Original article from:David Lin
Compiled by | Odaily Planet Daily Azuma
Editor's Note: On last Monday's earnings call, Strategy first mentioned "preparing to sell Bitcoin when necessary to pay dividends," a statement that immediately sparked intense market discussion about its "betrayal of faith."
In response, Strategy's Executive Chairman Michael Saylor recently participated in David Lin's podcast to deeply analyze the underlying logic behind this decision, emphasizing that he only said "would sell," not that he would engage in "net selling." Saylor also mentioned that Strategy is leveraging Bitcoin's extremely high appreciation attribute as "digital capital" to achieve arbitrage by issuing digital credit instruments (like STRC), thereby ensuring continuous net growth in holdings. The following is the full transcript of the podcast (edited) compiled by Odaily Planet Daily.
Podcast Interview
David Lin (Host A): It is my great honor to co-host this exciting interview with Michael Saylor, Executive Chairman of Strategy, and my co-host is Bonnie Chang. We will begin with the recent announcement from Strategy and Michael Saylor's posts on social media. Bonnie, let's begin.
Bonnie Chang (Host B): Last week you announced something that shocked the entire web.
Michael Saylor: Uh, you're probably referring to our statement during the earnings call — we are prepared to sell Bitcoin when necessary to pay STRC dividends.
Bonnie Chang: I believe that was a carefully considered decision. What was the thinking behind it?
Michael Saylor: The most important point is that we wanted the market to understand that Bitcoin's capital gains can be used to fund credit dividends. When we sell $1 million worth of STRC credit instruments, we turn around and buy $1 million worth of Bitcoin. Our expectation for Bitcoin is about 30% annual appreciation; in reality, it's closer to 40% per year. We can peel off the initial 11% of those capital gains and pay them out as dividends.
The market has been confused about what we would use to pay dividends? For most of history, we have funded dividends by selling common stock (MSTR equity). MSTR equity is a derivative of Bitcoin, typically trading at a premium to Bitcoin. So we were selling a Bitcoin derivative, but some worried we might not be able to sell equity in the future.
Then there was short rhetoric saying we would have to sell equity; other rhetoric said the company would never sell its Bitcoin. That deteriorated into — "Well, if they're not going to sell Bitcoin, then Bitcoin must be worthless, they can never sell it. If they can't sell, then we can't count Bitcoin as a balance sheet asset."
It's not great if you own $65 billion worth of something and people want to value it at zero, right? We don't want credit rating agencies thinking the company's assets are zero. We want them to think we have $65 billion in assets. Also, there were online 'haters' constantly complaining it was a Ponzi scheme because we were funding preferred dividends by selling equity.
What we wanted to do was reinforce this business model — sell credit to invest in Bitcoin; over time, that investment appreciates faster than the dividend accrues; then we realize those capital gains and pay the dividend.
We think the best way to clarify this is to state explicitly that "the company never needs to sell common stock," we can simply sell the Bitcoin that has appreciated significantly to pay dividends, which is essentially using capital gains to pay credit dividends.
I think this is like a real estate development company; they raise funds by issuing credit instruments, buy land for $10,000 per acre, develop it to be worth $100,000 per acre, then monetize that capital appreciation. You can sell the land at $100,000 per acre, lease it after full development, or refinance the mortgage. No one questions a real estate development company that makes capital investments from credit proceeds, and we are doing the same thing with Bitcoin; we want to ensure the market understands that.
I became famous for saying 'never sell your Bitcoin,' which is why the internet blew up when they heard we might sell, but if I were more precise, it should be 'never be a net seller of Bitcoin' (Net Seller). It's just that 'never be a net seller' doesn't sound as catchy or roll off the tongue as easily.
I believe in these times, even if we were to sell 1 Bitcoin, we would buy 10 to 20 more. So, what you're talking about is actually a situation of "buy 10, sell 1, net buy 9." Once people understand that, it shouldn't be a problem, but currently it's a controversial topic.
Bonnie Chang:Can you explain how you can sell 1 Bitcoin while buying 10?
