Strategys Bitcoin Dilemma Who Gets Hurt First

TITLE: Strategy’s Bitcoin Dilemma: Who Gets Hurt First? CHANNEL: Unchained DATE: 2026-06-02 ---TRANSCRIPT--- and obviously price increases. Bad news now is to a certain extent they’re crypto tourists. They can then say, you know what? I bought insert name of crypto ETF or ETP here. I bought this, it did well for a while, and now it’s not, or I bought it at the highs and I mistimed it completely. Let me move to something else that if, if these pe— if it, if it was bought by performance chasers, in the first place, it’s going to be sold by performance chasers as something else outperforms it. That’s not me taking a view one way or the other on crypto as a long-term investment, but that’s just that. I, I do think that is a very important consideration. You, you can’t discount, you can’t dismiss the importance of money flow. And for better or worse, um, you know, the, the, the, the huge success of crypto ETFs was such a boon on the way up, uh, but now this is the, you know, the, the, the flip side of that trade. I’m not attributing it specifically to that, but it, it, to many investors now, it’s one more sector among their speculative momentum-based investments. Hi everyone, welcome to another episode of Bits and Biffs: The Interview. My name is Steve Erlich. I am the head of research at Sharplink and also your host for today. We’ve got another terrific episode, but before we begin, uh, just a quick disclaimer: nothing that you hear on the show should be construed as investment or financial advice. For full disclosures, please see unchainedcrypto.com/bitsandbips. And then finally, before we get started, let’s take a brief moment to hear from some of the sponsors who make the show possible. If you’ve been loving Bits and Bips, don’t forget that the show is transitioning to its own feeds on X YouTube and your favorite podcast player. If you’re not already subscribed to Bits and Bips on its own channels, go there now and hit that subscribe button so you can keep up with our twice-weekly live streams and macro meets crypto breakdowns. Bits and Bips will only be on the Unchained feed for a few more weeks, so subscribe today to be ready for launch. You can get all the links at unchainedcrypto.com/bitsandbips. All right, welcome back. So today I have Steve Sosnick, the Chief Strategist at Interactive Brokers and a repeat guest on the show. Actually, actually, Steve, I think I think you were my first guest on, on this show. So yeah, so really thrilled to have you back. You’re one of the best people I, I know when it comes to reading the tape and understanding the dynamics between, um, TradFi, crypto, how macro forces are colliding with geopolitical uncertainty, etc. And we’ve got a lot to talk about today, uh, as we are, uh, as we’re sitting down, uh, there’s new tension over the in Iran, Strait of Hormuz skirmishes going on between US and Iran. The Fed’s preferred inflation indicator is the highest in years. Gold is dropping, equities are up, yields are teetering. So a lot to unpack. Thrilled to have you with us. It’s a pleasure to be here once again, Steve. I always enjoy our discussions and looking forward to this one. I appreciate that. So let’s dive right in. I kind of set the stage here, but equities are still like near, near all-time highs. I mean, how do you make sense of all this? Well, there’s a few things going on and, you know, they’re not— they’re, they’re working in concert. I will say, um, to some extent, um, we can, we can thank good earnings. And that’s always in my mind the best reason for a stock market to rally is, uh, the fact that In this past earnings season, we’ve seen a, you know, a decent number of, I would even say a significant number of, uh, of EPS beats and more importantly, positive guidance to the case. And, you know, in some situations, you know, in, let’s say semiconductor memory stocks, um, the guidance has been extreme. Um, we can argue whether some of that guidance has been, um, extrapolated maybe a bit more, maybe a bit further into the future than it ought to be. But I will stipulate that there is a solid base behind this rally, but the magnitude of it we can question. And to a certain extent, what we’ve noted over the past few weeks, let’s say since the end of March, is what I’ve been calling the ratchet effect about news from the Persian Gulf. And that, by that I mean, we seem to rally on each positive story about some sort of resolution to the situation, something that might reopen the strait. And so far, as we’re taping this, yeah, there was another good, there was another positive story this morning coming out of Axios. But for the most part, basically we’re 0 for however many there’ve been. I’m not sure. I lose count of how many there’ve been. And while oil and bonds tend to give back their decline, well, yields give back their declines and bond and oil futures give back the declines when the stories don’t come to pass, stocks haven’t really given back anything. So that’s why I call it like a ratchet. You know, you move in one direction. One direction. Yeah. And so that’s been a big factor. And you know, it, it, what I’m wrestling with right now as we’re, as we’re speaking is stocks