Episode Transcript
[00:00:00] Speaker A: In 1929, one of its largest holdings was the Shenandoah Corporation, another closed end fund organized by Goldman Sachs. Another large holding was in its own stock.
Nor is this all. In the same year, Shenandoah organized a new closed end fund called the Blue Ridge Corporation and became a large investor in its stock.
All these funds traded at premia. At the top of the pyramid, the Goldman Sachs Trading Corporation traded at a premium to a premium to a premium to net asset value.
The best in Bitcoin made Audible I am Guy Swan and this is Bitcoin.
[00:00:46] Speaker B: Audible Foreign what is up guys? Welcome back to Bitcoin Audible I am Guy Swan, the guy who has read.
[00:01:09] Speaker A: More about bitcoin than anybody else you know. And my recommendation today is that you.
[00:01:15] Speaker B: Should take out a small bitcoin loan at Leaden IO and you should get yourself some nightshade glasses so that you can sort out your circadian rhythm and.
[00:01:24] Speaker A: Stop staring at these blue screens and.
[00:01:25] Speaker B: Killing your hormones every night. And you get a 10% discount so it doesn't cost that much. Then you invest some of that money in building a project with the Pub key system and PKDNS and Picar and.
[00:01:36] Speaker A: The thing, the tools that they've built to re decentralize the web and then you make peer to peer and bitcoin related technology using their stuff and then you go and release it and announce it at the Oslo Freedom Forum and make it for dissidents around the world and you make the world a better place and you make more money and bitcoin goes up and then you pay off that loan after you got healthier and your app did really good so.
[00:01:57] Speaker B: You made some money off of that and you made the world more free.
[00:02:00] Speaker A: And you never had to let go of your bitcoin. I'm just saying it's one of the things that you could do and you can check out all these great projects and services that could help you do these things right down in the show notes. There's even discounts and special links and stuff. It's all so cool. You could even speculative attack the dollar all by yourself.
[00:02:19] Speaker B: You know that's probably not a good thing to talk about or push when we're talking about 1929 and massive crashes because everybody who's thinking they could just make money for free.
[00:02:27] Speaker A: But you know, degens be degens.
[00:02:30] Speaker B: Okay, we are getting into part two of these speculative attack series by B Water.
This one really digs in to the structure of these things and the parallels with Michael Saylor or the Treasury Company Thesis and MicroStrategy specifically one of the really fun things is kind of talking about Goldman Sachs Trading Corporation. I think I use quote at the beginning that's related to that and comparing them to the micro strategy of their time because they had the biggest premium and they were basically the pioneer of this entire investment trust era. But he breaks down a lot about the structure and why a lot of this perpetual motion style value flywheel is occurring now and where we can actually see those pieces that play the exact same role as as they did back in the 1920s. So with that I don't want to lead too much and we will get into the guys take afterward. So don't forget to check out links and details we have in the show notes as well as the link to this article and many other articles written by Be Water, some of which will be mentioned during the piece and in the chats afterward. But there's a lot of good stuff to unpack so don't forget to check that out. But with that let's get into today's.
[00:03:46] Speaker A: Article and it's titled Speculative attack series part 2 Bitcoin, Treasury Cos. And the Roaring Twenties by B.
[00:03:59] Speaker B: Water.
[00:04:01] Speaker A: Bitcoin is the scarcest asset there is Michael Saylor in Goldman Sachs We Trust the recondite problems of Federal Reserve policy were not the only questions that were agitating Wall street intellectuals in the early months of 1929.
There was worry that the country might be running out of common stocks. One reason prices of stocks were so high, it was explained, was that there wasn't enough to go around and accordingly they had acquired a scarcity value.
Some issues, it was said, were becoming so desirable that they would soon be taken out of the market and would not reappear at any price.
J.K. galbraith the Great Crash of 1929 Chapter 3 the Bitcoin treasury craze is either genius or madness, and very possibly some combination of both.
In Speculative Attack Part one, we explored how Michael Saylor's microstrategy is weaponizing Wall Street's own financial engineering against the TRADFI system by inverting the symbolic alchemy of risk. Hundreds of companies now race to copy his playbook.
This is not the first time leveraged financial vehicles promise to democratize access to scarce assets using leverage and the accretive magic of M nav premiums. The 1920s investment trust and holding bubble followed a similar script in the run up to the 1929 crash.
Grayscale Trust before exploring those century old parallels, it's worth examining a more recent cautionary tale that directly involves Bitcoin itself.
The grayscale Bitcoin trust was the conceptual predecessor to the Bitcoin treasury corporations and its trajectory demonstrates how reliance on MNAV and leverage, even when the underlying Bitcoin and wrapper vehicle themselves remained unleveraged, can create systemic risks that ultimately destroy value for all participants like microstrategy. More recently, Grayscale created a vehicle to democratize Bitcoin exposure through traditional securities markets, in this case a pink sheet OTC security.
