Why the AI Trade Ends in Money Printing with Jack Mallers

Nick, I'm a fan and a customer. So, thank you so much for having me. It's an honor.

Emotionally it's complicated. In many respects I carry guilt, devastated in some respects. I mean I started a thing and I would say my vision for the thing didn't work, failing publicly. There's a lot of humility and an evisceration of ego that comes with that. So there's certainly a lot of complicated negative emotions. I would say more neutral emotions are that you know my co-founders are my friends. They still run the business. I have a lot of faith in them as businessmen, as entrepreneurs, as Bitcoiners. And the business is not necessarily in any bad standing. It's listed on the New York Stock Exchange. It's the second largest Bitcoin corporate treasury in the world and it is an incredible board with world-class backing. So it is not to say that the business is in any way impaired. I think some of the expectations for me leading the business is impaired and no longer going to be the case. But the business itself has a ceiling that you know is rarified air when it comes to Bitcoin. And then more of the optimistic, grateful, energized, passion emotions are derived from really truly understanding who I am as a man and what I want out of my career in Bitcoin. I've been fortunate enough to build an incredible business with my colleagues at Strike and who we serve and how we serve them and who I've become to the community. I now hold extraordinarily dear to me, Nick, because it's one thing to claim principles and claim virtues. It's another thing for a cost to be applied and challenge those. It's one thing to say, well, you know, I would never sell out or I would never compromise on my principles or my morals. Or if a Strike customer or a colleague or someone looks me in the eye and says, you know, when I download that app, am I trusting you? You know, I would never ever be able to say yes knowing that it was a greater board or something. And then it's another to have an empty check in front of your face and Wall Street and, you know, New York Stock Exchange and perceived fame and all of that and say, are you really who you say you are actually? Is there a cost to change who you have claimed to be? What's the number? And that was an experience that has really energized me to just be the Bitcoiner that I've always been and be okay with that. And you know, get back to doing a lot more content and a lot more that what's you know, makes me the most happy is when Bitcoiners come up to me at conferences and say, "You changed my life. You helped me understand Bitcoin." And I don't know how rich and famous that will make me that path. But it's the one that I ended up choosing and that gives me a lot of peace. So, I don't know if that's the answer you're looking for, but a fairly complex array of emotions.

Yeah, it was interesting. You know, I remember talking to the other Jack Dorsey when I was thinking about founding 21 and I was trying to get advice on running multiple businesses because people don't know at the origins of 21, they kind of assumed that the plan was always to combine Strike and 21 and it was actually the opposite. In what I would consider the founding meeting with my co-founders, I said explicitly, I don't want to do that. That terrifies me. It worries me. It's very important to not only me but my customers and my employees that Strike is mine and to Bitcoiners that Strike is mine and they're trusting me. And the co-founding group was like, "Let's just have you run both. Like there's plenty of people that have been the CEO of two companies. Let's try and figure that out together." I called Jack Dorsey and I said, "Hey, you've run two companies. Have any advice?" And it was interesting because he said, you know, the most expensive part of running my two businesses was the context switching. If you go from working on a social media network like the town square of the world to processing a small merchant's credit card on a device that's plugged into their phone. It's two different jobs. Like I would really lean into the fact that you have one job which is trying to make Bitcoin successful and grow the network. And so I would say Nick, Mike, it wasn't as if I didn't have enough time for either role because from the highest level I was just being the Bitcoiner I've always been. This is why you hire great people and you delegate and you build great culture. So it was never that. And it was I would say 21 just ended up becoming something that we didn't start. Businesses change, markets change, investors were demanding things of the business based on I mean, Nick, by the way, when we founded it, MNAVs were two, three, and Sailor had never uttered the word preferred out of his mouth. Then by the time we get approved in December, like the convert, the convert strategy is dead. The guidance of we'll exercise the MNAV premium at two and a half to four I think was one of the guidance on an earnings call to now all of a sudden it's preferred equity which by the way all of us on Wall Street in the 21 camp all of the banks we talked to were like that thing is going to have stress imposed on that perpetual instrument. So it just 21 became something that wasn't Bitcoin in the way that I founded it and started it. And so Strike remains the Bitcoin focus that I care about, building financial services, not only displaying conviction, Bitcoin conviction on our balance sheet, but also displaying that same conviction in building products, generating cash flow. I mean, I think a business's ultimate competitor is its costs, is earning more than you spend as a business because that is the only true right that you control to wake up and be in business tomorrow. And so it was never really about splitting time or having two jobs more than I was always focused on one expression of working on Bitcoin. And 21 slowly became not that. And that was when it was time for me to step away. In regards to Strike, I mean, Strike has been and is and will continue to be the mission that I've always wanted as a Bitcoin company. I've kind of viewed Bitcoin businesses on a spectrum where Coinbase, I think, is a great operating company in the fact that it has the potential and has historically generated lots of cash flow. It produces a lot more revenue than costs. But I would say that they're not nearly as convicted in Bitcoin as I am. When it comes to focus, when it comes to products, messaging, marketing, the converse to that is Strategy where I think what Sailor sells is Bitcoin conviction. I think that's his product. Like no one believes in Bitcoin more than him. And if you want to get the most Bitcoin performance, he claims his equity can help deliver that in a fairly safe way, but he doesn't have any products. He doesn't have customers. He doesn't have cash flow. And I've always wanted to build the middle of those, the best of both worlds. Why can't they exist? And surely if you're not going to do crypto and you're not going to do prediction markets, surely you're sacrificing some total addressable market, some opportunity set. But I'm okay with that because I think the focus on Bitcoin over the long term will actually outperform and build higher quality services. And surely by not going public and engaging in financial engineering and the perpetual preferred and stuff, surely you're potentially sacrificing an arbitrage opportunity. But again, I'm okay with that. I want to build a company that displays Bitcoin on the balance sheet. We're fully convicted. We're not distracted. But also builds products and services for real people that make their lives better because of this Bitcoin thing. And we're able to generate profits from that and continue to finance our own conviction and our own vision with our proof of work, not through financial engineering but through delivering more value for the world than we consume from the world. So that's what Strike is and it continues to be.