are reacting positively. I, I literally stepped off the desk to go to the bathroom and boom, we went from up, you know, down to up very sharp. I’m like, what happened? Had to be a good story. We had a good story, but they’re not ripping ahead even though this is one of the more detailed and more substantial stories that we’ve gotten. So I do have to wonder how much of this, either A, is priced into the market, or B, um, is trade— is basically traders’ exhaustion. It’s saying, you know, another one of these stories. They’re not mutually exclusive, but how, how we— the market interprets them, uh, can lead to very different outcomes. Because if, if it’s largely priced in, you have to wonder if it’s a sell-the-news type of event. If the market’s not reacting to Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin. Thanks for joining this livestream. Fidelity has been researching and investing in blockchain since 2014, long before it was a headline, and they’re hiring crypto and DeFi professionals to join their team and discover what’s next in finance. Fidelity is looking for people with fresh perspectives from different backgrounds, whether it’s tech, UX, or product design, whether you’re crypto savvy or crypto curious, as long as you have the passion to make a real impact at a company striving to make finance accessible to all. Explore crypto careers at Fidelity today and make the decision that could change your future for the better. Visit crypto.fidelitycareers.com to learn more. That’s crypto.fidelitycareers.com. Fidelity is an equal opportunity employer. Today’s topic is Strategy’s dilemma and why it’s begun selling some Bitcoin. Here to discuss is Jeff Dorman, Chief Investment Officer at Arca. Welcome, Jeff. Hi, Laura. Thanks for having me. And as always, quick compliance: the views I express are my own and are provided for informational purposes only. Nothing I say should be construed as investment advice. You wrote a tweet last week That was somewhat prophetic. You said, quote, the MSTR story has gotten so out of hand. Excuse me. This is the first time that MSTR, BTC, and PREF holders are really in a bind. Someone is going to lose badly here and it will happen in the next 4 months. And then of course we heard on Monday that Indeed Strategy had sold 32 Bitcoin at the end of May for $2.5 million. And you’ve written on your blog about how you used to be a fan of Strategy and would defend it against people’s concerns that it would someday have to sell Bitcoin. But obviously now your tune has changed, um, and you ascribe that to their new capital structure. So what changed in the structure and why do you think it’s a problem? Sure. Yeah. I guess I should have said within the next 4 days, not necessarily the next 4 months. Um, yeah, I mean, to be fair, I, I, what I used to talk about MicroStrategy, I never really defended the MSTR stock per se. I always said was that the fear of MicroStrategy and Saylor selling Bitcoin, and as a result, this company being a risk to the price of Bitcoin, was always really low up until the end of last year. What really changed was that this used to be a pretty simple capital structure, that first they were selling equity and using the proceeds of any equity raises to then buy Bitcoin. Then they layered on a little bit of debt, nothing crazy. I think in total, they had about $6 or $7 billion of debt relative to a $40 or $50 billion equity market cap. So it was pretty nominal from a debt-to-cap standpoint. It wasn’t really going to be a death sentence for a company like this, especially since most of them were zero or low-coupon converts. So there wasn’t a big cash outlay. But at the end of last year, they started introducing the preferreds and the growth of this preferred market. They have multiple preferreds in their capital structure now. Most of you probably have heard of STRC, which is Stretch, the one that they talk about all the time and has ballooned to, I think, $11 billion in assets, but there’s others as well. There’s about 4 different preferreds that they have on the balance sheet. The problem with this preferred stock is that these have ballooned to about $15 billion total, and they have somewhere between 10% and 12% dividend rates, which means that MicroStrategy basically owes $1.7 billion in annual dividends per year. That’s what made me change my tune in the sense that he could have muddled along for decades, whether or not he ever was able to buy more Bitcoin was irrelevant. He never was going to have to sell Bitcoin. There was no trigger to have to ever sell Bitcoin because there was no cash obligations other than when the debt came due, and you could probably refinance the debt because it was a small part of the cap structure. Once you introduce this $1.7 billion of cash dividends, now he has to come up with $1.7 billion a year in order to satisfy those preferreds. It’s a company that makes no money. There’s only so many avenues that you can come up with to come up with $1.7 billion. Either you have to continue to sell more stock, which is becoming less and less accretive as the price goes down, or you have to sell the Bitcoin. Really, in tennis terms, this is a pretty unforced error. There was really no reason to