OTCID:HOGPF
M. Marin: Bitcoin volatility. You talked a little bit before about, that there's volatility, but that can work to your advantage. If you're a commodities company, you have instruments to sub-hedge against volatility. I'm guessing that this is so early in the evolution of Bitcoin that you don't have hedging instruments, but that you talked about cyclicality. So, is one of your treasury strategies maintaining liquidity to jump in when you see opportunities, or how do you think about opportunistically acquiring Bitcoin?
Brian Brookshire: So on the way up, it's much easier because you can just sell equity, you can issue a convertible bond, all financial instruments work better on the way up. On the way down, I think it is more about how you are doing relative to your competitors. In a bear market, you can imagine a situation where some companies are trading significantly below their net asset value. That's an opportunity where accretion might come from different means, as mergers and acquisitions.
And a scenario like that, we just saw one of the first all-stock deals done between two Bitcoin treasury companies here in the United States, a company called Strive acquired a company called Semler Scientific. And that was really the first example of one of these acquisitions being done. I expect to see a lot more of them, and our CEO is a former M&A lawyer, so we're well-positioned to take advantage of such opportunities should they present themselves.
M. Marin: So, M&A could be a good and accretive way to increase your Bitcoin position. But, given the way there's often a very large gap between buyers and sellers, can you give us a little bit more color on that acquisition and where you see the market at this point?
Brian Brookshire: Yeah, for the acquisition to be accretive, really all that is necessary is that the Bitcoin per share of your company is greater than the Bitcoin per share of the other company. Even if you're trading at a discount. Say your company is trading at 0.7 times net asset value, the other company is trading at 0.5, your company is coming out ahead of that transaction. Ideally, your company is trading at one or better, but it's really all about the value on a relative basis.
M. Marin: You mentioned it during your prepared remarks. Is it something you're taking a look at now about potentially growing the Bitcoin position through M&A, as well as through acquiring the Bitcoin itself?
Brian Brookshire: Yes, both strategies are on the table. Any particular M&A deal is difficult to comment on, but it's definitely something we are interested in as opportunities present themselves.
M. Marin: So, what we should be looking at is the multiple of NAV and not so much the balance sheet of some of these Bitcoin treasury companies, or it goes hand in hand?
Brian Brookshire: It's really both because you know market access for products like fruit stocks or convertible bonds or whatever it is you're going to be issuing to a certain extent is driven by the size of your capital base. One of the advantages of operating in Sweden is that I don't think we need to have as large of a capital base to issue some of these instruments. You know if we were going to be doing preferred stocks in the United States, we'd have to compete with the strategy. They've already got, you know, something like $80-90 billion of Bitcoin in the balance sheet. If we're going out to markets again, we've got a thousand Bitcoin. And we're trying to get creditors to underwrite us. It's a very different picture, but within the Swedish market, I think we can still be competitive with this much smaller capital base.
But the Bitcoin per share is more relevant for other instruments that are directly tied towards equity raising, because with something like a preferred stock, it's not directly trading the share price, but if you're doing an equity raise, then obviously the Bitcoin per share is going to be important. If your stock is trading at, you know, 0.9 times, it's an asset value, then doing an equity raise makes no sense because you're actually destroying value. But if there are potentially other things you could do, if you could do a convertible bond with a 30% premium, that's going to push you back over one. Pretty much anything over one gives you an operation that you could do accretively, and generally, the higher the better.
M. Marin: And you mentioned, you know, that you have the capability to do this with the size of your company being what it is because you operate in Sweden, not in a larger market. But Bitcoin is a global asset. It's a cross-border asset, a digital asset. Do you see any kind of potential for cross-border M&A opportunities?
Brian Brookshire: Potentially, if we got to the point where we were wanting to explore, let's say we wanted to move up and do like a NASDAQ listing in the United potential route to that might be doing a merger with a US company. That's still a ways off in the future. We're very happy on OTC right now. But if we were to pursue the path, M&A is a quicker path to getting listed than starting from scratch.
M. Marin: Okay, I have one last question, and then I'm going to open it to the audience. And by the way, I'm guessing there's a lot of interest in Bitcoin because this is the last presentation, and you still have a good amount of people here who want to get to the bar soon. So, in terms of, not asking you to name names, but Bitcoin being a buzzword, crypto being a buzzword, we all know that Trump has talked a lot about crypto. Do you see a lot of recent market entrants that don't seem to have a coherent, cohesive strategy? Again, not asking you to name names.
Brian Brookshire: Yeah, so it's a common question, people always say, "What should I look for in a Bitcoin treasury company?". And especially with somebody that came to market recently, the two things I always tell people are to look for companies that are owned by Bitcoiners. One of the things I always say: it takes four years to meet the Bitcoiner. You kind of have to have lived through the volatility. You have to have the confidence that the management is going to stick with the company in volatility. Because the last thing you want is to be invested in a company that says they're running a Bitcoin strategy and then at the first sign of the downside of the volatility, the company says, "Oh, you know what, maybe we're not so into Bitcoin after all." That's not a good situation for anybody. So, companies run by Bitcoiners, management teams that you're sure are actually going to stick with the strategy and be committed to it, because it's not just a short-term play, you know, we think it's a 10-to-20-year play.
Really, what does the transition to what would look like more of a traditional financial institution look like? Right now, the opportunity is arbitraging credit markets. But Bitcoin CAGR is not going to be so much higher than interest rates that this type of business model lasts forever. People always say arbitrage is closed. OK, yes, it's closed. But what's the time frame? You know, we think this is probably a 10-to-20-year arbitrage, and when that closes, there's going to be new use cases that come online. Right now, you really can't do consumer lending with Bitcoin because if you're actually going to do a loan denominated in Bitcoin, whoever borrows that has to be able to have a use case for it that returns not only the performance of Bitcoin, but say 5% on top of that. The meme that I was fond of says, E equals MC squared, plus 5%. So you have to have that kind of performance for that to make sense. But if you get to a point where, say, Bitcoin appreciation is only 5% per year, probably over time, it turns in line with the growth rate of the economy, and that's when you start seeing other use cases, like say, consumer lending, a lot of interbank lending right now happens through repurchase agreements with treasuries.
In fact, we know these companies like us could be, Bitcoin could be, the collateral in future repurchase funding agreements, and companies that have the most Bitcoin are going to be in the best situation to do that. And as Bitcoin becomes more integrated into the financial system, there are going to be probably even more use cases that we haven't even thought of yet, that haven't been invented yet. So we're very much looking forward to positioning ourselves not just for the arbitrage now, but for all these opportunities that are going to come later that we can deploy our Bitcoin for.
M. Marin: Thank you. And I see Bitcoin Treasury Capital nodding at a lot of this. Joe, next year, what we have to do is have to have a panel. We will definitely have to have a panel. I'm not so sure of it. OK. Fair enough. Thank you, Brian.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks Investment Awareness (ZIA) is a Zacks SCR product. The Zacks SCR analyst conducting this Chat hereby certifies that the views expressed accurately reflect the personal views of the analyst about the subject securities and issuer. Zacks SCR certifies that no part of any analyst’s compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this Chat. Zacks SCR believes the information used for the creation of this Chat has been obtained from sources considered to be reliable, but we can neither guarantee nor represent the completeness or accuracy of the information herewith. Such information and the opinions expressed are subject to change without notice.
This text is not a verbatim transcript. This transcript has been edited and does not reflect the video-recording exactly. You may find the video recording in its entirety here. Full Disclaimer HERE.