About This Episode
In this week’s Hurdle Rate, the crew breaks down the latest corporate Bitcoin market activity and Strive’s growing Bitcoin holdings, before turning to Strategy’s Bitcoin sale and what the balance sheet math actually reveals about risk and permanent impairment. We dig into historical bear market scenarios, how to manage amplification ratios, and the product management and demand dynamics shaping the treasury company landscape. We close with a deeper look at what digital credit actually is, and why it matters for the road ahead. Here’s the latest with Tim Kotzman, Matt Cole, Jeff Walton, and Ben Werkman.
In This Episode
- 00:00:00 — Welcome To The Hurdle Rate
- 00:00:50 — Corporate Bitcoin Market Activity
- 00:02:42 — Strive’s Bitcoin Holdings Update
- 00:04:41 — Market Transparency And Liquidity
- 00:13:11 — Strategy Sells Bitcoin: Balance Sheet Analysis
- 00:18:01 — Risk And Permanent Impairment
- 00:19:59 — Historical Bear Market Scenarios
- 00:27:36 — Managing Amplification Ratios
- 00:40:15 — Product Management And Demand
- 00:45:32 — Defining Digital Credit
Episode Summary
Key Themes: Strategy’s Bitcoin sale; liquidity and transparency; amplification; stress testing; dividend reserves; daily-dividend psychology; managing par; defining digital credit.
Strategy Sells 32 Bitcoin
Strategy sold 32 Bitcoin—approximately 0.004% of its holdings—to fund preferred dividends. Jeff said the amount was immaterial relative to Strategy’s 843,000-plus Bitcoin balance sheet and Bitcoin’s daily liquidity. The significance was that Strategy deliberately disclosed the sale, demonstrating to investors and rating agencies that Bitcoin is liquid capital that can be used to meet obligations without threatening the treasury.
Follow the Math, Not the Ideology
Matt said critics focused on the broken promise of never selling rather than the business logic. Strategy remained a large net buyer during May, while the sale demonstrated that management will use every balance-sheet tool available to maximize shareholder returns. Selective Bitcoin sales could also support tax-loss harvesting or avoid issuing common stock at unattractive valuations. Bitcoin treasury companies should optimize mathematically rather than follow rigid slogans.
STRC’s Balance Sheet Has Improved
Jeff argued that STRC’s risk-reward profile had strengthened despite trading below par. Since its launch, Strategy had increased its Bitcoin holdings by roughly 41%, reduced convertible debt, created an $871 million cash reserve and raised STRC’s dividend rate. Although Bitcoin’s dollar price had declined, the underlying balance sheet was larger, more liquid and less indebted. Strategy’s willingness to sell modest amounts of Bitcoin further improves confidence that dividends can be maintained.
Strive Reaches 19,000 Bitcoin
Strive purchased another 2,500 Bitcoin, bringing its total holdings to 19,000 and surpassing SpaceX. The purchase was largely supported by SATA demand, increasing Strive’s amplification ratio to approximately 55%. Matt described this as an ideal scenario for common shareholders because amplification is rising while Bitcoin trades near its 200-week moving average, potentially loading the spring for the next bull market.
Risk Includes Missing the Upside
Matt said risk must be considered in two directions: permanently impairing the balance sheet and failing to participate sufficiently in Bitcoin’s appreciation. Reducing a meaningful probability of failure is valuable, but reducing an already negligible risk even further may destroy expected value by sacrificing upside. The correct amplification level therefore depends on balancing survival against the opportunity cost of being too conservative.
Stress Testing the Balance Sheet
Jeff said Strive models its balance sheet against every major historical Bitcoin bear market while assuming complete exclusion from capital markets. Applying the remaining duration of the 2022 bear market to Strive’s current position would require approximately 15 months to recover its present coverage ratio. Because Strive holds an 18-month dividend reserve, it could theoretically survive that scenario without selling Bitcoin, issuing common stock or accessing the SATA ATM.
Capital Markets Remain Open
The stress tests assume no financing access, but actual market conditions have been significantly better. Since Bitcoin’s roughly 50% drawdown, Strive had raised approximately $540 million, averaging about $8.1 million per business day. That was more than 20 times its projected daily SATA dividend obligation. Jeff said this shows the company is planning for a total shutdown while continuing to raise substantial capital during an actual bear market.
Amplification Should Move With the Cycle
Ben described amplification as a living metric rather than a permanent target. A company should generally increase amplification after Bitcoin has already experienced a major drawdown and reduce it during strong bull markets, when another correction becomes more likely. With no debt, no encumbered Bitcoin and an 18-month reserve, the group said Strive can responsibly operate at higher amplification than companies carrying maturity or margin-call risk.
The Market Still Sets the Limit
The models struggled to identify a mathematical amplification level that would permanently impair Strive’s balance sheet under its current structure. However, the practical limit will also depend on SATA demand and investor perception. Matt said Strive must educate shareholders with data while recognizing that perceived risk can still affect SATA’s liquidity and volatility. The objective is to maximize common-equity upside without undermining confidence in the preferred.
Daily Dividends Change Investor Behavior
Jeff said daily payments could shift investors from underwriting the probability of receiving a dividend next month to receiving one the next business day. Ben added that eliminating the monthly dividend event may reduce capital rotation and encourage investors to treat SATA as a continuing source of income. Strive also intends to manage issuance carefully, acting as an absorber of excess demand above par rather than crowding out investors trying to transact near $100.
Defining Digital Credit
Jeff defined digital credit as a credit instrument supported by a digital-asset balance sheet. The “digital” refers to Bitcoin backing the issuer, while “credit” refers to the investor underwriting the company’s ability to make payments. Matt said no financial term is perfect, but issuers must define the category clearly and educate investors. Like the earliest public companies, digital credit spreads exposure to a volatile underlying venture across different classes of capital.
Main Takeaway: Strive’s stress testing suggests that a debt-free balance sheet, unencumbered Bitcoin and an 18-month dividend reserve can support materially higher amplification near bear-market lows, while Strategy’s small Bitcoin sale demonstrated that disciplined treasury management requires following the math rather than ideology.