Circumventing the operational complexities of Bitcoin self custody. This innovation filled a genuine market need as many individuals and institutions lacked either the infrastructure or regulatory ability to to hold Bitcoin directly in their brokerage accounts. The SEC had not yet permitted Bitcoin ETFs on the market.
The trust's success was reflected in its M Nav, which at times reached extraordinary levels of 2x or higher.
Investors were willing to pay double Bitcoin's price for the convenience of holding GBTC shares.
This premium created what appeared to be a risk free arbitrage opportunity. Sophisticated investors could buy Bitcoin directly, contribute it to Grayscale's trust, sell GPTC shares after a six month lockup period and profit from the MNAV premium upon sale. While the grayscale trust itself held Bitcoin without any leverage, in other words an even safer capital structure than microstrategies, the broader ecosystem around it took on leverage.
Hedge funds like Three Arrows Capital piled into the grayscale arbitrage trade, using significant leverage to maximize returns from this strategy. As Bitcoin's price declined in 2022 and the trust's MNAV premium evaporated, these leveraged positions became untenable.
Three Arrows Capital imploded in June 2022, setting off a crypto contagion leading to a crypto winter.
Forced liquidations and market panic accelerated the GBTC discount, which widened to historic lows. The discount remained stubbornly elevated until early 2024 when Grayscale was forced to convert the trust into an ETF and allow daily redemptions at nav.
In other words, mnav.
One More History Gold trusts before Bitcoin was a glimmer in Satoshi's eye. Indeed, even before ETFs like GLD existed, gold trusts were the intellectual blueprint for Grayscale's gbtc.
In an era when investors sought exposure to physical gold, now known as Bitcoin for boomers, but then widely regarded as the ultimate hedge against fiat currency debasement options remained frustratingly limited.
The Spicer family built a remarkable business addressing this market need through their Central Fund of Canada and Central Gold Trust. They generated profits by storing vaulted gold bullion for investors in an efficient tax advantaged structure through publicly listed closed end trusts. During a gold bull market and with no liquid ETF alternative investor demand for the trust often outpaced supply as much as it did for Grayscale's gbtc, causing the trust to trade at a persistent premium to NAV. In the early 2000s, the Spicers enjoyed a position conceptually similar to Bitcoin treasury companies, whose MNAV premium now allows them to sell $1 of Bitcoin for $2 when their trust's market value exceeded its navigation. They could issue new trust units at the inflated price, generating profit for the parent company, though unlike Bitcoin treasury companies, this value did not accrue to trust unitholders.
Conversely, when the trust traded at a.
[00:09:52] Speaker B: Discount to its nav, they could use.
[00:09:54] Speaker A: The parent company's cash flows and savings to buy back trust units at the discounted price.
This created a risk free arbitrage opportunity that allowed the Spicers to capture the spread between the market price of the trust and its underlying gold value.
The landscape shifted dramatically after ETFs like GLD came to market in 2004.
The advantage of closed end trusts eroded in much the same way GBTC did. When Bitcoin ETFs received SEC approval, gold trusts that had frequently traded at premiums to navigate began trading at persistent discounts to their nav, creating significant unitholder dissatisfaction. This vulnerability culminated in a historic hostile takeover by Sprott Incorporated in 2015.
Sprott merged the Spicer assets into what is now the Sprott Physical Gold Trust Phys, and later acquired the original Central Fund of Canada. They've subsequently introduced a physical uranium trust sputtering and a copper trust cop. We'll explore Sprott Inc. In greater detail in an upcoming series about the multiflation method.
Parallels to the 1920s Investment trust mania Progress is cumulative in science and engineering, but cyclical in finance.
Jim Grant Perhaps the most haunting precedent for the current Bitcoin treasury company mania is, however, comes from the 1920s.
In the Great Crash 1929, J.K. galbraith traced part of the Great Depression's origins to the financial engineering innovations of the era, specifically newly formed investment entities called investment trusts and holding companies that parallel Bitcoin treasury companies in many ways.
Investment trusts.
As Galbraith observed in his account of the era during the Roaring Twenties common Stocks occupied a cultural position remarkably similar to Bitcoin and arguably the S and P today.
They were viewed as the revolutionary investment of their era, and there was widespread belief that supply of stocks was too scarce to meet surging demand.
In the 1920s, mutual funds were introduced under the name investment trusts. And like Bitcoin, treasury companies formed to capitalize on this scarcity.
A major difference between modern mutual funds and these trusts was that the trusts were leveraged. Like Bitcoin Treasuries, they invested using borrowed money that was considered Safe because, like MicroStrategy, they issued preferreds and long term debt securities to the public to buy portfolios of stocks.
