Cool and Fun for Capital Markets Nerds: Tayvis, MSTR, IPO

Speaker 1 When you give to a non-profit, how do you measure success? You'll hear a lot about things like low overhead costs and efficient fundraising. But what about the actual impact on people's lives?

Speaker 1 GiveWell, this episode's sponsor, focuses on that impact.

Speaker 1 They've spent more than 70,000 hours on research to help donors fund highly cost-effective programs that save or improve lives the most per dollar.

Speaker 1 GiveWell has spent 18 years researching global health and poverty alleviation and only directs funding to the highest impact opportunities they have found.

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Speaker 1 Rigorous evidence suggests that these donations will save over 300,000 lives and improve the lives of millions more.

Speaker 1 If this is your first gift through GiveWell, you can have your donation matched up to $100 before the end of the year or as long as matching funds last.

Speaker 1 To claim your match, go to GiveWell.org, pick podcast, and enter this program at checkout. Make sure they know that you heard about GiveWell from this program to get your donation matched.

Speaker 3 Support for the show comes from Public.

Speaker 8 On Public, you can build a multi-asset portfolio of stocks, bonds, options, crypto, and now generated assets, which allow you to turn any idea into an investable index with AI.

Speaker 9 It all starts with your prompt.

Speaker 5 From renewable energy companies with high-free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work.

Speaker 8 It screens thousands of stocks, builds a one-of-a-kind index, and lets you backtest it against the SP 500.

Speaker 10 Then you can invest in a few clicks.

Speaker 8 Generated assets are completely customizable and based on your thesis, not someone else's.

Speaker 3 Go to public.com/slash market and earn an uncapped 1% bonus when you transfer your portfolio.

Speaker 17 That's public.com/slash market.

Speaker 18 Paid for by public investing. Brokerage services by Open to the Public Investing Inc., member FINRA and SIPC.
Advisory services by Public Advisors LLC. SEC Registered Advisor.

Speaker 18 Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice.

Speaker 18 Complete disclosures available at public.com slash disclosures.

Speaker 19 These days, it seems like AI agents are just about everywhere you turn, every field and every function.

Speaker 24 But without identity, you can't trust they'll serve your business instead of jeopardizing it.

Speaker 27 Fortunately, Okta helps you get identity right by securing your AI agents' identities, giving you a single layer of control, a single standard of trust.

Speaker 30 So whether an AI agent supports supports a single user or your entire enterprise with Okta, you'll turn risk into opportunity.

Speaker 31 Secure every agent.

Speaker 32 Secure any agent.

Speaker 33 Okta secures AI.

Speaker 34 Bloomberg Audio Studios.

Speaker 4 Podcasts, radio, news.

Speaker 4 So here we are.

Speaker 35 I guess we're on the clock. It's been approximately six months since we've recorded a podcast together.
Right. It's good to see you.
It's nice to see you. You look rusty.

Speaker 35 You got a haircut. You're clean shaven.
You have a tan.

Speaker 4 Yeah. Yeah.
No.

Speaker 4 It was nice.

Speaker 4 I missed the podcast, of course, but it was nice being on vacation. You're so full of it.
Yeah. Yeah.
We're both like

Speaker 4 being incredibly insincere.

Speaker 4 Yeah, here we are. Yeah.

Speaker 35 I will say it was nice to, you know, roll into Thursday the last two weeks and been like, oh my God. And then have been like, oh, wait, no, everything's fine.

Speaker 35 I don't have to record anything right now.

Speaker 4 I share that feeling. And also,

Speaker 4 this Thursday was not like like that. Yeah.

Speaker 35 We should set up a Patreon.

Speaker 4 Hello, and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money.

Speaker 4 I'm Matt Levine, and I write the Money Stuff column for Bloomberg Opinion.

Speaker 35 And I'm Katie Greyfeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

Speaker 4 Yeah, Taylor Show's gotten engaged.

Speaker 35 Yeah, biggest financial market news of the week.

Speaker 35 Pretty surprising, but not to at least one person named named Romantic Paul.

Speaker 4 You know, several people sent me this thing. So, right, so like a guy made a well-timed trade.

Speaker 35 You assume it's a man.

Speaker 4 Yeah, a user with the account name Romantic Paul made a well-timed trade on Polymarket on Taylor Shust Getting Engaged.

Speaker 4 Basically, like that contract was trading at like 25%, and then it spiked up to like 40-ish% like the day before she got engaged. Yeah.

Speaker 4 And several people sent that to me and it like, you know, like people were interested in that stuff. But like

Speaker 4 that was a contract with a couple of hundred thousand dollars of Bets Outstanding. Yeah.
And Romantic Paul seems to have made on the order of $3,000 on this all-time trade.

Speaker 4 So was it the biggest financial market news of the?

Speaker 35 Oh, no. I'm just talking about the magnitude of Taylor Swift getting engaged.