Michael Saylor:Sure. Strategy's primary Bitcoin accumulation engine is STRC. We sold $3.2 billion worth of STRC in April, so we bought $3.2 billion worth of Bitcoin. The dividend is around $80 to $90 million. So, in this month where we raised $3 billion, we only need to come up with $80 or $90 million to pay the dividend — essentially, you're buying 30 Bitcoins while selling 1.
Our "break-even rate" is about 2.3%. That means, if we issue credit debt equal to 2.3% of our Bitcoin holdings, then even if we sell Bitcoin to pay dividends, we will always be a net buyer of Bitcoin. Another point is, if Bitcoin appreciates 2.3% per year, we can pay dividends permanently and continue creating value without needing to sell any common stock.
In the first four months of this year, we've already sold about $5 billion of STRC; at that rate, the issuance rate for the year will be 15% to 20%. As long as the company is growing, it will buy more Bitcoin than it sells. I expect that in every month, every quarter going forward, we will be net buyers of Bitcoin.
Bonnie Chang:I have another question. Many investors almost religiously believe in "never selling Bitcoin." Do you think they should still follow that advice?
Michael Saylor:Yes, I think you should be a "net accumulator" of Bitcoin. When I say "never sell your Bitcoin," I mean, if you are going to spend it on something, make sure you replenish it as you spend.
Many crypto or Bitcoin believers say they want to buy things with Bitcoin. I'd say, then fill the gap after spending. Don't be a net seller of Bitcoin because Bitcoin is capital. At the end of every year, you should have more Bitcoin than at the beginning.
For analogy, if Google invests $1 billion in building a data center and makes $10 billion from it, they net $9 billion. That wouldn't cause the dollar market to crash, right? No one screams "Google sold dollars to buy a data center." The dollar will be fine; it doesn't break Google's business model. They spent $1 billion to invest in their business; that's normal, it's rational. Sometimes you spend money to make more money.
So, if you spend 1 Bitcoin to make 10 Bitcoins, I think it's good for Bitcoin and good for the company... When the equity capital markets are less liquid than the Bitcoin market, we want to be able to utilize that market.
Whenever a company takes options off the table by saying "we will never do X," whatever X is, the outcome is always regret. For example, if we said we "will never, ever buy back our own stock, only sell stock," then short sellers would short our stock like crazy, driving it down to $1. If the stock is trading at a huge discount to Net Asset Value (NAV) and we can buy it back, those shorts would lose badly. By exploiting their irrationality, we could make a lot of money.
So, what we really expressed on the earnings call was — we will exchange STRC for MSTR, we will exchange BTC for MSTR, we will pay dividends with BTC or MSTR, we will do whatever is in the company's best interest. But over time, we expect to be net accumulators of Bitcoin. This doesn't change how we trade assets day-to-day. Whether we sell credit debt, sell equity, or sell Bitcoin capital will depend on market conditions and pricing inefficiencies.
Another thing we said yesterday is that we are prepared to buy back our bonds. Currently, our corporate bonds are trading cheap, undervalued, so it makes sense to buy them back, not to sell them. We don't sell undervalued assets; we buy undervalued assets and arbitrage any opaque inefficiencies. If the market knows we will do this, the market will fairly value all these assets. That benefits investors in all these instruments; ultimately, that's our fiduciary duty.
David Lin:One of your biggest critics, Peter Schiff, wrote this morning: "Yesterday, Saylor admitted MSTR (MicroStrategy) would sell Bitcoin if needed to pay STRC dividends. I think this promise is to keep the alleged Ponzi scheme going longer. But I suspect when the time comes, he'll choose to suspend the dividend and let STRC collapse rather than let Bitcoin collapse." What is your response?
Michael Saylor:Peter thinks Bitcoin is a Ponzi scheme. Peter doesn't really like anything in this space. Bitcoin is "digital capital," and we are buying this capital by selling equity and credit instruments, creating a digital finance company. I think Bitcoin will persist because it represents global economic wealth in a tokenized form with full property rights.
On top of that, we built a credit instrument, STRC, which simply strips out volatility, reduces risk, and extracts or 'distills' yield from the digital capital. If you don't acknowledge Bitcoin as legitimate, you'll never acknowledge any derivative on it as legitimate. But for those who believe Bitcoin can store economic wealth in a tokenized form, what we are doing is very straightforward.
