[00:00:00] While bitcoin treasuries currently represent just one tiny glitch within the sprawling financial matrix, and on its face it seems ridiculous to scrutinize them when Fartcoin commands a $1.5 billion market cap, their parallels with the investment Trusts of the 1920s nonetheless reveal recurrent speculative pathologies that transcend their current scale.
[00:00:22] Indeed, they provide a blueprint for reflexive bubbles. Generally. The shared mechanics between trusts and treasuries therefore offer a perfect lens through which to better understand both financial history and the dynamics currently playing out across the financial matrix.
[00:00:42] The best in Bitcoin made Audible I am Guy Swan and this is Bitcoin Audible Foreign what is up guys? Welcome back to Bitcoin Audible I am Guy Swan, the guy who has read more about Bitcoin than anybody else you know. We are hitting part three of the Speculative Attack series by B Water and that is bwaterltd.com by the way, I will have the link to the blog substack whatever it is down in the show notes A shout out to Leden led in that IO for supporting this show. They offer simple and boring bitcoin backed loans which is exactly what you want. You want somebody who survived a bear market. You want somebody who does open books, proof of reserves and doesn't complicate with a whole bunch of features. That's one of the things that really stood out to me is that they had a bunch of other products and they just got rid of them. But if you want to get fiat out of your bitcoin without selling them, check out LEDN L E D N I O for bitcoin collateralized loans.
[00:01:58] Also PubKey app that's P u B k y app. This is actually a showcase built on a set of tools to actually re decentralize the web and take the center out of it so that you own your network and you own your content. If you are a builder you need to check these out at least test it out and I'll have my pub key in the show notes so you can shoot me a message up there. But check it out. We also have Chroma Gitchroma Co is their website GitHub. This is for red light therapy and general health. Getting your hormones and energy levels right by controlling your exposure to blue light when you're in front of these screens like I am all the time. It's made a huge difference and they're offering a 10% discount with code Bitcoin audible and lastly the HRF the human rights foundation for their amazing work for supporting my work. And they just have. They put on so many different things. They have the Oslo Freedom Forum, which is such a fantastic conference. It's June 1st to 3rd next year. There's a link for tickets down in the show notes and then obviously their Financial Freedom report, which I talk about quite a bit up here. Literally the best resource on the fight of freedom, fight for freedom, and then the tools in that fight for news all around the world. Combine links, details for all of this, plus a ton more right down in the show notes.
[00:03:10] All right, so we are getting into part three here and this one is far more on the very explicit and detailed connections because it's amazing how much and I talk about this like in the context of maybe what the other side argument might be in the guys take afterward. But it does just generally lay out such an interesting parallel about the nature of how financialization is structured in a bubble environment.
[00:03:42] Basically when liquidity, when money is just dumb, when there's just too much money. And it's basically fueling itself and is specifically fueling itself through the issuance of more debt. So I don't want, I don't want to get ahead of myself. Let's go ahead and just jump into part three of this series and we will follow it up with a guy's take.
[00:04:04] So jumping in to our article today, and it's titled the Speculative attack series, part 3 Bitcoin Treasury Companies Lessons from the 1929 Crash, by B. Water There is a compelling vested interest in euphoria even, or perhaps especially when it verges, as in 1929, on insanity. Anyone who speaks or writes on current tendencies in financial markets should feel duly warned. There are, however, some controlling rules in these matters, which are ignored at no slight cost.
[00:04:45] Among those suffering most will be those who regard all current warnings with the greatest contempt.
[00:04:52] J.K. galbraith, The 1929 Parallel, The Atlantic, January 1987 Prior to the 87 crash.
[00:05:03] While Bitcoin treasuries currently represent just one tiny glitch within the sprawling financial matrix. And on its face, it seemed ridiculous to scrutinize them when fart coin commands a $1.5 billion market cap, their parallels with the investment Trusts of the 1920s nonetheless reveal recurrent speculative pathologies that transcend their current scale.
[00:05:26] Indeed, they provide a blueprint for reflexive bubbles generally. The shared mechanics between trusts and treasuries therefore offer a perfect lens through which to better understand both financial history and the dynamics currently playing out of across the financial matrix. More broadly, in Speculative Attack Part 1 we explored how Michael Saylor's MicroStrategy is weaponizing Wall Street's own financial engineering against the TRADFI system By inverting the alchemy of risk, hundreds of companies now race to copy his blueprint.
[00:06:02] Speculative Attack Part 2 examines similarities between today's Bitcoin Treasuries and the investment trusts of the 1920s.
[00:06:11] These trusts emerged as corrupted versions of established, well respected British investment vehicles that American financiers amplified with leverage.
[00:06:21] By mid-1929, the trust mania had reached its crescendo. Goldman Sachs Trading Corporation had become the microstrategy of its day, and new trusts launched at a rate of one per day as investors eagerly paid double or triple the value of their underlying stock. Scarce Assets yet how could something as futuristic as Bitcoin treasuries share any lineage with the financial trusts of the 1920s, an era untouched by computers, let alone the blockchain in the years before the SEC had even been formed, much less begun to rein in Wall Street's more colorful abuses.
[00:07:01] At first glance, the structural differences between 1929's trusts and today's treasuries seem both obvious and inevitable.
[00:07:10] They are, we argue, largely beside the point. Every era in financial history unfolds with its own distinctive features within its own unique context. The obsessive focus on surface level distinctions is a perennial human rationalization for dismissing legitimate warnings about emerging financial risks and excesses. Based on historical lessons, market participants approach each episode as if it were humanity's first encounter with financial alchemy, ignoring the warning for prosperity chronicled in the great mirror of folly.
[00:07:47] This approach is not unlike preparing to fight the last war, however, rather than grappling with the enduring principles of warfare and applying them to the battles at hand.
[00:07:57] Recent decades have seen this pattern manifest clearly in everything from private credit to to trillions in negatively yielding bonds to the historic housing bubbles that infected and are now seemingly being purged in Australia, Canada, Sweden and the uk.
[00:08:15] In the case of those housing bubbles, for example, market participants dismiss concerns by pointing to the absence of complex American style derivatives like CDOs, ninja loans, rampant fraud, non recourse lending and bank failures during the 2008 crisis.