Speaker 4 Right, right, right, right.

Speaker 35 Sending ripples across all financials.

Speaker 4 Okay, you're saying like treasury is sold off. Yeah.

Speaker 4 Yeah.

Speaker 35 You didn't need a haven asset in that scenario.

Speaker 4 America's back, hey. I saw your tweet.
Like, you're bearish, and Taylor Swift got engaged, and you're bearish.

Speaker 35 You're bearish. Taylor Swift got engaged, and you're bearish.

Speaker 4 It's just a risk-on moment. Yeah, absolutely.
Okay, I'm sorry. I take it back.
I was just talking about the narrow. No, that's not a problem.

Speaker 4 So many things that's like tradition markets, like you can specifically bet on or hedge a specific thing, but then like those things often have broader financial market implications.

Speaker 4 And so like you can structure your Taylor Swift trade by like, I don't know, buying the SP.

Speaker 35 I have to say, I am surprised that it was only about 25% odds. I wish I had known that it was trading that cheap.

Speaker 4 Yeah, it was like it was, she gets engaged by the end of this year. Yeah.
Yeah. Agree, that seems cheap.

Speaker 35 It does seem, I mean, especially right now when she's engaged.

Speaker 4 After the shop

Speaker 4 for sure. I knew that all along.

Speaker 35 You raised the point that she got engaged two weeks ago. So theoretically, someone probably knew.

Speaker 35 So maybe there was an element of insider trading here.

Speaker 4 Yeah, although again, like, you know, the amount of money that you could make insider trading on the Taylor Swift engagement news is in the

Speaker 4 single-digit thousands of dollars.

Speaker 35 Single-digit thousands? Yeah. What if you can you lever these bets?

Speaker 4 The problem is finding people to bet against you, right? It's a prediction market. And

Speaker 4 to bet on yes, you have to find people who are willing to bet on no.

Speaker 4 And, you know, the number of people who want to put millions of dollars into betting that Taylor Swift won't get engaged against a highly motivated buyer.

Speaker 4 That's true.

Speaker 35 I guess if you knew for sure,

Speaker 35 you'd probably just sell it to a tabloid.

Speaker 4 Right, right, right. Or like you could make a lot of money.
Or just like be friends with Taylor Swift. Just seems like a lucrative.
Yeah.

Speaker 35 There's a few things that point

Speaker 35 to this being not insider trading or a person who didn't know for sure. Yes.
We were just joking. In hindsight, of course, it seems obvious, but also

Speaker 35 they got engaged theoretically right after they

Speaker 35 recorded a podcast actually with the Kelsey brothers. Funny how that happens.
Maybe I'll go repropose to my husband after this. But anyway, Taylor Swift, sorry, this is for the Swifties out there.

Speaker 35 She hasn't like done an interview like that with a previous romantic partner of that scale. I mean, this was an hour.

Speaker 4 She's never dated a podcaster before. Maybe I'm wrong.
I'm probably right.

Speaker 35 I know, but she's dated other famous people where theoretically they could have done a joint appearance like that.

Speaker 4 Yeah. But they didn't have a podcast.

Speaker 35 I know, but they could have found a podcast to go on is what I'm saying.

Speaker 35 Like, she hasn't sat in an interview or done anything like that with previous partners so you could watch the the new heights episode which millions of people did be like oh wow these two people clearly like each other and the bet was the thing

Speaker 35 like you're like no i got to know they're getting engaged because they podcasted together well no it was also a video podcast which video podcast by the way we should probably do more of anyway you could really read their body language uh but probably maybe if you want to give romantic paul the benefit benefit of the doubt, he saw that podcast was like, oh, shoot, these are two people who genuinely like each other.

Speaker 35 And the bet was that they'd get engaged sometime this year. It's only August.
Yeah. Yeah.

Speaker 35 And they're 35 years old. Yeah.

Speaker 4 You make good points. Thank you.
I don't mean to suggest that Romantic Paul was insider trading to make $3,000 on Taylor's. $3,500?

Speaker 4 Prediction markets are so weird and interesting and so like growing in importance in strange ways. And I think, you know, the

Speaker 4 contours of insider trading around prediction markets are very strange. Yeah.
I think of it mostly in connection with sports betting, right?

Speaker 4 Because, and this is not a sports bet, it's sports adjacent. Travis Kelsey is a sports figure.
But I have written a lot about, and we've talked about how prediction markets are

Speaker 4 an interestingly important way to make sports bets because

Speaker 4 it seems like right now, CFTC regulated commodities futures markets like Kelchie are a way to make sports bets that are not subject to state regulation.

Speaker 4 So you can like, you know, ignore state gambling laws and get better tax treatment than actual gambling. Because right now, gambling losses are not fully deductible in your taxes, but

Speaker 4 commodity trading losses are probably fully deductible. So

Speaker 4 the prediction markets, particularly Calci, are having a real moment for becoming the sports gambling platform. And

Speaker 4 this week I wrote about Robinhood is suing Nevada regulators so that they can be allowed to offer sports gambling.