STRC uses an overcollateralized model: for every $5 in Bitcoin, sell $1 in credit debt, and that $1 in credit debt has a clear yield. There are many people who believe Bitcoin is a legitimate asset but just can't handle its volatility. They don't want to put money for their child's tuition in the fall into Bitcoin because they have to pay the bill in 12 weeks. For them, digital credit makes a lot of sense because the principal is protected, more stable. Plus, through STRC they can get 3 to 4 times the yield of money markets, which is precisely Bitcoin's superior trait as a capital asset, allowing us to pay these high dividend yields.
David Lin: This is a theory I want to ask you about, then I'll hand it back to Bonnie. Some traders have noticed that whenever STRC pays a dividend, the ex-dividend price trades below par for a period (maybe a day or two). Once it reaches par, that's when Strategy goes in to buy Bitcoin. So, they started 'front-running' by buying Bitcoin before STRC reaches par, betting that you and Strategy will buy Bitcoin at par. Can you comment on that?
Michael Saylor:What happens near the dividend date is that demand for STRC is enormous because after that record date there's about a 90-cent dividend. So, there are billions, tens of billions of dollars of STRC traded before the record date, and the day after the record date, it trades down 60 or 70 cents, then gradually recovers to par over the next week or two.
So that's normal. Those are arbitrageurs; their idea is to capture roughly a 42% annualized yield by having their money tied up for about 12 days a year. They have their own calculations. That's fine; it's good for us because it creates liquidity and engagement; this will continue.
As for the second idea, can you front-run the Bitcoin market? The Bitcoin derivatives market has $50 billion in daily trading volume. So, I don't think anyone has enough capital to move that market.
My view is that Bitcoin is somewhat like "tech capital squared." What drives the Bitcoin market are factors like trade wars, hot wars, foreign policy, national situations, the Iranian situation in the Strait of Hormuz, and then currency wars — like whether we expect SOFR to drop to 200 basis points, or if the yield curve is being twisted. You can see we're in a fairly tight monetary environment now, so these macro factors are the main drivers of Bitcoin.
I can tell you a fact: We have bought $100 million worth of Bitcoin in an hour, and it didn't move the price; we've bought $200 million in an hour, and it didn't move the price; we've bought $200 or $300 million in an hour and stopped, and the price went up.
So, no one has enough power to push Bitcoin's price... well, if you were going to put $30 billion into the market in an afternoon, maybe. But I've spent a lot; we've bought more Bitcoin than anyone I know, probably $62 billion worth. I believe it's a global market with its own momentum.
So, the notion that we can influence the price is flattering us, but I don't think so.
Bonnie Chang: Why did the price not move when you bought so much Bitcoin?
Michael Saylor: Because the market liquidity is extremely deep. Suppose I were to buy $1 billion today; even that is just 1/50th of a $50 billion trading volume.
If you ask traders, they'll say spot market daily volume is sometimes $20 billion, derivatives sometimes as high as $80 billion. In a market with such deep liquidity, what is $100 million? That's its specialty. On weekends, if you want to put on a $1 billion position with 20x leverage, you can do it in the Bitcoin market; if you want $1 billion in credit in an hour, you can get it in the Bitcoin market.
I do think macro factors drive Bitcoin, and sometimes Bitcoin has its own life. Micro factors also drive it — I mean industry factors, like the formation of digital credit, bank credit formation, and investor sentiment towards Bitcoin assets — these drive the market. But I think Bitcoin is more powerful than all of us, and that's why we have confidence in it — because no single participant can prop it up or hinder it.
David Lin: If the Strait of Hormuz remains closed for the foreseeable future, several forces will intertwine. First, some say inflationary pressures will persist; second, the Fed may ultimately need to cut rates because they're trapped by high inflation. So, what ultimately happens to liquidity? And what happens to Bitcoin if the Fed remains trapped?
Michael Saylor: I think when you face tight monetary policy, high global trade tensions, and high geopolitical tensions due to foreign policy or wars (whether in Ukraine or Iran), all of these are somewhat constraining; they are headwinds. I think when these factors reverse, they become tailwinds.