[00:08:33] Like champagne purists who demand provenance from the correct French hillside, many now believe a housing bubble can only exist if it features the exact trappings of the subprime crisis as popularized by the Big Short, complete with CDO cubed managers eating sushi in Vegas.
[00:08:51] The result is a kind of historical literalism, structural differences are taken as proof of safety when in fact they are often overstated, misleading, or fundamentally irrelevant in practice. For example, each of the aforementioned countries simply developed its own distinctive mechanisms that serve analogous alchemal functions.
[00:09:13] Bitcoin treasury proponents make a parallel argument when they contend that comparisons to 1920s investment trusts are fundamentally flawed. Whereas the trusts were built atop opaque pyramids, hidden leverage and fee extraction in an unregulated market, Bitcoin treasuries are transparent single entity corporations without a management fee layer, subject to modern SEC disclosure rules, and holding the most desirable mark to market asset in existence.
[00:09:40] In short, they argue that any superficial similarities mask profound differences in structure, agency and information flow.
[00:09:48] While we agree with some if not many of these points, we nonetheless arrive at a different conclusion.
[00:09:56] The remarkable fact is not that such differences exist between bitcoin treasuries and 1920s trusts, but that the same fundamental dynamics repeatedly emerge regardless, making the deeper parallels between them impossible to ignore.
[00:10:13] Both feature massive MNAV premiums, accretion magic, and reflexive feedback loops where purchases drive up the underlying asset prices, increasing their own value and borrowing power. Investors in both eras embraced intelligent long term leverage and the seductive promise of easy money through financial alchemy to capitalize on a sure thing bet.
[00:10:40] These patterns represent more than mere historical parallels. They expose the immutable aspects of human nature and financial reflexivity that underpin credit bubbles, generally transcending both era and asset. The fate of those earlier trusts therefore provides a dispassionate lens through which to view not only the emerging Bitcoin treasury phenomenon, but the recurring dynamics of financial alchemy that define bubble formation. Across centuries of market history, investment trusts multiplied like locusts.
[00:11:19] The explosive proliferation of Bitcoin treasury companies mirrors that of the 1920s investment trusts, and both gold rushes stem from a perfect storm of greed.
[00:11:31] Intense investor demand for exposure to a scarce asset creates MNAV premiums that promoters rush to monetize. If Goldman Sachs could extract enormous profits from its trust in the 1920s, why couldn't everyone else? If MicroStrategy can monetize its M Nav premium, why shouldn't every other company follow suit?
[00:11:53] Galbraith documented the explosive growth of Trusts in the 1920s.
[00:11:59] During 1928, an estimated 186 investment trusts were organized. By the early months of 1929, they were being promoted at the rate of approximately one each business day, and a total of 265 made their appearance during the course of the year.
[00:12:14] The dollar volumes of capital raised tell an equally dramatic story. Accounting for 70% of all funds issued in the 1920s.
[00:12:23] New trust issuance during August and September of 1929 alone amounted to $1 billion, equivalent in today's purchasing power to perhaps 20 billion, or 130 billion as a proportion of today's economy.
[00:12:38] In 1927, the trust sold to the public about $400 million worth of securities, and in 1929 they marketed an estimated $3 billion worth. This represented at least a third of all new capital issues in that year. By the autumn of 1929, the total assets of the investment trust were estimated to exceed $8 billion. They had increased approximately eleven fold since the beginning of 1927.
[00:13:04] Frederick Lewis Allen's account corroborates Galbraith's In Only Yesterday and and Informal history of the 1920s, Allen vividly described how investment trusts multiplied like locusts.
[00:13:18] There were now said to be nearly 500 of them, with a total paid in capital of some 3 billions, and withholdings of stocks, many of them purchased at the current high prices, amounting to something like 2 billions. These trusts ranged all the way from honestly and intelligently managed companies to wildly speculative concerns launched by ignorant or venal promoters.
[00:13:39] Bitcoin Treasury's Cambrian Explosion Tweet from Real Jim Chanos we're getting to the point where The Bitcoin Treasury Company's equity raises are becoming a material amount. 10% of the entire US savings rate, 100 billion per month at the peak of SPAC issuance, or SPAC. SPACs raised about 180 billion for the LTM through second quarter 2021, or $500 million per day. The Bitcoin Treasury Company raises are starting to get close to that level.
[00:14:11] Today's Bitcoin Treasuries show a remarkably similar pattern. New entities launch weekly as companies around the world race to replicate MicroStrategy's success.
[00:14:22] The Bitcoin Treasury Cambrian Explosion is trackable in real time via a web
[email protected] Golden Age of Grift what began as innovation quickly became exploitation.
[00:14:40] Galbraith and Allen emphasized that this was not an era of isolated bad actors, but a systemic opening for opportunism fueled by rising prices and vanishing ethics.
[00:14:54] The most lucrative role in the trust boom was an investor.
[00:14:58] It was promoter. Galbraith makes clear that insiders extracted value both upfront and continuously through fees, while public buyers bore the ultimate risk.
[00:15:10] The enthusiasm with which the public sought to buy investment trust securities brought the greatest rewards of all. Almost invariably, people were willing to pay a sizable premium over the offering price, the sponsoring firm or its promoters received allotments of stock or warrants, which entitled them to stock at the offering price.
[00:15:28] These they were then able to sell at once at a profit. New issues were typically issued to insiders or to favored customers at prices slightly above the net asset value, but many of them quickly rose to a large premium. For example, Lehman Brothers Corporation was significantly oversubscribed at $104 per share that bought $100 in assets. But note that its management contract gave 12.5% of profits to Lehman Brothers as a management fee, its net true asset value was perhaps $88. It immediately rose to $126 per share. In open trading. The organizers collected not only $4 per share and large future management fees, but they were also significant initial investors at more favorable terms than those available to the public. And they reserved the right not valuable if the fund is selling at a discount, but valuable if it is selling at a premium, to take their fee in the form of new shares purchased at current net asset value.
[00:16:26] Like the 1920s trusts, today's Bitcoin treasury companies often feature similar arrangements, founder allocations, insider stock options, and incentive packages for promoters and podcasters. This time, however, such mechanics are disclosed under SEC rules designed in response to the very abuses of the 1920s.
[00:16:47] But transparency neutralizes neither risk nor incentive distortions.
