so it'll be interesting. But usually when you have options, you've got what we call options skew. I know Mark talks about, you know, skew of performance, but the idea that because more people are interested in buying downside protection because and markets tend to gap lower and they tend to, you know, slowly go up. It's volatility on the downside is always more expensive or usually more expensive in the options market than upside because there are just more buyers of downside. There are more people looking for protection and there's less people looking to sell upside, excuse me, buy upside in Ivy initially and then the others as they came on Thursday and Friday, we didn't see that. We saw basically flat skew, which means there were more people. And if you looked at actual strikes, because we get to see all this data, which is also very cool, it there were more people buying calls than there were people buying puts. So now if you want to be a contrarian, you'd say we've got an asset that's had this massive run and nobody wants to hedge that. That seems interesting, except for the supply demand dynamic, which at this moment in time is so far skewed to, to buyers and so far skewed away from, from sellers and that we've, we've got less Bitcoin coming on every day and then we've got incremental new buyers. It could be that. OK, well, it just makes sense to be long, not, you know, not short. So, but I, I did not, I was kind of surprised by that because when we saw GLD like the gold ETFs come in and options there, you did see that people were buying, you know, downside. Now maybe that's because there's producers who need to hedge that. There's all kinds of reasons for it, but it's different and unique. It'll be interesting to see how that plays out over the next 6121824 months. Are you ready to secure your future with Bitcoin? At Onramp, we're revolutionizing how you can save for retirement. Onramp has just launched the industry's first Bitcoin IRA product with multi institution custody, designed to give you unparalleled security, transparency and Peace of Mind. With Onramp, you can verify your assets on chain and protect them with the support of three independent institutions, reducing risks and enhancing security. At Onramp, we believe that Bitcoin is the most important asset of the 21st century. The hard part is securing it right. There are shortcomings with keeping your coins on an exchange, but also with setting up your own self custody arrangement. Onramp solves for these concerns. Our multi institution custody solution maximizes security and minimizes counterparty risk, ensuring that your Bitcoin remains securely in your possession and provides built in inheritance planning to ensure your family is protected as well. On Ramp provides Peace of Mind for your Bitcoin journey, whether for your whole stack or for part of it as a complement to your existing self custody set up. For more information about our services as well as our new Bitcoin IRA product, check us out at on rampbitcoin.com. Yeah. And as and more people will come up with stories and that's why we're staying to the structure. And I, I love what you're doing by just talking about how people play when they see the high Vol asset come in. Historically they would be well harvesting it through a convert etcetera as an issuer and and taking in that excess cash without paying coupon because there's another person who can buy the convert and then sell the equity. That's one way to do it. And then as you're saying, when you look at those highball stocks, though, only looking at the stock people know that markets, you know, as we talked about it, it's the escalator in the way up and the elevator shaft in the way down. And we know we, we, we tend to be, you know, fear based amygdala focused creatures, so that we'll be buying puts more than calls to protect that that investment. But that's not the case with what we've seen with, with Bitcoin. And I'm going to do a side shot here to talk about the core asset and what I think Sailor did. And as you said, as more people migrate from an ARB trader and they then go to a pension fund, they're going to be able to say, Oh, I, I know Bitcoin. So what he's done is at a minimum is he has accelerated, call it, you know the adoption cycle of Bitcoin. And, and so this is a report we put out last month and this is an example of, you know, we talked about performance skew or asymmetry. Bitcoins return profile is different. Its volatility has more upside than downside. There's no other asset that I've seen single stock or commodity that currently has this. Sometimes growth stocks out-of-the-box like Tesla five years ago would have a little bit of it, but it fades. Bitcoins been persistent. So this is one, one example when people say Bitcoin is a like a 3 * X brand. You've heard people say, you know, our, our friends may say, yeah, you know, Bitcoins like a just a 3X on NASDAQ, you know, it's