Galbraith the most notable piece of speculative architecture of the late twenties, and the one by which, more than any other device, the public demand for common stocks was satisfied, was the investment trust. The investment trust did not promote new enterprises or enlarge old ones. It merely arranged that people could own stock in old companies through the medium of new ones, democratizing access to the next big thing.
Both the 1920s investment trusts and today's Bitcoin treasury companies emerged to democratize access to exciting scarce assets that ordinary investors found intimidating or complex.
In the 1920s, Wall street was widely perceived as a rigged game dominated by ultra wealthy insiders with monopolized information.
Investment trusts promised to level the playing field for the flood of new middle class investors entering the market by offering professional management, instant diversification and simple access to the bull market through a single purchase. Even Keynes delegated his U.S. stock investing to professional trust managers, recognizing their superior grasp of American markets while continuing to manage UK stocks himself.
Bitcoin treasury companies offer a strikingly similar value proposition today.
While anyone can buy Bitcoin directly and custody it themselves, doing so requires navigating crypto exchanges, managing digital wallets and securing private keys, a learning curve many traditional investors find daunting or impossible due to regulatory constraints.
Companies like MicroStrategy provide familiar regulatory wrappers that allow investors to gain Bitcoin exposure through ordinary stock purchases in their existing brokerage accounts.
Investors are also buying into the perceived expertise of leaders like Michael Saylor, trusting them to handle the complexities of acquiring and storing large Bitcoin positions and presumably later deploying capital wisely post hyper Bitcoinization mnav during the 1920s.
Like Bitcoin treasuries, the 1920s trusts had the added appeal of MNAV premiums, and that seemed to offer something for nothing.
Just as Bitcoin treasury companies today boast of their MNAV and Bitcoin yield A key feature of the 1920s bubble was the tendency for investment trusts to trade at significant premiums to M Nav during their heyday. Galbraith the measure of this respect for financial genius was that the relation of the market value of the outstanding securities of the investment trusts to the value of the securities they owned. Normally, the securities of the trust were worth considerably more than the property it owned, sometimes even twice as much. There should be no ambiguity on this point. The only property of the investment trust was the common and preferred stocks, debentures, mortgages, bonds, and cash that it held. Often it had neither an office nor office furniture. The sponsoring firm ran the investment trust out of its own quarters.
Yet had these securities all been sold on the market, the proceeds would invariably have been less and often much less than the current value of the outstanding securities of the investment company.
The latter obviously had some claim to value that went well beyond the assets behind them.
The magazine of Wall street recommended the following guidelines for selecting trusts. On September 21, 1929 shares of an investment company capitalized with common stock only and earning 10% net on invested capital might be fairly priced at 40% to 50% in excess of share liquidating value.
If the past record of management indicates that it can average 20% or more on its funds, a price of 150% to 200% above liquidating value might be reasonable. To evaluate an investment trust common stock preceded by bonds or preferred stock, a simple rule is to add 30% to 100% or more, depending upon one's estimate of the management's worth, to the liquidating value of the investment company's total assets.
As Brad DeLong and Schleifer noted about this so called investment advice, this recommendation, made only a month before the Great Crash, assumes as a matter of course that funds should be selling at large premia. Managers ability to pick stocks is thought to multiply the value of the fund by a factor ranging from 1.5 to 3.
Moreover, investors are advised to chase the trend to load up on funds whose assets have shown good performance in the past on the theory that their managers are the best. The paragraph just quoted would seem eccentric in the post World War II period when funds have typically sold at discounts. Investment analysts trying to direct investors away from closed end mutual funds also wrote as if such funds sold at far above net asset value in the third quarter of 1929 and earlier.
McNeil's financial service in Boston, for example, ran a series of large Advertisements in 1929 Issues of commerce and Finance asking in bold type are you paying $800 for General Electric when you buy investment trusts?
These advertisements noted that investment trust stocks were in many instances selling for two or three times asset value. They are issued to the public and almost immediately quoted double or treble the issue price.
MNAV Magic as with today's Bitcoin treasury companies, this persistent M NAV premium created a powerful financial engine for both the trusts and the underlying stocks they were buying. The ability to conduct immediately accretive share issuances.
When a trust trades at a premium to its underlying stock values, it can issue new units at the inflated market price and instantly increase the NAV for its existing shareholders.
This reflexive accretion mechanism created a self reinforcing feedback loop similar to today's Bitcoin leverage loop. The cycle worked as investor optimism drove a trust's price to an M NAV premium. The trust would issue new units at this premium price, which was immediately accretive to the NAV per share.
The new capital raise was used to purchase more stocks, adding buying pressure to the overall market and increasing the value of the trust's own portfolio.
The rising NAV and apparent success of the strategy further fueled investor optimism, widening the premium and allowing the cycle to repeat.