Speaker 4 Robin Hood wouldn't say this, but I would say so they can be allowed to offer sports gambling on their stock trading app, which is like, you know, kind of amazing, but like just like sort of where things are heading.

Speaker 4 And

Speaker 4 prediction markets are beloved by like economists and like libertarian weirdos because like in theory, if you had a prediction market on everything, then you could like predict everything and like the world would be better informed because markets would push prices to their correct place.

Speaker 4 And there's a lot of skepticism about that because like, in fact, people don't want to bet on all sorts of nonsense.

Speaker 4 And like the big problem with prediction markets has always been like outside of like the U.S.

Speaker 4 presidential election, it is hard to find a lot of people who are really into betting on prediction markets because it doesn't sort of serve any savings purpose.

Speaker 4 And it's not a natural home for gamblers. And so

Speaker 4 the volumes on prediction markets are kind of small and you can have your doubts about how predictive the prices are, you know, again, outside of like the U.S. presidential election.

Speaker 4 And when prediction markets get into the sports gambling game, that changes that dynamic entirely, right?

Speaker 4 It means that like if you look at Calci and you think this is the future of sports betting because it has a better regulatory and tax treatment than the sports books that are doing billions of dollars of bets, then you're thinking Calci is going to offer people gambles that they want want and that they come back to every day, right?

Speaker 4 Because sports are constantly happening. And so

Speaker 4 then

Speaker 4 all of the ancillary stuff, all of the stuff like betting on Taylor Swift's baby is like just more appealing because more people have Kelchia accounts and more people are, you know, betting there anyway.

Speaker 4 So they'll bet on when,

Speaker 4 you know, when the, when the wedding will happen. Yeah.
You know,

Speaker 35 the network effects will kick in.

Speaker 4 Yeah.

Speaker 4 And so, you know, people will be betting on everything. And then, you know, you'll have a CFTC regulated

Speaker 4 licensed U.S. commodities exchange for sports betting.
And then what happens when people start, you know, making insider bets on sports or on Taylor Suffice engagement.

Speaker 35 I should know this, but have DraftKings and FanDuel, like, have they tried to offer stock betting on their platforms?

Speaker 4 Yeah, a little bit. That's funny.
Flutter, which is like the parent company. A Fanduel, right? A Fanduel, yeah.

Speaker 4 They're working on some sort of partnership with CME to offer essentially sports book bets on

Speaker 4 financial outcome. Will the SP be up or down today?

Speaker 4 Because, yeah, for one thing, if you're a gambling platform, offering people more bets is just more appealing, right? You just give them more touch points.

Speaker 4 And then for another thing, if you're a gambling platform and you look at what Calcio is doing, you have to think, maybe we should be in the futures trading business rather than the sportsbook business because it's the same business,

Speaker 4 and it gets better tax and regulatory treatment. Man,

Speaker 35 that's pretty wild.

Speaker 4 Yeah, there's just

Speaker 4 a lot of convergence between gambling and

Speaker 4 financial markets.

Speaker 35 Parallels here to private markets becoming the public markets.

Speaker 4 Yeah, the betting markets are becoming

Speaker 4 the financial markets.

Speaker 35 All of the Venn diagrams are just turning into circles.

Speaker 4 All just pets.

Speaker 35 Before we leave this topic, talking about whether or not this is insider trading, or if it could be insider trading, you wrote that if Romantic Paul is Travis Kelsey, that's fine.

Speaker 35 Is that fine?

Speaker 4 This is not legal advice.

Speaker 4 Go on.

Speaker 4 This is going to depend a little bit on the specific terms of service of the platform, right? I mean, Polymarket has kind of vague terms of service.

Speaker 4 But if you think about, and this is not a CFTC regulated exchange, but if you think about the future that we'll live in where all betting takes place on commodities, future issues.

Speaker 4 Then the way commodities insider trading rules work is if you misappropriate information from someone else

Speaker 4 then that's illegal that's illegal insider trading but if you own the information it's harder to say that you're insider trading so if you're an oil company and you drill a lot of oil and like you know your well is a bust and you think oh that's going to push up oil prices you're allowed to buy oil features because the point of oil futures is to allow actual oil producers and consumers to sort of hedge their actual production and demand.

Speaker 4 And so of course you're trading on inside information about your own behavior. Right.

Speaker 4 If you're like a trader at an oil company and you're front-running your company by buying futures for your own account, that's illegal insider trading. And there are cases, right?

Speaker 4 There are cases of people who are front-running, who are misappropriating information, get in trouble for commodities insider trading.

Speaker 4 But just the owners of the commodity, like the commodity producers, they're allowed to trade on their own information.

