All right, why don't we start with you, James, why don't you ask your first question?
All right, so the first question here, Michael, I've been thinking about this a lot and I want to hear your thoughts on this. So AI is scaling toward AGI potentially within years, not decades. And if that happens, a productivity shock could be massively deflationary. But deflation crushes nominal GDP as we know, making government debt burdens explode. So in response, governments will have to, or this government in particular, will have to print aggressively and monetize their own debt. So we get the biggest deflationary shock in history forcing the biggest inflationary monetary response. Where does Stretch STRC fit in that world? And does digital credit become the ultimate financial bridge to this paradox?
I just think we're living through the digital transformation of everything and AI is digital intelligence and we're going to see the digital transformation of labor. In essence, digital intelligence should demonetize human capital. So if you had a mass of millions of people doing a job like driving a car or doing a white collar job and the AI comes in, it's going to demonetize them, transform them, dematerialize them. There'll be a massive increase in productivity. It is deflationary. There's going to be extraordinary increase in productivity, a dislocation and a transformation of what people are doing and they'll migrate. We see Stretch as a digital transformation of credit. Bitcoin is the digital transformation of capital. So as the capital dematerializes to Bitcoin, the credit on top of it replaces physical credit. I think certainly, there's always this debate, should I spend $250,000 on a college education or should I just keep the money? And I would say, 30 or 40 years ago, the money wasn't worth that much. And so the consensus was I should spend the money on education so I can work hard. It's not so clear to me now. It seems like you're probably better off to buy $250,000 worth of capital or 200 like a Bitcoin. Then in theory you're getting 20 to 30% a year on that forever or $250,000 worth of the credit. And if you're going to spend the money on the education, the question really becomes why don't I just get a digital education for free or from nearly free from the AI instead of paying an institution to educate me. So, I think a lot of people will make a lot of different decisions, but it's going to be a reallocation of money from physical education to digital education, from physical labor to digital labor, from physical or traditional credit to digital credit, from physical capital to digital capital. We think that the $300 trillion credit market is broken. And it's, you know, you could characterize it as all return or it's basically return-free risk because the credit spreads on top of the risk-free rate are diminimous. Why would you take 77 basis points to take the credit risk of a company or 288 basis points to take the credit risk of a high yield issuer. So you could kind of say the credit spread of sovereign debt is 50 to 350 basis points that does not cover the credit risk of the sovereign debt. The credit spread of the investment grade credit doesn't cover the credit risk of the company. The credit spread of the high yield of the junk 288 basis points doesn't cover the credit risk of the weak company. The credit spreads on municipal debt, mortgage debt don't cover the risk of those. So pretty much all $300 trillion of capital is non-performing. And you would think that as people become, people have been forced to either take risk like on Bitcoin or take risk on equity or they're just slowly suffering. And what we see is human nature is human psychology is they actually would like to own the credit and not risk the principal. And they haven't had a good option. So, we think digital credit maybe is the way that we recruit 75% of the capital in the world to the digital assets ecosystem into Bitcoin. It's the gateway for them to transition from slowly suffocation, right? You know, being slowly squeezed to death to something better, you know, and so that's where I think it's positioned right now.
Michael, you mentioned on my show that you could do a thousand hours of podcast and we still can't reach some of the people in order to buy Bitcoin, but you seem to be looking at digital credit and instruments like Stretch as the way to sort of reach the mainstream public and the majority. So what is the gap? Like if that's layered on top of Bitcoin, why is it easier for someone to understand Stretch? And how do you market it? What's the challenge there?