Meanwhile, investors in the trusts and individual stocks amplified their exposure to a sure thing by using margin loans to leverage their positions, adding extra juice to the trade and further driving up NAVs and MVAVs for the trusts.
Galbraith noted that this MNAV process allowed trusts to create an almost complete divorce of the volume of corporate securities outstanding from the volume of underlying corporate assets in existence as they could create a virtually infinite supply of their own shares to meet the public's insatiable demand.
This dynamic was a core driver of the bubble's inflation and a key point of systemic fragility that would later prove catastrophic in the crash.
Goldman Sachs Trading corporation as Proto BTC Treasury Co.
Goldman Sachs Trading Corporation GSTC was perhaps the proto microstrategy of the day.
Launched by the influential Goldman Sachs partner Waddell Ketchings in December 1928, it was at its inception the largest investment trust yet established. Boasting an initial capitalization of $100 million, its units, offered to the public at $104, was immediately oversubscribed and quickly soared in value, doubling to $226 within a short period and in trading at a massive premium to the underlying value of its stock holdings.
Pyramiding Trusts the initial success of GSTC was not enough for Catchings to further amplify returns and Absorb the public's insatiable demand for scarce stocks, Goldman Sachs constructed a pyramid of investment trusts. This trusts within a trust pyramid structure was designed for maximum leverage, meaning that a small rise or drop in stock prices could trigger significant gains or losses.
In Brad DeLong and Andre Schleifer's The Stock Market Bubble of 1929, evidence from closed end mutual funds. They noted, quote, if investment trust MNAV premia indeed reflect excessive investor optimism rather than skill at management, there will be a tendency for funds to pyramid on.
[00:22:11] Speaker B: Top of one another.
[00:22:12] Speaker A: If each fund can be sold for 50% more than its own net asset value, promoters can more than double their profits by establishing a fund that owns funds that hold stocks rather than just establishing funds that hold stocks. This prediction is confirmed by one of the largest funds, the Goldman Sachs Trading Corporation. This was a closed end fund organized in December 1928 with a net asset value of around $100 million. In 1929, one of its largest holdings was the Shenandoah Corporation, Another closed end fund organized by Goldman Sachs. Another large holding was in its own stock. Nor is this all. In the same year, Shenandoah organized a new closed end fund called the Blue Ridge Corporation and became a large investor in its stock. All these funds traded at premia. At the top of the pyramid, the Goldman Sachs Trading Corporation traded at a premium to a premium to a premium to net asset value.
It is hard to justify these pyramid financial structures as anything other than an attempt to part fools from their money. By capitalizing on layer upon layer of investor overvaluation, Goldman Sachs attempts to satisfy his customers demands for funds that hold funds and funds that hold funds that hold funds.
[00:23:31] Speaker B: Suggested to Galbraith that it was difficult.
[00:23:35] Speaker A: Not to marvel at the imagination which was implicit in this gigantic insanity. If there must be madness, something may be said for having it on a heroic scale.
If history serves as any guide, we can expect Bitcoin treasury companies to begin investing in in other Bitcoin treasury companies before this cycle concludes.
Anyone familiar with the toxic confluence of YOLO style investor behavior, passive investing and algorithmic trade bots that has taken root since the QE era. The very behaviors we've been documenting in the Sorcerer's Apprentice should mentally prepare themselves for speculative excesses in Bitcoin and Bitcoin Treasury Cos. That could reach levels far beyond what any reasonable person would consider sane before these leveraged vehicles collapse.
Should any treasury company or ambitious banker reading this choose to pursue such a pyramiding strategy, we trust they'll remember to send along our consulting fee and royalty checks Exchange of Assets it's worth noting another parallel with bitcoin trusts. When Goldman's Blue Ridge Corporation was launched on August 20, 1929, it offered investors two ways to acquire its shares. The first was a traditional cash purchase. The second, more innovative method was a direct exchange of stock. This allowed an investor who already owned shares in certain established blue chip companies to trade them directly for a combination of Blue Ridge's own common and preferred stock.
This removed the friction of having to sell one's existing holdings, wait for the cash to settle, and then use that cash to buy into the new trust.
It was a seamless one transaction process designed for maximum convenience. We see similar innovations in Bitcoin treasury companies today, such as Strive's clever Bitcoin Exchange cum tax Arbitrage.
The combined company will be the first to offer an exchange of Bitcoin for public company equity in a transaction intended to be tax free to investors under section 351 of the U.S. tax code.
Up next, part three.
The echoes between today's Bitcoin treasury mania and the investment trust bubble of the 1920s are too striking to dismiss. Both epochs feature the same intoxicating cocktail of scarce assets, leveraged financial engineering, MNAV premiums that seem to conjure value from thin air and the seductive promise of democratizing access to revolutionary investments.