[00:16:53] The speculative fervor and sheer velocity of trust formation in the 1920s provided perfect cover for abuse by promoters with less than honorable intentions. The proliferation of dodgy investment trust and holding company structures exemplified what Galbraith saw as a broader pattern of financial excess. During the 1920s, American Enterprise had welcomed an exceptional number of promoters, grafters, swindlers, imposters and frauds, creating what Galbraith described as a kind of flood tide of corporate larceny. Allen concurred, one could indulge in all manner of dubious financial practices with an unruffled conscience, so long as prices rose. The big bull market covered a multitude of sins. It was a golden day for the promoter, and his name was legion.
[00:17:44] These observations resonate with other manic periods of financial speculation and fraud, including today's golden age of grift and historical episodes such as John Law's Mississippi Bubble, discussed in our Alchemy of Risk series and satirically chronicled in the Great Mirror of Folly in 1720. But beneath the outright frauds was another kind of risk, less visible perhaps but no less dangerous, the structural alchemy of risk inherent to the trust's capital structure design.
[00:18:17] Financial alchemy Some call it alchemy, I call it valuation.
[00:18:23] Fong Li, CEO of MicroStrategy MicroStrategy helpfully provides a video and table showing the torque, essentially the amplified exposure to Bitcoin price movements for different layers of its capital stack equity, convertible notes, preferred shares, etc. Michael Saylor rebuts comparisons to close end funds such as GBTC see part 2 here by pointing to MicroStrategy's significantly greater flexibility as an operating company.
[00:18:55] Sometimes I see a Twitter analyst saying, oh, this is just like when GBTC and grayscale went below 1 times MNAB before and what they miss is that Grayscale was a closed end fund and we're an operating company. A fund like GBTC has no operational flexibility to manage its capital structure. It doesn't have the option to refinance or take on leverage, or to sell securities, buy securities, recapitalize or buy their own stock back. Operating companies like MicroStrategy have much more flexibility. We can buy stock, sell stock, recapitalize. We can take on debt to fix or to close a gap.
[00:19:30] This distinction, however, overlooks a certain historical irony. The investment Trusts of the 1920s pioneered the very capital structure innovations that make today's Bitcoin treasury companies so compelling to investors and created the same reflexive Dynamics in the 1920s that we observe today.
[00:19:50] As Galbraith documented, the investment trust had evolved into something far more sophisticated than a simple pooled investment vehicle such as gbtc.
[00:20:00] It had become a flexible corporate structure of exactly the type about which Saylor boasts today.
[00:20:07] The investment trust became in fact an investment corporation. It sold its securities to the public, sometimes just common stock, more often common and preferred stock, debenture and bonds, and the proceeds were then invested as the management saw fit. Any possible tendency of the common stockholder to interfere with the management was prevented by selling him non voting stock or having him assign his voting rights to a management controlled voting trust.
[00:20:32] The Investment company Act of 1940 specifically curtailed these practices precisely because they had proven so effective and so dangerous during the market speculation that preceded the 1929 crash. When Grayscale and their attorneys structured GBTC, they likely chose its format, at least in part, to avoid registering under the 40 Act. The inability for funds like GBTC to deploy MicroStrategy's full suite of tools is not an inherent limitation, but rather the result of deliberate SEC policies intended to prevent a repeat of the 1920s investment trust excesses and their aftermath.
[00:21:16] The capital structure of 1920s trusts is virtually indistinguishable from MicroStrategy today both issue securities equity at an MNAF, premium bonds, convertible bonds, and preferred stock to attract investors with varying risk or torque appetites and need for income. The convertible bonds that were central to MicroStrategy's funding strategy, for instance, were also a hallmark of the 1920s trusts that Allen documented in his research.
[00:21:48] It became fashionable to give new bonds issued by the trusts a palatably speculative flavor by making them convertible into stock or by attaching to them warrants for the purchase of stock at some time in the rosy future.
[00:22:02] The business model of many investment Trusts during the 1929 boom was rooted less in asset management than in financial alchemy. Complex capital structures and layers of leverage were not merely passive funding tools to enhance returns they were the core of the enterprise.
[00:22:22] The objective was to conjure an endless supply of speculative securities to satisfy insatiable public demand.
[00:22:29] That demand was fueled by the belief captured by Galbraith that the underlying stocks purchased by the trusts had acquired a kind of scarcity value and that the most desirable stock issues were on the verge of disappearing from the market entirely.
[00:22:46] What the public was buying wasn't simply access to a diversified portfolio of scarce stocks, however, but rather a wager on the performance of the trust's own financial alchemy. The real product was the trust's own securities and mnav. They were the alchemical laboratories that transmuted the public's desire for speculative gains into new securities conjured out of thin air intelligent long term debt.
[00:23:19] This proto microstrategy approach gave 1920s trust managers access to premium forms of leverage corporate bonds with long durations, sometimes up to 30 years, rather than margin or call loans subject to immediate liquidation. These extended maturities theoretically allowed the trust to maintain leverage across business cycles without facing immediate refinancing pressure, while their relatively low yields reflected widespread investor complacency and a systematic mispricing of risk.
[00:23:51] Lyn Alden makes similar observations about contemporary Bitcoin treasury publicly traded operating corporations have access to better types of leverage than hedge funds and most other types of capital.
[00:24:05] Specifically, they have the ability to issue corporate bonds or often with multi year durations. If they hold Bitcoin and the price dips, they don't have to sell prematurely. This gives them a better ability to weather periods of volatility than entities that rely on margin loans. There are still bearish scenarios that could force corporations to liquidate, but those scenarios would involve a much longer bear market occurring, thus making them less likely.
[00:24:31] Long Term Debt and Reflexivity Lyn's Analysis above, while accurate for any individual company in isolation, overlooks the systemic risk that emerges when these safer leveraged structures proliferate.
[00:24:47] Just as long term 30 year mortgages didn't prevent the 2008 crisis, any long duration debt doesn't inherently eliminate systemic risk. It may even amplify it.
[00:25:00] During the boom years of the late 1920s, financial alchemy magnified returns through the same self fulfilling prophecy that benefits Bitcoin treasuries today.
[00:25:10] Rising asset prices and M Nav premiums enabled more leverage and torque, which in turn pushed asset prices higher still. But this reflexive loop made the system inherently unstable. As we saw, these complicated capital structures were far more than passive funding instruments.
