Strategy is Trapped & in Crisis — "It's Basically a Hedge Fund Now" | Jeff Dorman & Matt Walsh

**David** (0:04)
Bankless Nation, I'm here with Jeff Dorman. He is the CIO at ARCA. We had Jeff, we've had Jeff on the podcast a number of times, but not recently. Jeff, welcome back to the podcast.

**Jeff Dorman** (0:12)
Great, thanks for having me. And quick disclaimer, this is my own information and not investment advice.

**David** (0:18)
We also have Matt Walsh, founding partner at Castle Island Ventures. Also, we've had Matt on the podcast plenty of times, but not recently. Matt, welcome back.

**Matt Walsh** (0:26)
Good to see you, David. Good to see you, Jeff.

**David** (0:29)
All right, so Michael Saylor and Strategy are in a bit of a predicament. They might have bought themselves some time, but I don't know if they're really out of the predicament. I want to go through with you guys exactly the nature of this predicament. Maybe just to really start this question off, I think the question that I would like to know is, will stretch ever trade back at $100 ever again?
Maybe Jeff, I'll just throw that one to you and just see what you think about that.

**Jeff Dorman** (0:57)
I think it can, I mean, actually, I'll caution everything I'm about to say throughout this entire discussion is that you can't really talk in absolutes with strategy. Everything has probabilities. I would say the probability is very low, probably single digits that it gets back to 100, but it can.
Ultimately, there's two cohorts of people who buy something like stretch. One is uninformed retail, kind of like your mom and pops, who all they care about is every month did the dividend get paid. And if so, they're happy because they're living on a fixed income and don't even look at the monthly statements or the actual capital. And two are people who are probably doing the probability math of, well, how many months of runway do we have? And is it worth getting 12 points of interest every year relative to a chance that it might fall 40 or 50 points if they ever cut the dividend? So I think it's going to be a less than useful tool for strategy going forward in terms of issuance. I don't think it'll ever get above 100 in a meaningful way where they can actually sell a ton of it to buy more Bitcoin. But I wouldn't rule it out that it gets back to the mid to high 90s eventually as the story kind of calms down and people recognize that they've got two years of dividend coverage.

**David** (2:16)
Now I've watched both of your guys' takes both on Matt listened to your podcast and I read all of your guys' tweets. And so I think you guys are directionally aligned. So if there is any dislocation in your guys' opinions, I would like to have you guys flag that. But Matt, what do you think about the idea of stretch trading a backup at $200?

**Matt Walsh** (2:36)
I mean, I guess anything's possible. If you look at what they announced yesterday, I mean, talk about complicated capital structure here.
Number one is they announced a new US dollar reserve policy. So it looks like they're up to 17.4 months of coverage. That's to service the preferreds and the indebtedness across the cap table. Number two is the stretch dividend. So they increased it to 12 Clearly trying to make a play to have people stay in that product.
The third thing they announced is a digital credit repurchase program. So they allocate up to $1 billion in repurchases across the preferred stack. So yeah, could they repurchase it? Could they drive the closer to 100? I could see that. They also announced a common equity repurchase program for another billion dollars. And they announced a Bitcoin monetization plan for $1.25 billion that they could sell into US dollars. So could some combination of that push the prefers up? Sure. Now, is it going to be a useful issuance platform in the future? I highly doubt that.

**David** (3:42)
The thing about the what they announced is that they announced a framework, a digital credit capital framework.
It was not in Plainspeak. Can we just say in Plainspeak, what was that? In simple, explain like on five years old terms, like I don't want to hear digital credit capital framework. What did they announce, Matt?

**Matt Walsh** (4:03)
Look, so they had about what, nine months of cash to service the prefers. Market's freaking out. They need to either sell equity or they need to sell Bitcoin. They sold common equity in size last week, over a billion dollars of common equity. And what they basically announced is that we're going to actively manage this balance sheet. We're going to seek to keep the prefers in the game. We're not going to sacrifice the prefers. I think Jeff's had some good takes around this trilemma here between Bitcoin, the common equity and the prefers. And I think it's really difficult to find an outcome that is beneficial to all three cohorts there.