How is that shaping the next phase of Bitcoin adoption?
So last year I was on stage at this event with some announcements about building enterprise wallets for small businesses and then also entering the technology that custodians use for cold storage at the custody level. So whether that's a company that's self-custody or a professional custodian that's licensed, they need the technology to do that. That's coming in the next couple of months.
What does it feel like to be running this company? And what are the challenges that come with a product that has grown so quickly?
You know, seldom in your life are you able to contribute to a product that by the time we're sitting here a year from now will hopefully be acknowledged as one of the most important, fastest growing products in the history of the world. So that in of itself is awesome and amazing. And then realizing that it's a product that does good, right? It's not high fructose corn syrup, it's not soda, it's not cigarettes. It's something that actually helps individuals. I think that's all fantastic and great, but more importantly, those that buy Stretch realize the advantages of it in terms of a place to put your short-term money, I'll call it. But the other piece is Stretch has actually opened up other channels for people to get into Bitcoin. So someone who wouldn't necessarily buy Bitcoin because of its volatility or just because it's still somewhat difficult to unwrap into can unwrap into it through Stretch. So I think the contribution of Stretch to the Bitcoin community is great. I think the other thing we're starting to see happen is a bunch of layer 2 products being built on top of Stretch. I think of Stretch as now not just a digital credit product, but it's a digital credit platform. People are building products on top of this digital credit platform and not only Bitcoin products but decentralized finance products and tokenized products. So it's not only just bringing people together to Bitcoin, but I think it's starting to bring DeFi and Bitcoin together which I think is pretty exciting. So Stretch is this sort of cool product that is doing so many good things for the community, for individuals, for wealth generators, and for Bitcoin and digital assets.
You brought up tokenization. I'd love to hear from both of you about that because we sort of hear that catch word for now, but a lot of people still feel like they don't understand what it is. Is it built on Bitcoin? Can you talk about that for both of you?
Yes. So, Blockstream is a Bitcoin infrastructure company starting from 2014 and we are active in at least two Bitcoin layer 2s. Obviously Lightning, the core Lightning which is one of the main implementations, but also Liquid which is a side chain. And the side chain is able to add new features that Bitcoin doesn't have. So it has confidential transactions and it has native support for assets and the assets can be stablecoins on it. There's about five billion of value on the network and included in those securitized tokenized products is a bank securitization vehicle with a number of treasury companies in them. So there's been the one for MicroStrategy shares held by an underlying custodian bank for a couple of years. The advantage is 24/7 trade priced in Bitcoin. So that's an interesting way to treat MicroStrategy and more recently Metaplanet and H100, the last two being two European treasury companies. I think the other thing that tokenization does through 24/7 trading is it can then more easily be used as collateral in a Bitcoin exchange, can lend itself to having leverage employed. So that could bring more liquidity to the midsize treasury companies and make it easier to access them because even though there's no regulatory barrier typically for somebody in one country to buy European shares, it can be quite hard to get to these small markets because the brokers haven't optimized for that. And so it kind of provides more universal access. And then I think the real unlock is tokenizing currently unlisted instruments. So some of the European treasury companies have Bitcoin-based convertible notes and Euro convertible notes which are private contracts. So there's nothing precluding you from selling them but there's no mechanism to find a price, to find a buyer and so on. So by tokenizing them and having these kind of non-custodial exchange mechanisms you can have price creation and be able to trade them to use them as collateral. But currently they're kind of dead collateral when they're out of the money.
Yeah. The one way I think about it is tokenization is the digitization of the securities market. So if you think about phone lines, they used to be copper, right? And the digitization was fiber. If you think about what Bitcoin did, it took an asset, a capital asset like gold, and it created a digital version of it. Now if you think about how do you trade stocks today and securities regulated by the SEC in the US, it is an analog process. And how do we digitize it? An analog process runs every day 9:30 to 4, a digitized process runs 24/7. An analog process means you need to go to a broker-dealer before you can buy and sell a security. A digitized process means that I could tap Adam's phone and buy one share of Stretch from him at the market prevailing price instantaneously and now that share of Stretch sits on my phone. Right? With the blockchain also providing transparency. So it makes a lot of sense that Bitcoin and DeFi in general are the backbone of tokenized securities. And the fact that you can go to a Starbucks, tap your phone, and there's a lot of analog processes behind it, buy a coffee for what is it, about 10 bucks or something? A lot, right? And why can't you do that with a stock peer-to-peer? And I think that's what tokenization does. And that's why it's pretty exciting is you're all sitting here looking for the digital transformation of capital, of equity, of the credit market. Now talk about the digital transformation of the securities market. And it's a huge innovation that we're looking at happening sort of right now outside the US off of sort of the current regulated rails and I think in the next two years you'll see it come to the US and the world on regulated rails. So it's very exciting.