In part three, we'll examine how the 1929 crash unfolded for these leveraged investment vehicles and consider whether Bitcoin's unique properties might save today's treasury companies from repeating financial history's most expensive lessons.
Alright, that concludes Part two of the Speculative Attack series. This show is brought to you by.
[00:26:39] Speaker B: LEDN IO Bitcoin Backed Loans Speaking of speculative attacks, you can borrow against your.
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[00:27:24] Speaker A: There's no initiation fee or anything like.
[00:27:26] Speaker B: That just a set interest rate and a set time period, check them out, they're fully open, all of their rules and everything, all the nuances of the situation are fully laid out. But it is an awesome tool to have if you're a bitcoiner and you want to hold onto your Bitcoin.
So one of the things that's an interesting parallel to all this that he started with is GBTC because it was the early wrapper, you know, that turned, that was basically a Bitcoin treasury, right? It was an entity that was able to hold Bitcoin in a trust system or in a trust framework that allowed people to purchase it in a way like an etf. It essentially gave access through Wall street funds or through the General Financial System. It gave access to Bitcoin prior to any legitimate, any official access or instrument within the, within the traditional establishment finance for Bitcoin. But because of its position and the amount of capital that could access it without being able to actually access Bitcoin or not able to access any other instrument outside of the financial system, like retirements are. A great example is if you had a self directed retirement, you can actually put it in gbtc. But there was no other way other than to pay a huge fee and cash out, you know, your 401k or something to actually have it exposed to Bitcoin. So it created this massive M Nav premium. And I think this is actually kind of what we saw with, I mean, not only did he talk about in this article that we saw this very same thing with MicroStrategy, but I wonder if that's actually the bigger reason for these M Navs is that Bitcoin has been so difficult to get access to. So when new floods of money, when new pools of investable capital is basically attached to it or is able to access it in a new form, it creates this M Nav that eventually blows up when the rest of that ecosystem or area of the financial system is actually able to access it more directly. I don't know. But that's basically what happened with gbtc, right? They had massive MNAV premiums. They were, you're basically buying a Bitcoin for twice the price of an actual Bitcoin. And it blew up basically when those premiums turned into discounts. And importantly, this was unleveraged Bitcoin exposure. So when we compare it to something like a Bitcoin treasury company or what MicroStrategy is doing, even with any of the nuances of their particular position, they are leveraging fiat to buy Bitcoin. They are, they are taking on fiat debt to buy Bitcoin in some form in the context of microstrategy. They are selling, they're issuing new stocks and bonds through, through the company at ridiculously low interest rates and then turning around and buying Bitcoin. And the Bitcoin that they buy from the debt is increasing the value of their stock faster or more than the actual cost of the Bitcoin. So if you can think about it like you can borrow a million dollars and buy a million dollars worth of Bitcoin, but then it adds $1.1 million to the value of your stock, you gained $100,000. This is the whole idea of what GBT happened to GBTC. This is what happened to the investment trust of the 1920s. Is this was the ultimate mechanism. Is granted, GPTC wasn't like creating shares out of thin air and selling it. They were an unleveraged position. But their, their selling point or one of the big things about it was that they did create a massive M Nav premium for getting access to capital that couldn't get Bitcoin in any other way. But more specifically back to the 1920s, this is what happened with the investment trust, right? Is there was so much demand and attempt to get into the, to get access to these markets that the trust.
[00:31:27] Speaker A: The value of the trust, every dollar.
[00:31:29] Speaker B: That they could invite or get leverage to expand on what they, the underlying that they held gave them back more than a dollar in the supposed valuation of the company. There was a premium where they bought a million dollars worth of equities in their investment Trust. It added $1.5 million in value to the stock. And so they could issue another $500,000 worth of stock out of thin air and buy 500,000 and get 700,000 in value. Like they could just keep doing this because they forever had more equity because it was a, it was a self reinforcing loop, right? It's a, it's a perpetual motion, perpetual value machine, whatever you want to call it. And honestly I don't care what asset you have, I don't care if it's Bitcoin or anything that you can't do that forever. That's why, that's why the only way to describe it is a perpetual motion machine. This is a debt, this is a perpetual, perpetual value machine where we can just grow indefinitely through the creation of more debt. That it should be obvious that that's not possible. But sadly and frighteningly, this is literally the argument for our government that they say you have to. This is why we have to get more debt. Because the only way we can grow is to get more debt. That's a legit Ponzi scheme, yo. But because this is exactly why you don't need leverage necessarily for bitcoin to become leveraged for the economy and the ecosystem to become grossly leveraged itself because of financial. Right financial wrappers.
GBTC being a great example in 2021 and 2022 is that the fiat risk dynamics just kind of seep in. They leach in from all of the financial instruments and financialization of the system into the underlying Bitcoin economy. But this is exactly why 3ac, 3Arrows Capital and FTX like all the huge blow up that happened in 2022 and basically took down the entire bitcoin and crypto and everything with it.