do what he did in the last few months where he basically used all of the cash on the balance sheet that they had saved to pay down debt and now have 5 months left before they run out of cash unless they sell the Bitcoin. Yeah, let’s, um, kind of dive into that little piece a little bit more, um, because you basically— I think it was in a blog post or a tweet— you talked about how they had, um, raised $2 billion in cash via stock sales, and that initially, you know, that looked like a good move to you, but now you view that as problematic. So explain, like, what happened there and why now you feel that complicates the picture for them. Yeah, so again, and this is a little hard to talk to quickly, so I have to back up. Again, the parts of the capital structure, there’s basically 4 different stakeholders with MicroStrategy. First is obviously Bitcoin holders, because anybody who owns Bitcoin is affected by what a company of this size does since they own 4% of the outstanding Bitcoin. Second stakeholder is your MicroStrategy shareholders. Your third stakeholder now is the preferred shareholders, and your fourth being the debt holders. All of these different stakeholders are bullish in some way, shape, or form on MicroStrategy and Bitcoin, but they can’t all be satisfied at the same time because there’s different levers affecting everything. What we were saying is when these preferreds— and for anyone who wants to follow along, it’s actually— they have a very good website, strategy.com. You can see all the detail there. You can see exactly how much Bitcoin they own right now, it’s about $56 billion. You can see the market cap of the equity, $48 billion. You can see how much debt they have, $6.7 billion, and the total of the preferreds, which is about, I believe, $15 or $16 billion. All those parts in the capital structure, the preferreds, The dividends don’t have to be paid. These are cumulative preferreds, meaning if he decides not to pay the dividend, it still accrues, but he doesn’t have to pay the cash. But once you do that to a preferred stock, that’s the death sentence for the preferred. The preferred will go down 20% or 30%. Mostly, these are owned by retail investors looking for the yield. It’s a last resort thing. What happened is with these preferreds, as he started raising more and more of these preferreds in order to buy more Bitcoin, The market started to freak out a little bit about 3 months ago about whether or not they were going to ever have the cash to satisfy the dividends on these preferreds. If you look at a chart of STRC, which is the biggest one, for example, and you go back 6 months, this is an instrument that’s designed to trade at 100, basically par, and you just get the dividend, but it was trading well below par because the market was worried that they weren’t going to be able to satisfy the dividend. So what did they do? They went out there and raised about $2 billion in a combination of more preferreds and more stock and said, okay, now you at least don’t have to worry about it for a year and a half because we have this $2 billion sitting on the balance sheet that’s going to be used solely to pay dividends to the preferreds. Everyone breathed a sigh of relief. Okay, these guys, maybe there’s no long-term solution, but at least the short-term solution is they have the money. And then what does he do? A month later, he turns around and takes $1.4 billion of that cash cushion and buys back some of his convertible debt at 92 cents on the dollar, completely the opposite of what he said the cash was for. He retired 2029 maturity debt, which doesn’t come due obviously for 3 more years. Um, it’s just a complete balance sheet mismanagement. And now that, you know, 1.5-year cash cushion that he had to pay the preferreds all of a sudden fell to 4 months. Uh, so what happens? Market starts freaking out again. And then he comes out on Monday and says, okay, we’re actually going to sell some Bitcoin, even though it was a nominal amount. It’s teasing the market that that’s the only choice he has now is to sell Bitcoin. And that’s why Bitcoin’s imploding. That’s why the stock is imploding. And that’s why STRC is back down to 97. So it’s really just, there’s, there’s just no, there’s no avenue here other than letting one part of the capital structure die. And basically, um, you know, just because of kind of how they handled that, it sort of seems now like raising more cash is not an option. Would you agree with that? No. So, so again, this, it’s an interesting story here, right? Because this is not necessarily like an imminent death spiral in the sense that he still has somewhere between 4 and 5 months of cash on the balance sheet. I think it was like $600 or $700 million in cash that satisfies— it’s basically $150 million a month he has to pay in these dividends. So it’s not imminent in the sense that he has a little bit of time here to figure out how to, what to navigate next. And there are options, right? Um, it’s just that none of the options are very good options. Option number 1 is he continues to sell Bitcoin to satisfy the dividends on the preferreds. That’s fine, but obviously, the entire Bitcoin world is now being inundated with headlines in