I think chemistry is really complicated. Most people don't understand chemistry, but everybody wears nylon and polyester and Lycra and they like Teflon and they use and they like plastics. And the truth is they don't want to understand, people don't, I don't think people want to understand nuclear power. They don't want to understand prochemical. They don't want to understand physics. What they want is a car that's easy to drive. And then they want a dishwasher and a hair dryer. Not one in a hundred people can explain how an air conditioner works, but they all want one. So I and I don't think one in a 100,000 people understands how an iPhone works, but they all want one. So I think the great products are all, I don't think people that drink Coca-Cola know how to make Coca-Cola, right? Wasn't the recipe for Coke a secret for a hundred years? Right. It's most famous secret. So you don't have to understand it to want it. And I think the mistake is sometimes to think that I have to teach people how to create their own explosives or how to create their own, you know, heat exchangers or how to create their own internal combustion engines. And when you're trying to, you're in the hobbyist stage or the early innovator stage at that point. I think that people want an insanely great simple-to-use consumer product that just makes their problems go away that has complicated technology embedded in it. And so I think that we're moving from the early adopter phase. Imagine the people used to create their cars from a kit or they used to, if you were an aviation hobbyist, you constructed your own aeroplane and then you tested it and flew it. And then we eventually got to the point where people just purchased an airline ticket and they got on a plane they didn't build, they didn't understand, flown by a guy, did something that they can't do. And eventually where you end up is we're just going to have cars that drive themselves that take us to places when we say take us there. So, I think we're moving to that point in digital assets and in digital credit and the Bitcoin industry. And bottom line is billions and billions and billions of people want a company to create a product to solve their problem. And if you want to change the life of billions of people, you know, you create that massive consumer product and give it to a billion people. You know, sometimes they want you to create the product and then finance it for them and give it to them for free. Like how many people paid for their car in cash or their house in cash, right? They want someone to create a house and they want the government to finance it with a Fannie Mae Freddie Mac loan and then they'll willingly move into the house paid for by someone else with credit built by someone else. But I never seen anybody that said that they didn't want to live in the house unless they built it with their own hands. Every part of it so I think that's the case with most things and this industry is evolving to that. I would also add Coca-Cola was originally successful because they convinced pharmacists to sell it as a tonic against an upset stomach. And the iPhone was successful because they convinced AT&T initially to distribute it. And so for Stretch to initially be successful, it already is, but we had to convince banks to distribute it because that's how products get sold today. And now you see all these layer three folks building on top of Stretch. So the distribution is starting to happen even as we speak on a six-month-old product. And that is another way that Stretch is going to be successful is using the distribution of traditional finance and decentralized finance.
And catchy tunes always help. So we're going to call up our first audience member, Quentyn Yenni. Do we have a microphone anywhere? Take your seat. We'll come to you.
Hello. Thank you for taking my question. Quentin from the One Share podcast. So my question is around the regulation of digital credit. If Strategy is successful in massively scaling their preferred like Stretch, you could see a future where those products start to rival government bonds. So my question is, how do you think long-term? What is your long-term strategy in navigating this? And do you think that there's going to be new regulations that will be implemented to try to stop this?
No, I don't think anybody's going to stop it. I think that the government is going to take the position you can't call these things a money market fund. Money markets or stable coins will have to be backed by currency equivalents. But I think that it will propagate as a security or as a yield fund or as an investment fund or with an adjective. Whether we can call it digital money is unclear, but you can certainly probably call it digital yield or digital income. And I think it'll spread through traditional banking systems. I think it'll spread as digital income. I think you'll have digital income securities like STRC, but then you'll see rapid ETFs. I think it'll spread as an ETP like the 21Shares. STRC is just a security. I think that it will get built into digital income type tokens or the like and I think people will create digital savings coins, you know, like people are working on here. And I think that you'll have a set of digital assets regulators and that'll be one set of types of products. I think you'll see the security regulators will be a different set and then there'll be a set of bank regulators. I don't think this will be an exercise and anybody, I don't think anybody's really threatened by it. I think it'll be an exercise in getting regulatory approvals to roll out various flavors of digital money and digital income or digital yield. The good news here is the most powerful financial regulators in the world are the Secretary of the Treasury of the United States and the head of the Fed. The Secretary of the Treasury, Scott Bessent, believes that digital assets are the future and is an enthusiast. The head of the Fed, Kevin Warsh, believes that digital assets are the future, is an enthusiast. The President of the United States wants to make the United States the digital assets leader, the crypto capital of the world. So you have the support of the President, the head of the Fed, the head of the Treasury. You also have enthusiastic support from the head of the SEC, Paul Atkins, and the head of the CFTC, Mike Selig. And I've traveled all around the world. The most progressive set of financial regulators in the world are in the US right now. The most powerful set of financial regulators in the world in the US right now. Just today the OCC put out guidance. You can see it on X where they said stable coins are fine. We encourage you to look at them. So the OCC, the FDIC, Treasury and the other financial regulators and banking regulators in the US are going to be supportive. The UAE is the second most progressive set of regulators. They're also supportive and enthusiastic. Everybody else in the world is going to defer to and follow the US. Everybody else, the Europeans, the South Americans, Singapore, the Hong Kong regulators, even the Chinese, and I suspect the Russians. I think our enemies will defer to the US. I think our allies will defer to the US, and I think that the train has left the station. There will just be nuances. You won't be able to represent that it's a, it won't be a stable coin and you won't be able to represent it as a currency equivalent or a money market equivalent because those are defined terms that have very particular meanings but I think that digital credit and digital income digital money will thrive in the digital assets economy and at this point we're just going to see a Cambrian explosion of new flavors and types.