Now the other thing that was really interesting was the connection to gold trust. And I find that really, really funny actually because just today I saw.
I don't think this was in.
And maybe this wasn't. Maybe he did post this in speculative attack.
Now I can't even remember. Now I can't remember. I've been reading too much and doing too many things all at once. But there are now gold treasury companies, I think this was actually on this blog.
But there's gold treasury companies that are now selling themselves as they don't save in dollars, they save in gold. And that's actually really, really interesting in the context of the thing that we discussed in part one and how this is like mimetic warfare now. And there's this, it can be this huge economic movement and there's open discussion like you know, this wasn't. This didn't happen in the social sphere during Weimar or.
And the collapse, the deutsche mark or whatever is. You didn't have people memeing into existence.
[00:34:43] Speaker A: The idea of betting against the currency.
[00:34:45] Speaker B: But we do and it's explicit, like we're saying no, the currency is going.
[00:34:50] Speaker A: To die and this is the better money to hold.
[00:34:53] Speaker B: And they can't really stop that narrative.
[00:34:56] Speaker A: From spreading especially if it keeps succeeding.
[00:34:59] Speaker B: And that does have a feedback effect. And I don't. Does it go, you know what happens with the, the various hype cycles. Everybody's like oh this is the last cycle. But I kind of wonder if we're just watching like this is. It just comes in cycles and this whole thing is the full cycle of the shift from, you know, the dollar to Bitcoin. But we are going to have some gross financialization and we're gonna have some really horrible flight into fake capital series and exploding flights into fake capital throughout this entire period until whatever this transition is is basically done. But he talks about gold trusts in this like the central fund for Central Fund of Canada I think it was. But it's just funny because somebody just recently announced a gold treasury company.
I wish I had it right on hand, but I didn't save it wherever it is that I saw it. But it's being sold literally like the bitcoin treasury company thinks is it like we're, we're buying gold and every time we save or have anything we're going to get more gold and because of that we have an asset that's just going to keep going up in price.
[00:36:04] Speaker A: But the gold trust traded at a.
[00:36:07] Speaker B: Premium then and allowed them to arbitrage the difference. But those premiums vanished when the ETFs were basically made access too easy. All those premiums vanish and a ton of them collapsed.
Be curious how this applies to Bitcoin because you know, you could argue that, you could argue the very same thing, especially on when it comes to the, the path toward monetization is that we're probably going to have multiple, you know, huge spikes and crashes as we continually. That is exactly what we've done for bitcoin's entire history.
[00:36:46] Speaker A: But the thing is, is every company.
[00:36:51] Speaker B: Is basically a dollar treasury company, right?
At some point I totally suspect. I mean if you put out the trajectory of what I think is going to happen and what role I think bitcoin plays, every like a bitcoin treasury company is going to be arbitrary. It's like, what do you mean? You're a bitcoin treasury company. Of course you are. Bitcoin is the money. Nobody would come out and Apple be like, oh, we have, you know, $70 billion in savings. We're a dollar treasury company.
You know, invest in us. We have M nav that will simply be priced out because of the liquidity of bitcoin in general everywhere and in all markets. But there are so many new markets that bitcoin has to get access to. It is likely to experience some sort of overheated over financialization and premium of some sorts as it gets access to new pools of capital that can't go.
[00:37:50] Speaker A: Or do anything else.
[00:37:52] Speaker B: They're essentially trapped due to time frames or you know, certain walled gardens or regulatory reasons. So bitcoin treasury companies specifically have a use entirely in the context of accessing latent capital that doesn't have access to bitcoin. The second it kind of becomes normalized. It all blows up, or at least any idea of a premium or quote unquote making easy money off of becoming a bitcoin treasury company just kind of goes out of the wind or goes out of the window. So probably the question asked about how it, if it produces this cycle, and this is our blow up, is how leveraged do the first entrants get in their benefit to that excess capital, and how financialized do those, these individual instruments and companies get before it spreads wide enough to actually, or broadly enough to actually dampen that premium entirely. So it's kind of like a race, and it would depend on how fast it expands within the rest of the financial system versus how quickly those who are starting to get into it leverage to get more exposure faster.