But either way, Bitcoin will grind up, because the organic supply from miners is only about $10 to $12 billion per year, only 450 Bitcoins per day. Do the math yourself. Then, whenever we raise another $10 billion in capital, we've bought the entire year's supply. So, if a bank creates $10 billion in credit, that's "one turn of the axle"; if we sell $10 billion of STRC digital credit, that's "a second turn"; when $10 billion flows into IBIT (BlackRock's Bitcoin spot ETF), that's "a third turn."
So, capital flows, digital credit, digital capital packaging tools, and bank credit — all of these are pushing the market fundamentals, and they're all positive. Regardless of macro factors, you'll see continuous adoption. What macro winds do is, when we should be grinding up 30%, tailwinds might surge us to 50%, while headwinds would slow us down somewhat.
David Lin:Has your thesis on Bitcoin changed?
Michael Saylor: No change. But I will say it's now clear that Bitcoin is "digital capital," and over the past 12 months, one thing has become very clear — one of Bitcoin's killer applications is digital credit.
Many people wonder, what is the killer app for a $1.5 trillion asset class with hundreds of billions in daily trading volume? The answer is serving as collateral for credit. Since digital capital is the best-performing capital asset (and it is), outperforming the S&P 500 by two to three times, it naturally follows that we can create the best-performing credit assets on top of this capital asset.
What we've seen in the past year is that STRC is the most liquid credit instrument; it's the most liquid preferred stock in the entire market, and the largest preferred stock in the market. It has the highest Sharpe ratio. We successfully created an instrument with a Sharpe ratio of 3 and a dividend yield of 11% to 12%.
The highest Sharpe ratio among stocks is Nvidia, around 1.7; the S&P 500 is about 0.9... none exceed 1, even the top hedge funds you can find have Sharpe ratios that don't exceed 2.2.
So, digital credit actually offers better risk-adjusted returns than all other financial strategies and all publicly traded instruments in the public capital markets. I couldn't have told you this 12 months ago. But now the logic fits — if Bitcoin is the best-performing capital, then Bitcoin-backed convertible bonds become the best-performing convertibles, and credit instruments like STRCh become the best-performing preferred stock.
By the way, do you know what percentage of the preferred stock market we accounted for this year?
Bonnie Chang: I guess over 70%?
Michael Saylor: 60% of all preferred stock in the United States this year was issued by us. Last year and this year, we are the largest credit issuer in the U.S. We revitalized the preferred stock market; STRC exploded.
So, I think what's novel is the concept of "digital capital driving digital credit." As you see on the show, digital credit is a stepping stone to digital currency. Because now there's a whole wave of stable coins/tokens pegged to the dollar that yield 8% or 9%; Apex created one, growing from $0 to $300 million in 8 weeks; Saturn created another, growing from $0 to $110 million in 6 weeks.
There's an explosion of innovation driven by digital credit in digital assets, crypto, and traditional finance. And Bitcoin is the foundational stone that makes digital credit possible; this might be the most exciting thing this year.
Bonnie Chang: Last question. Did 'Have Space Suit—Will Travel' inspire you to go to MIT? Let's go back before MIT, back before this book and Bitcoin. What would you say to your younger self?
Michael Saylor: You know, when I was in first grade, my parents wanted to motivate me; they told me they'd give me 10 cents for every book I read. I was addicted to comic books; I remember comic books were 25 cents each. So the calculation was, I had to read two and a half 'real books' to get one comic book; I was highly motivated.
That summer I read about 100 books; I'd go to the library and check out 10 at a time. Then I discovered science fiction, discovered Heinlein, Clark, and Asimov; I read 'The Moon is a Harsh Mistress' and 'Have Space Suit—Will Travel' before third grade; by third or fourth grade, I had plowed through them all.
I'd say reading those science fiction books drove my intellectual development. Elementary school boys are highly impressionable. I remember in 'Have Space Suit—Will Travel,' the protagonist is an alpha male. He fixes a spacesuit, gets picked up by a ship, travels the universe, and saves humanity from 'bug-eyed monsters.' What's the reward for saving humanity? He gets a full scholarship to MIT. I thought, if MIT is good enough for the hero who saved humanity, it's probably good enough for me. So, come hell or high water, I was going there.
David Lin: If Musk invited you to Mars, would you accept?
Michael Saylor: That would depend on what kind of vessel he offers to take me there.