Speaker 4 So I don't know where that leaves you when your commodity is like, will Taylor Swift and Travis Kelsey get in trouble?

Speaker 35 Will I engage or will I propose to Taylor Swift?

Speaker 4 Right. But I think it kind of leaves you like, yeah, go ahead and trade on that.
Again, there's like no money here, right? There also is a risk.

Speaker 35 I was going to say, because he didn't know that she was going to say yes.

Speaker 4 Of course there's a risk, right?

Speaker 4 Insider trading, whatever. Yeah.
Insider trading is rarely 100% risk for you.

Speaker 35 Also, she had already said yes by the time

Speaker 35 these were made. But I was thinking more of the example of he's the CEO of a company and he knew that earnings were going to be good.

Speaker 4 But they hadn't. That's not the CEO's information.
That's the company's information. Oh.
And by the way, companies can't really insider trade their stock.

Speaker 4 Like in stocks, the rules are kind of different. Like in stocks, companies have a fiduciary data to shareholders and they can't really inside or trade their stocks.

Speaker 4 But in commodities, that's a little bit.

Speaker 35 We're talking about commodities, not stocks, not equities.

Speaker 4 Congratulations. Commodities, like Taylor Swift's engagement.

Speaker 35 Congratulations, Taylor Swift, from your friends at the Money Stuff podcast. Come on the pod.

Speaker 4 Yeah, come on.

Speaker 35 It worked out really well, your last podcast appearance.

Speaker 1 When you give to a nonprofit, how do you measure success? You'll hear a lot about things like low overhead costs and efficient fundraising. But what about the actual impact on people's lives?

Speaker 1 GiveWell, this episode's sponsor, focuses on that impact.

Speaker 1 They've spent more than 70,000 hours on research to help donors fund highly cost-effective programs that save or improve lives the most per dollar.

Speaker 1 GiveWell has spent 18 years researching global health and poverty alleviation and only directs funding to the highest impact opportunities they have found.

Speaker 1 Over 150,000 donors have already trusted GiveWell to direct more than $2.5 billion.

Speaker 1 Rigorous evidence suggests that these donations will save over 300,000 lives and improve the lives of millions more.

Speaker 1 If this is your first gift through GiveWell, you can have your donation matched up to $100 before the end of the year or as long as matching funds last.

Speaker 1 To claim your match, go to GiveWell.org, pick podcast, and enter this program at checkout. Make sure they know that you heard about GiveWell from this program to get your donation matched.

Speaker 3 Support for the show comes from Public.

Speaker 8 On Public, you can build a multi-asset portfolio of stocks, bonds, options, crypto, and now generated assets, which allow you to turn any idea into an investable index with AI.

Speaker 5 It all starts with your prompt.

Speaker 5 From renewable energy companies with high-free cash flow, to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work.

Speaker 8 It screens thousands of stocks, builds a one-of-a-kind index, and lets you backtest it against the S ⁇ P 500.

Speaker 10 Then you can invest in a few clicks.

Speaker 8 Generated assets are completely customizable and based on your thesis, not someone else's.

Speaker 3 Go to public.com slash market and earn an uncapped 1% bonus when you transfer your portfolio.

Speaker 17 That's public.com slash market.

Speaker 18 Paid for by Public Investing. Brokerage Services by Open to the Public Investing Inc., Member FINRA and SIPC.
Advisory Services by Public Advisors LLC. SEC Registered Advisor.

Speaker 18 Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice.

Speaker 18 Complete disclosures available at public.com slash disclosures.

Speaker 19 These days, it seems like AI agents are just about everywhere you turn, every field and every function.

Speaker 24 But without identity, you can't trust they'll serve your business instead of jeopardizing it.

Speaker 27 Fortunately, Okta helps you get identity right by securing your AI agents' identities, giving you a single layer of control, a single standard of trust.

Speaker 30 So whether an AI agent supports a single user or your entire enterprise, with Okta, you'll turn risk into opportunity.

Speaker 31 Secure every agent.

Speaker 32 Secure any agent.

Speaker 33 Okta secures AI.

Speaker 35 Do you want to talk about Michael Saylor? Yeah, this is a guy that we talk about sometimes and his company strategy, not microstrategy.

Speaker 4 Strategy. Yeah, its premium is collapsing before our eyes i know i feel a little bad about that somehow i don't know what cause that no but like

Speaker 4 i've like made fun of this premium for years and years and now it's collapsing before our eyes and i'm like you know i don't wish ill on anyone i want them to keep running this ridiculous strategy for as long as they can strategy strategy strategy i mean it's been kind of depressed for a while yeah the premium the mnav the m nav yeah well they love they love like, you have to, like, sort of put a lot of science around things like this because like strategy businesses, like, they buy a lot of Bitcoin, their stock trades at like twice their net asset value.

