We did a lot of back testing and I`ve gone back and I`ve looked at the numbers and on august 10th of 2020 when we announced our 250-million-dollar bitcoin buy since then bitcoin’s up 72 percent. The money supply is up 17 the Nasdaq’s down 2 goals down 9, and the S P is up 9. The only thing that looks better than the money supply expansion is single-family homes up 26. I couldn’t have bought billions of dollars of single-family homes. So, that’s not even practical. So, the bottom line is the bitcoin strategy is 10x better than any other alternative. No, I don’t regret it. We’ve got 2.8 billion dollars worth of bitcoin on our balance sheet right now. We feel like we’re positioned, well, for when the markets turn around and our only other choice would be to give all the capital back to the shareholders. In which case, we would have nothing and we would be struggling to get by without any assets. We don’t panic. We have a strategy.
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We’re not traders if your time horizon is less than four years, you are sort of a trader. If it’s in the months, you’re definitely a trader, I’m not an expert trader. I don’t have a crystal ball. I don’t know where the market’s going to go week by week month by month. If your time horizon is more than four years, you’re an investor, and when your time horizon is 10 years. You kind of a saver, so we have a very long-term 10-year time horizon. Our view is over the 10 years’ bitcoin’s gonna be a good idea. It’s just gonna keep accreting and value you know I can’t tell you whether it’ll go down a bit here and there it’s in the near term Emily it trades like a high beta risk asset and there’s no denying that over the long term. We believe it’s a low-risk store of value asset. There are about 10 things that have to happen over the next decade to make it a better asset and we kind of know what those 10 things are so we’re waiting and biding our time.
We think that it’s going to improve as an asset class over time and we’re not in a hurry. No, I think it’s been a net positive. We back-tested our strategy against every other alternative. If you roll the clock back to August 10th of 2020 when we embarked on this journey. Bitcoins performed 10x better than anything else gold’s down 10. Nasdaq is flat bitcoin is up 86 since that time over any time frame two years four years eight years. Bitcoin’s the best-performing asset. I can’t come up with a better idea I think if you think about bitcoin if your time horizon is one month it looks like a volatile risk asset. But if your time horizon is 10 years it looks like a risk-off store of value asset. So, the crossover point is four years. Nobody’s ever lost money investing in bitcoin for four years. If you want to surrogate for the book value of the bitcoin network, it would be the four-year simple moving average the simple moving average of bitcoin over four years is about twenty-one thousand six hundred eighty-five dollars. Bitcoin’s only touched that point a couple of times in its history and those are always been great buying opportunities right. This is all right. Bitcoins we’re touching that. We’re touching that price right now. It’s funny you should mention it. So, is it a great buying opportunity? Absolutely. Bitcoin’s backed by the most powerful secure computer network in the world. If I gave you 100 billion dollars you can’t reproduce it and it’s beyond a nation-state attack or corporate attack.
Once you understand that and the fact that it’s a singularity. There’s nothing like it in the world then this is an ideal entry point to get into this thing sure on a multi-billion-dollar balance sheet. We’ve only got a 200-million-dollar loan that we have to collateralize and we’re 10x over collateralized on that right now if the market is traded down by a factor of 10, we’ve got the cash. We generate cash flow, so this has all been the margin call thing is much ado about nothing it’s just made me twitter famous. So, I appreciate that and the Twitter trolls love to beat up on me because it gets them engaged as for the company’s balance sheet strategy in general. We borrowed 2.2 billion dollars at a blended interest rate of 1.8 percent before interest rates doubled. The junk bond index is from 426 basis points to 820 basis points. Mortgage rates have doubled if you had a chance to grab two billion dollars at one and a half percent interest. It seems like a reasonable thing to do. I’m glad we did it. Most of it is unsecured debt and 1.7 billion of it is unsecured. The 500 million comes due in seven years after we borrowed the money so we feel like we have a fortress balance sheet we’re comfortable and the margin loan is well managed. I mean the money supply has expanded by 41 percent since January 1st of 2020 when we went into this kind of covet crisis. We know that scarce desirable assets are getting bit up in price. I mean everybody wants to buy Rolex watches.