the last 24 hours that says, MicroStrategy turns to be a Bitcoin seller. Again, even though he only sold $2.5 million just to wet the whistle of the market to let them know it’s possible, just that sentiment alone and the ZeroHedge articles and the Wall Street Journal articles and the Bloomberg articles that all come out and say MicroStrategy He’s now selling Bitcoin, that will spook the market and Bitcoin will trade down as a result, which is what we’re seeing. So that was one avenue is you just sell Bitcoin. The other avenue is that you continue to sell stock. The problem with that is that, again, if you’re selling stock to buy an asset, you have to decide whether or not it’s more accretive to sell stock and buy the asset or sell asset and buy the stock. You’re getting now to a level of MNAV, meaning the premium of the equity over the underlying assets, where it’s no longer accretive to the stock to sell more stock to buy Bitcoin. He can still do that. The equity still trades enough. There’s certainly no reason why he can’t sell more stock in order to pay the dividends on the preferreds. But the problem is that’s going to be a death spiral for the stock. If you keep selling the stock when there’s less demand for it and at a low multiple, now you’re going to crush the stock to save the preferred. Okay, so if you don’t want to sell the Bitcoin and you don’t— your option is You issue more debt. The problem with issuing more debt, of course, is that that hurts your credit rating, right? He’s already a single B-rated issuer. It’s going to hurt his chances of getting the S&P 500, plus he just paid off debt for no reason. So why would you go back and issue more expensive debt? So that’s probably not a good option. The third op— the fourth option is you just stop paying the dividend on the preferreds, which not only is that a death sentence for the preferreds because they’re going to trade down 30 or 40% if he does that, But he’s also going to get sued because they’ve been marketing this as like this, he’s been marketing these preferreds as like a money market instrument to retail, saying that this is the safest 12% yielding instrument on the planet, and then he’s going to turn around and cut the dividend. So I think that’s a last resort, but you see where I’m getting here. It’s not that he doesn’t have access to money. It’s that you can’t support all 4 parts of the capital structure without hurting one of them. And that’s just a decision he’s going to have to make. And right now, in my opinion, He’s kind of hurting everybody, uh, by teasing the market, but not actually doing anything. Yeah. Yeah. It’s a little bit like a confidence game. One thing that I just wanted to also tease out for people is that what’s a little confusing is that they also announced earlier in May that they had bought $2 billion worth of Bitcoin. So basically they’re both buying and selling kind of at the same time. So just explain why that’s happening. Again, the annual nut that he has to pay is $1.7 billion. That is the preferred dividends right now. Again, as you said, it’s a confidence game. It’s a little bit of game theory. If you can basically convince the market that we will always sell $1.7 billion of something per year in order to pay our dividends, but at the same time, by doing so, you instill enough confidence in the market that your stock trades up, and your preferreds trade up, which allows you to issue more of those in order to buy more Bitcoin, there is a world where he can be a net buyer of Bitcoin, even as he’s a seller, right? All you have to do is be able to buy more than you sell. Um, but that spigot runs dry really fast if you lose confidence. And that’s what the market is telling you right now, that you made 3 bad decisions in a row, right? You, uh, first loaded up on preferreds, uh, that have a heavy, hefty cash dividend. Then you paid down zero-coupon debt for no reason. And then you tease the market by selling your asset, by saying you’re a seller of 2.5 million Bitcoin. At the moment, he’s lost the confidence of the market. It doesn’t mean he can’t get it back, but it’s a very slippery slope, as you know, a confidence game when something is built on a house of straws like this. All right, so now let’s also dive into these various, um, stakeholders, which you kind of already did, but I wanted you to just kind of walk through um, what you think, you know, how each of them would fare in the different scenarios and how they would be, you know, negatively impacted in different scenarios, and basically which one you think is the most likely one that, um, strategy will pursue. Sure. So let’s start with the bull case. There’s really only two bull cases for any of this, right? Number one is that Bitcoin just goes way higher. If Bitcoin goes way higher, it solves all of problems because if Bitcoin goes way higher, all of a sudden the equity starts to run higher. You’re able to sell more equity. Also, it’s more feasible for him to sell a little bit of Bitcoin every year, right? If you think about $1.7 billion of annual dividends on a $57 billion pile of Bitcoin, it basically means Bitcoin only has to go up like 2.5% every year in order for you to make enough money in capital gains