And how serious is the price feedback loop to the value of bitcoin from engaging in this? Like, does the premium go out quicker than the overall bitcoin price increases? Because if you lose 10% of the premium every three months, but during that same span, bitcoin only goes up like 7%, then I think we're on a course for it to run itself out. Because essentially the number of bitcoin treasury companies or the number of ways to get exposed to this capital, to get invested in it will reach all of its potential demand very quickly if there's not this really sharp feedback loop that the more access, the more just technical access, it is able to broaden that this results in bitcoin substantially going up and increasing the demand at the same rate or faster than the same rate that it's being able to access new capital. But honestly, honestly, just in general, I think emotional cycles work this way, is it does reach a point where bitcoin is just moving and then everybody needs to get a piece of it. I don't, I don't think we're there yet. This doesn't feel like a bubble to me. And I don't mean that in the sense that there's like, oh, there's definitely no leverage or anything like that. I mean it in the sense that this does not feel like a popular bubble. This feels like people are looking at bitcoiners who are really sure of this and it's starting to make news and become interesting. And a couple of people, like, if I, if I had to explain it with that meme or that video of that one dude dancing really weird at the concert, everybody's seen it, right? How networks grow.
[00:40:54] Speaker A: We're.
[00:40:55] Speaker B: It feels like we're at the point where people are Generally starting to realize that this is where we all want to be and we've got like 10 or 15 dancers and now people are streaming in pretty regularly. And importantly, I'm not talking about the price at all. So I don't care what this price is in relationship to the last high or the last low or whatever it is. That's not what I'm thinking about. I'm just thinking how are people treating it? How's the news look at bitcoin? How much is it being talked about? What does it feel like from an emotional perspective? And it feels like a lot of very early convicted people are staying the course with a little bit of volatility. And we've seen more volatility this month specifically which this is many months after this article was released. So I have the benefit of hindsight with some of this stuff. But honestly, Bwater probably has some other really interesting things to add because they're likely watching this far, far more closely and in more detail, at least from the numbers side and, you know, bitcoin, treasury companies and the financial metrics and that sort of stuff.
[00:41:59] Speaker A: But just in a.
[00:42:01] Speaker B: Have we reached the point where there is a fervor and this is crazy? No, I don't think we're. This doesn't feel like that part of the cycle at all either. We're not even going into a cycle and this is just kind of like the slow petering growth we might have for a while.
But I'm inclined to think that the cycle has just stretched out a little bit because we've reached a new level of liquidity and a new environment with.
[00:42:26] Speaker A: Players who respond to the price very differently.
[00:42:29] Speaker B: But that we are still going to.
[00:42:31] Speaker A: Have a run up.
[00:42:32] Speaker B: It's just going to be, it's going to be enough different from the last ones that everybody gets destroyed. Everybody. Because we have a very, very clear pattern now and we have very, very clear, oh, this is, you know, the range that it's likely to go. And I think it makes a lot of sense that the next one literally doesn't happen like the previous ones in various ways, specifically because of how many people can now easily look at the previous ones and then make see that pattern and then try to prepare for it. And I kind of think that will.
[00:43:05] Speaker A: Likely mean surprises to the upside and.
[00:43:08] Speaker B: The downside and all of them taking a little bit longer than we would think where, you know, some 30% crash might recover in like a week. We're going to be doing that for two months and everybody's like, oh, this is it. Like I just think we're getting bigger and slower, but there's still a huge avalanche. There's, there's still like an, a tsunami behind this thing that is going to start coming in it. It will reach a point in which the momentum just reinforces itself. And when that happens, we will see all of this stuff go bonkers like bitcoin treasury companies, premiums, you name it.
[00:43:48] Speaker A: More fart coins out there though.
[00:43:50] Speaker B: I really hope crypto has a much worse season. I kind of think it will because that narrative, I think lost a lot.
[00:43:59] Speaker A: Of wind in its sails.
[00:44:01] Speaker B: It dies a little bit more deeply with every single cycle.
And you know, just something from the article, I found it funny that one of the key examples was the Goldman Sachs Trading Corporation because obviously it didn't work out so bad for Goldman Sachs, but they were effectively the first investment trust. They were, they were the big one of its age. They were the micro strategy of the bitcoin treasury companies.
But I don't know, this bitcoin trading company, Goldman Sachs Trading Corporation could have been a huge disaster and almost took Goldman Sachs down. But it also just makes me wonder how you know, how much capital they made on the front end and MicroStrategy. One of the interesting things about Microstrategy or kind of the simple but brilliant thing may lie in just the pure self awareness is that he's completely, openly and consciously doing this.
And the bet isn't quite so simple as I'm going to borrow fiat to get more fiat value because stocks are better.
This is actually a much bigger bet.
This is about the failure of the dollar. He's openly borrowing to short the dollar.
Now that certainly doesn't mean you can't leverage can't still destroy you. It's literally all about the time frame and how leveraged you are and what kind of a swing or what kind of volatility and time cost you can handle in making that short position. So if you're expecting and or needing it to happen, you're setting up your, your frame so that it has to.
[00:45:53] Speaker A: Happen in the next three or four.
[00:45:55] Speaker B: Years or at this, you know, some subset of interest cost is, you can't even maintain it anymore.