They’re buying luxury real estate, they’re buying everything they get their hands on creating shortages. So, we are an institution we have to take a 10-year view and the only thing that’s for sure. If we hold cash over a decade we’re going to have a negative real yield. The only question is how much, so we have to invest in something and we’ve chosen as a business strategy to focus on what we believe is the most exciting investment idea because it’s a digital commodity. That’s absolutely scarce and only getting technically better every year. I think it is on sale the number that I look at to figure out sort of the surrogate for the book value of bitcoin is the four-year simple moving average. Because it trades billions of dollars a day and so after 1400 days of billions of dollars a day that number is 21 700. Bitcoin touched that in March 2020. 2020 crisis touched it around 2017. It’s touching it right now generally it trades above there. Our strategy is we’re going to acquire bitcoin with our free cash flows from time to time. We’re kind of dollar cost averaging into bitcoin and we’re going to hold the bitcoin for the long term and it wouldn’t really matter whether the price was 10 more or 20 more or 50 percent more.
We’re just going to progressively acquire more bitcoin because that’s our strategy. But, you are in terms of a bank for sale. I mean it’s not a bad price and we will keep buying more. So, let’s take the ten sources of my pain. There’s no wash trading rules. So, people can sell their bitcoin and buy it back and harvest the tax gain and that’s not the same with apple. So, if that gets fixed by the house ways and means committee that’s a big plus for the asset. There are 520 unregistered crypto exchanges offering 20x leverage that’s a negative for the asset class as they get regulated. I expect they will and as the 20x leverage disappears that’ll be a positive. There’s 19 000 unregistered securities in the crypto industry cross-collateralized against bitcoin. As those things have to have to get eliminated or they have to convert them into publicly-traded instruments that are going to decrease the volatility to be a big shakeout of the wildcat banks like the Terra Luna and Celsius. They actually create massive volatility and as they get regulated they disappear and they grow up and become institutionalized banks. The asset class will mature. There’s a lot of ignorance and fear people think crypto is the same as bitcoin, if they think that that means they don’t understand either of those two things we don’t have a stable coin Emily like ust isn’t a stable coin tether is an opaque security no one understands if we ever have an fdic issued stable coin or something from a public entity that’s endorsed by the sec that’s going to be very bullish for the industry there’s no spot etf I think it’s only a matter of time before there is one approved that’ll be very bullish for the industry the fasb accounting is detrimental the lack of fdic guidance makes it difficult.
If not impossible for banks to to hold this stuff we’re waiting for clear sec cftc guidance and those 10 things they’re going to get cured over the next decade they’re just not going to get cured over the next 10 weeks. We’re crossing the chasm there’s about a trillion dollars in the asset cost 400 billion is bitcoin the other 400 billion is 19 000 unregistered securities. We’re moving from the era of the offshore entrepreneur to the onshore public institution and it’s pretty clear from chair gensler’s comments that he made in the last few days that they want to see all the crypto exchanges regulated. They wanna clean up this industry. The stable coin is going to have to be cleaned up as well. The winners are going to be the public investors in public banks and public companies. The losers are going to be the wildcatters and the entrepreneurs the guts got started that are flying by the seat of their pants. I think it’s essential for us to move from a one trillion dollar industry to a 10 trillion dollar industry. So, I welcome it. I think bitcoin’s been held back by its association with the anything goes crypto industry and as that gets regulated. Then that’s going to actually create a green light for public institutions and public companies to get much more heavily involved in bitcoin and is going to catalyze the next leg of the bull run.
This article is a transcription of a video made by Jamie Tree
Original video: https://youtu.be/7xpUCh9yeu8