Yeah, I mean, I think that the cold card incident is devastating. The word horror comes to mind, like a spooky, overwhelming sense of horror.

Yeah, it's because I tell you what, Nick, I remember when SBF and FTX went down. And when I say went down, the tweets of, you know, we've entered an agreement with Binance to be purchased, right? Like anyone with a few brain cells was able to put two and two together with what was happening prior about setting target prices for their FTX coin. And I knew that guy was full of it, Nick. We all did. One of the cool things about truly understanding Bitcoin and how it works and being around for so long is you can even call out a guy like Elon Musk on his when he talks about Bitcoin in some respects. So, it's easy to smell garbage. And I knew Sam was full of it. And so, that was terrifying and sad, but it made sense, you know, it made sense. And not that you wish any ill will on victims. But if you were taking on leverage with FTX coin, implied was that level of risk. This one just don't make sense. Because the victims spent the thousands of hours understanding Bitcoin. Both their heart and their mind were in the right place. There was no leverage. There was no trusted third party risk. You know, as I say these things, you know, you can make semantic arguments that potentially there was a level of trust that was wrong. But I just feel devastated and there's a level of horror that these victims just don't deserve to be victims. And the more you do chain analyzing the chain and seeing the swept funds, I mean Nick, the overwhelming majority of these are smaller. When you look at the grand scheme, I don't want to make an opinion on what's a lot of money, but when you look at prior hacks and exchange hacks like the Bitfinex hack or the Mt. Gox hack, I mean, we're talking about each individual wallet swept a coin, 0.5 Bitcoin, two bitcoins. I mean, these are hardworking family people that spent the time that they had understanding this technology, doing what they believed was right. And this was clearly life savings that had been built up over time with excess cash after they spent on their mortgage, on their kids' tuition, on family food to make sure that dinner was warm. And that's what's so devastating about it. My immediate reaction, I mean, Strike is unaffected, safe, secure. And one of the things, Nick, I think this has been an illuminating moment for the community because I don't think a lot of folks truly understand how Bitcoin works, how this could happen, and what it means to secure Bitcoin, how hard it is, and what it takes. I think that we had got fairly complacent and you know myself included. I mean cold card was in my lexicon of recommendations like I need to own them. But fairly complacent that cold storage and self-custody meant a hardware wallet and you kind of abstract away these ideas of entropy and what it means to generate a really large and really random number that protects you. And I'm talking to people over the last few days and I'm saying, you know, the most audited and the most reviewed codebase in the industry and arguably in the world is Bitcoin Core. And I'm saying, I'm shocked that people that don't need to actively transact with their life savings and are just looking for an audited secure codebase to store their Bitcoin. I'm shocked more people don't know buy a laptop or a machine, run a node, generate an address, then take the thing offline and deposit Bitcoin there. I mean you know that codebase has gotten thorough review. People say but that's not a hardware wallet and you sit there and you're like my gosh the industry doesn't understand, it doesn't understand. And so Strike, I mean we use geographically distributed multi-sig. Our custody is in-house. I think we don't talk about it enough. I mean now there's a new wave of requests for us to do something like proof of reserves which we'll look into. It was interesting. It really wasn't a popular demand from our customers relative to other things. But we do everything in house and we're safe and secure and obviously more knowledgeable than maybe the common Bitcoin Twitter ongoer. And so were my immediate friends and family. So I didn't have any immediate concerns about them. It was just for Bitcoiners that felt as if they did everything that they were supposed to do and still fell victim. So horror. We did at Strike. We did everything we could. Even if you weren't a customer, I was actually at a wedding and I was stepping outside the wedding, you know, felt like every one to two hours to just do as much DM replying as I could. I had the support staff and the security staff on call all weekend. Just anything that we could do. But anyway, I'll pause there. I think that this is not near the death of cold storage and self custody. Like that rhetoric I think just needs time to flush its way through the system. At the end of the day, Bitcoin is generating a really large and really random number. And if we are incapable of both generating and securing that, then society itself isn't going to be successful. So I think we as an industry will be okay. If we can survive it, we'll be better off for it. But horrific and devastating.