Well, that's stupid. That's leverage that's going to blow up. And it's exactly that sort of behavior, to whatever degree that behavior occurs, that will cause it to run up and then come crashing back down. But microstrategy is being pretty open about the fact that they're just doing this until the dollar's not worth anything anymore, or there's no MNAF premium to deal with or to get value out of.
But like, stocks are never going to.
[00:46:29] Speaker A: Replace the dollar, right?
[00:46:30] Speaker B: Like when we compare it to the investment Trusts of the 1920s, of course you've got the exact same financialization kind of structure built out because it's a way to, you know, basically have this apparent infinite flywheel of creating more value and any kind of bubble or flight and effect values like that sort of structure seems to be emerging. And I love that part of the argument is that it just shows up in a different way and looks a little bit different, but it has all the same building blocks that just try to create a structure to build this little pyramid scheme in some other way so that it's just not the way that we did it last time. But it still solves the same problem.
But going back to the investment trust is that they were investing in stocks, but it wasn't that stocks were going to go up because the dollar was falling.
They were just trying to take advantage of that bubble feedback in issuing more debt to get more value. Like it was a lit. It was a 100% debt bubble.
[00:47:35] Speaker A: And of course there are debt bubbles.
[00:47:37] Speaker B: We are in the midst of a giant debt bubble. And there will be smaller debt bubbles within certain industries or certain time periods on the growth of the big giant debt bubble. But the ultimate bet, the ultimate play he's making is that bitcoin will be monetized and the dollar will be demonetized.
And what he is doing is effectively creating his own very, very, very large short options contract on the dollar by.
[00:48:06] Speaker A: Structuring it with his company.
[00:48:08] Speaker B: And of course using bitcoin, which is the only, the only opposite side to that. Like, you couldn't actually short to dollar because you have to short it in comparison to something.
And when you really think about it, this is the largest by far and most scalable way to short the dollar is bitcoin. And more specifically, leveraged bitcoin. If you're going to create a risky options contract, one thing you'll learn about every single options contract is there's a margin call price.
Leverage always means every time you have leverage, you get outsized gains. But it means also that you have outsized losses.
[00:48:45] Speaker A: They are one in the same.
[00:48:47] Speaker B: You cannot have one without the other.
So we will see. And we got a lot more to unpack with part three.
And I'm really interested in this because I really love these parallels. And just looking at this and I think, you know, we're going to have another big bubble and bust.
I kind of feel like that's inevitable. It's just the nature of markets, especially one that's shifting so much so quickly, like bitcoin. But going into it, these are the kind of signals to look for is to see, like, what is that? What is the M nav for these companies? How long does this strategy last? And you know, pun, no pun intended. And when or if do we see it getting to a point where it's having more results, where the bitcoin value is starting to steamroll, where there's enough attention and enough momentum for it that the more it goes up, the more it catches buying interest and attention.
Then in that same way, right, bitcoin goes up 10% and it catches 11% more people's attention. That's a feedback that just goes. And it is scarce. And we're going to have these bitcoin treasury companies and just the stage is set for something quite spectacular actually, no matter which way you look at it. And I've got a really great quote from this piece that I'll hit in just a minute. I just thought this was great, but shout out to Leden LEDN IO for Bitcoin backed loans to synonym and pub key. That's P U B K Y app. Actually, I'm going To point out PKDNS, there is a. They've built a DNS system on the network that underlied BitTorrent and file sharing back in the day where you can post a key and anyone can access and contact you and there's nothing anybody can do to shut it down. That is one of the tools in their stack. You should really check it out. If you're a builder and you're looking to actually fix the problems with Web 2.0 and while you're doing that, actually get yourself some nightshade glasses from Get Chroma with a 10% discount because you're going to be looking at your screen a lot when you're reading about it. You want to get those hormones right, get that blue light out of your eyes. No, but seriously, that makes a difference. And discounts. And lastly, the HRF and the Financial Freedom Report.
Great crew and just a wonderful resource, but this is going to be epic.
There is. I really think we're building to some really wild times in the bitcoin space.
And there's a great quote from this piece. It says it was difficult not to.
[00:51:21] Speaker A: Marvel at the imagination implicit in this gigantic insanity.
[00:51:26] Speaker B: If there must be madness, something may.
[00:51:28] Speaker A: Be said for having it on a heroic scale.
[00:51:32] Speaker B: And so I'll leave us with that. Thank you for listening and until next time. Guys, that's my two sats.
[00:51:52] Speaker A: The cypherpunk's digital cache wouldn't have the threat of state violence to scare counterfeit and most ordinary digital files can be.
[00:52:00] Speaker B: Counterfeited by anyone who can type Ctrl.
[00:52:03] Speaker A: C. Ctrl V.
Jacob Goldstein the True story of a Made up thing.