high beta. So then we say, all right, well, maybe if that's the case, then if we bought Bitcoin and sold NASDAQ, we should have the three times performance up and down against it. And this little exercise we have done here is we've said, let's take a three month performance of Bitcoin and then let's get along that performance and sell Nasdaq's performance against it. Well, as you see, Bitcoin has more upsides and downsides and more frequently. So the concept of asymmetry is borne out by just looking at over the past seven years, if you were long Bitcoin, you performed better than NASDAQ on a very non normal distribution. And that's the core and that non normal. And Michael Saylor is now bringing that asymmetry to the to the unwashed. We'll call them to to to tratify who never knew about it. And then I, I guess I'll persist in this discussion of the volatility in our report by saying that when you look at upside and downside volatility equities here, this is looking at the large cap equity index, which is basically the S&P, It has upside volatility of like 11. That's just looking at the up days, the volatility of only up days, but the down days have a higher volatility again, back to that elevator shaft and they're way down. And bonds are definitely negatively skewed or have more downside 4.4 versus 2.5. But Bitcoin, which we know is like a 50 or 60 Vol when you look at all the stats together. But if you RIP it apart, and we're going into the technical weeds here, I, I know I'll get a buzzer soon to get out of here, but this is what people in the market are doing. Michael Saylor has allowed people by creating a convertible bond to RIP out the good Val versus bad Val. Bitcoin, when you look at all the days together up and down, it has like a 55 Val now. It used to be 100. It's gone down. But when you only look at the good days, its volatility is three times or more greater than its downside. It has more upside than downside. Gold is similar, but to a lesser degree. So I'll, I'll go back to our regularly scheduled program here now. But the the reason we bring that up is because as Chris Kiper noted last week and on our call, Brennan, and what you're talking about is no one knows this. Investors still say bitcoins too volatile. That's the number one answer at Fidelity for five years in a row on why investors don't buy it. Sailors saying, oh, I think you'll like this volatility. And then people take the next step on adoption. So is is there an analog in in your career, Brennan, on an emergent technology or or strategy where it went, you know, from the periphery like into a wrapper like this or? Well, yeah, I would say actually the the convertible bond market in general is a great example. I mean, taking it out to the macro again. So I remember there was a time, so when when we went out to these issuers and we said, hey, you've got this asset, you can monetize it. The response was universally like that's great, I'd like to do that. And we had this rush of issuers in the 2000s or so where corporates were just issuing bonds constantly. And I remember Henry Sueka, who was one of the founders of Highbridge, was in her office. And he was like, are you guys going to just issue a convert on every company in the S&P 500? But this is insane because we've been this very small sort of insulated market and and there weren't massive pools of capital. And we said, yeah, that's the plan. We'd love to do that if we could. And then he said, well, we're going to need to attract more capital to this market if you're going to do that. Of a sudden what came was this sort of jerk water backwater market started to grow and many of these what we now think of the largest multi strategy institutional hedge funds like a Citadel Highbridge. They all started as these dedicated little convertible arbitragers. And then they they realized that they needed more capital. And so they went out and they raised more capital to invest in this market. And then all of a sudden they need they couldn't deploy all their capital because investors like the returns that they were getting. And so they broadened out in the long short equity and credit and and then stat ARB and and and became these, you know, monsters. So sailors just kind of going back to the roots. He's saying, look, this is a great place to raise capital 3020, thirty years ago, and it's a great place to raise capital for me now because of these unique dynamics where I'm selling an asset that, as you said, most of the world thinks is bad, right? So he's literally benefiting from this asset that you're just said people don't want. So he's saying, OK, well, I I hear you that, but there are a group of people who love volatility. So let's find them, bring them into the fold and let's give them what they want and let's take those proceeds and invest in what we want, all of which works to lower the volatility of the asset over time, I believe. Yep, home. Run print