[00:25:29] They played an integral role in fueling both the bubble's spectacular inflation and its subsequent collapse.
[00:25:37] Like cheap hurricane insurance after a series of quiet storm seasons that spurs a building boom, the apparent safety of termed out debt in a bull market may encourage more leverage, creating larger positions in asset inflation that ultimately amplify downside volatility rather than dampen it. The newfound availability of affordable protection against forced liquidation triggers a speculative expansion of risk taking along the waterfront until the inevitable hurricane arrives and the insurance marketplace itself collapses. When hundreds or thousands of companies adopt the same capital structure and business model of speculating on a one way bet, what appears individually prudent can easily become collectively destabilizing in financial progress. The dose makes the poison path dependency and pyramid schemes like some of the more egregious mortgages of 20052006 vintage that were practically designed to default on the first payment. Towards the end of the 1920s bubble, many investment trusts effectively launched from inception as de facto pyramid schemes dependent on new inflows or price appreciation to meet obligations. Despite holding diversified portfolios of dividend paying stocks and interest bearing bonds, some of them were so capitalized that they could not even pay their preferred dividends out of the income from the securities which they held, but must rely almost completely upon the hope of profits.
[00:27:15] This created a precarious dependency. To pay their bondholders and preferred shareholders, the trusts had to either issue new shares relying on their MNAF premiums or count on future portfolio appreciation.
[00:27:30] These two mechanisms were reflexively intertwined. Portfolio gains drove higher MNAF premiums, which in turn enabled more share issuance that funded further portfolio expansion.
[00:27:43] In essence, they were using new investor money or future price appreciation to pay existing obligations. The classic structure of a pyramid scheme, making them vulnerable to market downturns when new capital dried up and portfolio gains evaporated, causing their MNAF premiums to collapse in a self reinforcing spiral.
[00:28:07] Because Bitcoin treasury companies currently have no cash flow, they tend to follow a similar playbook in that they raise money from investors to pay their obligations.
[00:28:19] On June 30, 2025, the company funded these dividend payments using net proceeds from the sale of shares under its common atm. The company may continue to use proceeds from future sales of shares under its common ATM for general corporate purposes which may include payment of dividends on its preferred stock end quote.
[00:28:37] Like the 1920s trusts, this pyramid like strategy functions effectively. While Bitcoin appreciates, the company maintains their MVAVs and the capital markets remain open to them. However, if all of these conditions deteriorate simultaneously for an extended period, possibly as the result of an over proliferation of leveraged Bitcoin treasuries themselves, these companies would face the same structural vulnerabilities that devastated the 1920s trusts.
[00:29:06] Indeed, one major difference between 1920s investment trusts and today's Bitcoin treasury companies lies in what they actually own.
[00:29:14] The trusts held seemingly diversified portfolios of dividend paying stocks and interest bearing bonds that generated cash flows to service their preferred shares and bonds, at least until the Great Depression revealed that they were all correlated due to the nature of the pervasive credit bubble.
[00:29:32] While hyper bitcoinization and Bitcoin bangs may offer future opportunities to change this dynamic, Bitcoin currently generates no cash flows, pays no dividends and yields no interest.
[00:29:45] This creates a structural vulnerability that the 1920s trusts, for all their flaws, did not face. Bitcoin treasuries lacking even the income streams of 1920s trusts tend to be more vulnerable to these pyramid dynamics, not less their viability. Even within the context of a long term bull market during which Bitcoin appreciates tenfold is entirely path dependent, hinging on continued appreciation, access to credit and investor enthusiasm. Break the chain, possibly by over saturation of leveraged Bitcoin treasuries themselves and the structure unravels. As we will discuss in the forthcoming Part four of the series, the Collapse of the Trusts and the 1929 Crash the renowned Yale economist Irving Fisher famously declared that stock prices had reached a permanently high plateau just prior to the 1929 crash. Fisher's declaration exemplified the kind of euphoric confidence that typically marks a market top. Even the most ardent Bitcoin bulls should, in the short term anyway, beware similarly sweeping proclamations.
[00:31:00] Tweet author marked out, I actually don't think we will ever have another true BTC bear market. The amount of capital about to enter this asset relative to its market cap is simply too great.
[00:31:12] Fisher's plateau quote is now infamous, but the lesser known context that gave rise to it tells a more revealing story.
[00:31:21] He was actually defending investment trusts as a key support for stock valuations, much as Bitcoiners cite built in demand from bitcoin treasuries today.
[00:31:32] The New York Times reported at the time, Professor Fisher spoke on the subject of investment trusts and presented a defense for them against recent attacks in which they have been charged with responsibility for many present evils.
[00:31:46] Fisher defended trusts on the grounds that these vehicles were awakening people to the superiority of stocks over bonds and providing investors with a superior structure for gaining equity exposure. Much as Bitcoin treasury advocates today claim microstrategy offers turbocharged torque quote unquote over direct Bitcoin ownership. And Bitcoin itself offers superiority over tradfi assets like fiat currency, stocks, bonds and real estate.
[00:32:15] Quote I believe the principle of the investment trust is sound and the public is justified in participating in them with due regard to the character and reputation of those conducting them.
[00:32:24] Largely through the influence of investment trust movement, the public has been waking up to the superior attraction of stocks over bonds, and I believe the operation of the investment trust as a whole has acted to stabilize the stock market rather than to make its fluctuations more violent.
[00:32:38] End quote Anonymized Twitter post I have my entire liquid net worth in magic Internet money. A tech stock that crashes 99% in the past partially due to fraud, and a Japanese stock that I'm pretty sure owns a hotel or something. I sleep like a baby knowing I will be able to afford my own private island by 2035.
[00:32:59] Reflexivity is a two way street.
[00:33:03] The crash wasn't merely a price event.
[00:33:07] As the reflexive loop reversed, the same dynamics that drove the boom amplified the bust both in the asset markets and the real economy.