Adam, you're one of the original cypherpunks. Why did you decide to move into the institutional side of Bitcoin? And what do you say to the skeptics of the institutionalization of this asset?
Yeah, I get that question. So, of course, Bitcoin is both a bearer asset that is hard to seize, hard to freeze and that is empowering from the individual and so it's important that that remains the case. But of course I think it's a sign of success that Bitcoin the asset class is adopted in its mind by private companies, public companies, pension funds, sovereigns and we've seen that happen at this point and there's much further for that to grow. And so the cypherpunks were interested in electronic cash with privacy and that kind of area but they were also free market advocates, they're called capitalists, and so they very much believed in capital formation in public markets and the role that that plays in the wealth generation in the world and the development of products. So I think people are kind of surprised that many people are not traders, never invested in an IPO or in a public stock, where for myself I was an active trader before Bitcoin in the early 90s. So for me, the fact that Bitcoin is being included in portfolios is useful because the ETFs and public treasury companies, the phenomena that MicroStrategy has started, are easier. It's a form of access for some people. So think about it as accessibility, but then many people in the world don't do self-directed investment. And so the main way that they're going to get exposure to Bitcoin is via these model portfolio recommendations and managed fundings against annuities and pension funds and things like that. So I think that when people talk about institutional adoption I think a lot of that is still in the future because you have more portfolio but not that much of that capital has landed yet and those are enormous walls of capital. The reason it hasn't mandated is there's entities who are very procedural and it takes them a while to get things to do.
Yeah. In fact, I'll just add one thing and sometimes the cypherpunks or Adam, people think about the cryptographic skills and software engineering skills, but the capital markets and the understanding of finance it comes hand in hand. And I had the pleasure of meeting Adam, I think it was in 2021, and I did it in New York. And even at that point I learned a lot about Bitcoin and capital markets from Adam. And I mentioned that because it's this intersection of these two things. Michael Saylor started as an engineer who ran a public company. I started as a computer programmer who was the CFO of a public company. You find that intersection and you find these individuals who are able to bring those two things together and it's wondrous in terms of its capability. That's what Bitcoin was and that's what Satoshi Nakamoto was. So you have here a very gifted mind that understands the capital markets very well. And that's why we're able to build what we're able to build.
You know what I think is really interesting? Over the last few decades, there seems to have been this demonization of corporations, especially the really massive ones, because in the fiat system, it sometimes feels like they're getting larger and larger, not by actual value or merit, but just because of sort of the money printer machine and the liquidity just flowing to the biggest companies. And Bitcoin sort of imposes consequences and responsibilities and new rules. Can you talk a little bit about how it's shifting just corporate management and the way that companies should be structured which is to provide value and service to us, right?
Yeah, I mean I think it's natural that corporations would adopt Bitcoin. So I was quite interested when Michael started the treasury company phenomena and I was actually a relatively early shareholder because I thought that one way to support the initiative was if a lot of Bitcoiners bought a little bit of his shares, then because the company is much smaller than Bitcoin, they could start to own a meaningful proportion of the shares collectively and support the mission basically. And I think ultimately in this kind of Bitcoinized future that Bitcoin is the hurdle rate, which for people who know about finance means that if you can't exceed this kind of baseline then you're not really creating a positive return. So that means the Bitcoin mindset, the portfolios are all denominated in Bitcoin and you're looking for Bitcoin plus some return on top of Bitcoin. And so a treasury company, its central objective is to increase the Bitcoin per share. And so that has a Bitcoin plus, obviously with there's no risk or there's no reward without risk so there's some volatility around there but I think it's natural that that's the case. And of course the public companies and the ETFs are ultimately fiduciaries for other people's money. So when treasury companies grow via ATMs and other instruments they're adding shareholders. So it's not, people say BlackRock bought Bitcoin, but not really. The individuals that bought ETF shares and fund managers that allocate Bitcoin ETF via MicroStrategy, like the Swiss National Bank has, increasing the capital under management, but the ownership is a lot of people underneath.