that one and and you touched on it briefly, but you know, one of the most successful largest hedge funds in the world starting in what market? Yeah. Convertible bonds. Convertible bonds. Yep, CDL Securities Ken Griffin. You know, Ken Griffin when he was at Harvard had a seat on the Merrill Lynch Boston office desk because he wanted to access to a Bloomberg Terminal. And there's a very forward thinking sales guy named Terry O'Connor who said, you know, I'd like to make a bet on this guy and let him come in and, and and trade. And he did. And because of that, Terry and and Merrill enjoyed a very great relationship with Ken and Citadel for a long time. But yeah, that, that was, you know, a, a brand new market and, and new investors. And now they're, you know, you've seen how these firms have prospered and moved into different markets. And now Citadel trade something like, I don't know, 40% of equities and even bigger number of options every day. So it's it, this is how a mark, as I said 100 times on this call, this is how a market matures and gets bigger and and and less volatile, not the other way around. Yeah, and. And back to the point about Terry, is it O'Connell O'Connor? Yeah. O'Connor OK I. I, I should know that the fact I got an Irish guy's name wrong is just not good. So the fact that Terry O'Connor saw that and then brought in Ken Griffin, it's always the edges, you know, it's, it's always someone on the edge sees something is involved, persists. And then the stepwise function I believe is, is what sailors done by injecting this unique volatility into a familiar instrument where everyone knows how to look at it, but no one has a model to look at what I think is basically liquid venture capital, which is what Bitcoin is. It's just, it's a, it's a software that was released into the wild. It got escaped velocity in being fully decentralized. It got adoption serves purposes people still don't don't know what it is, but still he goes, don't worry about it. I now have a company where I can have enough critical mass to give you a wrapper around it. So then you can monetize it and and that I think, as you said, is going to be you know, that's the Boston Maryland. He's basically created the that Merrill Lynch office where he's what what he's. What he's really done, Mark, is he's created different payoff profiles for different levels of risk, right? So, so to your point, it is a volatile asset and some people would say, you know what, I'd prefer to own that volatile asset in something that gives me some downside protection in case I'm wrong. So Michael Sayer is saying, hey, here you go, you, you can own this asset. Now you get into the credit quality of MicroStrategy. If the stock does go down and, and, and that's, you know, something I'll leave to the credit analyst, but you know, the deal is you get the upside of Bitcoin without the downside. And if the stock, excuse me, MicroStrategy, to the extent you think MicroStrategy is correlated to Bitcoin, and we all know it has been, but you get the upside of MicroStrategy stock with less downside. So you get your good Vol to the upside and you mitigate the downside, the downside Vol. And there are some folks in the world, especially institutions who say, I'm happy to take that payoff profile versus just being long Bitcoin or being long a double Bitcoin ETF. So as I was saying before, now we have all these different payoff profiles to for any investor. So it's not just, OK, I'm long Bitcoin spot and I'm going to get that return. You've got, you've got different ways to play the same theme that you can customize to your risk profile that's more tolerable to you, which should mean you're going to be able to hold it if things go sideways in the short term. Yes, you, you. You definitely have and and he's been will say this. I will comment on on sailors approach. It's thoughtful and he's laid it out. There are some assumptions of course on on performance of the of the company's ability to pay its capital structure. He has refinanced debt, he's issued debt. If you look at his cash position, just to let you know that you know, the man is an engineer. His cash flow from operations, even with billions of dollars flowing in and out of his company is within I think $1.2 million. His cash flow at beginning of, you know, nine months ago, the September nine months ago versus December, 9 months ago numbers. So he's, he's very surgical in how he's managing his capital structure. So he he is thoughtful and as you said, he's giving you a bond, a convert equity, different payoff structures. He understands the marketplace very well. It's an excellent point, Mark. Because from far away it just looks reckless, right? If you don't really dig into it, it, it just you're like, what is happening here? And then you, you dig in into it deeper and deeper and you say, OK, there is a very clear strategy here. And it's, it's interesting to to see it play out in, in