News Block: Digital Credit's Worst Day Ever, Warsh's New Fed Era Begins, Bitcoin's Community Attack Problem

A

Welcome to the Coinstories news block. Powered exclusively by LEDN. I'm Natalie Brunel and in about 10 minutes or less I'll provide you with insightful updates on Bitcoin, financial markets and the global economy. Everything you need to know in one block. Let's go.

B

While AI stocks and mega IPOs like SpaceX have been dominating this market, Bitcoin has really been left behind. It's still down about 50% from its all time high. But now the pain has spread into the emerging digital credit market. Last Thursday was what Strive CEO Matt Cole called the most difficult day in the history of digital credit strategy. Stretch fell to a low of $82.53 before recovering to close at 88:59 heading into the long weekend. And Strive SEDA dropped from par into the low 90s before rebounding to 9771. Now for those unfamiliar, Stretch and SEDA are preferred stocks that are designed to trade around $100. They pay high dividends 11 stretch 13% for SATA. And when they trade at or above par, the companies can issue new shares and use the proceeds to buy Bitcoin. A lot of investors looked at the decline and saw a credit event, a sign that the market was losing confidence in the issuers. But Cole argues the opposite. His view is that this was a leverage liquidation event, not a deterioration in underlying credit quality. And it's really not hard to see how the leverage built up. These instruments were offering double digit yields with relatively low volatility, and that attracted investors who didn't just buy, they borrowed against them. Some were running carry trades, borrowing money at 5 or 6% and buying stretch yielding 11.5%, pocketing the spread. That works until it doesn't. When prices fall, margin calls arrive for selling cascades, and price action becomes completely disconnected from fundamentals. We've seen this movie play out before. Some of the largest hedge fund blow ups in history involved leveraged positions in U.S. treasuries before investors got overextended, trying to squeeze a little extra yield out of assets they viewed as safe. And Cole believes a similar dynamic sort of played out here. Now here's something worth understanding about the mechanics. Stretch's dividend is based on its $100 par value, not its market price. So? So when the Stock falls below $100, the yield you're getting paid actually goes up. An investor buying stretch at $85 receives the same dividend payment as someone who bought it at 100, which means they're earning roughly 13.5% instead of 11.5%. The lower the price, the higher the yield. That creates a natural incentive for income focused buyers to step in as the discount widens. But separately, investors are also working through broader questions about the company, including how Strategy's guidance has evolved over time, its willingness to sell bit, the M nav levels at which it would issue shares, and the decision to use cash reserves recently to pay down debt. Now, Saylor addressed many of these directly in my recent interview with him, so I'd encourage you to listen if you want to understand how he thinks about the math. On Friday, Saylor also addressed the broader pressure on X, sharing a video from a speech he gave in October 2022 when Bitcoin was near $20,000 and strategies debt briefly exceeded its reserves, his post read. We stayed focused, strengthened the company and executed our strategy. Since then, Strategy has raised over $60 billion of additional capital and invested it in bitcoin, adding more than 716,000 Bitcoin. Today, our BTC and USD reserves exceed debt by $48 billion. Thank you to everyone who believed, endured and took the long view. And the company is still buying. So whatever the noise around digital credit, the accumulation has not stopped. But you know, I have to say what concerns me isn't the debate around digital credit itself. It's really how the debate is playing out. I've watched people who know each other well, they've shared meals, they have each other's phone numbers just tear into each other publicly online. And these complex disagreements about financial instruments and business models, they're sort of being reduced to Gotcha moments and 280 character attacks. I'd love to see people from these opposing views come together a little bit more. Have a debate on X spaces. Or at least just do a phone call anywhere that allows for tone, context and real conversation. Bear markets are super stressful and there are people that are really hurting. But this community has been through worse and the people in it are so much better than what I've been seeing online lately. Debate is super healthy. Personal attacks not so much. And bitcoin doesn't need us to agree on everything, of course, but maybe we could disagree a little better.

A

LEADN just introduced their lowest rates ever.

B

The larger the loan, the lower the rate.

A

These new rates apply to all new loans, refinances and renewals with LEDN's gold standard protection. Your bitcoin stays custodied, never lent out. You can activate auto top ups and alerts so you're never caught off guard and you can repay anytime with Zero penalties. Don't choose between a great rate and

B

the safety of your Bitcoin.

A

Get both at LEADN and a quarter percentage point off your first loan@ledn.IO Natalie

B

all right, let's zoom out and focus on macro because there were two major developments this week. Kevin Warsh chaired his first Federal Reserve meeting on Wednesday, and he made it clear that a new era has begun. The Fed held rates steady, but what Warsh did beyond the rate decision was dramatic. He gutted the policy statement from 341 words down to 130. He refused to submit his own.in the.plot, and he announced five task forces to overhaul how the Fed communicates, measures inflation, and manages its balance sheet, even hinting that the 2% inflation target could eventually be revisited. In short, Warsh killed forward guidance. The Fed that used to narrate its every move has gone quiet on purpose. Meanwhile, the dot plot for the other officials came in hawkish. Nine of them now see at least one rate hike before year end, and inflation projections jumped to 3.6%. Killing forward guidance makes fiat monetary policy even more opaque. We have to trust a small group of individuals making decisions behind closed doors to dictate the price of money, and now they won't even tell us what they're planning. Contrast that with Bitcoin's transparent, programmatic monetary policy that's available for all of us to audit. James Lavish, whose newsletter I highly recommend, made a critical point this week. When the Fed stops telling you what it plans to do, you have to watch what it actually does. And the Fed is quietly growing its balance sheet again, buying roughly $26 billion in treasuries a month under a program it insists is not qe. The hawkish words say one thing, but the balance sheet says another. Now, one development could shift the whole picture. The US And Iran signed a deal this week to end the war and reopen the Strait of Hormuz. Oil initially dropped more than 4%, but the deal is already fraying. On Saturday, Iran redeclared. The Strait closed, citing Israeli strikes in Lebanon as violations. But the US disputes that, stating plainly, Iran does not control the Strait of Hormuz. Vance is actually in Switzerland right now for the next round of talks. But this deal is very fragile, and the energy shock driving inflation all year is far from over. Why does this all matter for Bitcoin? Well, the fiscal reality hasn't changed. The deficit is structural, the debt keeps growing, and the Fed is already quietly printing again. No matter what it says at the podium, the underlying problem is always the same. The money is broken. And although not everyone appreciates it yet, Bitcoin is the fix.

A

That's it for the news block. Your weekly Bitcoin and economic news update. Powered exclusively by ledn. I'm Natalie Brunel.

B

Make sure you're subscribed to Coin Story

A

so you never miss an episode. This show is for educational purposes and should not be construed as investment advice.

B

Until next time, keep stacking. Sam.