Look, it's also going to be a win-win-win, right? This is right now and it's, you know, love to project out 10, 20 years what happens to digital credit, but Stretch is a three billion dollar asset class. Digital credit is seven and a half billion. Let's say Stretch goes to 30 billion. Let's say it goes to 300 billion. It's still a quite a small percentage compared to what US Treasuries are. And let's say we get to 300 billion. You have 300 billion people, many of them US citizens and people all around the world now earning 11%. Perhaps that causes them to save more money. That's a good outcome. It brings people up. It increases income. So I don't see why the government would look at $300 billion of Stretch and say that's a bad thing. They would be supporting that and then that money pours into Bitcoin. Bitcoin goes up. So everybody who owns Bitcoin is doing well. Stretch does well. Bitcoin does well. People do well. Governments do well. I can't imagine they look at a $300 billion asset class and they say, 'Oh, let's regulate this.' People will just be more happy.
Yeah. There's a point to be made that digital credit is not competing with sovereign credit. Digital credit is competing with private credit and junk bonds and unrated credit instruments. And so there's no way a large government will feel threatened. The entity that's threatened is a going out of business private company that's attempting to get a loan and offering 8% or 6%. So it's, and that's a huge market. Right. The people that are buying Stretch at 11 are saying this looks less risky and better than my junk bond portfolio that yields seven. And so it will squeeze probably high yield, you know, non-investment grade corporate credit probably for the next five years and then maybe 10 years out if it's a trillion dollar asset class it'll start squeezing investment grade corporate debt and 20 years out it'll be squeezing various types of investment grade corporate debt, high yield, and then mortgage-backed securities and other random types of credit instruments. But it's going to start on that side of the credit curve. And it's the same mistake people make with Bitcoin. They think, 'Oh, Bitcoin, it must threaten the dollar.' No, Bitcoin's capital. It threatens someone's like second rate or it's someone's international real estate portfolio or alternative assets. I'm deciding whether to buy oil and gas rights in Argentina or Bitcoin. Or I'm deciding whether to buy real estate, you know, in Asia or buy Bitcoin. Or I'm deciding to buy, you know, a mixed portfolio of buildings, real estate and gold, you know, and oil rights or Bitcoin. And when you look at it that way, you realize that it's just a better form of alternative capital. Just like Stretch, digital credit is a better form of alternative credit. The people, the banks and the nation states that embrace it will thereby grow and prosper because they're embracing a new technology. And so the confident ones are not insecure. They're not going to be threatened by it. I don't think JP Morgan doesn't think that Bitcoin's going to eliminate its role in society. And the United States is not concerned about Bitcoin. That's why the President endorsed it. That's why Warsh endorses it at the Fed. That's why Scott Bessent believes in it. It's just technology. And to Phong's point, we probably got 20 years before we're at 5% of the market. In 20 years, people will say, 'Here's a new thing, and it looks like it's two, three, four percent of the capital in the world, and that's perfectly fine with us.'
Thank you, Quentin. Next up is Rayu.
Got a microphone behind you. Oh, no. Behind you.
Okay. So imagine it's the year 2060 and the world is fully on a Bitcoin standard and Strategy holds 3 million Bitcoin. The arbitrage window that enabled the accumulation phase has closed. What will Strategy's role be in that future Bitcoin economy?