[00:33:18] The investment trusts which Irving Fisher had only a week before championed as guaranteeing a permanently high plateau of stock values, became primary agents of this destruction. Quote but now it was also evident that the investment trusts, once considered a buttress of the high plateau and a built in defense against collapse, were really a profound source of weakness. The leverage of which people only a fortnight before had spoken so knowledgeably and even affectionately, was now fully in reverse. With remarkable celerity, it removed all of the value from the common stock of a trust. As before the case of a typical trust, a small one, is worth contemplating. Let it be supposed that it had securities in the hands of the public which had a market value of $10 million in early October. Of this, half was in common stock, half in bonds and preferred stock. These securities were fully covered by the current market value of the securities owned. In other words, the trust portfolio contained securities worth a market value also of $10 million.
[00:34:18] A representative portfolio of securities owned by such a trust would, in the early days of November, have declined in value by perhaps half.
[00:34:26] Values of many of these securities, by later standards, would still be handsome. On November 4, the low for tell and tell was still 233. For General Electric it was 234, and for Steel 183.
[00:34:38] The new portfolio value, $5 million, would be only enough to cover the prior claim on assets of the bonds and preferred stock. The common stock would have nothing behind it apart from expectations, which were by no means bright. It was now worthless. This geometrical ruthlessness was not exceptional. On the contrary, it was everywhere at work on the stock of the leveraged trusts. By early November, the stock of most of them had become virtually unsalable. To make matters worse, many of them were traded on the curb or the out of town exchanges where buyers were few and the markets thin.
[00:35:13] Frederick Lewis Allen's account again corroborates Galbraith's account.
[00:35:20] Fear, however, did not long delay its coming. As the price structure crumbled, there was a sudden stampede to get out from under. By 11 o', clock, traders on the floor of the stock exchange were in a wild scramble to sell at the market. Long before the lagging ticker could tell what was happening, word had gone out by telephone and telegraph that the bottom was dropping out of things and the selling orders redoubled in volume. The leading stocks were going down 2, 3 and even 5 points between sales. Down, down, down. Where were the bargain hunters who were supposed to come in to rescue at times like this? Where were the investment trusts which were expected to provide a cushion for the market by making new purchases at low prices? Where were the big operators who had declared that they were still bullish? Where were the powerful bankers who were supposed to be able at any moment to support prices? There seemed to be no support whatever. Down. Down, Down. The roar of voices which rose from the floor of the exchange had become a roar of panic.
[00:36:16] It should therefore never be forgotten that reflexivity cuts both ways and can impact the fundamentals of the underlying assets, not just their market prices.
[00:36:29] The most important corporate weakness was inherent in the vast new structure of holding companies and investment trusts. The holding companies controlled large segments of the utility, railroad and entertainment business. Here as with the investment trusts, was the constant danger of devastation by reverse leverage. In particular, dividends from the operating companies paid the interest on the bonds of upstream holding companies. The interruption of the dividends meant default on the bonds, bankruptcy and the collapse of the structure. Under these circumstances, the temptation to curtail investment in operating plant in order to continue dividends was obviously strong.
[00:37:05] This added to deflationary pressures. The latter in turn curtailed earnings and helped bring down the corporate pyramids. When this happened, even more retrenchment was inevitable. Income was earmarked for debt repayment. Borrowing for new investment became impossible. It would be hard to imagine a corporate system better designed to continue and accentuate a deflationary spiral. The stock market crash was also an exceptionally effective way of exploiting the weakness of the corporate structure. Operating companies at the end of the holding company chain were forced by the crash to retrench. The subsequent collapse of these systems and also of the investment trusts effectively destroyed both the ability to borrow and the willingness to lend for investment.
[00:37:45] What have long looked like purely fiduciary effects were in fact quickly translated into declining orders and increasing unemployment.
[00:37:55] The crash didn't merely destroy paper wealth.
[00:37:59] It revealed the bad investments in the real economy that had been masked by debt driven asset price inflation and forced a painful liquidation of unsustainable business models and debt structures.
[00:38:13] Bitcoin Treasuries face the same risk even within the context of a structural long term bull market. If Bitcoin falls substantially, possibly as a result of excess leverage and speculation emanating from the treasury companies themselves, and the Treasuries trade at discounts to NAV for a prolonged period of time, the common equity could be wiped out just as it was for the Trust shares of 1929, despite their safe termed out leverage.
[00:38:42] Further, as we will discuss in part four, a proliferation and then implosion of Bitcoin Treasuries could even negatively impact Bitcoin adoption itself for a period of time.
[00:38:54] Live by the M Nav Die by the M Nav quote. If we're an operating company and we trade below nav, we just get to monetize that. That's good for me.
[00:39:05] Michael Saylor Saylor's confidence in monetizing NAV discounts, which is perhaps reasonable for microstrategy in isolation, mirrors the same logic 1920s trust managers use to justify buybacks, only to find that such support strategies are ineffective when liquidity across the ecosystem vanishes and selling pressure dominates.
[00:39:28] The trusts discovered that buying back shares when investors are selling and credit is Tightening is vastly different from issuing shares when investors are buying.
[00:39:39] Desperate to prop up their stock prices, the trust began buying back shares at a discount to navigate a strategy bitcoin treasury companies will likely adopt with equally disappointing results for most.
[00:39:51] Quote the stabilizing effects of the huge cash resources of the investment trusts had also proved a mirage. In the early autumn, the cash and liquid resources of the investment trusts were large. But now, as reverse leverage did its work, investment trust managements were much more concerned over the collapse in the value of their own stock than in the adverse movements in the stock list as a whole. Under these circumstances, many of the trusts used their available cash in a desperate effort to support their own stock. However, there was a vast difference between buying one stock now when the public wanted to sell, and buying during the previous spring, as Goldman Sachs Trading Corporation had done when the public wanted to buy and the resulting competition had sent prices higher and higher.
[00:40:36] Now the cash went out and the stock came in and and prices were either not perceptibly affected or not for long. What six months before had been a brilliant financial maneuver was now a form of fiscal self immolation. In the last analysis, the purchase by a firm of its own stock is the exact opposite of the sale of stocks. It is by the sale of stock that firms ordinarily grow.
[00:41:01] As the crisis deepened and the M Nav continued to trade at a discount, trusts depleted their remaining cash reserves in a desperate and ultimately self defeating effort to support collapsing share prices.
[00:41:15] However, none of this was immediately apparent. If one has been a financial genius, faith in one's genius does not dissolve at once. To the battered but unbowed genius, support of the stock of one's own company still seemed a bold, imaginative and effective course. Indeed, it seemed the only alternative to slow but certain death. So to the extent that their cash resources allowed, the managements of the trusts chose faster, though equally certain death. They bought their own worthless stock. Men have been swindled by other men on many occasions. The autumn of 1929 was perhaps the first occasion when men succeeded on a large scale in swindling themselves.