to pay those dividends. So logically there is a path there that if you’re bullish, you’re basically saying, if Bitcoin goes higher, it bails them out and everything’s fine. Obviously, that must be what MicroStrategy or what Saylor thought, otherwise, he wouldn’t have loaded up on as much as they did in the last few months with these preferreds. They clearly saw something in the market that made them think that Bitcoin was about to explode higher. I don’t know what he saw that made him think that, but there was no other reason why you would have saddled your capital structure with so much debt and preferreds over the last 9 months unless you thought Bitcoin was about to go higher. Clearly a miscalculation, but that’s one way. If Bitcoin goes higher, this story can at least get the can kicked down the road a little bit longer, and then probably solves problems. The other thing he could do from a bullish standpoint is basically just say, we’re done buying Bitcoin. Let’s say that his magic number was, I want to own 5% of the outstanding Bitcoin, and once I get to that number, we’re never going to buy more Bitcoin again. Well, once you get to that number, then you could just stop paying the dividend on the preferreds and say, sorry, you guys knew the risks when you bought these. Preferreds don’t have to be paid out, and we’re just going to not pay you, and good luck. If he does that, he’ll never be able to raise money again, because the capital markets will shut down for him. But at that point, he doesn’t need to raise more money, because he already owns all the Bitcoin that he’s ever going to buy. So those are the two avenues where things can go mostly okay. Obviously, that wouldn’t be great for the preferred holders, but it would be mostly okay for Bitcoin and MicroStrategy. On the other side, again, as we already talked about, every other scenario is going to be bad for at least one part of the capital structure. Let’s start with what happens if he just sells a ton of MicroStrategy stock. When you talk about a digital asset treasury company, you use the term MNAV. This is the premium to the net asset value. If the net asset value is the number of Bitcoins in the pot, which right now, according to MicroStrategy’s website, is 57 billion Bitcoin, If the enterprise value of the company is trading above that $57 billion, then it is accretive to sell stock and buy more Bitcoin. If it’s trading below that, then it’s not accretive. The problem right now is that because they’ve layered on this debt and the preferreds, it’s not actually as clean as just being above 1 or below 1. It’s actually about 1.26 is what the company has said. Basically, it’s not accretive for them to sell any more Bitcoin when it’s below 1.26. Right now, it’s trading at 1.23. He can sell more equity, even though he’s admitted that this is not a level that’s accretive. He can sell more stock, but it’s not accretive. That would be good for Bitcoin because it’ll create more demand for Bitcoin. That would be good for the preferreds because it’ll raise him more money that he can use to pay the dividends on preferreds, but it’s really bad for the MSTR stock. That stock is going to just continue to go lower and lower and lower if you continue to dilute it dilute the stock at levels that are not accretive. That’s number 1, it would be good for Bitcoin, good for preferred, bad for MicroStrategy. Number 2 is he sells the Bitcoin. Again, this is more of a confidence game, you have to convince the market that you’re selling just enough to pay the dividends, but not enough to tank Bitcoin, which he clearly hasn’t gotten right yet, what that magic formula is to make everyone happy. But if he sells Bitcoin, That’s good for the preferreds, again, because you’re raising enough money to pay the dividends, but it’s bad for Bitcoin because, again, when the biggest holder in the world of Bitcoin is openly selling, it’s going to scare people, and Bitcoin is largely a sentiment game anyway. It’s going to be bad for the stock, because the whole point of the stock is that you’re adding Bitcoin per share, and you’re growing the Bitcoin yield. If you start to sell the underlying asset, that’s bad for the stock. That’s not a good option for anyone. Then the third option, like I said, is issue more debt, but I think that that’s very difficult for them to do when they just bought back debt. He has basically publicly said that we don’t want to have more debt because it’s killing our credit rating and it’s killing our ability to get included in the S&P 500, but that is an option. The convertible bond markets are open to MicroStrategy because convertible bond investors are not really credit investors. They’re more like volatility investors. As long as they can arb it out and model out what the option value of the convertibles. There’s demand there. You could certainly do that. If he did that, it would be good for Bitcoin because again, you’re raising enough money to be able to continue buying Bitcoin. It’s good for the preferreds because you’ll be able to pay the dividend. It’s probably bad for the stock because you’re not going to get S&P 500 inclusion, and you’re going to continue to layer on debt that’s senior to you in the