Speaker 4 They sell more stock to buy more Bitcoin. Then the net asset value goes up.
The stock goes up by two times as much. And it's like perpetual flywheel.

Speaker 4 But now instead of two times, it's like 1.5-ish times.

Speaker 35 1.4 last I checked.

Speaker 4 Yeah. So it's like this trade is.
a magical money printing machine when you can sell stock at a big premium to your net asset value.

Speaker 4 And it's it's like a terrible disaster if you can sell stock at a discount to your net asset value. And as you come down, it's like less and less fun.
Yeah.

Speaker 4 So they actually, I think they put out guidance that they would not sell stock at less than 2.5 times net asset value. And then when the premium went below two times, they were like, well, never mind.

Speaker 4 We'll just keep selling stock at whatever we can get.

Speaker 35 Yeah. So I have to say, I don't really understand why they did that because

Speaker 4 it's at 1.1 times it's a good trade. I know, but no, no.
If you can sell, you know, at a premium, you should sell at a premium.

Speaker 35 I know, but okay, they pledged to.

Speaker 4 They said they wouldn't, but like, you know, that was when things like.

Speaker 35 But they were already below two and a half when they said that.

Speaker 4 Okay, but like the other reason okay, so sorry.

Speaker 35 And there is a two-week span there. Yeah, so like they said they wouldn't do this two weeks later they did, and they were already below two and a half times.

Speaker 4 Yeah, okay, so there's two questions, right? One is why would you sell stock at below 2.5 times net asset value?

Speaker 4 And the answer is because if you can sell stock at any premium to net asset value, it's a good trade, right? It's accretive to your shareholders to sell stock for more than it's worth.

Speaker 4 And then the other question is, why did they say they wouldn't sell stock?

Speaker 35 That's what I don't understand.

Speaker 4 Okay, so there's two answers to that. One is

Speaker 4 the whole game here is like investor confidence, right?

Speaker 4 So if you can say, oh, it's always going to be at a premium, then investors will like your stock and the stock will go up and it'll be at a bigger premium, right?

Speaker 4 So one thing is you just have to like tell people what they want to hear because you're in the business of selling the stock at a premium. For For sure.

Speaker 4 But then the other reason is that they're not exclusively in the business of selling stock.

Speaker 4 They have gotten really into doing weird capital markets trades that I love as a former weird capital markets banker.

Speaker 4 And so they've found all sorts of like straight preferred stock deals to do, which is like tech companies don't do big straight preferred stock deals. That's not a thing.

Speaker 4 Like straight preferred stock is not a real instrument outside of like financials and a few other weird places.

Speaker 4 And they're like, we're going to sell billions of dollars of preferred stock because essentially it's like borrowing money perpetually at call it 9%,

Speaker 4 10% interest to buy Bitcoin. And if you think Bitcoin will always go up by 50% a year, then borrowing at 10% to buy Bitcoin that yields 50% is a great deal.

Speaker 4 And so they've been doing a lot of preferred stock deals. And I think when they said, we're not going to sell stock below 2.5x,

Speaker 4 they thought, we'll just do fixed income financing to keep buying more Bitcoins. And then the market for that softened.
Yeah. Just like it's such a weird market.

Speaker 4 Like people don't need billions of dollars of preferred stock of a tech company that buys Bitcoin. And so when that market collapsed, they're like, we still need to buy more Bitcoin.

Speaker 4 So they're selling stock again.

Speaker 35 Yeah. It's funny.

Speaker 4 Who would be the typical buyer of preferreds? I have never really known that. I mean, it's like, it's like income-oriented.

Speaker 4 You know, if you're a retiree and you can get 9% yield, that's great, you know? Yeah.

Speaker 35 Well, apparently there's not enough of those people because their recent sale.

Speaker 4 Billions of dollars with like, you know, like that credit profile. It's a weird, it's a weird trade.

Speaker 35 Their most recent sale raised just about like $47 million.

Speaker 4 And the stuff they're doing is, I mean, for me, I love it. Like, their most recent thing is they're

Speaker 35 not buying enough of the.

Speaker 4 I haven't bought any, but like, it's a floating rate preferred that the rate floats with just like their feelings. The rate floats with they want to keep it to trading at par.

Speaker 4 And so the rate will float at whatever makes it trade at par, which is like essentially floating with their own credit, which is a truly insane instrument that no one has ever done before.

Speaker 4 Like Michael Saylor is like, I'm going to do this. And so I shouldn't say no one's ever done it before.
It's kind of auction rate preferred. But

Speaker 4 it's very strange and

Speaker 4 very cool and fun for capital markets nerds. But they don't buy billions of dollars of preferred stock.

Speaker 35 Yeah, yeah.

Speaker 4 And also, by the way, when I say something is cool and fun, that means I would not buy it.

Speaker 4 Yes.