[00:41:57] Conclusion the 1920s investment trust mania offers a generalized blueprint for understanding financial bubbles built on leverage, reflexivity and the allure of premium to nav accretion magic. What began as financial innovation soon metastasized into speculative instruments that promised effortless wealth through financial alchemy.
[00:42:23] When the music stopped, the reflexive mechanisms that had driven prices to euphoric heights accelerated their catastrophic descent.
[00:42:31] The parallels with today's Bitcoin treasury companies are striking from the proliferation of new entities to the reliance on MNAV premium to the use of long term debt to amplify returns. Just as the 2008 crisis was not primarily the result of subprime CDOs and mortgage fraud, as we explored in the Tower of Babel, the investment trusts of the 1920s didn't primarily collapse because of fraud, bad bets, lack of transparency and regulatory oversight, or their sometimes interlocking or pyramid holdings. They collapsed because of their very success, built upon the alchemy of risk reflexivity contained within it the seed conditions for their future failure.
[00:43:16] Bitcoin treasuries may be walking the same path toward the same precipice. More concerning, however, is that just as the 1920s trusts signaled the speculative excesses of their era, Bitcoin treasuries are symptomatic of today's multiflation, a far deeper disease distorting today's economic order.
[00:43:36] The emergence of a recently filed gold backed treasury company suggests that Saylor and Bitcoin Treasury Company's speculative attack on fiat currency is expanding beyond Bitcoin.
[00:43:48] Tweet from Streamx Today Streamx and Biosig Technologies Inc. Are thrilled to announce definitive agreements for US$1.1 billion in growth financing Nasdaq, BSGM to launch a gold backed treasury management strategy and rapidly expand RWA tokenization for the 142 trillion commodities market.
[00:44:11] This broader assault on monetary orthodoxy may signal an incipient flight into real values, one that threatens to escalate into a full fledged war against the financial establishment. Indeed, the Gold Treasury Company's actual business model, tokenizing commodities markets, could accelerate this trend by channeling additional money and credit into the real economy rather than containing inflationary pressures safely within the virtual casino of the financial matrix.
[00:44:42] This risks adding further fuel to an inflation supercycle.
[00:44:47] Up next, Can Bitcoin Break the curse of reflexivity?
[00:44:52] In part four, we offer a customizable ChatGPT prompt for experimenting with your own Bitcoin treasury and digital Asset treasury assumptions.
[00:45:02] In part five, we'll examine whether Bitcoin's unique monetary properties colliding with central bank money printing on an unprecedented scale might enable levered treasury companies to reverse the historical pattern entirely through financial jujitsu, triggering a reflexive speculative attack against fiat and creating a self fulfilling prophecy that resembles a run on the bank, or whether, like the investment trust of the 1920s, they carry within their structure the same seeds of systemic fragility for the Bitcoin ecosystem.
[00:45:37] This show is brought to you by Leden IO One of the hardest things to come by in the bitcoin market is time.
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[00:46:52] All right, so we are stopping this one here at part three. We may read part five, but it does not appear to be published.
[00:47:00] I've kind of kept an eye out for it and checked at the end of part four.
[00:47:05] So they may publish it. I'll read it and just kind of see what, you know, what the ins and outs of it are. Because it's kind of the thing that I think is the most interesting question is, is bitcoin different from the equities bubble of the 1920s? And I think it gets at the really or that topic going into that, that thread would really get into the foundation of this. That I think is the most important question to be asking is what caused the bubble and how sustainable was the underlying imbalance? In other words, what was driving it? You know, there's always volatility when you have some sort of collapse or a debt bubble, or more importantly an inflationary bubble. Like if you look at the Weimar Republic and the basically the path that the deutsche mark took to essentially infinite inflation, there were massive swings in both directions. Periods where it just aggressively, aggressively devalued and then literally shifted back to the tune of 40 to 50%. You know, it is literally that volatility it's the fact of the incredible uncertainty in the markets as to what the actual price is or ought to be and the speed with which it is changing that creates such volatility. Now, the connection here to kind of the 1920s structure and talking about, like, making parallels to investment trusts, I go back and forth with this because he makes a decent argument in just how things are structured. But the M Nav has been declining since the very beginning. It doesn't seem like this doesn't feel to me like this massive bubble. In fact, a number of companies, quite a few companies actually, that have announced bitcoin treasury strategies and getting more invested into bitcoin have actually declined. And granted, this is. I have the benefit of hindsight here because this was largely written back, like three months ago, I think. Let me. Let me try to find the date for the actual date that part three was published.
[00:49:23] Okay, so July 23rd, but you got July, August and September.
[00:49:29] And a lot of those companies have not been doing so well. The m nav on MicroStrategy is down, I think, to, like, 1.1. There's quite a few companies I think I saw. There was one somebody was just like randomly criticizing on Twitter.
[00:49:45] So I just looked it up, just out of curiosity. And it's declined like 60% since their Bitcoin announcement, like eight months ago or nine months ago. And what's interesting is that bitcoin, granted, you know, the bitcoin has had a lot of sideways, but bitcoin has generally climbed during that period. It feels like it's running itself out of steam all by itself.
[00:50:08] Unless we literally get an underlying bubble, like a hype cycle, very aggressive in bitcoin.
[00:50:15] Sure. I think these types of structures could very well cause their own sorts of problems and lead to the kind of leverage that will unravel and, you know, punch most of them in the face. But I don't think that will really be driven by itself. I don't think bitcoin treasuries will drive that. I think bitcoin treasuries will be the result if we have another significant hype cycle in bitcoin, which I also suspect is pretty likely, we seem to be building up into one. And the recent little uptick in volatility makes me think we might go through another period of volatility for three to six months. And usually volatility starts to kick off as things get really exciting and as the bull market reaches its apex. So it is a question of what will happen with bitcoin treasury companies and what will the conditions of the situation be as that hype cycle unfolds? But I don't think it's as self reinforcing as it seems to be. Unless we want to say that it's just Bitcoin treasury companies in general that have led to the current rise in the Bitcoin price. But if you look at, you know, the statistics on, you know, how many Bitcoin haven't moved for X number of years and do the kind of MV RV assessment of things as there's just kind of that long term bull trend, that long term holding that has led to this accumulation period and slow growth that we basically see every time. And Bitcoin treasury companies clearly aren't a three year, five year supporting the price phenomenon because they don't even fall.