capital structure. It’s fairly neutral for the other debt holders. Then the last option, like I said, is the nuclear option, which is you just stop paying the dividend on the preferreds. This is, like I said, this has to be a last resort because you are going to kill the preferreds, you’re going to lose access to all of the capital markets, you’re probably going to get sued. If he did that, it’s mildly good for Bitcoin and for the equity because it means you won’t have to sell any more of that., but it’s so bad for the overall story that it might actually just kill everything. So, you know, you’re just in a weird situation now, um, where again, it’s not like default is imminent here, but this flywheel that he’s created over 6 years is just slowly dying, dying. And he, and he’s put, he’s put too many pieces in the puzzle that can’t be serviced at the same time. Wow. First of all, that’s an amazing explanation. Um, but second, yeah, it’s extremely, um, complicated. Um, so in a moment we’re gonna talk about where MicroStrategy, sorry, MicroStrategy will go from here. But first we’ll take a quick word from the sponsors who make this show possible. Fidelity has been investing in blockchain since 2014. They’re not wondering if digital assets will shape the future. They’re hiring the talent to help ensure they do. Explore opportunities today at crypto.fidelitycareers.com. Fidelity is an equal opportunity employer. Heads up everyone, we’ll now be fully transitioning Bits and Bibs to its new dedicated Bits and Bibs channels starting next week. So if you’re not yet subscribed to the Bits and Bibs channels on X, YouTube, Spotify, Apple Podcasts, or wherever you get your podcasts, then go there now and subscribe. After that transition, for a few weeks, we’ll play segments of the full interviews on Unchained as a reminder, but head there now and subscribe so you don’t miss an episode. You can get links to all of the platforms on unchainedcrypto.com/bitsandbips. Again, that’s unchainedcrypto.com/bitsandbips spelled B-I-P-S. Back to my conversation with Jeff. So just quickly on the stakeholders, I did want to ask if you were invested, you know, in, uh, just pretty much any of the different instruments or a Bitcoin holder, whatever, like You know, whichever of the stakeholders, um, you know, you want to look at, which would you prefer to be and which would you not want to be? Well, again, and this is where it gets complicated, is it’s all probability analysis, right? Because all of those scenarios I just laid out, there is some probability that one or more of those choices are going to be made. And where you want to be in that capital structure depends on what, how you rank those probabilities. In a worst case, I’ll just start backwards for a second. In a worst case scenario, let’s say that MicroStrategy actually does default and goes into bankruptcy, which again, there’s not really an imminent threat for that, but let’s say they do. Well, then you’d want to own the debt first because the debt is the highest in the capital structure. If you have $56 billion of Bitcoin backing $7 billion of debt, you’re fully covered. Your debt is not really at risk. I know a lot of the debt is trading at 70 or 80 cents on the dollar, largely just because it’s the convertible feature is so far out of the money and the coupon is zero, so it has to trade at a level where there’s actually a yield, but those would rise to par immediately if you thought default was imminent. That’s the safest place, is the debt. The next safest place is the preferred, even though I just said that the preferreds are going to fall 30 or 40 cents on the dollar if they cut the dividend. Again, there’s only $15 billion of preferreds on top of the $7 billion of debt, so you have $22 billion now backed by the $57 billion of Bitcoin. So again, like in an actual liquidation or a default, you will get your money back. Um, that’s not why people buy preferreds. People buy them because they want the dividend. And if you cut the dividend, they’re going to fall 30 or 40%, and that’s not going to feel good. But at the end of the, at the end of the day, you will eventually get your money back if they default. Um, if, um, you don’t think that they’re going to default, which I don’t think they will anytime soon, then Again, the preferreds are really risky because they’re going to have to cut the dividend at some point. But if you think that that’s 4 years out instead of 1 year out, and you can get 12% per year while you wait, that might be worth it for some people. The Bitcoin and MicroStrategy stock is probably the hardest one. I don’t see any scenario where you’d really want to own the MSTR stock right now, given how dire the options are. You could also make an argument that you don’t really want to own Bitcoin right now, given that the biggest owner is going to be a net seller— not necessarily a net seller, but be a seller for the foreseeable future. I’ll caveat all of this by saying that Saylor has pulled a rabbit out of the hat multiple times in his career with multiple companies, or multiple versions of the same company, I guess. It’s entirely possible that he figures out a way to do it again. Don’t forget, it was only November of