Speaker 35 Okay. That's a necessary disclosure.
There's also the question of why the premium is collapsing. I mean, taking a look at Bloomberg News coverage, it would

Speaker 35 one of the reasons pointed to

Speaker 35 is that there's just so many crypto treasure companies. Right, right.

Speaker 35 How much is that truly diluting demand for strategy?

Speaker 4 So one thing that's interesting is like, you know, people thought that the premium would collapse when spot Bitcoin ETFs became a big thing, and it didn't really. Yeah.

Speaker 4 And I think the reason for that is like, they really are two different trades, right? A spot Bitcoin ETF is like you can buy Bitcoin and you want exposure to Bitcoin, so you buy Bitcoin.

Speaker 4 Micro strategy trade is you can buy stock at a premium so that they can sell more stock at a premium so they can accumulate more Bitcoin.

Speaker 4 Like you're really just betting on this is a company that can sell stock at a premium to buy assets, right? I think that's the bet.

Speaker 4 And that bet

Speaker 4 is very circular and strange, but it was hard to find, right? And it's not replicated with a Bitcoin ETF, right?

Speaker 4 That's just the bet on Bitcoin. The strategy is a bet on selling stock at a premium.
It's a trade exposure. But now you can find that bet anywhere.

Speaker 4 There's like hundreds of companies that are like, oh, we've got a way to sell stock at a premium. And

Speaker 4 some of the people who are gambling on the generic concept of like ability to sell stock at a premium to buy crypto are, you know, doing it with other crypto companies that have higher premiums or lower premiums.

Speaker 4 Yeah. There are more flavors of that bet, and there are only so many people who want that bet.
That's true. So I think that's part of why the premium is not doing it as well.
But also, just like,

Speaker 4 I really think that this is the sort of thing where if you think about it for a minute, you'll be like,

Speaker 4 don't do that. And so you look at like, you know, Jim Chanos betting against this.
It's just like some of the people who look at this, who have

Speaker 4 my or Jim Chanos' cast of mind, are like, this is crazy. Yeah.
And, you know, enough of those people say that. Then maybe like people stop buying it at 2.5x.

Speaker 35 It is fun to think about, okay, let's say that the strategy premium does erode even further, what this means for this ocean of crypto treasury companies that now exist.

Speaker 35 Are you just going to be able to do that?

Speaker 4 they're all

Speaker 4 the numbers that people have announced for like their plans, it's the tens of billions of dollars of crypto treasury plans. Like that's not going to happen.

Speaker 4 We'll say.

Speaker 4 They're not going to raise that kind of money. I think some of it is like people have converted their stashes of crypto into crypto treasury companies because like it's trading at a higher value.

Speaker 4 And if that arose and it ends up at a zero premium, then they'll own a stash of crypto in somewhat inconvenient form and it's kind of fine.

Speaker 4 But the people who are like, we're going to go sell $20 billion of stock at the market to buy Dogecoin. Yeah, you are.
They're not.

Speaker 35 So what does that mean? We're just going to have a watery graveyard of companies that are free at a discount?

Speaker 4 Strategies is a different story. This is a real company with

Speaker 4 eccentric management. But

Speaker 4 a lot of crypto treasury companies are sort of more or less defunct biotech companies that have like a $1 million market cap and then got acquired so that someone could pump a billion dollars of crypto into them.

Speaker 4 Before they were biotech companies, they were gold miners, right? There's like a long history of watery graveyards of public company tickers being passed around. And let's go back to that, right?

Speaker 4 The fad this year was crypto treasury companies. The fad two years ago, yeah, it's like fine.
Yeah. Okay.

Speaker 4 I feel better. Yeah.
Crypto treasury companies are quite harmless.

Speaker 35 They're not like negatively impacting the economy.

Speaker 4 No.

Speaker 4 I mean, you know, in some broad sense, yes, but like,

Speaker 4 it's not like a crisis could occur in crypto treasury companies. Like if the strategy trade stops working, like the worst case is kind of it trades to like 80% of net asset value, right?

Speaker 4 That's still like, you know, many tens of billions of dollars company, right? Like they've really

Speaker 4 pumped a lot of, I don't know that I want to say real value, but you know, in quotes, real value into this small software company.

Speaker 35 Got a lot of Bitcoin.

Speaker 4 They've got a lot of Bitcoin.

Speaker 35 At the end of the day.

Speaker 35 At

Speaker 4 wherever we are in the day

Speaker 35 okay well on the long list of things to worry about i will put that at the bottom

Speaker 11 support for the show comes from public on public you can build a multi-asset portfolio of stocks bonds options crypto and now generated assets which allow you to turn any idea into an investable index with ai it all starts with your prompt from renewable energy companies with high-free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work.

Speaker 8 It screens thousands of stocks, builds a one-of-a-kind index, and lets you backtest it against the SP 500.

Speaker 10 Then you can invest in a few clicks.

Speaker 8 Generated assets are completely customizable and based on your thesis, not someone else's.