[00:51:57] They're basically a this year and a year and a half basically at most phenomenon outside of Microstrategy. And also I think it's really important to designate or to compare and contrast the investment trusts which by the way, you know, if we wanted to make a parallel, obviously we could make a parallel to Bitcoin treasuries just because MicroStrategy's current strategy is to take advantage of low interest rates and issue more shares in order to get more bitcoin. But if you just look at like a general structure of investment trusts versus mutual funds, you see all the same parallels generally speaking because they're largely the same institutions. Granted, I wouldn't know, you know, leverage is so bad in general because we have such a broad debt bubble and everything is so deeply based on debt. Like all of our growth is literally dependent on new debt being issued right now and has been for everybody a shocking amount of time. So because of that, I don't, I don't even know how you would kind of make that assessment because you have such a systemic problem underlying all of this. If you were looking at like a general or individual mutual fund. So that would probably be its own article and kind of deep analysis as to how exposed a lot of the economy already is just in a general sense, even things that are supposed to, supposed to be or touted as safe. I mean we've talked about quite a bit of this in, you know, the Great taking and these other things that we've read very recently in trying to just paint the bigger picture of this and you know, financial alchemy like these, these new tools, the, the flight into fake values. In fact actually in the flight into fake values that Bewater actually wrote I think is a good example of just showing that that all this aggressive over financialization is the consequence of too much liquidity. It's the consequence of way more money than actual value.
[00:54:06] And that that massive difference between those two things. And if it's largely based on debt, it's going to be reigned back in. Unless you have an underlying, you literally have a structural currency problem. Then you'll probably see lots and lots of volatility like the Weimar Republic. But literally our two parallels are great examples of one that worked and one that didn't work. So in part two he talked about, or I guess it was part one maybe, I don't know but it was mentioned about inflation profiteers and their strategy during the Weimar Republic. And then we've got the comparison to the 1920s investment trusts. And there's a lot of, there's a lot of parallels between both of those. But the inflation profiteers in the Weimar Republic were right and their bets went to the death of the currency. Like they just, they went through the entire process and the entire unraveling and they were just making money off the death of the currency. Whereas in the 1920s you had a massive reign in. And this was because of the aggressive debt expansion. Like if you look at what was underneath it, you had unbelievable debt expansion in the 20s because of the Federal Reserve. The Federal Reserve had just been created. And suddenly we went from what was a generally a bouncing around of 100 to 2 less percent of GDP to like 300, I think, I think it was like 350% debt to GDP over the period between 1920 and 1929. We went from about 100 to 3 and a half ish. Like we're talking about soaring, like absolutely soaring leverage and then the collapse. And then also there's a lot of inclin. When you want to compare to a debt bubble like that in the 1920s, there's a lot of I guess kind of implicit assumption that that means that the Great Depression is to follow. But the Great Depression actually had nothing to do with the 1929 crash. If you actually dig into it, which we covered a few times on the show with various pieces and I think I even did a guys take just about some main elements of the Great Depression.
[00:56:12] But so much of the Great depression, like literally nine to 12 months after the Crash of 1929, so much of the fat, so much of the bad debt and bad systems and systemic leverage was actually sorted out very, very quickly. But the government came in with the most broad, the most insane. If you would look at it today, we're talking about tens of trillions of dollars in the context of, of just absolute subsidy market controls. Like they went full on socialism and they sent us, they sent us back into the Great Depression and prolonged it for 10 years.
[00:56:52] No market will naturally stay destroyed for 10 years, for a decade. That is suppression of prices, that is subsidizing of bad debt, that is subsidizing of bad practices, that is propping up of shitty banks. There is zero natural way for the market to stay in that position and never recover unless real prices are never allowed to be exposed in the market.
[00:57:19] This is kind of the selling point of Bitcoin is that it exposes the degree of leverage and the difference, you know, the underlying investment trust and the stocks in the market are actually going to be subject to the same leverage problem because they neither have equal reserves. Right. Stocks are subject to the same systemic problems of the fiat economy that the fiat economy is. That's doubling down and reinvesting and re indebting itself to get more, to basically blow up its own bubble. Now when a bitcoin bubble blows up and blows up as in grows and then explodes, these companies go kaput because they don't have the Bitcoin to cover the damage because they have leveraged themselves beyond the value of the Bitcoin that can actually house the asset or actually cover the liabilities, which literally means they get wiped out. And they get wiped out in a period of like six months. And then over the period of a year we clean out the debt, we close all the stupid businesses and over leveraged entities and we start to build a base and start to grow again. The persistent systemic debt that never gets cleared out, the persistent and manipulated fake prices that never actually get corrected so the market can never actually heal. Purely exists on the fiat side of the equation. Bitcoin aggressively and painfully reveals to us all of the bullshit very, very quickly. This is why Mt. Gox and FTX and all of the scams and the crazy, crazy overleveraged companies in the space only existed in their stupidly over leveraged state or they don't actually have the bitcoin state for a few months.
[00:59:04] Mount Gox I think was six months between the point that they actually lost the Bitcoin to the point that they were dead, like completely gone. Now that is obviously not to say you can't have bubbles and there won't. There aren't hype cycles. Like obviously bitcoin has done nothing but produce and prove how good it is at creating hype cycles and crazy Fervent bubbles.
[00:59:27] But I think this is, we're talking about financialization on top of an underlying fiat bubble, right? There was a massive debt bubble and they were just creating companies in any way, shape or form to take advantage of it that had an M Nav because there was way too much debt, there's way too much money flooding into a system that had access to something completely new, which was, you know, the stock market in a very general and broad sense to many more people at that time. And I would generally be concerned about this for bitcoin treasury companies is, except that it all seems to be kind of dwindling. You know, the M Nav for microstrategy started at like 4 or it was peaked and it, you know, got crazy and it was like literally three to four.
[01:00:10] And then if you just look at the M Nav chart, it's just a slow gradual decline back to one. And that's, that's micro, that's strategy. You know, they're like kind of the king of all of this.