last year when I was saying MicroStrategy is not a risks to Bitcoin, because that was before he decided to load up the balance sheet with $16 billion of preferreds, which I never expected anyone to do because you’d be absolutely out of your mind crazy to do that. But he did, and here we are. So there are certainly some avenues that I’m potentially not considering here that he might be able to pull a rabbit out of the hat and kick the can down the road. But it’s tough. No matter what part of the capital structure you own here, there is higher risks today than there were 9 months ago. Okay. So I do then want to ask also about your tweet, which you referenced earlier, where you said, quote, tiny sales today just to prep the market for bigger sales to come. And that was, you know, in reference to the 32 Bitcoin that were sold. And you said STRC, MSTR, and BTC cannot all win together, just foreshadowing today that someone is going to lose here at the expense of the others. So what do you foresee happening in terms of the sales? Putting in a former life, I was an investment banker and a capital markets banker. All I did was work on companies and how you issue debt and equity to service your funding needs. If I were advising Strategy, I would have never told them to sell the 2.5 Bitcoin. I would have ripped the Band-Aid off and sold 2 billion of Bitcoin and just said, we already told you and teased you that we might do this at some point. We have a cash need of $1.7 billion every year, and we want to prove to the rating agencies that we’re willing to sell it if we need to, to keep our balance sheet intact, and that’s why we paid off the debt. I think ripping the Band-Aid off, doing a huge sale, but then saying you’re done for a while would have been better than doing a nominal amount like he did just to tease the market. I’m not in Saylor or Strategy’s inner circle, but if I had to guess, They probably said, “Well, we know we have to sell Bitcoin at some point, so let’s just get it over with and rip the Band-Aid off and do a tiny amount just so those headlines get out of the way. Then when we sell bigger size later, the market will already be desensitized to it.” But that was really stupid because you see the reaction, Bitcoin just fell 5% on a $2.5 million sale. What do you think they’re going to do when they sell $2 billion? I would have just ripped the Band-Aid off, sold it all, gotten it out of the way, and then put a press release out there and said, You knew that this was possible at some point. We did it, but by doing so, we’re going to make, maintain the dividend on the preferreds. Uh, and we’re going to continue to opportunistically buy more Bitcoin than we sell. Um, I think that would have actually calmed the markets a lot more than what he did. Okay. Wow. That’s super interesting. Yeah. Because, um, yeah, the market’s definitely reacted to such a small sale. All right. Let’s talk about one other thing that is related to this that is, um, it’s just also very sticky, which is, um, the contested market about whether MSTR was going to sell Bitcoin in May. And, um, that’s on Polymarket. So, um, basically it has— it’s resolving at the moment to no, even though MSTR actually did sell the Bitcoin in May. Explain why that’s happening. Um, yeah, this is one of the craziest things I’ve ever seen. For those who don’t know, if you’re on Polymarket, there’s a couple of contracts that said, will strategy sell Bitcoin? And it has a date that says, will they sell Bitcoin by May 31st, or by July 31st, or by December 31st? The contract pretty clearly says, it’s not, will they announce it? It says, will they sell it? The problem is May 31st is a Sunday, and Strategy comes out with 8-Ks every Monday. On Monday, June 1st, there was already hints that they would have already sold it. Myself and others, shout out to a Twitter account, BTC Believer 21, who had a really, really well-researched article talking about why he already probably sold it on Monday. Or sold it in May, but there was a lot of hinting already that there was a good chance that they had sold the Bitcoin. That contract was trading at about 12 cents on Sunday, meaning that if you bet $12 on whether or not he sold Bitcoin in May, you’d either lose it all if he didn’t sell, or you’d make $88 if he did sell. So on Monday morning, the 8-K came out and confirmed that they did sell the $2.5 million. Between May 26th and May 31st. There was no dispute at all that the Bitcoin was in fact sold. The contract traded up to like 60 or 70 cents, but it didn’t go immediately up to 100 because the way Polymarket works is if you dispute it, then it goes to a couple of UMA protocol validators who basically vote on whether or not there’s a dispute, or whether or not the dispute is real. It never actually got to 100, which is what you would have expected to do since it was pretty clear that there’s nobody disputing disputing the fact that he sold the Bitcoin, they’re disputing whether or not that means the contract actually settles at yes, because the news came out on June 1st. Forget terms and conditions and anything else, just logically think about how insane that is. That’s like betting on the Super Bowl on Sunday, but because the