In the year 2060, there's still going to be a lot of capital invested in real estate. There are going to be rich people living in Palm Beach and the Hamptons. There's going to be buildings. There's also going to be companies. There's going to be a company with a billion robots that makes robots and there's going to be self-flying hover cars and there's going to be nanobots and you know there's going to be a lot of valuable equity, a lot of valuable real estate. There's going to be a lot of money invested in Bitcoin. There's also going to be city and state government. So I think that that world is a world where maybe 20% of the capital is digital instead of 0.1% or 30% and then maybe instead of, you know, digital credit will be successful but will there be other forms of credit? There'll probably still be other forms of credit. Our role will be to support digital credit and then all the innovations. There's probably going to be some brilliant interesting things that get invented in the year 2045 and then we'll have 10 years to work on that but we don't know what those are right now. I rather think though it seems pretty clear that white collar labor is getting turbocharged and transformed by AI and blue collar labor is getting turbocharged and transformed by AI and you're going to have an explosion of diversity in products and productivity. Our role is to digitally transform and improve the economic system of the world. So digital capital is a better foundation for credit than physical capital. And digital credit is better. And so the result presumably is weak credit issuers will get squeezed out and all around the world where people are suffering from financial repression there'll be less and probably the credit rates of other instruments will increase over time and as those credit rates increase the decision making of the borrowers will improve because cost of capital will change and so I think the world will be more rational and we'll be a contributor to it but otherwise there's still going to be a lot of diversity and a lot of innovation going on and probably the world will be evolving across 100 dimensions much faster than it is today. Instead of having 50 million people or 20 million people engaged in basic research, maybe you'll have a billion people engaged in basic research in 10,000 areas that we don't even think are worth researching or we can't afford to research right now. So, I'm not worried that there's a collapse. I think rather there's an explosion in productivity and rationality and opportunity and optionality. And the world won't be perfect either. There'll still be imperfections, but it'll be a better world than it is now. And there'll be more opportunity for everyone. And more rationality will be, you know, spreading from here to there.
Yeah. 2 million Bitcoin is still really just 10% of the Bitcoin in existence. It's a lot, but it's not that much. There are companies that own more of the search market, more of the mobile phone market, more of the electric car market. And in 30 years, there will be new markets that open up. We'll be worried about how much real estate's on Earth. There will not be real estate sold on the moon, and somebody will go grab 20% of the real estate on the moon. And people will say, 'Is that too much real estate?' And I think there will be new markets, new products, new capabilities. AI will be around, humans will be around, society will be around and innovation will continue and by then we'll have 10% of the Bitcoin and maybe there will be a brand new category of product that we've never thought of and maybe we'll have innovated in that space too. 2060 is a long, long time away.
Thank you Ray. Our next question comes from Christopher Adok.
Thank you for taking my question. My question is if Basel moved Bitcoin to Group 1 tomorrow, no other changes, do the big banks that you've been meeting with recently, do they start buying Bitcoin all of a sudden or do they need proof that the consumer demand is there? Because there's a dichotomy of the products that are being rolled out versus them holding on their balance sheet. I was just curious on your experiences with the banks and your thoughts on the Basel rules and how they should or may change in the future.
I don't think it's overnight. I think Basel is an important standard because it'll open up banks, insurance companies, pension funds, and others to holding Bitcoin, to holding MSTR, other Bitcoin treasury companies. It'll help. It's not as existential, right? It's just another sort of barrier to overcome like FASB, fair market accounting, right? We'll overcome these things, but I don't think it's existential. I think what's going to cause Bitcoin to grow fast is, and we've talked a lot about it, corporate adoption, which has happened in the last year, banking adoption, which we'll see happen this year. I think when those things happen, the distribution channels of Bitcoin and digital credit will increase and Basel is just one piece of it. And we'll fix that. But you know, Bitcoin doesn't have these existential things that keep it down or step-functioning things that are going to cause it to grow overnight anymore. It's too big an asset class and too much support in the government. So, I think it'll be helpful, but it's not necessary. And on the flip side, it's not going to just cause an avalanche of investment either.
There's no one milestone. There's going to be a progressive adoption everywhere in the world. Quarter by quarter for the next 40 quarters and when 40 quarters have gone by it will be deemed to be, you know, cool and new kind of like the iPhone in 2020. Like, well, you probably have a digital account or you have a digital asset or something, don't you? And banks that don't handle digital assets, you know, 10 years out from now will probably be deemed to be traditional, quaint, heritage banks like kind of like when you go to the boutique bed and breakfast that is styled after the turn of the century whatever and it'll be something like that but it'll be 10 years of just progressive adoption everywhere in the world and then it will be new and cool and modern.
All right, so the next question we have is from Chris Ritter. Chris is here.
Thanks for taking my question. Strategy is pioneering a new world of digital capital, digital credit, digital money. My question is, what role infrastructure-wise does the Lightning Network play in this new world?