[01:00:22] And so, I don't know, it seems, it seems unlikely, it seems like these things are getting priced out pretty quickly. And especially with the fervor for bitcoin treasury companies that has been earlier this year. I don't know, maybe I'm just kind of like out of the loop, but it feels like I'm not seeing a whole bunch of new bitcoin treasury companies, like they're not making the news, so to speak, even if they are popping up every day. And I've also seen multiple that don't even seem to have worked out super well. They adopted this strategy and it didn't really do anything. It didn't change their trajectory. And obviously they'll probably pump really hard when bitcoin pumps really hard.
[01:01:02] But I don't know. I think the conditions have to change a lot for it to turn into a big self reinforcing digital alchemy sort of bubble.
[01:01:14] But I could just be a little bit disconnected from all of that. I could not, I could be missing just how ridiculous the that side of the market is. Or maybe we're just in like a cooled off period and it's about to get terrible again and all these are about to explode five fold.
[01:01:32] You know, nobody obviously don't have a crystal ball. I have no idea where we're actually going here. And it probably will get crazy if bitcoin keeps going up. But then there's another question of are we in a debt bubble that's going to collapse like in the 1920s.
[01:01:48] Or are we in a debt bubble that's going to continue until the collapse of the currency?
[01:01:54] Because then in the former case, we have a bubble that's going to burst. And Bitcoin is a trade on too much liquidity in an environment that's going to have almost no liquidity in the, in the future. And it would take a very long time or it would take a relatively long time to actually recover and restabilize that market. So if it's the latter, this is an inflation carry trade.
[01:02:20] And this goes until the currency dies and we get hit, we clear out a lot of leverage and we hit a bunch of craziness with some random volatile 30% dumps or 50% dumps. But this continues on the road, maybe even another one cycle, two cycles, who knows? But this kind of just continues on a decline of the dollar trajectory rather than a simple, oh, this is a really big, you know, a bubble in one particular asset. And of course there will be gross over financialization and ridiculous scams trying to take advantage of this. Just like, you know, the housing market, you had real estate people who had no idea what they were doing and they were just flipping houses, just flipping houses. It was just easy. As soon as it's easy to make money in any context, you get flooded with morons and that runs out of steam very, very quickly and the morons get crushed. And the people who actually prepared and did so, tried to leverage or position themselves responsibly, survived the crash. And then we keep going. If this is a systemic and persistent problem, which I'm inclined to think it is, we're looking at a slow and persistent trend of the dollar's loss of value and the monetization of Bitcoin.
[01:03:48] And of course there will be cycles, because that's how everything moves. But the kind of implication in this piece that I get, the, the kind of implied assumption about where we're going or what the possibility is, is that we'll have this permanent, very terrible crash and end up in a Great Depression. Or at least that that's a possibility.
[01:04:05] And I'm not so sure, I'm not so sure this is, this is that market. Because I think there were some very specific reasons why 1920s and 1930s were the way that they were, and those were systemic conditions that don't exist anymore. We exist in a perpetually inflating bubble fueled by the very maintenance, by the very fact that we can't actually escape the debt that we have already drowned ourselves in. We need more debt to survive the last rounds of debt.
[01:04:35] And I think we've reached the uk. I think Doge is a perfect example or basically proving the point that you can't stop this train.
[01:04:46] So my thinking is that we're on the inflation carry trade side of this and less on the 1929 debt bubble that's going to collapse and restructure or I guess maybe the way to put it is that we're definitely in the 1920s debt bubble that's going to collapse and we're going to restructure. But that restructuring will be the shifting of the currency. It will be the currency that actually defaults and creates the collapse and the trade will be to exit that.
[01:05:13] So I don't know, I don't know, we'll see. But I thought this was a really, really interesting piece and I think this is a very important perspective to consider and to think about all of these parallels because you do have this, this M nav mechanism that's being, you know, monetized. And again, I kind of have the benefit of the last two months have been very slow or seem to be counter to the trend that, you know, looked like it was in full force in kind of June and July when this article came out. But things could turn right around, you know, in the next two months if things get crazy and heated again, this could all just steamroll and start right back up.
[01:05:56] So we will see. We will see. And if part five is really good, I may cover that. But I think, I think I finally got to it. But part four is basically a big chat GPT prompt.
[01:06:08] So Part four doesn't really make sense to cover on the show.
[01:06:11] But you can go check it out. I will have the link in the show notes to all three of these reads as well as Part four and I'll add in part five when, when that's finally, finally released and that might actually shed a lot more light on. It will be interesting actually to get his take or be Water's take, I guess. I don't know. It's a him to get their take in kind of the aftermath of like where we are and is it. Do they see this getting worse? Because I'm sure they're much more invested in the actual statistics and numbers around this phenomenon. Whereas I'm just kind of like generally thinking what's the social media world feel like and how are people talking about treasury companies? And I've looked at the stock price, price of a few of them and they're not doing so great. So it's like, is this a bubble? I don't know. I've done very shallow research and I'm sure for, you know, a blog, substack, whatever it is like this they, they definitely pull together a lot of stuff. So we'll see about part five and it might be perfect time to come back and revisit this and get the new thoughts. So thank you guys for listening. I believe next after this episode when this publish publishes, we will have Alex Svetsky on the show talking about the Bushido of bitcoin and fatherhood actually a lot. This was such a good episode. I think you guys are really, really going to love it. So stay tuned. A shout out to Leden Ledn IO to Git, chroma to Synonym and the Pub key app and the HRF for supporting my work. We have links and details down in the show notes for all of these guys. Don't forget to check them out. And by the way, I almost forgot the website should be up, so check that
[email protected] we've done a pretty big revamp and there's a lot still coming, but it is finally out there for you to see, to look up old episodes, all that good stuff. I am Guy Swan. This is Bitcoin Audible and until next time Everybody. That's my two SATs.
[01:08:23] At first, the production of a commodity simply because it is costly seems quite wasteful. However, the unforgibly costly commodity repeatedly adds value by enabling beneficial wealth transfers. More of the cost is recouped couped every time a transaction is made possible or made less expensive. The cost, initially a complete waste, is amortized over many transactions. The monetary value of precious metals is based on this principle.
[01:08:52] Nick Szabo Shelling out.