real time. Yeah. So Brendan, if, if we're, we're going to wrap up here in, in, in a minute or two. Is there anything else? That is interesting. You think be worthwhile to advise us and who we're speaking to in this call are people who maybe have half a foot or toe into Bitcoin, but really have a traditional asset business and are interested in in Bitcoin or in its use in a traditional portfolio? Well, I'm going to go back. To to my roots and and just plug the convertible bond market. So so a Goodyear of issuance in the convertible bond market is like, you know, 100 billion, right? And it's 300 billion ish size market. And and because as stocks go up and they do have an upward bias, they the the winners get selected out and they get called away. You make you enjoy the upside and then they're gone. And so you have to constantly replenish yourself. But to the extent you are interested in Bitcoin and, and, but you just want to put a toe in now the convertible bond market is, is actually a good way to do it because there are dedicated convertible bond managers that will, that just invest in this space. And they're, they're, they're have to be invested in these securities because all of them are, are judged on an index like any portfolio manager. And these indexes are going to absorb these bonds. So if you've got, you know, $8 billion of convertible issuance into $100 billion issuance, all of a sudden that's 8% of us coming to the market. But now there are other, you know, we didn't talk about, there are other corporates who are copying sailors trade. And I would expect that that you'll see more of that. And so the and and by the way, if you're a convertible R, you'd be very happy to do this same trade with a separate different corporate issuer, because then you've got less, you know, portfolio risk to one credit. So I would expect you to see more other companies issuing convertible bonds and investing in Bitcoin as as the treasury function starts to look at Bitcoin as an asset. You know, we know we've got this Microsoft. Oh, I was hoping I was. Hoping you can bring that up because in in sellers chart and and we posted on our LinkedIn Microsoft like it's 10 year numbers up 24%. It's five year numbers up 22%. It's one year numbers up 12% and it's just it's rate of return is declining over time. And tell the owns what you're about to talk about. Well, just that they're. Voting on whether the Treasury should be allowed to hold Bitcoin now, I would say Microsoft historically has been a incredibly sophisticated Treasury operator. I mentioned earlier in the call that they used to trade their own volatility before anybody else did and they they viewed it as an asset and they viewed it as their asset. They, they were very, very, we used to do synthetic convertible bonds on occasion for a dedicated convertible bond manager who wanted exposure to a specific stock that didn't have a convert outstanding. And the Microsoft guys hated the idea that somebody else was monetizing their volatility. They just, they, they, I remember that. Yep. Naked flex their muscles. A bit obviously at A, at a, you know, so I would, I don't know, I'm not predicting what will happen with with Microsoft, but I am predicting that there will be other issuers who have seen the ability to monetize your volatility and potentially, you know, buy Bitcoin and stick it on their balance sheet and then increase their own volatility and do the trade all over again. We've already seen, I think we have two now. Maybe there's more globally that I'm not aware of, but Medic planet you got. You know, and then Sembler Scientific have done it, OK. Dylan. Dylan. Leclair went over and joined the Japanese company and same thing their, their numbers are like, you know, triple the market cap just since doing the Bitcoin trade. Yeah. Well, this has been great, Mark. Thank you for having me on. I really appreciate the opportunity and it's been fun, Brandon. It's so fun because as I'm doing this, I'm like, wait a minute. I remember as you said, we were, you know, I was a client for a while and then, you know, competitor. But it was, I knew you'd have the stories and you and you brought it. So thanks for that. My pleasure. All right. Cheers. Take care. All right, see you. Thanks for listening to this. Week's episode of the show. If you found the information valuable, please share the episode with a friend or leave a rating on your favorite podcast app. All the links we discussed in today's show will be in the show notes inside your podcast app. Before we finish, a quick reminder that On Rat Media is for informational and entertainment purposes only, and nothing should be construed as investment or legal advice. Regardless of where you are on your Bitcoin journey, we'd love to hear from you. Visit onrampbitcoin.com/contact to schedule a consultation with one of our private Client Advisors.
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