Bitcoin Market Risks and Credit Analysis

What happens to Stretch if Bitcoin falls to 20 000, 50 000?

Would it go into even a colder bear market and stay there for 18, maybe 24 months?

Would the investors still receive their promised yield?

And is there a point at which they would lose their principal?

The company is way over collateralized right now.

So the risk in the company is, I would tranche it like this.

I think we have about 4 billion of net debt and

52 billion of assets right now, or maybe 50 billion.

So if Bitcoin were to fall 92

then that's very bad for the equity. We'd have to refinance the debt.

And it probably causes the credit to trade weak at 90 But I don't think we

would default on anything.

If Bitcoin falls 100 then we have a problem. We have bigger problems than problems.

If it falls 100 if it falls 90 then

probably the credit trades weak. the debt gets refinanced.

If Bitcoin falls 70

I think all of the credit and all of the debt works out fine.

And again, I can't guarantee what prices

all of the credit trade at because that's a market sentiment thing,

but we wouldn't miss the dividends.

Most of the risk is structured to be in the equity, in the MSTR equity.

The equity is

amplified to the upside and the downside.

So if you're risk adverse,

then you're not really an equity investor.

If you were the most risk adverse credit investor,

you would just buy the bonds we have.

The bonds are actually over collateralized on average 12 to one,

and some of them are collateralized like 80 to one.

And so I think we calculate the imputed BTC

performance.

The imputed BTC performance of the bonds is currently priced as minus 60 a year.

Okay,

I mean the bonds are

they the people that are holding the bonds literally think Bitcoin is

Going to zero in ten years or in five years

and they don't care right and the bonds still pay off the imputed BTC performance of

of the Credit is like minus 8

So the credit spreads on the credit

Assume the Bitcoin falls 8 forever or

9 forever So if you actually think that Bitcoin is going to outperform minus 9

Then the credit is in pretty good shape.

I think that the senior credit tranche is STRF it's nine times over collateralized

nine to one and

Then STRC is three point one to one Of course if you're holding Bitcoin you're

collateralized one to one, right?

so the point is Bitcoin, yeah, maybe a very simple

thing to look at right now is is the total return of

STRC in the past like 10 months since the Bitcoin all time high is

like it's like

minus 5 or minus 3 something like that, and the total return of Bitcoin

is minus 50 So we have effectively stripped 90 of the risk off of Bitcoin

in the middle of a bear market with STRC.

And so I think that's a short answer.

If you think Bitcoin's gonna fall more than 80 probably you don't

wanna hold the equity and maybe you don't wanna hold the credit.

If you think that Bitcoin is

gonna be volatile and chop sideways,

I think the way it works out is if you think Bitcoin's gonna be comparable to

the S P index,

then all this credit is investment grade.

Like if you wanna model it, you can go to our website, go to the credit tab,

it actually updates every 15 seconds,

and you can type

in your forward view of Bitcoin volatility and your forward view of the

Bitcoin price, and you can put in negative numbers.

You can say, I think Bitcoin's falling 9 8 a year forever,

and you can put in the vol.

What you'll find,

and it spits out the risk and the fair credit spread,

and what you find when you do that

is that the risk is very sensitive to vol.

The difference between 45 vol and

40 vol on Bitcoin is 200 basis points of credit spread.

And the difference between, if Bitcoin falls to 30 vol, all this stuff

starts to look investment grade.

And if Bitcoin appreciates 10 a year, it all looks investment grade.

So if you're Bitcoin maxi and you think Bitcoin's gone up 30 a year,

it doesn't have risk.

If you're a skeptic and you

think Bitcoin's falling 10 a year,

it is fairly valued at the current credit spreads.

And so the real interesting thing for a credit investor is we have created

a transparent homogeneous credit and you can calculate it with a log

normal statistical distribution model every 15 seconds.

And if you don't

even know what I'm talking about, you can go to any AI and ask the AI to

generate the credit model for you and it'll do it.

So you can't really evaluate the credit of private credit.

You can't evaluate mortgage credit.

You can't evaluate corporate credit risk or sovereign credit risk in this way.

But with digital credit, you can evaluate it and then you can hedge it and you

can trade it.

And of course,

We think it's the best kind of credit in the world because we're carving

out this pure credit instrument out of a block of digital capital,

and it's incredibly scalable,

incredibly transparent, and just like a lot of things, it was pretty obvious to me

that Apple and Amazon were not going away in 2010.

I literally wrote a book about it,

and it seems pretty obvious to the rest of the world today, but it was totally a

non consensus trade.

You could have 20 extra money at that point,

and it seems pretty obvious to me that Bitcoin's not going away.

If you think that Bitcoin is not going away, then in fact,

my point to you, if you really think that Bitcoin is not going away,

the screaming home run trade is the credit

because the credit is all priced by people that

think that Bitcoin is going away in the next decade right now, and that, I think,

is the interesting thing going on in the market.