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Speaker 35 IPOs? IPOs. Matt, you wrote about a paper.
It came out of Joseph J. Henry of Northeastern University and Terence M.
O'Brien from the University of Maryland.

Speaker 35 And I realize that you're biased here because they quote you right off the bat.

Speaker 4 That's true. I probably should have disclosed that in my column.

Speaker 35 No, I think that's awesome. I am biased here.
It's like an Easter egg. You actually go to look at the paper that you're referencing.

Speaker 4 I think sometimes that, like,

Speaker 4 there are a lot of finance and law papers on SSRN that have, you know, 12 downloads.

Speaker 4 This one has more than that. Sometimes.

Speaker 4 Right, I don't even mean to talk about this one specifically. Sometimes I come across these papers in various ways, often because the writer summoned me.
And then I write about them in money stuff.

Speaker 4 And then they have more than 12 downloads. And I think, I don't know how

Speaker 4 directly useful money stuff mentions are for like academic tenure, but like there's some

Speaker 4 marginal backup. Yeah, oh, there should be.
I really want SSRN in a couple weeks. I really want to see that.
Like, am I getting academics tenure?

Speaker 4 But anyway, if you quote me at the beginning of your paper, it probably does increase your chances. Yeah, Yeah, definitely.
So sure hardly. So something to think about.

Speaker 4 Anyway, yeah, so they read this paper about IPO pops, which we talked about on the mailbag episode of our podcast that was aired most recently. We have to sing it.

Speaker 4 No. The mailbag episode.
We did.

Speaker 4 And this paper sort of formalizes an intuition that I've long thought about, which is that when you do an IPO, you're a company and

Speaker 4 you sell in the IPO something like 10 to 20% of your stock, The rest of your stock stays locked up.

Speaker 4 It's owned by the CEO, it's owned by the early investors, it's owned by the employees, and it's locked up in the IPO. So they can't sell for like six months after the IPO.

Speaker 4 Something like 10 or 20% of the shares come loose in the IPO.

Speaker 4 But most of the shares, most of the time, are being sold to like long-term investors who have had conversations with management and who management wants to be the shareholders.

Speaker 4 And so there's this sort of deal where the management and the bankers and the long-term investors, they're trying to send the stock to people who will hold it for the long term.

Speaker 4 And what that means is that when the stock opens for trading the day after the IPO,

Speaker 4 there's not a lot of stock to buy because the company has sold 10-ish percent of its stock and then 90-ish% of that stock goes to people who don't sell it on the first day.

Speaker 4 So the amount of stock that's available to buy on the first day is on the order of 1% of the shares outstanding. And meanwhile, there's all these retail investors who want to buy stock.
And so

Speaker 4 when there's a hot IPO that a lot of retail investors want to buy, there's just not a lot of supply for them.

Speaker 4 And so the stock trades to a price that equilibrates supply and demand for like that 1% of the shares that the retail investors want to buy.

Speaker 4 But that doesn't tell you what the company is worth necessarily. Yeah.
And it also doesn't tell you

Speaker 4 what the right IPO price was. Because the IPO price was the clearing price for 10, 15, 20% of the stock.
But then, you know, 1% or 2% of the stock trades on the exchange.

Speaker 4 So the clearing price on the exchange is going to be a lot higher than the clearing price for the IPO if there's a lot of demand on the exchange. Yeah.

Speaker 4 But if like all 10% of the stock came loose on the day after the IPO, it would probably trade at less of a pop.

Speaker 4 And so they write about like, there's this question of how much money are companies leaving on the table that we talked about, where like people get really mad that when a stock doubles on its first day after the IPO, they say, oh, the bankers should have set the price higher so that it wouldn't trade up that high and the company left all this money on the table.

Speaker 4 But that's not necessarily true because most of the stock doesn't trade on the first day. They couldn't necessarily have sold 10 or 20% of their stock at the price that it rose to on the first day.

Speaker 35 Yeah.

Speaker 35 This paper, I mean, it's a really good time for this paper because I feel like this topic has taken on new life because we're getting IPOs again. And we're seeing.

Speaker 4 I was going to say, like, this is an evergreen topic. I've been thinking about this for like 15 years, but you're right.
Like, for a while, it went pretty dormant because there are no IPOs.

Speaker 35 Yeah, absolutely. And And then 2025, I feel like you've seen really dramatic pops.
Even in the last couple of months, you think about Figma, Core Weave, Circle.

Speaker 35 We were talking like triple-digit, multiple hundred percent pops.

Speaker 4 Right. And you think about like you're an institutional stock investor.
Like you do some valuation work. You meet with this company.

Speaker 4 You think, this is what I'd pay for this company because it's comparable to like other companies in my portfolio. Maybe you own other private companies, right? Because a lot of institutions do.

Speaker 4 And then like the stock opens for trading and retail investors haven't had fun new IPOs to buy for years. And so there's a ton of demand for very limited supply.