box score in the newspaper doesn’t come out until Monday, you can say that the game didn’t end on Sunday because we didn’t have confirmation from the box score. It’s insane. It’s insanity. There is indisputable evidence that they sold Bitcoin in May, and the contract was written on Polymarket that says, “Will strategy sell Bitcoin in May?” Anyway, this goes to a dispute, and it’s a very rigged insider baseball DAO process. Basically, a bunch of insiders, it looks like, started to say, “We’re going to—” Started to buy no, and then they were the ones who then went in to vote on the dispute and decided that no, he did not actually sell the Bitcoin in May because the news didn’t come out until June 1st. Not only is that ridiculous, but the contracts are still trading. So you basically have— if you’re going to say that the contract is invalid after May 31st, even if the news ultimately comes out and validates it, if you’re going to say, no, he didn’t get the news out there in time, then why is the contract still trading? Forget anybody who may or may not have lost money prior to May 31st. There was tens, if not hundreds of millions that were traded after May 31st, once it was already clear and provable that he sold Bitcoin in May, that are now losing money on the S contract because the validators decided to say that no was the legal answer. I’m amazed, quite frankly. I had no skin in the game on this. I just, I’ve never seen anything that is so ridiculous. Uh, it looks bad on Polymarket. It looks bad on UMA and the validators. I don’t know how anybody can take a market like this seriously when, uh, there is such indisputable evidence that the answer is yes, and yet it’s resolving at no right now. So again, there’s going to be a lot of legal battles on this one. Yeah. Yeah. I agree with you. Um, I did find a contrarian take that made sense to me though. So I want to run it by you to hear your response. Um, Carr on Polymarket tweeted, a key problem with allowing post-deadline evidence is that it creates hindsight resolution. Traders are forced to wait indefinitely for future disclosures, disclosures that may or may not emerge. A market that appears unresolved at the deadline can suddenly flip days, weeks, or even months later because new information is released. This is inconsistent with the principle that prediction markets should provide clear and timely outcomes. So, so let’s just leave aside the fact it was still trading on June 1st. Um, what do you make of that point? So I think there’s some validity to that in the sense that, uh, you’re right, you can’t leave these things out indefinitely. There has to be a drop dead. Um, but the counterpoint to that is, uh, somebody actually pulled the code, uh, and the drop dead on this one actually was July 1st, not May 31st. So it should have been honored through July 1st. But second, if there is a drop dead, then that contract should specifically say that, right? It should say Did Strategy sell Bitcoin in May, and will it be revealed and provable by May 31st? By leaving it open-ended, you’re basically tricking your users on top of the fact that, again, if you do think that it should have ended on May 31st, then it immediately should stop trading on May 31st and not be available to trade thereafter. I think there’s some validity to that. I don’t think you can leave these things open-ended forever, and then a year and a half later, it’d be like, actually, we just found proof that he did. So there has to be an end date, but that end date has to be explicitly defined. And it’s, you know, this is not the first time this has happened. So you would have thought the people behind Polymarket and UMA would have already looked to fix this. You know, putting your conspiracy hat on, you would say that they’re purposely leaving this ambiguous because it allows insiders and friends to make money on things that are in their own control to dictate the outcome. Yeah, I agree with you about how it should have been handled. And I did see that there was a counterpoint to that tweet where somebody responded that for that one Khomeini, um, you know, the quote-unquote death market, um, that at that time Polymarket did say, quote, in the case of ambiguity at the time of resolution as to whether Khomeini was removed from power by February 28th, This market may remain open until a consensus of credible reporting can determine whether the resolution criteria was met. So basically, um, you know, that goes against that same notion that it like needs to just always have a fixed date, um, cutoff time. Anyway, Jeff, thank you so much for explaining what is, you know, rather complicated. And I just love, um, how your mind can, you know, go through kind of each of the scenarios to play it all out and, and explain it so beautifully for the audience. So thank you so much for coming on Unchained. Well, I appreciate you having me. Anytime. And thanks to everyone for joining this livestream. We will catch you tomorrow with Uneasy Money. Bye now. Nothing you hear on Unchained is investment advice. This show is for informational and entertainment purposes only, and my guests and I may hold assets discussed on the show. For more disclosures, visit unchainedcrypto.com.