Speaker 4 And so the stocks go up a lot, but that's not necessarily reflective of where institutions would price them. Yeah.

Speaker 35 I will say, though, we're not talking about like one-day pops. I mean, in the case of those three companies, Figma, Core, Weave, and Circle, these are like multi-week, mostly sustained projects.

Speaker 4 Yeah. I want to be clear, like, this explanation is like an interesting and important technical explanation for some of what happens in IPO pops.
It's not the only explanation.

Speaker 4 There is a desire to underprice IPOs so that people who invest in the IPO make a profit because that's good for them and for the banks and also arguably for the company because it creates investor

Speaker 4 goodwill. But this explanation is not the only reason that IPOs pop.
Yeah.

Speaker 35 It is interesting to look that they find that the average IPO share price pop is like 19% higher than than the actual offer price on the first day of trading.

Speaker 35 19%, I mean, relative to some of the IPOs I just mentioned, seems tame at this point. I don't think that would turn heads in quite the same way that

Speaker 4 whatever happened to Figures. It's a long sample, right? And like

Speaker 4 30 years. Yeah.
And like,

Speaker 4 I do think that the scarcity of supply means there's more kind of dispersion now. Yeah.

Speaker 4 You know, when there's two IPOs a week, they're not all going to pop 100%.

Speaker 35 That's true.

Speaker 4 It feels like we're a ways away from that.

Speaker 35 Like, I know that the IPO market is normalizing.

Speaker 4 I said two IPOs a week. That's a low number.
I feel like there used to be a lot more than two IPOs a week.

Speaker 35 Two IPOs that people are excited about a week, though.

Speaker 4 We're now

Speaker 4 pretty low.

Speaker 35 Yeah. It's been grim for a while.

Speaker 4 And now it's great.

Speaker 4 I think that this dynamic here where like very little of the shares are available and retail wants them and so the stock pops is exactly the same dynamic that you see in the private company stuff that we talk about all the time.

Speaker 4 Like

Speaker 4 retail and retail-ish and like, you know, accredited retail investors really want to own shares of

Speaker 4 dentists. They really want to own shares of OpenAI and SpaceX.

Speaker 4 It is hard for a retail investor to buy OpenAI and SpaceX, but it's not impossible.

Speaker 4 There's like little bits of OpenAI and SpaceX and like little, you know, there's like secondary funds, there's like little, you know, closed-in funds that own a little bit of it.

Speaker 4 And because there is a limited but not zero supply available to retail, retail really bids them up. And so the prices of

Speaker 4 OpenAI shares or proxies or SpaceX shares or proxies on the retail market, the price is much higher than what you see those companies raising money at.

Speaker 4 And it's the same story, right? Like institutions will buy tens of billions of dollars of OpenAI stock at some price.

Speaker 4 And then retail investors will buy tens of millions of dollars of that stock at some much higher price. That doesn't mean that OpenAI's valuation is in the trillions of dollars.

Speaker 4 It means that the the supply available to retail is really low. And it's the same thing with IPOs, right?

Speaker 4 Like the supply the first day available to retail is much lower than what institutions have access to, and so the price is higher.

Speaker 35 I feel like I'm too tired to neatly make this point, but it does seem somewhat parallel to what we're talking about with MicroStrategy and the premium. And it's just coming down to supply and demand.

Speaker 4 Yeah.

Speaker 4 I mean,

Speaker 4 I guess it's true in the sense that

Speaker 4 MicroStrategy, unlike

Speaker 4 OpenAI or these IPO or Figma, MicroStrategy is pretty much willing to supply

Speaker 4 whatever is demanded.

Speaker 4 And that is bad for the premium.

Speaker 35 Exactly. And also to tie it to the first thing that we talked about, those retail investors don't need to try to own OpenAI.

Speaker 35 They just need to make a prediction market around it somehow to reflect the movement of these.

Speaker 4 Oh, I write about that all the time. Yeah.

Speaker 4 But there's legal complications there, too. Yeah.
Because that's not a commodity. That's a security-based swap.
Completely different problem.

Speaker 4 Let's leave it there on that very boring note. Yeah, well, that was awesome.

Speaker 35 I think that was really titillating.

Speaker 4 And that was the Money Stuff Podcast. I'm Matt Levian.

Speaker 35 And I'm Katie Greifeld.

Speaker 4 You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com.

Speaker 35 And you can find me on Bloomberg TV every day on Open Interest between 9 to 11 a.m. Eastern.

Speaker 4 We'd love to hear from you. You can send an email to moneypod at bloomberg.net.
Ask us a question and we might answer it on air.

Speaker 35 You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

Speaker 4 The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andan.

Speaker 35 Our theme music was composed by Blake Maples and Sage Bauman is Bloomberg's head of podcasts.

Speaker 4 Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.

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